9.3c Methods of Entering International Markets Flashcards
Main methods a business could use to start operating in other countries:
- Exporting
- Licensing
- Alliances
- Direct investment
How risky is exporting compared to other methods?
Least riskiest because it is selling the same product
What are the two ways of exporting?
- Directly
- Indirectly
What is direct exporting?
When the business markets and sells the products itself
What is indirect exporting?
When the business gets some other business with local knowledge to market the product
Advantages of exporting:
- Smaller risk than other methods
- Less investment required than in other methods
- Economies of scope
Disadvantages of exporting:
- Import tariffs and quotas may increase the price of the exported product
- May incur transport costs
- Infrastructure can be expensive
What is licensing?
When another company either buys stock to service local demand or is given permission to manufacture products and sell in another country
What can licensing include?
- Franchising
- IP
Example of licensing:
Sandpiper run M&S, Iceland, Costa
Advantages of licensing:
- Low risk (market development strategy)
- Speeds up entry to market
- Infrastructure is already in place
- Avoiding import tariffs and quotas
Disadvantages of licensing:
- Lack of control over marketing
Licensee may gain enough knowledge to become competitor - Do not benefit from economies of scope
How do alliances work?
The business works with a foreign business to create a new company that they each own a part of
Advantages of alliances:
- May not be viewed as a foreign company
- Risk is spread
- Making use of specialist knowledge
Disadvantages of alliances:
- More significant risk
- Starting brand name from scratch
- Requires cooperation between differing businesses
What does direct investment involve?
Physically setting up in international locations
What type of growth is direct investment?
Organic
What is an alternative method to direct investment?
Taking over a foreign business e.g. Kraft taking over Cadbury
Advantages of direct investment:
- Will gain knowledge of local market
- Is market development as opposed to diversification
- Economies of scale
- Enter quickly
Disadvantages of direct investment:
- Highest level of risk
- Negative reputations of multinational companies
- Only possible with secure financial resources
