Modes of Entry into International Business
The international business is a very comprehensive term, that includes many activities pursued by different organisations so as to capture a share of foreign market, but is not preferred as a common man is unable to find that they form a part of international business. There are a number of ways, also called as the modes of international business, which could be adopted by the enterprises wanting to enter international business. Some of the important modes which are normally followed in international business are discussed as follows:
1. Direct and Indirect Exporting: It is the most basic form to enter the international markets. Exports are goods and services that are produced in one country but are marketed in another country. In direct export, a company takes full responsibility to make its goods available in the target market by selling directly to the end-users. Indirect export takes place when the exporting company sells its products to intermediaries, who sell the same products to the end-users in the target market.
2. Licensing: As a mode of globalisation, licensing requires neither capital investment nor detailed involvement with foreign customers, but it is an arrangement through which a firm transfers its intangible property such as expertise, know-how, blueprints, technology, and manufacturing design either to its own unit, or to a firm which is located abroad. It is also called as technical collaboration.
3. Franchising: Franchising involves the granting of right by a parent company or the franchiser to another, the franchisee to do business in a prescribed manner. It may take various forms. In direct franchising, the franchiser frames policy and monitors and directs those activities in each host country from its home-country base. But in indirect franchising, there are sub-franchisers between the original franchiser and the host country units.
4. Contract Manufacturing: Contract manufacturing is a process which establishes a working agreement between two companies. One company custom produces parts or other materials on the behalf of their client. Hence, the client does not have to maintain manufacturing facilities, purchase raw materials, or hire labour so as to produce the finished goods. A firm that markets and sells products into international markets might arrange for a local manufacturer so as to produce the product for them under contract.
5. Turnkey Projects: In this method, the company contracts with a foreign entity in order to design and build an entire operation. On completion, this operation is handed over to the owner who can use the facilities straight away.
6. Joint Ventures: A joint venture is a shared ownership in a foreign company, i.e. it is a 50-50 ownership between two parties. Joint ventures. occur mainly when a company decides that shared ownership of a specially set up new company for marketing and/or manufacturing serves as the most appropriate method to exploit a business opportunity.
7. Mergers and Acquisitions: These take two forms. One is the acquisition where one firm acquires or purchases another firm. Here, the former is called as acquiring company and the latter one is known as target company. No new firm comes into existence after the merger. The other form manifests in consolidation or amalgamation where the two merging firms lose their identity into a new firm which comes to exist representing the interest of the two.
8. Strategic Alliance: A strategic alliance is a relationship between two or more parties for pursuing a set of agreed upon goals or for meeting al critical business need while remaining as independent organisations. Strategic alliances serve as a competitive strategy in global marketing management. They provide a way to shore up weaknesses and increase competitive strengths.
