Five Modes of Entry Into Foreign Markets

Five Modes of Entry Into Foreign Markets

Five Modes of Entry Into Foreign Markets

Large corporations with massive amounts of capital tend to find entry into foreign markets easier than small businesses. While small businesses benefit from being nimble and resourceful, they sometimes struggle to find the money and manpower to tackle the challenge of entering foreign markets. Your business doesn't have to miss out, however. Joint ventures, product licensing, internet sales and export partners can all help you get your foot in the door, even with a small budget. If you can raise enough capital, an acquisition can help, too.

Internet Sales

Internet selling is the fastest and easiest way to capture a share of a foreign market. An online presence can take your business anywhere and allow customers to order goods from you no matter where they happen to live. Internet selling is also flexible. You can establish an online store and market it yourself. If, however, your marketing budget makes a global campaign difficult, you can simply join forces with an established global seller like Amazon or eBay, where you can sell your merchandise on a platform global consumers already know and trust.

Exporting

Exporting goods is another fast way to tap foreign markets. If there is a demand for the goods you sell, chances are high that an importer somewhere on foreign soil wants to buy whatever you're selling. Rather than attempting to establish your own brick-and-mortar presence in a foreign country and then market yourself there, you can instead sell your goods wholesale to an importer. This process is fast and easy, since you don't have to get involved with the retail process. You get paid by the importer and then they distribute the product as they see fit.

Exporting goods is a smart option but does have its downside. By selling to the importer, you're adding a middleman between you and your customers, and middlemen cost money. Importers buy only goods they know they can sell for a profit, so you may find yourself selling to them at a discount to keep everybody happy.

Franchising and Licensing

If you want to establish a brick-and-mortar presence on foreign soil with minimal risk, consider allowing another person or business to assume the risk for you. Through a licensing agreement or a franchise, a business person pays you for the use of your name, trademarks, manufacturing process and products. You supply support materials to the business in some cases, but the exercise of running the business falls on the licensee. They'll pay you a licensing fee every year. In return, they get to keep any profits their franchise makes but also assume all of the losses themselves. This is an excellent way to introduce yourself to a new market with minimal cost and risk.

Joint Ventures

If you don't mind sharing, a joint venture is an excellent way to enter foreign markets. If you and a related company are both looking to expand, a joint venture allows you to share the risks and the rewards. Together, your two businesses can split the costs associated with finding and building a new location on foreign soil. If the business you partner with is already established in a foreign country, you stand to benefit greatly from a partner who understands local laws and customs. In China, some industries require that a foreign business must partner with a Chinese one in order to operate. No matter who you partner with, if a joint venture goes well, you'll share in the profits. If it doesn't, you'll need to absorb only half the loss.

Acquisitions

If you can raise sufficient capital, it's possible to simply acquire a foreign company and make it your own where the law allows. Acquiring a controlling interest in a foreign company gives you ownership of a business that is already established and known in the market. You can continue to allow the company's current management to operate the company for you, allowing you to benefit from their knowledge, experience and connections. Buying another company is an expensive process, but it gives you a fully functioning company from day one.

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About the Author

Michelle earned her accounting degree summa cum laude and has extensive experience in business management and accounting. Entrepreneurship is in her blood, and her work focuses on helping small businesses successfully compete in a big market. Michelle also knows the value of a dollar and enjoys helping readers understand how best to maximize their money and enjoy a healthy financial life. Her work appears Chron's small business site. She has also worked on small business blogs for a national insurance chain.