Modes of Entry into International Business

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Meaning

Meaning of International Business

The trade of commodities, services, technology, capital, and/or information across national borders and on a global scale is referred to as an international business.

Cross-border exchanges of products and services between two or more nations are involved. For the goal of producing physical commodities and services like finance, banking, insurance, and construction on a global scale, economic resources such as capital, skills, and people are traded.

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MODES

MODES OF ENTRY INTO INTERNATIONAL BUSINESS

• EXPORTING
• FDI
• MERGER & ACQUISITION
• LICENSING
• FRANCHISING

EXPORTING

Selling products and services made in one country to another is what it entails. A direct or indirect export may be made.

Direct export – A corporation that uses economies of scale in production that is localized builds a suitable structure for managing export operations and securing international sales.

Indirect export – It entails using domestic export middlemen to export. The exporter has no control over the international market for his product.

Pros

1. It assists in surplus distribution.
2. Less danger exists.
3. Direct export gives the exporter control over the market choice.
4. It facilitates quick market access.

Cons

1. High start-up costs when exporting directly
2. When exporting indirectly, the exporter has little influence over how the goods are distributed.
3. Exporting through export brokers raises the price of the goods.

FDI

It is a way to invest in overseas markets. Investments through financial institutions can be made directly or indirectly. FDI affects the economy’s investment behavior and promotes economic growth in general. The governing regulations of a country determine how much foreign direct investment is permitted there.

Pros

1. It is possible to make changes at any moment.
2. It is a simple method of entry.

Cons

1. Government policies could not be beneficial.
2. The investment’s return could be minimal.

 MERGER & ACQUISITION

In a merger, two or more district entities are combined into one, to amass the assets and liabilities of separate businesses as well as gain other advantages like economies of scale, tax advantages, rapid expansion, synergy, diversification, etc. The merging entities combine to form a single serving entity, after which they cease to exist.

Acquisition alludes to a company’s acquisition of another company’s controlling shareholding. It doesn’t result in the collapse of the company whose shares are bought. It could be a bailout takeover, a friendly or hostile acquisition.

Pros

• Cheap production costs
• Growth of small- and medium-sized businesses
• There is no loss of control

Cons

• Maintaining quality standards is challenging
• Foreign markets could mean less business for local producers.

LICENSING

A company can grant authorization for someone to use a legally protected product or technology in a specific way, for a predetermined amount of time, and within a predetermined geographic area through licensing. As there is less management and communication required, it is a fairly simple approach for breaking into a foreign market.

Pros

1. Less money is needed to invest.
2. Low labor costs

Cons

1. This process takes a long time.
2. The deterioration in product quality could damage the licensor’s standing in the market.

FRANCHISING

It is a business model where semi-independent business owners (franchisees) pay fees and royalties to a parent firm (franchiser) in exchange for the right to use the franchisor’s brand, sell its goods or services, and frequently utilize its organizational structure or system.

Pros

1. Less risk exists.
2. Advantage of franchiser’s expertise
3. Highly driven personnel

Cons

1. Maintaining trade secrets difficult
2. The franchisee might later turn into a rival
3. A bad franchisee could damage the brand and reputation of the company.