Five Modes of Entry Into Foreign Markets

by Michael Wolfe; Updated September 26, 2017
global connections

In an effort to sell their products and services to new customers, businesses will often attempt to enter new, foreign markets. Entry into a foreign country can be tricky, however, as the business must adapt to a new clientele, new legal regulations and new competition. To make for an easier transition, there are a number of common modes that businesses can use when starting up in a foreign market.

Joint Venture

One of the most popular modes of entry is the establishment of a joint venture, in which two businesses combine resources to sell products or services. Many countries with tightly controlled economies, such as China, often require foreign companies to partner with a local company if they wish to sell products to their residents. Although joint ventures provide foreign companies with a partner experienced in the foreign market, these partnerships can be difficult to manage and require a splitting of profits.

Licensing

In the licensing mode of entry, companies sign contracts with foreign businesses, called "licensees," that allow the foreign companies to legally manufacture and sell the company's products. The foreign companies will either purchase the license outright, pay a regular licensing fee or pay a percentage of their revenue over time in the form of royalties. Often used by manufacturing firms, licensing allows a company to enter a market quickly and inexpensively, but provides little control over the product's foreign marketing and sales.

Exporting

Rather than attempt to partner with or provide a license to foreign companies, some companies will simply sell their products to distributors overseas, who will sell the products to consumers. This exporting prevents the company from having to invest the money in developing manufacturing facilities in the foreign market, but transportation costs and restrictive tariffs may make this mode uneconomical for certain products.

Internet

Many companies will attempt to enter foreign markets indirectly, by targeting foreign consumers on the Internet. Similar to exporting, companies retain their physical operations in their native countries, but ship products overseas. However, whereas in exporting, companies contract with local businesses, with the Internet they take orders directly from consumers. One advantage to this mode is that it is relatively cheap, entailing only the cost of a website and marketing. The downside is that it is often less effective than establishing a physical presence in the foreign market.

Purchasing Foreign Assets

Many companies, rather than launching an entirely new venture in a foreign market, will simply purchase or invest in a foreign company. While often more expensive, direct investment allows the investing company to reap the profits of a business that is already well integrated into the local market.

About the Author

Michael Wolfe has been writing and editing since 2005, with a background including both business and creative writing. He has worked as a reporter for a community newspaper in New York City and a federal policy newsletter in Washington, D.C. Wolfe holds a B.A. in art history and is a resident of Brooklyn, N.Y.

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