Essay 2 Foreign

Submitted By anadka2008
Words: 1167
Pages: 5

Discuss the three ways to enter foreign markets. Based on each of these ways, give an example. Which is the best way to enter foreign markets?

Many business that grow large and expand domestically usually sometimes want to expand even more and enter into foreign markets which will help them compete on a global scale. Competing on a regional and a global scale however can be difficult, which is why some companies have to make a decision whether they want to enter foreign markets. The three ways to enter foreign markets is through exporting, joint venturing and direct investment.
The simplest way that business can enter foreign market is through exporting. Exporting is when the company stays domestically and produces its product within its home country. After the product has been created, the company may modify the product a little before exporting and if they do not than they just export the product to a different country. Exporting involves the least amount of change in a company’s product lines, organization, investments, or mission. To get into exporting it is usually easier to go into indirect exporting first. This is where you basically have a third party involved. This has less risk for your company because the third party usually knows all the ins and outs of the business so you make less mistakes. Once you think you have the hang of the idea though you can turn to direct exporting where you will handle your own exports. Direct exporting has a greater investment and risk but the potential return is also greater. Therefore if you want to earn a good profit, you would have to risk a little bit. An example would be Ford manufacturing cars here in the United States and then exporting them out to other countries out in the world. Of course not many companies do that anymore. Most companies in the present time actually outsource their business that way now they are manufacturing products out somewhere in china and exporting them here to United States. There reason why they do this is due to labor laws. These laws are much different in China than they are here. The companies can basically triple what they make because they are paying so much less for labor in different countries than they would here.
The next way to get into the foreign market is through joint venturing. Joint venturing is when a person joins with a foreign company to produce or market products or services. This way differs from exporting because you are actually joining with a host country partner to sell or market abroad instead of staying domestically and exporting. There are four different types of joint ventures. There is licensing, contract manufacturing, management contracting and joint ownership. Licensing is a simple way for a manufacturer to enter international marketing because all the licensee does for a fee or a royalty payments they buy the right to use the company’s manufacturing process, trademark, patent, trade secret, or other items of value. This way the company gains entrance to foreign market. Contract manufacturing is another option where the company makes an agreement with the manufacturers in the foreign market to produce its product or provide its services. The downside to this is that the company has less control when it comes to the manufacturing process and loss on potential manufacturing process. A company will not be able to adjust the variable costs that occur in the manufacturing process as well as they would be able to if they completely owned it. Another option that can get a company into foreign markets through management contracting. Management contracting is when the domestic company provides the management that knows what it is doing to a foreign company that supplies the capital. Simply put, the company provides the management for the foreign company and they get a profit from it. In this case my assumption is that the foreign company is willing to pay the fee for the management in hopes…