This purpose of this assignment is to reinforce your understanding about the various modes of entry that a business can use to enter a global market.
1. For this assignment you will answering the following questions:
a. Explain/define what are each of the following modes of entry: Foreign direct investment, Exporting, Licensing and Strategic Alliance.
Be sure to use your own words after doing some research.
b. Identify why a company might want to use each form of entry (i.e., what are the advantages or reasons a company would use this mode of entry) and then provide an example of a company that is currently using that mode of entry for their global marketing strategies. (So for each of the four modes of entry, explain what it is, why a company would want to use it and provide an example of a current company that is doing that globally.)
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a. Modes of entry:
1. Foreign direct investment (FDI): Foreign direct investment refers to the investment made by a company in a foreign country where it establishes a physical presence. This involves the company directly owning and controlling assets in the foreign market, such as factories, offices, or subsidiaries. FDI can be in the form of Greenfield investment (building new facilities) or acquisition of existing local companies.
2. Exporting: Exporting is the process of selling goods or services produced in one country to another country. It is one of the simplest modes of entry, where products are shipped from the home country to foreign markets. Exporting can be done directly by the company or indirectly through intermediaries, such as distributors or agents.
3. Licensing: Licensing is a contractual agreement in which a company (the licensor) grants permission to another company (the licensee) to use its intellectual property, technology, or brand in exchange for royalty fees or other forms of compensation. The licensee gains the right to manufacture, sell, or distribute the licensed product or service in a specific market.
4. Strategic alliance: A strategic alliance is a cooperative agreement between two or more companies to achieve mutual goals while retaining their individual identities. It involves sharing resources, capabilities, and risks to enter a foreign market. Strategic alliances can be formed for various purposes such as joint research and development, marketing collaborations, or cross-licensing of technologies.
b. Advantages and examples:
1. Foreign direct investment (FDI):
Advantages: FDI offers companies complete control over their operations in foreign markets, enabling them to benefit from economies of scale, access local resources, tap into new markets, and establish a strong presence. It provides better control over intellectual property, technology transfer, and mitigates risks.
Example: Coca-Cola is an example of a company using FDI for its global marketing strategies. Coca-Cola has set up bottling plants and subsidiaries in various countries worldwide, allowing them to have direct control over production, distribution, and marketing of their products.
2. Exporting:
Advantages: Exporting allows companies to expand their market reach without significant investment or physical presence in the foreign market. It provides opportunities for international sales growth, diversification, and learning about foreign consumers.
Example: Nike is a well-known company that extensively uses exporting as a mode of entry for global markets. Nike manufactures its products in various countries and exports them to different markets, making it one of the leading global sports footwear and apparel companies.
3. Licensing:
Advantages: Licensing allows companies to expand their market presence quickly and cost-effectively by leveraging the local expertise of licensees. It avoids the need for significant investment in production facilities, and the licensor can earn royalties or fees without physical involvement in the foreign market.
Example: McDonald's uses licensing as a mode of entry for its global expansion. McDonald's licenses its brand name, know-how, and operating systems to local franchisees around the world. The franchisees then operate the restaurants, adapting to local tastes and preferences while following McDonald's standards and guidelines.
4. Strategic alliance:
Advantages: Strategic alliances enable companies to access new markets, share risks and costs, gain knowledge, and enhance competitiveness through complementary resources and capabilities. It allows for market entry without excessive investments and supports mutual growth and learning.
Example: Renault-Nissan-Mitsubishi Alliance is an example of a strategic alliance in the automotive industry. These three companies formed an alliance to collaborate in areas such as technology development, platform sharing, and joint purchasing to achieve economies of scale and compete globally.
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