Different modes of entering foreign markets

Question 1

Export Strategies pros

Answer 1

Low capital requirements

Economies of scale in utilizing existing production capacity

No distribution risk

No direct investment risk

Question 2

Export strategy cons

Answer 2

Maintaining relative cost advantage of home-based production

Transportation and shipping costs

Exchange rates risks

Tariffs and import duties

Loss of channel control

Question 3

Licensing and franchising strategies pros

Answer 3

Low resource requirements

Income from royalties and franchising fees

Rapid expansion into many markets

Question 4

Licensing and franchising strategies cons

Answer 4

Maintaining control of proprietary know-how

Loss of operational and quality control

Adapting to local market tastes and expectations

Question 5

Greenfield strategy meaning

Answer 5

Building a subsidiary from the ground up

Creating an internal startup is cheaper than making an acquisition.

Adding new production capacity will not adversely impact the supply-demand balance in the local market.

A startup subsidiary has the ability to gain good distribution access.

A startup subsidiary will have the size, cost structure, and resource strengths to compete head-to-head against local rivals.

Question 6

Pros of greenfield strategy

Answer 6

High level of control over ventures.

“Learning by doing” in the local market.

Direct transfer of the firm’s technology, skills, business practices, and culture.

Question 7

Cons of greenfield strategy

Answer 7

Capital costs of initial development.

Risks of loss due to political instability or lack of legal protection of ownership.

Slowest form of entry due to extended time required to construct facility.