When companies decide to enter foreign markets and start doing international business, there are different kinds of entry models they can use. In our report we give an overview of some of the entry modes, including benefits/motivations, risks and requirements of the models. First we go through export and import, transporting goods/services from country to another. Export and import are especially used in the beginning of internationalization. After that we have licensing and franchising, which basically mean that one company sells rights to use for example its business idea or trademarks to another company. Then we have subsidiary operations, establishing daughter companies, which is the most demanding form of internalization. Then we go through joint venture; company established with partners, followed by subcontracting and contract manufacturing; manufacturer performs jobs for foreman. Then in the end we have management contract; some of the operational control responsibility is transferred to another company, and project operations; projects provided to the customer. Export is transporting products from one country into another. It means that a producer itself sells the products aboard or uses domestic or foreign intermediaries. In this situation the products are produced in home country of the company, but when the operation expands the exporter can also establish separate units abroad, for example selling- or producing-units. This way the company can speed up and improve its operations. (Pirnes & Kukkola 2002, 77-78)
[...] (International Business 2003, It's not exporting anymore when a company establishes units abroad which produce the services themselves, the units have to situate in home country of the company. It's also a case of exporting services when exporter goes to a buyer and gives for example consultation. (Äijö 2001, 91) Why to export First of all if selling only domestically the company reaches only small share of potential customers, and sometimes companies are even forced to go abroad to get enough customers, if exporting is not own choice. [...]
[...] Some risks that are especially caused by exporting are needed language skills, knowledge about the culture, understanding the market and differences in legal systems. Also the foreign country can be somehow unstable; it might be economically weak or prone to natural disasters. Company's ideas may as well be copied or the trademarks abused overseas. Thus it may be hard to protect company's rights. Good idea would also be to be protected against the changes in exchange rates if the target country has a different currency. [...]
[...] The firm of licensor provides to a firm of licensee an access to use some of its patents, trademarks or technology in exchange of a payment. The payment includes a fixed amount of money and a royalty of 2-5 per cent on sales. Typically this agreement lasts 5-7 years, and is renewable at the option of either another or both parties. (Rugman & Hodgetts 2003, 41) In licensing usually it's a case of physical products that are protected with patents, but in some countries also processes can be patented. [...]
[...] Franchising In franchising the company sells rights to use its business idea or marketing concept for another company. It's a case of handing over rights to use a trademark, marketing material including copyright and business activity knowledge. Franchising may also include some producing techniques protected with patents and some elements protected with design rights. Franchising of course includes a payment; like in licensing it consist of a fixed amount of money covering the beginning and a royalty on sales. Franchising is common on service field, thus McDonald's and Pizza Hut are good examples of companies that have expanded world wide by franchising. [...]
[...] To action in the market, the main factor need to notice in management contract is training provision of local personnel, the personnel those have cultural sensitivity and language skills, they are not always readily available, and decrease substitution of expatriates with locals. The most important to make the contract work from effective relationship, develop depending on choosing the kind of person for the contract task, control the operation and decide appropriately limit the ability to develop capacity of the venture in order to make profit for both parties in a long term. [...]
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