Alternative Market Entry Strategies

When a company makes the commitment to go international, it must choose an entry strategy. This decision should reflect an analysis of market characteristics (such as potential sales, strategic importance, strengths of local resources, cultural differences and country restrictions) and company capabilities and characteristics including the degree of near market knowledge, marketing involvement and commitment that management is prepared to make. Even so, many firms appear to simply imitate others in the industry or repeat their own successful entry strategies – this is not what we recommend. The approach to foreign marketing can range from minimal investment with infrequent and indirect exporting and little thought given to market development to large investments of capital and management in an effort to capture and maintain a permanent specific share of world markets. Depending on the firm’s objectives and market characteristics either approaches can be profitable.

Companies most often begin with modest export involvement. As sales revenues grow the firms often proceed down through the series of steps listed below

Greater control and greater risk

Exporting

Internet >> Exporter >> importer >> Distributor >> Direct sales

Contractual agreements

Licensing and franchising

Strategies alliances

Strategic alliances >> Joint ventures and consorts

Ownership >> Direct foreign investment

Also, experience in larger numbers of foreign markets can increase the number of entry strategies used. In fact, a company in several country markets may employ a variety of entry modes because each country market poses a different set of conditions. For example JLG Industries in Pennsylvania makes self propelled aerial work platforms and sells them all over the world. The firm actually manufactured in Scotland and Australia’s beginning in the 1970s, but it was forced to close the plants in the 1990s. However, the company’s international sales have burgeoned again. The growth in European business is allowing for a simplification of distribution channels through elimination of middle men, dealership has been purchased in Germany, Norway, Sweden and the UK. JLG set up dealership join ventures in Thailand and Brazil and sales have been brisk despite economic problems in those countries. The company also has established sales and service businesses form scratch in Scotland, Italy and South Africa.

A company has four different modes of foreign market entry from which to select exporting contractual agreements, strategic alliances and direct foreign investment. The different modes of entry can be further classified on the basis of the equity or non-equity requirements of each mode. The amount of equity required by the company to use different modes affects, the risk return and control that it will have in each mode. For example, indirect exporting requires no equity investment and thus has a low risk, low rate of return and little control, whereas direct foreign investment requires the most equity of the four modes and creates the greatest risk, while offering the most control. Although direct foreign investment is the riskiest of the four modes, it has the potential for the highest return and affords the greatest control over all activities.