When a company decided to enter the international market, then the company should determine the best way to enter. It may be-
2. Joint venturing
- Contract manufacturing
- Management contracting
- Joint ownership
3. Direct investment
- Assembly facilities
- Manufacturing facilities
Exporting is the easiest way to enter the international market. The company may time passively export its product to the other’s country. They can choose a segment to enter. Based on the segment, the company produces it in its home country. Then send to their respective country.
Exporting changes the mission, product lines, and investment. Typically, the company starts exporting indirectly. They choose independent international intermediaries. Indirect exporting needs less investment & less risk. The firms may not require an overseas marketing network. International intermediaries manage all the things. The producer may not worry about it & they normally make fewer mistakes. Another form of exporting is direct exporting. In this way, seller handles their own exports. But here, investment & risk is greater than indirect exporting. Learn more about – the difference between domestic and international trade.
Joint venturing is the second method of entering a foreign market. Joint venturing is joining foreign companies to produce products or services. Joint venturing is different from exporting. It is mainly joining with a host country partner to sell the products. There’re four types of joint venturing. Check out some important documents for international trade.
- Licensing: To enter the international market, licensing is a simple way. Licensing is the contract in which a company signed an agreement with the licensee in the foreign market. The licensee pays a certain fee or royalty payments. Through the payments, the licensee buys the right to use the company’s manufacturing process. Then it can use patents, trademarks, or other valued items. Licensing provides little risk, helps to enter into a foreign market & less investment. It has some disadvantages like less control over the licensee, and little fee paid by the licensee. Sometimes, at the end of the contract, the licensee becomes a competitor. Explore more – characteristics of foreign trade.
- Contract manufacturing: Another one is Contract manufacturing. The company made a contract with the manufacturer to give the right to produce their goods & services. The company faces less control over the manufacturer & loss of potential profits from manufacturing. The advantage of this business is high growth & less risk. Gather more on – the importance of international trade insurance.
- Management contracting: Management contracting is a process in which the domestic firm provides the management to know the way how a foreign company supplies the capital. The domestic firm exports only management services. They don’t provide any physical products. It is a low-risk method to enter the global market.
- Joint ownership: Joint ownership is a cooperative business in which a company establishes local business with investors in a foreign market. Both parties have the right to control & share ownership. This business may be buying a local firm or forming a new business venture. This business mainly occurs for economic or political reasons. Learn everything about – the international market.
Direct investment is the biggest involvement in the foreign market. It is the development of foreign-based assembly or manufacturing facilities.
For example, HP has made direct investments in many Asian countries. Exporting provides experience to a company. The large foreign market also provides large production facilities. It has some advantages like lower costs, cheaper labor, cheaper raw materials, government investment incentives & freight savings. These types of firms develop a deeper relationship with the government, customers, local suppliers & distributors. Finally, all the control depends on the investment. Some disadvantages are many risks like restricted or devalued currencies, falling markets, or government changes. In these cases, firms have nothing to do rather than accept these risks to operate in the host country. Explore – how to enter the international market.