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Entry Into Foreign Markets

When a domestic company decides to enter into international business, it has several options, not necessary naturally exclusive, to do so, depending, however, on the nature and degree of involvement the company wishes to have in foreign business.

These avenues are briefly discussed below:


The domestic company can sell its products to foreign buyers directly or indirectly. For direct exports, it establishes direct contact with foreign customers (actual users or importers-distributors) and ships the goods according to the customers orders and requirement. The exporting firm takes upon itself the entire responsibility concerning packing, documentation, shipment, credit and exchange risks, Government regulations, customs clearance, etc. In direct exporting the company may have home based export department of subsidiary; foreign-based sales branch or subsidiary; or foreign-based sole distributors or agents.

In case of indirect exporting, the firm can use a variety of independent middlemen operating in international market. He can use fore example: (i) home-based export merchant who buys the firm’s product and sells it abroad on his own account taking all exporting risks and tasks upon himself; (ii) home-based export agent whose primary responsibility is to locate foreign customers for firm’s product for a commission and render certain services without taking title to the product;
(iii) resident agent or representative of foreign buyers; (iv) cooperative marketing organization that undertakes exporting on behalf of the member firms which partly controls the activities of such organization; (v) combination export manger (CEMP) who acts as overseas selling agent for non-competitive number of principals and practically acts as the ‘export department’ for the firms he represents.

The existence of the these variants, their trading activities, business norms and practices may differ from country to country and market. The exporting firm has the choice of using the various combinations of channels network for the same product in different markets or for different products in the same markets or for different products in different markets.

(b) Licensing Arrangement

Licensing arrangements represent signing of an agreement with a foreign-based enterprise which is granted under the terms of agreement of right to use the patents, processing know-how or trademarks of the licenser-company usually in exchange for a fee or royalty. Through this arrangement, the licenser can enter the foreign market at little risk and gets the benefit of gaining the manufacturing technology and marketing of a well-known product of brand. Licensing does not involve investment risk since the licensee sets up its own production and marketing facilities. If the cost of product from the licensee to improve its competitive positioning its own market or a third country, thus opening up a new avenue of export for the licensee.

(c) Joint Venture

Joint ventures involve setting up of enterprise in collaboration with a foreign-based company for the manufacture and marketing of specific product lines. Such collaborations can take various firms covering such areas as managerial and technical know-how and technology transfer, equity participation, R&D activities, manufacturing and marketing facilities or a combination thereof. For political or economic reasons, joint ventures may become the only technique of entering a potential export market, particularly in those countries, which have restrictions on the inflow of foreign capital. Joint ventures set up in the developing host countries could be an important means of import substitution process and of helping local industries benefit form industrial and technological progress of advanced countries and accelerating the process of expansion and diversification of industrial base and product range, subject however to various political and economic implications that are normally associated with ventures.

(d) Contract Manufacturing

Contract manufacturing represents various kinds of tie-up of manufacturing facilities and arrangement agreed upon between two or more manufacturer located in different countries. Such manufacturing activities could be carried on under subcontracting arrangements for the fabrication of components and accessories and even finished products in a foreign country. The international-sub-contractors perform similar functions as the domestic ancillary industries do for end-user industries. International sub-contracting for economic and marketing reasons could be an effective technique of foreign market entry for those developing countries which have adequate technological expertise, manufacturing base and facilities, relatively cheaper raw materials for labour and other infrastructural and comparative advantages.

(e) Foreign Investment

Direct and unilateral investment abroad involves establishment of assembly, processing, packaging or even complete manufacturing distributing and marketing facilities in foreign markets usually, under the financial and management control fo the holding company. Such a subsidiary established in the host country as well as enlarge the profit base of the investing company. It is the of global involvement in foreign business in which both long-term benefits and risk could be equally high because of social, economic or political reasons.

(f) Management Contracts

Entry into foreign markets can be made by offering various kinds of consulting services to the foreign customers; government or private, doing feasibility studies and eventually entering into contract for setting up turnkey project. Project exports could open up yet another venue not only for supplying machineries, components and equipment for the initial installation of the project but also continued supply of spares and replacements over a long period.

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