Methods of Entry in a Foreign Market

Two methods: 1) Indirect 2) Direct

Indirect Exporting
Meaning: Almost equivalent to domestic sales. The company will sell its products in its own country to another party which will take the responsibility of actual exportation. By:
1) Selling to a Merchant Exporter or Export House in India 2) Selling to Visiting/Resident Buyers

Direct Exporting

Meaning: Manufacturer takes upon himself the task of

managing the export sales. Greater involvement/greater control/higher costs.

Indirect vs. Direct Exporting

INDIRECT Risk Resources Dependence International Goodwill Cost to ultimate user Adaptability to market Expertise built Market Intelligence Reach Entry Problems Export Incentives Low Low High Low High Low Low Low High Low Low DIRECT High High Low High Low High High High Low High High

Direct Exporting
Forms of organization inside the country:
1) 2) 3) 4) 5) Built-in Export Department Self-contained Export Department Separate Export Company Combination Export Managers Joint Marketing Groups

Direct Exporting
Forms of organization in Foreign Markets:
1) 2) 3) 4) 5) 6) Appointment of Exclusive Agents Distributors Establishment of Branches/Marketing Offices Licensing Arrangements Joint Ownership Wholly owned subsidiary

Forms of organization in Foreign Markets

Stage 1
AGENT

Stage 2

Stage 3

Stage 4

Stage 5

EXPORTING FIRM

OWN MARKETING OFFICE

LICENSING ARRANGEMENT

JOINT OWNERSHIP

WHOLLY OWNED SUBSIDIARY

DISTRIBUTOR

Forms of organization in Foreign Markets

Appointment of Exclusive Agents:
1. 2. 3. 4. 5. Most widely used Simplest and least expensive Sole representative of the manufacturer in the importing country He may, however, handle non-competing lines Gets a commission for his services

Distributors:
A distributor may/may not be the sole importer of the manufacturers products 2. Buys and holds large stocks 3. May be granted exclusive rights 4. Usually operates on his own account 5. May also own wholesale and retail outlets Selling through Overseas Import Houses e.g. entry into Japan through trading houses. 1.

Forms of organization in Foreign Markets

Establishment of Own Marketing Offices/ Branches:
1. 2. 3. 4. 5. 6. 7. Obtain complete knowledge of the market Provide after-sales service Hold goods as ready stocks Act as a showroom Adds to the companys prestige Effective in countering a competitors campaign Takes care of the regional requirements

Forms of organization in Foreign Markets

Licensing Arrangement:
1. 2. The licensor permits the licensee to manufacture goods in the formers brand name in exchange of a fee/royalty. The exporting company allows the company in the importing country the use of its brand name, patent rights, trade marks and copyrights and provides the necessary know-how for it. The geographical area is specified in the licensing agreement. The licensor does not make any financial commitment in terms of equity investment.

3. 4.

Forms of organization in Foreign Markets

Joint Ownership:
1. The home company and the local firm jointly provide the equity capital of the company set up to take over the production and marketing function. Depending on legislation on foreign investment in the target country the home company can have either majority or minority participation. A via media between the establishment of a plant abroad and the licensing arrangement. Higher returns Greater control Greater investment Higher risks Management powers and responsibilities shared

2. 3. 4. 5. 6. 7. 8.

Forms of organization in Foreign Markets

Wholly-owned Subsidiary:
1. 2. 3. 4. No division of power. The home company will have to bear the entire financial burden. Advantage of availability of cheaper raw materials/labour Overcome tariff and non-tariff barriers.

Channels of Distribution
Definition: The whole set of interrelated marketing agencies which are involved in making the goods available from the producer to the consumers.

Factors affecting Channel Decision

1)Characteristics of the Product 2) Firms own resources 3) Costs involved 4)Behaviour of competition 5) Existing channels in the market concerned