Foreign Market Entry Modes

Why do companies entry foreign Markets? A company may be looking to increase profits and sales. They can accomplish this by creating new markets in foreign countries or they may increase sales in a foreign market that is growing faster than the domestic market. Companies also go abroad to protect their home market. By challenging a competitor in their own market it may prevent that competitor from challenging a company in its own home market. Thirdly, companies may be going abroad in search of lower production costs or in search of a guaranteed supply of raw materials. (Ball, Geringer et al. 2010)

When a company decides to enter a foreign market there are several entry options available. The options include exporting, licensing, joint venture and sole venture. It is important for a company to understand the risk and benefits associated with each option because once a decision has been made it can be difficult for a company to reverse its decision. (Agarwal and Ramaswami 1992)

Exploring the exporting option, Katsikea, Theodousious et al. (2005) indicate this option is popular small and medium size companies. The reason is that this method of foreign entry requires a limited amount of resources, thus there is less risk associated with this entry method. , Katsikea, Theodousious et al. (2005) indicate there are two approaches to exporting. The first is an export market concentration. The major characteristics to this approach are the strategy to grow though market penetration. This method adopts a passive approach to marketing, is less concerned with export sales objectives, a focus on profitability by targeting large markets with high volume. Companies that adopt this approach are “often risk averse.”(Katsikea, Theodosiou e...

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