Global Market Entry Strategies - Export, License, Strat. Alliance, Joint Venture, Direct Investment

Summary

In this video, we explore four key strategies for companies entering international markets: Exporting, Licensing/Franchising, Strategic Alliances/Joint Ventures, and Direct Investment. Each strategy offers different levels of risk and control, from the low-risk approach of exporting to the high-risk, high-control strategy of direct investment. Real-world examples illustrate how brands can benefit from local expertise through partnerships, but also face significant challenges, such as political instability or mismanagement by local partners. The video emphasizes how companies must balance risk and reward based on their goals and market conditions.

Takeaways

• 😀 Exporting is the least risky market entry strategy, as companies sell products to foreign distributors with minimal control over branding and marketing.
• 😀 While exporting has low risk, it also offers low control, as once the product is sold, the company can't manage how it's used or marketed.
• 😀 Licensing and franchising allow companies to earn royalties by granting local firms the right to use their intellectual property, such as trademarks or business models.
• 😀 Franchising is common in service industries (e.g., McDonald's, Starbucks), while licensing is often used in manufacturing (e.g., Coca-Cola).
• 😀 Licensing and franchising provide more control than exporting due to formal agreements, but still carry risks, as local partners may harm the brand.
• 😀 Joint ventures and strategic alliances involve collaboration between two companies to gain mutual benefits and share resources, especially in foreign markets.
• 😀 Joint ventures involve the creation of a new business entity where both parties share profits, losses, and responsibilities, increasing control but also risk.
• 😀 A strategic alliance does not involve the creation of a new entity, but partners work together for mutual goals, often sharing knowledge and expertise.
• 😀 Direct investment provides maximum control over foreign operations but also carries the highest risk, as the company is fully responsible for its assets and operations abroad.
• 😀 Direct investments can lead to significant losses if political or economic conditions change abruptly, as seen with the UK government seizing assets from Russian oligarch Roman Abramovich.

Q & A

What is the least risky strategy for entering foreign markets?

Exporting is the least risky strategy for entering foreign markets. It involves selling products to intermediaries in foreign countries, where the company has minimal risk and lower costs.

What are the advantages of exporting products to international markets?

The key advantages of exporting include minimal risk, low costs, and the ability for small businesses to enter international markets without significant investment. Companies are paid before the product leaves their hands, reducing financial risk.

What are the main disadvantages of exporting as a market entry strategy?

The main disadvantage of exporting is the lack of control over the product once it leaves the company. If the local distributor harms the brand, there’s little recourse, as seen in the example of the Indian Maharajah misusing Rolls-Royce cars.

How does licensing differ from franchising?

Licensing involves granting a foreign company the rights to use intellectual property like trademarks and patents, typically for manufacturing goods. Franchising is a similar model but is typically used for service industries, where the franchisor provides a more structured system of operations.

What are the risks associated with licensing and franchising?

While licensing and franchising provide more control than exporting, there are still risks. Local partners can harm the brand through poor management, as seen with Burger King’s issues in Russia after the invasion of Ukraine.

What is the difference between a strategic alliance and a joint venture?

A strategic alliance is a partnership between two companies that agree to work together for mutual benefits, without creating a new business entity. A joint venture, on the other hand, involves two companies forming a new, jointly owned entity to conduct business together.

Why are joint ventures and strategic alliances popular in foreign markets?

These strategies are popular because they allow companies to gain local expertise and navigate foreign markets with the help of a local partner. They can also be more acceptable to foreign governments, which may require local partnerships.

What are the key risks of forming a joint venture in a foreign market?

The risks of joint ventures include the potential for financial loss if the venture fails, the risk of one partner engaging in opportunistic behavior, and the possibility of government intervention that can harm the foreign partner’s investment.

What is the highest risk strategy for entering international markets?

Direct investment is the highest risk strategy, where a company invests fully in a foreign market, taking full ownership and control of its operations. While this strategy offers maximum control, it also exposes the company to significant financial risks, as external factors like political instability can lead to sudden losses.

What happened to Roman Abramovich’s investment in Chelsea Football Club?

Roman Abramovich’s investment in Chelsea Football Club was significantly impacted when the UK government seized his assets due to political sanctions. Despite investing over £1.5 billion, Abramovich did not see any returns from the eventual sale of the club for over $5.25 billion.