Modes of Entry into International Market Management YouTube Lecture Handouts

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Modes of Entry into International Market Management

Meaning of International Business

  • Exchanging of goods, services etc. between countries for the overall development of the entire society and also being updated with the changes is called international business.
  • It also provides opportunity for the industrial growth, lower manufacturing cost, advantage of cheaper labor etc.
  • It therefore leads to the overall development of the countries engaging themselves in the trade.

Modes of Entry into International Market

  • There are basically two modes of entry into an International Market:
    • Equity mode
    • Non-Equity mode
  • Different entry modes differ in three crucial aspects:
    • The degree of risk they present.
    • The control and commitment of resources they require.
    • The return on investment they promise.

Equity Modes

  • Green Field Investment: When the company decides to start the business from scratch by investing in capital items, land, building etc.
  • Acquisitions: When the company acquires another company to start business in other country. The benefit of Acquisition is that the company can encash on the already built good brand image of the acquired company
  • Strategic Business Alliance: When two different firm come together to start a new business altogether or exploit a new business opportunity. For example: Tata and Starbucks ventured into coffee segment
  • Joint Venture: When two or more companies come together to complete a project within a stipulated period of time they are said to be entering into a joint venture

Non- Equity Modes

  • Exporting: When there are no intermediatories in between i.e.. , a company directly exports the manufactured goods to other countries is basically exchanging goods beyond the national boundaries of the country
  • Licensing: Here the interested company takes the license from the owner and produces the goods and services in an outside country. Here the company gets official permission from the real owner to either manufacture or supply their products
  • Franchising: A fee is paid to the franchiser and the entire process and machinery is set according to the franchisor. A Royalty fee and regular sales commission is paid to the real brand owner
  • Turnkey Projects: When a project is to be constructed, the clients pay to the contractors and after the project is completed the key is given to the client. Turnkey projects are usually taken for construction activities.

MCQs

What is the basic level of entry into international market?

1. Licensing

2. Franchising

3. Exporting

4. None of the above

Answer: 3

Turnkey key project comes under which mode of entry into international business?

1. Non-Equity

2. Capital investment

3. Equity

4. None of the above

Answer: 1

Manishika