Answer: A foreign market entry mode is an institutional arrangement that makes possible the entry of a company’s products, technology, human skills, management or other resources into a foreign country.
A domestic company that contains its market, the question of entry mode as distinguish from market entry (the marketing plan) simple does not arise.
In contrast, the international company initially stands outside both the foreign country and the market it contains, and it must find a way to enter the country as well as way to enter the market. Hence international company must decide on both an entry mode and a marketing plan for each foreign country.
From an economist’s perspective, a company can arrange into a country in only two ways;
- Can export its products to the target country.
- Can transfer its resources in technology, capital, human skill and enterprise to the foreign country to sell directly to the customer or combine with local resources (labor) to manufacture product and sale in local market.
From the management/operations perspective, these two forms of entry break down into several distinctive entry modes, which offer different benefits and costs to the international company. These are as such—
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Export entry mode: Export entry modes differ from the other two primary entry modes (contractual and investment) in that a company’s final or intermediary product is manufactured outside the target country and subsequently transferred to it. Thus exporting is confined to physical products.
- Indirect: Indirect exporting used middlemen who are located in the company’s own country and who actually do the exporting.
- Direct Exporting: Direct exporting does not use home country middlemen, although it may use target country middlemen.
- Direct agent/distributor: The direct agent/distributor exporting which depends on target country middlemen to market the exporter’s product
- Direct branch/subsidiary: Direct branch/subsidiary exporting, which depends on the company’s own operating units in the target country
- Others.
Investment entry modes: Investment entry modes involve ownership by an international company of manufacturing plants or other production units in the target country.
- Sole venture new establishment.
- Sole venture acquisition
- Joint venture new establishment/acquisition
- Other
Contractual Entry Mode: Contractual entry modes long-term non-equity associations between an international company and an entity in a foreign target country that involve the transfer of technology or human skills from the former to the latter. Contractual entry modes are distinguished from export modes because they are primarily vehicles for the transfer of knowledge and skills, although they may also create opportunities.
- Licensing: In a licensing arrangement, a company transfers to a foreign entity (usually another company) for a defined period of time the right to use its industrial property (patents, know-how or trademarks) in return for a royalty other compensation.
- Franchising: Franchising differs from licensing in motivation, services and duration.
- Technical arrangement.
- Service contracts.
- Management contracts.
- Construction/ turnkey contracts.
- Contract manufacture.
- Co-production agreements.
- Others.
