International Entry Options for Horizontal Growth
INTERNATIONAL ENTRY OPTIONS FOR HORIZONTAL GROWTH
When a firm grows internationally it is positively associated with profitability of the firm. There are several options to choose from when entering a foreign market or establishing manufacturing facilities in another country; from simple exporting to acquisitions to management contracts. Some of the most popular options for international entry are as follows: * Exporting: Exporting is the shipping of goods produced in the company’s home country to other countries for marketing. This offers a good way to minimize risk and experiment with a specific product. Critical functions can either be handled by the company or be contracted to an export management company; it is the choice of the company. Due to the internet, fax machines, toll-free numbers and overnight express services, which reduce the once-formidable costs of going international, exporting has become increasingly popular for small businesses. * Licensing: Under a licensing agreement, the licensing firm grants rights to another firm in the host country to produce and/or sell a product. The licensee pays compensation to the licensing firm in return for technical expertise. If trademark or brand name is well known but the company does not have sufficient funds to finance its entering the country directly, then licensing would be a very useful strategy. * Franchising: The franchiser, under a franchising agreement, grants rights to another company to open a retail store using the franchiser’s name and operating system. The franchisee would then pay the franchiser in exchange, a percentage of its sales as a royalty. This provides an opportunity for a firm to establish a presence in countries where population spending does not promote the need to expand majorly. * Joint Ventures: The most popular strategy used to enter a new country is forming a joint venture between a foreign corporation and a domestic company. A joint venture may be
When a firm grows internationally it is positively associated with profitability of the firm. There are several options to choose from when entering a foreign market or establishing manufacturing facilities in another country; from simple exporting to acquisitions to management contracts. Some of the most popular options for international entry are as follows: * Exporting: Exporting is the shipping of goods produced in the company’s home country to other countries for marketing. This offers a good way to minimize risk and experiment with a specific product. Critical functions can either be handled by the company or be contracted to an export management company; it is the choice of the company. Due to the internet, fax machines, toll-free numbers and overnight express services, which reduce the once-formidable costs of going international, exporting has become increasingly popular for small businesses. * Licensing: Under a licensing agreement, the licensing firm grants rights to another firm in the host country to produce and/or sell a product. The licensee pays compensation to the licensing firm in return for technical expertise. If trademark or brand name is well known but the company does not have sufficient funds to finance its entering the country directly, then licensing would be a very useful strategy. * Franchising: The franchiser, under a franchising agreement, grants rights to another company to open a retail store using the franchiser’s name and operating system. The franchisee would then pay the franchiser in exchange, a percentage of its sales as a royalty. This provides an opportunity for a firm to establish a presence in countries where population spending does not promote the need to expand majorly. * Joint Ventures: The most popular strategy used to enter a new country is forming a joint venture between a foreign corporation and a domestic company. A joint venture may be
References: Wheelen L. Thomas & Hunger J. David. Strategic Management and Business Policy: Achieving Sustainability. (2010) 12th Edition, Pearson Education Inc., Upper Saddle River, New Jersey.