An organizational strategy for entering a foreign market is called market entry strategy. Types of strategies:
- Global outsourcing – engaging in the international division of labor. The aim is to obtain the cheapest sources of labor and supplies in a foreign country.
- Exporting – selling products abroad. Production facilities are kept at a home country. Here risk is limited and modest resources are required.
- Licensing – a corporation (the licensor) in one country makes certain recourses available to co’s in another country (the licensee). Resources: technology, managerial skills, and/or patent and trademark rights.
Franchising is a form of licensing. The franchisor provides foreign franchisees w/ a complete package of material and services, including equipment, products, product ingredients, trademark and trade name rights, managerial advice and standardized operating system. (fast-food chain).
- Direct investing. A higher level of involvement in international trade is a direct investment in manufacturing facilities in a foreign country. It means that the Co is involved in managing the productive assets. It implies more managerial control than other strategies.
The most popular type of direct investment is a strategic alliance or partnership. In a joint venture a Co shares costs and risks w/ another firm, typically in the host country, to develop new products, build a manufacturing facility or set up sales and distribution network.
The other choice is to have a wholly owned foreign affiliate. It is a foreign subsidiary over which an organization has complete control. A Co can carry out the direct acquisition of an affiliate.
The most costly and risky direct investment is called Greenfield venture. It means that a Co builds a subsidiary from scratch in a foreign country. The advantage is that a subsidiary is exactly what the Co wants and has the potential to be highly profitable. The disadvantage is that the Co has to acquire all mkt knowledge, materials, people and know-how in a different culture and mistakes are possible.
A large volume of international business is carried out by a multinational corporation (MNC). It is an organization that receives more than 25 % of total sales revenues from operations outside the parent company’s home country also called global corporation or transnational corporation.