Types of Entry mode
There are 3 type of entry mode depending of resources and commitment of the firm:
Internationalization entry mode
I. Green Field strategy
Greenfield is the process of expanding operations in foreign market from ground zero. It requires to hire local man power with the authority, responsibility and accountability to conduct the start up operation and products marketing in accordance with the best VP advice.
II. Merger or acquisition
VP provides support to select and merger with a foreign company in order to enter international business.
Alternatively the company may purchase the foreign company and acquires it ownership and control. It provides immediate access to international manufacturing facilities and marketing network.
Intermediate entry mode
VP provides support for managing the license agreement with a foreign company or agent to use a home company´s proprietary technology.
Another way to establish local production in foreign markets without capital investment. A licensing agreement is an arrangement wherein the licensor gives something of value to the licensee in exchange for certain performance and payments from the licensee. It should always be formalized in a written document.
The licensor may give the licensee the right to use:
A patent covering a product or process
Manufacturing know-how not subject to a patent
Technical advice and assistance
Marketing advice and assistance
The use of a trade mark/name
Under franchising an independent organization called the franchisee operates the business under the name of another company called the franchisor under this agreement the franchisee pays a fee to the franchisor.
The franchisor provides the right to use trade marks, operating System, product reputation and continuous support system like advertising, employee training etc.
There are two major franchising types:
Product and trade name franchising
Distribution system in which suppliers make contracts with dealer to buy or sell products; dealers use the trade name, trade mark & product line.
Business format “package” franchising
The package transferred by the franchisor contains most elements necessary to establish a business and run it profitably. The package can contain trade marks/names, copyright, designs, patents, trade secrets, know-how. In return the franchisor gets an initial fee and/or continuing fees.
III. Contract manufacturing
Enables the firm to have foreign sourcing without making the final commitment. Enables the firm to develop and control R&D, marketing, distribution, sales and servicing of its products on international markets, while handing over responsibility for production to local firm. IKEA rely heavily on a contractual network of small overseas manufacturers
IV. Joint venture
Two or more firm join together to create a new business entity that is legally separate and distinct from its parents. It involves shared ownership. Various environmental factors like social , technological economic and political encourage the formation of joint ventures.• It provides strength in terms of required capital. Latest technology required human talent etc. and enable the companies to share the risk in the foreign markets. This act improves the local image in the host country and also satisfies the governmental joint venture.
Externalization entry mode
I. Export Mode:
Firm takes care of exporting activities and is in direct contact with the first intermediary in the foreign target market. The firm is typically involved in handling documentation, physical delivery and pricing policies, with the product being sold to agents and distributors. Country 1 Country 2 Company A Company B Sells directly to foreign customer