There are four main entry strategies that companies use in developing new markets. These are: Piggybacking, Exporting, Licensing or acquisition, and Company ownership. Each has its own pros and cons, but each can also pose the highest degree of risk. Learn more about each strategy to determine which one is best for your business.
Piggybacking
Piggybacking is a form of global entry where two companies collaborate with each other to sell a product in another country. The two companies share the costs of transport and can both make money from the partnership. This strategy is particularly useful for small businesses that don’t have the resources to launch their own overseas operations. The advantage of piggybacking is that your partner company will have control of your marketing abroad.
Choosing the right partner is critical. A successful piggybacking strategy can result in fast market penetration. It is important to choose a partner that is in the right phase of growth. Otherwise, your company’s reputation will suffer. If you choose a partner too early, you may find that your deal falls apart.
Partnering with a local firm is a common strategy. This helps you sell products faster and navigate the foreign market. It can also help you find customers and hire local employees. Many countries require that businesses have a local presence before they can sell their products.
Exporting
One of the best ways to minimize the risks of global entry is to build relationships with regulators. This can involve staying in a country for a long period of time and establishing good relationships. But if you return too quickly to your headquarters, your deals with regulators might fall apart.
Another way to minimize risk is to enter a new market as a small business. This way, you can research the market thoroughly before venturing into it. Unlike large companies, your business is unlikely to get much attention. However, this strategy may not be appropriate for every company.
In addition to exporting products, companies can also enter overseas markets through joint ventures and licensing deals. The choice of global entry strategy will depend on many factors, including the risk level, tariff rates, and the degree of product adaptation. The costs involved will also depend on the strategy chosen.
Exporting is one of the most popular ways to enter foreign markets. Most small and medium-sized companies prefer this route because it is the least risky. In addition, exporting allows companies to enter a new market quickly with minimal investment. Exporting, however, also means that firms do not have first-hand experience in the foreign market, making it difficult to tailor products to local tastes. Another common method of entering international markets is licensing, which allows a foreign company to use the company’s intellectual property. A licensee pays a fee for the rights to use an international company’s products. Furthermore, licensing agreements may also include technical assistance.
Licensing or acquisition
One of the most popular global entry strategies is licensing. This strategy enables companies to manufacture and sell a product without setting up a manufacturing plant in the target country. It is similar to a franchise arrangement. For example, a company may license the rights to produce Coca Cola to another company. Licensing involves little capital expenditure, and the company will be a supplier to the third party. The risks associated with this strategy include name and reputation damage, and limited control over the foreign operation.
Licensing is a great option for service industries and manufacturers. Typically, a company will license its rights to another company in return for a fee. The licensing relationship is typically based on a patented technology. It is advantageous for the foreign firm to avoid the upfront costs of setting up shop in a foreign country, but its profits are limited to the fees collected from the local firm.
One of the most important factors to consider when deciding whether to use licensing or acquisition as a global entry strategy is the degree of risk involved. The direct investment approach exposes a firm to the highest risks, which may include losing its initial and operating investments. A joint venture, on the other hand, allows a company to share the risks with other firms and can also give the firm access to their local market knowledge.
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