The 9 strategies for foreign markets enter: expanding the business in a correct

manner
If the company has decided to expand its business and enter external markets (including
foreign and world markets), it has several ways of performing that. The company's choice of the
entering method to the external market depends on such factors as cost, risk level and level of
process control. In this article, we will talk about the main strategies for entering the company on
foreign markets: we will consider not only the main forms of gaining access to international
markets, but also analyze the key motives, stages, advantages and problems of each of the
described methods.
Introduction. Let's briefly consider the concept of "foreign market". Mainly, the external
market for the company is the foreign market, but in general the strategies for entering the
foreign market can be successfully applied to expand the business to regions that exist beyond its
current activities. This may not be necessarily the region of another country or continent.

The organization that decided to enter the foreign market should answer 3 questions,
which are the key stages of gaining access to foreign markets:

Key
Brief description
question
The company must clearly understand its time to enter the market: to become a
first-mover (pioneer, first to enter the market) or a follower. Each of these
When?
strategies has its advantages and risks, which you can read about in a separate
article.
The company must determine its scale of access to the market: aggressive mass
How? market grip or gradual progressive expansion of the business. It depends on the
resources, investments and company's management competencies.
The company must decide which markets, in which segments it is most profitable
Where? to enter at a given time; in other words, find a balance between the attractiveness of
the industry, the risks and costs of entering foreign markets.

Ways to enter foreign markets

Lets consider the main ways of entering the company into the foreign market (in the English
version of "entry mode") in terms of the process of servicing the market, the level of investment
and the degree of control over the process. In global practice, three basic strategic directions of
this process are singled out: hierarchical business building, export, and intermediation.

