Five Modes of Entry Into Foreign Markets

by Robert Morello, Demand Media Google
    International expansion brings increased marketability and name recognition.

    International expansion brings increased marketability and name recognition.

    For many small and midsize businesses, the potential to grow in new markets is a constant goal. With larger markets come larger profits, and before long your small business is not so small anymore. Understanding the available modes of entry can help your small business enter into foreign markets more easily and with a greater chance for success.

    Exporting

    Exporting allows small businesses to hold to their current model and product line, while sending goods into a foreign market for distribution. Thanks to its low cost of implementation and its low level of risk for business owners, exporting is one of the most basic and common types of entry into foreign markets for small businesses throughout the world. While the reach of exportation is limited by transportation costs, government tariffs, market competition and local customs and demand, it eliminates the need for repackaging, marketing, and infrastructure development that other modes require. Exporting goods into a new market also allows a company to judge how well items will sell and what if any adjustments are required to the existing product so that it performs well.

    Ownership

    If you wish to own and operate your own business in a foreign market without partners or other outside influence, ownership may be your best option. Ownership is as it sounds: the development and operation of a business from the ground up. The pitfalls involved with ownership are many, including the political and economic climate of a given region, the cost of development, the difficulties of infrastructure and distribution and the risk that your product might not sell in a new and untested market. The potential rewards, however, are limitless and can lead to further expansion into more markets and the highest levels of business success.

    Licensing

    The practice of licensing or franchising is a way to break into foreign markets while establishing a presence on the ground. Licensing entails granting permission to a separate company to manufacture goods or provide services in your company's name. You maintain control of the brand itself, the manufacturing process, the rates and operation of the business, while handing over the right to operate and a large chunk of the profits to your representative. While licensing eliminates many of the expenses and time involved with expanding overseas, it does require constant monitoring, training, permits and renewal, and may even require a representative from your company on site to manage the operation. In the end you can end up with satellite companies in markets around the world and a global brand at little to no risk.

    Joint Ventures

    Parties to an international joint venture share the costs and burdens of operations while profiting equally from a market share in both countries. Your partnership will allow you to sell your goods and services in your partner's home country and vice versa. The results include doubled financial power, twice the marketing ability, twice the sales in some cases and entry into a market that might not otherwise be open to you. On the other hand, such an endeavor requires that you hand over some say in your business operations to a foreign partner and permits another company to have some control over the state and sale of your brand in a location where you may have little if any influence.

    Export Processing Zones

    Export processing zones are set up by foreign governments to promote business development and employment among the population by using the success of outside businesses as a catalyst. Countries may provide outside companies with tax breaks, cash incentives, low cost of labor, government subsidies, or any number of other types of assistance as a reward for bringing products, business, skills and training to the table. The benefits for your company include partnership with a foreign government, relatively pain-free entry into a new market and a list of automatic incentives. Similar programs have been put in place by the U.S. government to further assist small businesses looking to move into overseas markets. Taking advantage of programs on both sides of the deal can help to maximize your potential for success while minimizing your risk.

    About the Author

    Robert Morello has an extensive travel, marketing and business background. He graduated with a Bachelor of Arts from Columbia University in 2002 and has worked in travel as a guide, corporate senior marketing and product manager and travel consultant/expert. Morello is a professional writer and adjunct professor of travel and tourism.

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