The Best Entry Option in the Foreign Market
International trade is a diverse and complex phenomenon where millions of suppliers, producers and distributors are operating. Hence, it is a matter of utmost importance for a business to choose the best entry mode while entering into the international market. There are several options available for a company to trade internationally. But, the decision has to be taken after a long concentration and in depth market analysis.
Basically, there is no definite entry mode for all the firms. Every firm decides based upon their own problems and interests. Below is the list of main motives that may trigger a company to enter foreign market;
- Cost cutting
- Enhance technology
- Maximize profit
- Increase international prescence
- Enhance distribution system
- Risk minimizing
Based on these motives, a firm decides to opt for the desired option to enter into the international market.
It involves direct selling to another country while having a full control over the operations, Logistics, manufacturing, designing etc. A company exports to the target country with the help of agents sitting on both sides.
Benefits: It carries the least risk among all the options. Hence, a company which is risk averse, exporting is a best option for her.
Challenges: It involves huge marketing costs. Because, there are four parties playing their parts; the company itself, the importer, logistics provider, and the government.
It is the combination of two companies having a jointly owned business. One of the partners belongs to a local country, while the other one is a foreigner. Both the partners have a shared control on management and stocks.
Benefits: It allows you to benefit from the local market in a host country. The cost is shared between the partners, hence minimizes the risk as well. Hence, a company seeking cost minimization and attain international expertise, then it is the best option.
Challenges: Making investment decisions and effective communication are the major challenges which can lead the venture towards mistrust or fragile relationships.
Wholly Owned Subsidiary
It involves buying a foreign businesses rather making a joint venture or investing in a certain project of another company. After the takeover, it depends upon the current owner how he/she runs it.
Benefits: Increases transparency and overall efficiency of the company. Because, there may be many strengths attached with the company being acquired like, technology, distribution, and skilled employees. So, the company looking for efficiency or latest technology, WOS can be the best option for her.
Challenges: Sometimes governments intervene with the intention to protect local industry. Hence, a company may face huge tariffs and local taxes.
It is about allowing other companies to use your brand and trademarks, patents and production techniques. The licensee has to pay a defined fee on account of using your tangible or intangible property.
Benefits: It is about allowing other companies to use your brand and trademarks, patents and production techniques. The licensee has to pay a defined fee on account of using your tangible or intangible property.
Challenges: One of the major challenges with strategy is that the licensee may offer unstandard or below the benchmark products or services. This may cause a huge damage to Originals Company’s brand.
Stream International is a Toronto based customs and freight brokerage. Our team has over 20 years of experience and is able to assist businesses of all sizes with importing, exporting, compliance and logistics management. Contact us today for more information.