How to Enter Foreign Markets
Which markets in the world are foreign.
The profitability potential of the market in a foreign country will vary from one company to the next. The choice of which market to go into is not just based on the company’s ability to improve its profit margins as well as the risk of doing business in that particular country. Priority should be given to countries that are more appealing for long-term profits potential.
When is the best time to start to
Another key decision to make is when to venture into an international market. Entrepreneurs should determine if the goal is to get the “first to market” advantage and increase sales; however, they also run the risk of not being established in the market. It is also possible that you wait until a competitor joins the market you are targeting first and later reverse the “first to market” effect.
The cost of entry
Being able to enter the market on a huge size means the business will need to invest in substantial resources that will aid in attracting clients and distributors. This is since it can give an impression that the business intends to stay in the market.
But, by stepping in on a smaller scale, companies can gain insight into the market in foreign countries and therefore reduce the risks that come with navigating in unfamiliar waters.
Options for entering the market of a foreign country
Exporting
It is the most secure approach to entering markets in foreign countries since it does not incur the significant costs associated with establishing manufacturing facilities in the new market. The downside of exporting is that the high transport costs could render exporting economically unviable.
Turnkey projects
Turnkey projects are described as the export of process technology to different countries. In a typical project, the contractor will undertake the instruction of the operating staff in addition to other similar activities to start-up in order that, at the conclusion of the contract, the client from another country receives the “key” to a facility that is in full operation.
Licensing
This is a contract in which the licensor gives the license to rights in intellectual property (patents or inventions, copyrights, etc.) to a different company (licensee) to be used for a specific time. The licensor will receive royalty payments without the expenses of development and the risks of operating on a foreign market.
Franchising
A Franchiser provides intellectual property for the franchisee; however, the contract also requires the franchisee to follow strict guidelines regarding the way it conducts business. Like licencing, the franchisor usually gets payment from a royalty. The franchisee takes on the costs and the risks associated with opening in the foreign market.
Joint ventures
A joint venture can be formed when two separate companies form an entity that is jointly owned by one of them; the other is a local business. The two firms will typically include a group of managers who share control of operations. Joint ventures allow firms to gain from the local partner’s understanding of the host nation’s competitive conditions as well as its language, culture, political system and business structures and, in addition, to split expenses.
Companies wholly owned by the company
In a wholly-owned subsidiary in which the company owns 100% of the shares. The company may choose to set the business in the country of its choice or buy an established business in the host country.
