Foreign Market Entry Strategies Essay

When an organization has made a decision to enter an overseas market, there are a variety of options open to it. These options vary with cost, risk and the degree of control which can be exercised over them. The simplest form of entry strategy is exporting using either a direct or indirect method such as an agent, in the case of the former, or countertrade, in the case of the latter. More complex forms include foreign direct investments which may involve joint ventures, or export processing zones. Having decided on the form of export strategy, decisions have to be made on the specific channels. Many agricultural products of a raw or commodity nature use agents, distributors or involve Government, whereas processed materials, whilst not excluding these, rely more heavily on more sophisticated forms of access. These are discussed in this paper. The three main ways are by direct or indirect export or production in a foreign country. Exporting Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another. Whilst no direct manufacturing is required in an overseas country, significant investments in marketing are required. The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country; however, this does not negate the need for a detailed marketing strategy. Here the manufacturing is home based thus, it is less risky than overseas based. Besides giving an opportunity to â€Å"learn† overseas markets before investing in bricks and mortar, it also reduces the potential risks of operating overseas. Exporting methods include direct or indirect export. In direct exporting the organization may use an agent, distributor, or overseas subsidiary, or act via a Government agency. The disadvantage is mainly that one can be at the â€Å"mercy† of overseas agents and so the lack of control has to be weighed against the advantages. For example, in the exporting of African horticultural products, the agents and Dutch flower auctions are in a position to dictate to producers. According to Collett3 (1991) exporting requires a partnership between exporter, importer, government and transport. Without these four coordinating activities the risk of failure is increased. Contracts between buyer and seller are a must. Forwarders and agents can play a vital role in the logistics procedures such as booking air space and arranging documentation. Foreign direct investment Besides exporting, other market entry strategies include licensing, joint ventures, contract manufacture, ownership and participation in export processing zones or free trade zones. Licensing: Licensing is defined as â€Å"the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor†. It is quite similar to the â€Å"franchise† operation. Coca Cola is an excellent example of licensing. In Zimbabwe, United Bottlers have the licence to make Coke. Licensing involves little expense and involvement. The only cost is signing the agreement and policing its implementation.