Methods of Entry into Foreign Markets

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Over the years there has been a lot of research carried out on the determinants and consequences of foreign market entry mode. For any firm hoping to succeed in meeting its long term goals, the mode of entry is a strategic decision which will consequently impact on the firm’s competitive advantage and its performance. The main goal of any small or midsize business is trying to delve into new markets. This is because with new market comes bigger profits and over time the small business isn’t so small anymore. However, it would benefit the firm more if it had a better understanding of the different entry modes into foreign market in order to ensure its success and in order to ensure its smooth adjustment in the new market (Hutt, 2010).
There are a number of factors to be taken into consideration when deciding on the mode of entry into a foreign market. According to research, it would be most probable that a firm will opt for the entry mode that offers the highest risk return on investment. The decision on the entry mode will be highly dependent on the tradeoffs between risks, control and returns. The choice of entry mode into any new foreign market is determined by three main factors; ownership rewards of a business, internalization benefits of integrating transactions within a firm and location advantages of a given market.
Ownership rewards of a business
In order to be successful in new international markets, firms need to have asset power in order to ensure it has an advantage over the firms in the host country. A firm’s asset power can be measured by the overall size of the firm and the firm’s ability to produce differentiated goods and services. Additionally, the firm’s multinational experience can act as a ref...

... middle of paper ... to test the foreign market (Tielman, 2010).
Having looked at all the different types of entry modes that one can choose to use, the decision on the entry form to go with inevitably will remain upon the management of the firm. The management has a better understanding of the firm and will have to decide which one will; best suit the firm in accordance to its size and growth level. If a firm is at its entry level into the international market then the most preferred mode of entry is exporting. There are a number of factors that the management has to take into consideration when choosing the country with which to form an international relation with, not just the distance. Some of these factors include the culture of the people in that country, the level of economic development in that country and the government policies in the country (Gillespie, 2011).

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