Tetteh Abraham Sowatey

01210085D

Marketing HND 300

International Marketing

As a consultant of marketing to a company, you have been asked to write a report to the
company, indicating the external criteria the company must consider in choosing an
entry into international marketing

How to choose the right entry mode for new international markets?
In international business, choosing the right entry mode is essential to maximize the success
of your international expansion. How you enter a foreign market is highly dependent on your
company’s capabilities and strategy, as well as on your target market. It also depends on the
presence of local and international competition, regulations, industry specifics, etc. This is
why having a deep understanding of your target market is very important to your choice of
entry mode. Evaluating international market potential can help you grasp the specificities of
foreign markets and even guide you in the market selection process.

After choosing the markets offering the most opportunities for your company, you will then
have to consider how to enter each of them. There is no one specific mode of entry an
organization can adopt to enter into a new international market. In this article we will
examine the main entry modes for international expansion, and how companies can
determine which one is best for their business model and international aspirations. We’ll also
highlight the importance of adapting your international expansion strategy and entry mode
choice to suit your target market.

What is a market entry mode?

First of all, let us understand the definition of an entry mode to international markets. An
entry mode describes a company’s approach to entering a new foreign market that has not
been targeted by the company before. The process aims at bringing a product or service to a
targeted international market. It can also initiate the entry of related business activities, such
as technology, human resources, management, and other resources to the new target country.
It is important to consider that there are several ways of entering an international market.
Compared to a new market entry in your home country, in the case of foreign market entry,
the specificities of the targeted country should be considered when deciding the appropriate
market entry mode.

The main international market entry modes

Depending on the company’s requirements, capabilities, and constraints, the idea of the
market entry, and the favored scope of engagement, risk, control, and profit potential,
companies choose from many available market entry modes. All these entry modes combine
different advantages and disadvantages that companies should be aware of before making
their choice.

Export
Exporting is a common method used by organizations when they first enter a new country.
Companies choose this option as it’s low risk and requires less commitment. Export modes
can occur in the form of direct as well as indirect exports.

The direct export mode usually occurs when the producing firm takes care of exporting
activities and is in direct contact with the clients in the foreign target market. The firm is
typically involved in negotiation, contract signature, handling documentation, physical
delivery, and pricing policies, with the products being sold to final clients.
In the case of an indirect export mode, the company sells the products or services in the
foreign market via an intermediary. This can be, for example, an export agent, a broker, or a
trading company that buys the product and then in turn resells it in the foreign target market.
This can be useful, especially for companies that are short on experience with international
trade and that have only limited expansion objectives.

Licensing or franchising
Licensing and franchising are both entry modes that require relinquishing some control and
working with a local partner.

International licensing is a cross-border agreement that permits organizations in the target

country the rights to use the property of the licensor. This property is generally intangible and
can include trademarks, patents, and production techniques. The licensee is required to pay a
fee in exchange for the rights specified in the contract between the parties. Licensing is
commonly chosen because it’s low risk, has low exposure to economic and political
conditions, has a high return on investment, and is preferred by some local governments.
Coca-Cola is an example of a large multinational that has had success in foreign markets
using licensing as its entry mode. Coca-Cola works with many bottling companies around the
world, which are licensed to use its branding and production processes. Coca-Cola sells
ingredients and syrups to these companies that manufacture and distribute the products to
consumers in local markets. Whilst licensing has been a very successful market entry mode
for many companies, it does also have its limitations. Licensing can reduce the potential
profit of full ownership, affect the image of the brand due to lack of control over the licensee,
and nurture a potential future competitor. The risk of intellectual property theft is also present
and is usually higher for innovative or technologically advanced products.

Franchising is a foreign market entry strategy where a semi-independent business owner (the
franchisee) pays fees and royalties to the franchiser to use a company’s trademark and sell its
products or services. The terms and conditions of a franchise package vary depending on the
contract. However, it generally includes equipment, operations and management instructions,
staff training, and location approval. Franchising is commonly used and a largely successful
method of cross-border market entry, however, organizations pursuing this entry mode need
to consider both the positive and negative aspects of franchising.
The most common advantages of franchising are related to its capitalization on an already
successful strategy. The franchisee generally also has local knowledge, and the franchiser
isn’t directly exposed to risks associated with the foreign market. This also means that the
franchiser has limited control over his international operations. Starbucks (USA), Clarks
(UK), and Yves Rocher (France) are just a few examples of organizations that have been
successful in using franchising as their foreign market entry mode.

What are the factors affecting market entry mode choice?

No one market entry strategy works for all international markets. Direct exporting may be the
most appropriate strategy in one market while in another you may need to set up a joint
venture and you may well license your manufacturing. Several factors can affect the choice
of the appropriate entry mode. These include internal factors regarding the firm itself and
external factors related to the target market.

External factors
When it comes to choosing an entry into international marketing, there are a few key external
criteria that companies should consider. First, understanding the cultural factors of the target
market is crucial. This includes things like language, customs, and traditions that may impact
how your product or service is received. Second, economic factors like market size,
purchasing power, and consumer behavior should be analyzed. Third, political factors such as
trade policies, regulations, and stability of the target market should be taken into account.
Lastly, conducting market research to assess the demand and competition in the target market
is essential. This will help you tailor your marketing strategy accordingly.

The size of the market and its potential can lead to different considerations regarding the
choice of entry mode. The larger the country and the size of its market, and the higher the
market growth rate, the more likely management will be to commit resources to its
development. This means that companies might be more inclined to establish a wholly owned
subsidiary or to seek an acquisition when entering a large market with significant growth
opportunities.

The ease of market access plays an important role in deciding the appropriate mode of entry
for each market. Trade barriers and customs duties on the import of foreign goods favor the
establishment of production operations locally. Preferences for local suppliers and tendencies
to buy local products can encourage a company to consider a joint venture or other
contractual partnerships with a local company. The local partner can help in negotiating sales
and in developing local contracts and distribution channels. Generally, hard-to-access
markets require the commitment of more resources and leave the company with less
flexibility when choosing the appropriate entry mode.

Sociocultural differences between a company’s home country and its target country can
create some uncertainty for the firm, which influences the mode of entry desired by that firm.
In cases where the target market has significant differences in culture, product preferences,
and consumption habits related to the company’s product, it can be helpful to commit more
resources to the target market for adaptation purposes. These resource commitments can
translate to establishing a joint venture with a local partner that can give insights for a
successful adaptation to this new market. For markets that are very similar to the company’s
home market where there will be a limited need for adaptation, entry modes requiring less
commitment such as export might be favored.

The risks associated with international markets are also taken into account when choosing a
mode of market entry. The amount of risk a company faces depends not only on the target
market itself but also on the chosen entry mode. A company must properly evaluate country
risk before deciding on an entry mode. This would include an evaluation of political,
economic, and market-related risks as well as exchange momentum risks. Companies tend to
restrict their resource commitments to markets with high associated risks, to limit their
exposure to such risks. This is why highly flexible entry modes such as export are favored in
these situations, as most companies would be discouraged from committing heavy investment
to enter high-risk markets
.
When it comes to choosing an entry into international marketing, there are a few key external
criteria that companies should consider. First, understanding the cultural factors of the target
market is crucial. This includes things like language, customs, and traditions that may impact
how your product or service is received. Second, economic factors like market size,
purchasing power, and consumer behavior should be analyzed. Third, political factors such as
trade policies, regulations, and stability of the target market should be taken into account.
Lastly, conducting market research to assess the demand and competition in the target market
is essential. This will help you tailor your marketing strategy accordingly.