Modes of Entry in International Business

Chapter 6 Modes of Entry

Non-exporting modes of entry h Three main non-exporting modes of entry non-

• Licensing (including franchising) • Strategic Alliances • Wholly owned manufacturing subsidiaries

Three modes of entry
Host Country Home country LICENSING

Blueprint : “how to do it”

Ho st

WHOLLY-OWNED SUBSIDIARY

A replica of home

Host County

Co un

try

STRATEGIC ALLIANCE (J.V.)

A “joint effort”

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The Impact of Entry Barriers h The non-exporting modes of entry basically non-

represent alternatives for the firm when entry barriers to a foreign market are high. h These entry barriers involve not only artificial barriers such as tariffs, but also involve lack of knowledge of the foreign market and a need to outsource the marketing to local firms with greater understanding of the market.

Licensing: What Is It? h A license is a contractual agreement whereby the

licensor transfers to a licensee the right to use a proprietary asset for a fee. h Examples of proprietary assets include… include…
• • • • • Process know-how or technology knowTrademarks and tradenames Patents Designs Intellectual property

Licensing
• Advantages for the new exporter
– Requires little depth of market knowledge – Can be put in place fairly quickly – Requires relatively little investment – The need for local market research is reduced – The licensee may support the product strongly in the new market

• Disadvantages
– Can lose control over the core competitive advantage of the firm. – The licensee can become a new competitor to the firm.

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Licensing: When Is It Likely To Be Used? h In technology-intensive and process industries technologyh When the technology is not central to the licensor’s licensor’

core h Between companies in developed countries h When the licensor lacks the capital, managerial

resources, or knowledge of foreign markets required for exporting or FDI h When there is a desire to test and proactively