4 Strategies That Companys Can Use to Enter a Foreign Market
Entering a foreign market is a big step for any company because you quite literally are stepping into the unknown.
Opening up a store in a new country is not the only way of stepping into a new country. Today we will discuss the 4 different methods a company can use to enter a foreign market.
Exportation into a Foreign Market
Exporting is a great way to expand globally because of the extremely low risk. You essentially are making money in a foreign country without having your own operation in that new country. Though there is low risk, it is very complex. There are various costs such as shipping costs, tariffs, and customer service costs. Another drawback of exporting is the lack of control once the item is sent to a retailer or wholesaler. You can’t sell your goods like you would in your home country outlet store with sales people, you just have to hope that the people will notice the item on the shelve and buy it.
This method is for the “big ballers and risk takers.” Not only is this entry strategy extremely expensive, but the risk is also very high. This strategy is not all gloom and doom. By using this, you are able to have direct control over your products, in terms of quality and customer service. Company’s can also bypass market risks such as tariffs or quotas.
If you thought a foreign operation was the riskiest method, then you are wrong. This title goes to a joint venture because the success of this entry is highly dependent on your foreign partner. If choosing this method, you need to do your homework on your potential foreign partner. The benefits of a joint venture are similar to an overseas operation, but the difference between the two is that a joint venture allows for local expertise, since you are not stepping into a country alone, you have your partner with you.
This method is similar to exportation, as the risks are more or less the same, with the exception of more profit loss, since you have to pay your distributor a certain fee. The benefits of a distributor are similar to a joint venture. The distributors will be better able to market and sell your goods, since they have local knowledge on the local consumers. Like exportation, you take a back seat in actively selling, as again the distributors do this for you.
These are the 4 common methods many company’s use to expand internationally. The right method depends on many factors such as political, economic, and financial factors. For small company’s, exportation and the use of distributors is used more often because the small initial investment’s, but larger company’s will typically opt for the other 2 methods because of the greater benefits.