Ways of entering overseas markets
Firms can enter markets by a variety of routes. These include:
- Direct exporting - the company makes the products at home and then sends them to the country of consumption.
- Franchising - this involves selling the right to trade under your name and logo.
- Licensing - this is almost the same as franchising but now a company buys the right to physically produce your goods.
- Joint venture - which is when two or more companies join together to fulfil a particular contract.
- Direct investment - this is when a company sets up the means of producing and distributing products in an overseas market.
- Mergers and takeovers - here a business buys another that is operating in the country they want to sell in.
Problems with each method
- Exporting - a lack of control over the marketing of the product, especially if the exporter sells via an agent. To counter this some firms may set up fully-owned subsidiaries.
- Franchising - the franchisee keeps some of the profits. The exporter is dependent on the franchisee to maintain the quality and reputation of the brand, though ultimately most franchise agreements would allow for removal of the franchise. This may be too late to prevent damage to the brand reputation.
- Licensing - though the goods are actually produced abroad, which saves costs, the quality control is not directly the responsibility of the original company.
- Joint ventures - the risks are shared by those participating in the venture, but conflicts can arise and the venture may disintegrate.
- Direct investment - this appears to have few problems associated with it, a long as the initial investment can be afforded.