If considering each of these ways of expanding the business in a more detailed way, we'll
disclose their advantages, disadvantages, the degree of risks for the company and the required
amount of investment.
Export activity
Export activity involves the production of goods and services in the main domestic
market of the company (or in a third country, region) and the sale of these goods in the target
foreign market. If the company has chosen an export way to enter new markets, it must decide
what functions in the promotion of the goods it will retain, and what functions it will transfer to
intermediaries in foreign markets. The degree of delegation of authority determines the level of
responsibility and risks. There are three possible areas of export activity: direct exports, indirect
exports and joint exports.
Direction of
export Description of the direction of export activities
activities
The company sells its goods to the foreign market by concluding direct
Direct contracts with dealers and resellers of the external market. In this case, the
export company takes over all the operational activities for the work, searching for
intermediaries, documentation and certification of products.
The company finds on the domestic market a reseller who sells goods to
Indirect foreign markets. Such an intermediary often knows all the subtleties of work in
export the target external market and has an established network of dealers for the sale
of goods.
The company co-operates with other companies in the domestic market with
the aim of organizing direct deliveries to the target external market. This
Joint
method is suitable for small companies that do not have sufficient resources
export
and scale of production to enter foreign markets. Cooperation allows them to
fill the missing gap in resources.
The advantages of choosing export activities are the minimal risks and costs that the
company incurs when implementing such a method of entering foreign markets. The main
drawback of export activities is the low level of control of selected trade intermediaries in the
target country. A company that has an aggressive strategy to seize a new market should think
through additional levers of influence on its resellers so that they comply with the rules of
working with the goods, fulfill the sales plan and promote the product of the company to the
market.
Export activities are often "intelligence" and help the company to assess the real demand
for its goods, to understand the shortcomings of the product taking into consideration the local
specific consumption. If the product begins to be in demand, the company can move to more
controlled activities in foreign markets.
Intermediation
Intermediation is a type of work with external markets, which assumes not full ownership
of a company operating in the foreign market, but the share with it of a certain degree of
responsibility and control. As a result of this interaction, the main company transfers its
knowledge, experience, skills and resources to the intermediary, and in return receives a
guarantee of broadcasting a certain strategy to the target external market and has a certain
guarantee of sales. There are four types of cooperation in this area: licensing, franchising,
contract manufacturing or a joint venture.
Licesing
Licensing in international activities is a type of cooperation in which a company in one
country transfers the rights to a company in another country to use its unique manufacturing
processes, patents, trademarks, technological achievements and other valuable skills for
remuneration that is established under the agreement.
Licensing allows the company to establish strict conditions for compliance with the
processes and marketing policies of the company, is a convenient way to organize local
production in the target foreign market without high capital investment. The most important
advantage of organizing such activities is the low costs of organizing, maintaining and
monitoring such activities. The main problems that involve licensing are: the loss of uniqueness
and complexity of control. The transfer of unique knowledge after the expiration of the contract
turns a partner into a competitor who knows all the strengths of the company, has gained
valuable experience in the industry and can use it correctly. Moreover, the establishment of
control over compliance with the established rules of work by the partner - the Letsenzian - is the
most difficult in the licensing strategy.
Franchising
Franchising is a type of licensing of activities by which the franchisor transfers to its
intermediary (franchisee company) a license to carry out activities under its own brand. It is
possible to transfer as simply the possibility of using the trademark and products of the company,
and the whole business process (such as McDonalds or KFC).
In fact, the franchise agreement differs from licensing with more strict requirements for
the intermediary and a narrow scope of application. The franchise agreement is created in order
to make another branch of its intermediary, build it into its business processes, imposing its own
rules of work on it. The licensing agreement has more freedom to use the company's intangible
property. Franchisee has a higher dependence on the success of the franchisor (parent company).
Licensee can use the license in completely different markets, thereby reducing its dependence on
the success of the parent company.
Contract Manufacturing
Contract production involves the transfer of production of the company in the local
market, and the preservation of other functions (marketing, sales, distribution) for the parent
company. This type of strategy for entering the foreign market is used by IKEA. She finds small
local companies to produce her goods within the target market and significantly saves on
transport costs (export of goods to the foreign market).
The advantages of such a method of gaining access to the external market are: low
production costs (no need to build their production sites), retaining control over the most
important functions of the company (marketing, R & D, sales and after-sales service), bypassing
many input barriers and eliminating adaptation problem of the prices for market conditions. The
shortcomings of such a strategy include the difficulty of transferring production of high-tech
products, the difficulty of finding a competent partner and the risk of borrowing valuable
technology and skills of the industry in the long term.
Joint venture
Joint ventures are separate companies created by two or more enterprises in which the
degree of responsibility and risks are shared between owners. The company can create a joint
venture with one of the players of the target external market in order to gain access to resources,
knowledge, contacts or technologies. In this case, the company shares risks with its partner, but
also shares the future income from the activities in the industry.
The main advantage of the joint venture is access to certain knowledge and technologies
of the market. It can be the partner's distribution network, its knowledge of the specifics of the
market, its production base, patents and technologies. A joint venture is cheaper than acquiring a
whole company and allows to bypass a lot of entrance barriers in highly competitive markets.
The shortcomings of such a strategy for entering foreign markets are still high costs (vs the
methods described above) and the risk of managerial conflicts arising from the different
priorities between your company and the partner company.
Hierarchical business building
This method of entering foreign markets is also called the investment way of expanding
business. It assumes complete control of the business in the target foreign market, namely, full
ownership of the company in the target country. This business can take the form of a branch or a
separate independent company from the parent one. There are two main ways to use the
investment strategy of entering the foreign market: to buy an existing business or to build a new
company from scratch.
Merger and acquisition
Acquisition of a ready-made business in the target foreign market can be achieved
through conducting a merger process or buying a controlling stake in the company. This method
is less expensive than building a similar business from scratch and can immediately provide
the company a certain share in the target market. Acquisition of business also reduces future
competition, because usually, a potential competitor is acquired. When acquiring a ready-made
business, it is necessary to know all the legal restrictions and rules of this process; have a good
staff of specialists who correctly merge and organize integration processes between companies;
to conduct a full analysis of the purchased object.
Business from scratch
In business communication the term is called "green field strategy", which means
expanding the company's business to the foreign market through the construction of a new
production facility. This way represents a minimal risk and maximum control for the company
(because it's possible to manage everything in such a way in order to optimize the business
processes between the two companies as much as possible), but it's a very high-cost and time-
consuming way to enter the foreign market.