Entry mode decision - Internationalisation - Global Marketing

Summary

This video provides an in-depth exploration of entry mode decisions for organizations entering foreign markets. It highlights the importance of selecting the right mode for market entry, influenced by factors like internal resources, external market conditions, transaction specifics, and desired control. Using the example of a French cake producer, the video explains how these factors shape the decision-making process, comparing hierarchical, intermediate, and export modes. Ultimately, the video emphasizes the role of a strategic, well-informed approach in determining the best entry mode, offering a comprehensive understanding of the internationalization process.

Takeaways

• 😀 Entry mode decision refers to how an organization chooses to enter a foreign market, impacting its internationalization strategy.
• 😀 The choice of entry mode affects a company’s investment level, risk exposure, control, and flexibility in the new market.
• 😀 Internal factors such as a company’s resources, international experience, and product complexity influence the entry mode decision.
• 😀 External factors, like the social-cultural distance and market competition in the target country, help determine the most appropriate entry mode.
• 😀 Transaction-specific factors address the feasibility and safety of outsourcing functions to local partners, affecting entry mode choice.
• 😀 Desired characteristics of the entry mode, such as flexibility and control, play a critical role in selecting the right approach.
• 😀 The direct export mode, such as using an agent, is often chosen when flexibility, low risk, and low investment are prioritized.
• 😀 Hierarchical modes (e.g., subsidiaries) offer high control but come with high investment and risk, making them suitable for more experienced organizations.
• 😀 Intermediate modes, like joint ventures and franchising, allow for shared control and are typically used when market conditions or resource availability require it.
• 😀 The French Cakes example illustrates how a company’s limited resources and lack of international experience led them to choose a low-risk direct export mode via an agent.
• 😀 A systematic evaluation of internal, external, transaction-specific, and mode characteristics ensures that the right entry mode is chosen, minimizing risks and maximizing success in the new market.

Q & A

What is the entry mode decision, and why is it important in internationalization?

The entry mode decision refers to the method a company chooses to enter a foreign market, such as exporting, licensing, or setting up a subsidiary. It is important because it affects the level of control, risk, flexibility, and investment a company will have in the foreign market.

What are the four sets of factors that influence the entry mode decision?

The four sets of factors that influence the entry mode decision are: internal factors (company resources and experience), external factors (market conditions and competition), transaction-specific factors (outsourcing feasibility), and desired mode characteristics (control, flexibility, and risk preferences).

How do internal factors influence the entry mode decision?

Internal factors, such as a company's resources, experience, and product characteristics, determine the feasibility and risk of various entry modes. For example, a company with limited resources and no international experience may opt for a less risky, external mode like exporting or using an agent.

What role do external factors play in the entry mode decision?

External factors include the target market’s size, growth potential, cultural distance, and competition. These factors help determine whether a company should take on high-risk, high-control entry modes (e.g., setting up a subsidiary) or lower-risk, flexible modes (e.g., using an agent).

What are transaction-specific factors, and how do they affect entry mode decisions?

Transaction-specific factors address the advantages and risks of outsourcing functions to independent partners. For example, if a product’s technology is easy to transfer and there’s minimal risk of opportunistic behavior, a company might lean towards using an external partner, such as an agent or distributor.

Why does French Cakes prefer a low-risk, flexible entry mode?

French Cakes prefers a low-risk, flexible entry mode because it is a small company with limited resources and international experience. They view their entry into the UK market as a trial, so they want the flexibility to exit the market easily if the venture does not succeed.

What entry mode was recommended for French Cakes, and why?

A direct export mode using an agent was recommended for French Cakes. This mode offers low costs, low risk, and high flexibility, which aligns with their desire to minimize investment while testing the market.

What are the key characteristics of hierarchical entry modes?

Hierarchical entry modes involve a high level of internalization, such as establishing subsidiaries or regional centers. These modes typically require large investments, offer high control over operations, but also carry high risks and low flexibility.

What is the difference between export modes and intermediate modes of entry?

Export modes, such as direct export, involve minimal investment and lower risk by using intermediaries like agents or distributors. Intermediate modes, like joint ventures or franchising, involve some level of partnership or shared control with local entities, offering more control but also higher risk than exports.

What does the video suggest about the importance of conducting a systematic evaluation of factors in the entry mode decision?

The video emphasizes that a systematic evaluation of internal, external, transaction-specific, and desired mode factors is crucial for making an informed and strategic entry mode decision. It helps ensure that the chosen entry mode aligns with the company’s resources, goals, and market conditions.