Deciding On An Effective Market Entry Strategy Economics Essay

International concern refers to the public presentation of trade and investing activities by houses across national boundary lines. Firms that participate in international concern are Multinational Enterprises ( MNE ) . International Trade refers to exchange of merchandises and services across boundary lines. This is done through the Medium Sized Enterprises ( SMEs ) . Companies pursue internationalisation in order for them to increase the market size and profitableness.


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Internationalization procedure theoretical account was developed in the 1970s to depict how houses expand abroad. Internationalization is a gradual procedure that takes topographic point in phases over a long period of clip. Firms begin with exportation and advancement to foreign direct investing.

Earlier theories of international trade focused on why and how transverse national concern occurs among states. Get downing in the 1960s bookmans developed theories about managerial and organisational facets of house internationalizing.

3.0 DEFINITION OF Exporting

Exporting is defined as the scheme of bring forthing merchandises or services in one state and merchandising and administering them to clients located in other states ( Cavusgil, Knight, Riesenberger ) 1

Exporting is the best manner of entry into international markets by smaller houses desiring to spread out their market. Firms embarking for the first clip normally use exporting as their entry scheme.

This scheme is most favored by little and average sized endeavors ( SMEs ) . There are two types of export schemes. There are two types of export schemes that are Direct and indirect exportation. However all types of houses big and little, use exportation.


Many companies begin exporting activities randomly without carefully testing markets. The intent of planning is first to assemble facts, restraints and ends. All forces who will be involved in the export procedure should be trained and take part in the export program. Explicating an export scheme, should be based on good information and proper appraisal.

Before a house enters in a new market, a house should hold cognition and apprehension of a market they are come ining into. Once a company determines to export its merchandises, it must see the followers:

. Is exporting consistent with its ends and aims such as coveted profitableness, market portion or competitory placement.

. An organisation should see its resources and technological capablenesss

available to it and how will these demands be met.

. What are the features of the merchandise to be offered to clients in the


. Are they alone conditions in the mark market or state, such as legal civilization, and economical conditions? The nature of concern substructure such as distribution and conveyance system.

. What are the hazards in the proposed foreign market, such as political that would impede the houses, ends and aims of prosecuting internationalisation?

Explicating an export scheme, needs planning and good appraisal based on the

information gathered. The type of merchandises or services such as its composing is really of import. For illustration a company here in Zambia like Lafarge which produces cement, will hold to see the weight of cement. This will act upon the type of internationalisation scheme that a house will take. Lafarge will hold to look at how transit of cement will be carried out. They will hold to make its logistics taking into consideration its weight ratio as this can do a merchandise expensive due to high costs on conveyance.

Then direction will hold to measure which market to travel to, for illustration will they travel to Burundi or the Democratic Republic of Congo. It would be ideal to export to Congo as it is easier to transport its merchandises.

Looking at the geographical location in these two markets, transit will be the premier consideration. Lafarge will either utilize the route or railroad line. So this requires directors with accomplishments and competencies to ease the exporting scheme.


They are assortment of ways in which organisations can come in foreign markets

( Cunningham 1996 ) . Cunningham identified five schemes used by houses for entry into foreign markets viz. Licensing, Franchising, Joint Venture, Counter Trade and Foreign Direct Investment.

Exporting is the most traditional and good established manner of come ining a new market of a foreign state. Exporting is the most favored by houses embarking abroad for the first clip. This scheme is normally used by little and moderate-sized endeavors, nevertheless all types of houses, big and little, use exporting regardless of their phase of internationalisation. Harmonizing to Collett3 ( 1991 ) exporting requires a partnership between exporter, importer, authorities and conveyance. Without these four coordinating activities the hazard of failure is increased.

Exporting has its advantages such as it is easy to retreat from a market at lower costs since the house does non put in the works and machinery of the mark market. It besides gives an chance to larn about that foreign market as it increases its client base cut downing the dependence on the place markets entirely. It improves the market portion and generates net income borders than in the domestic market. For illustration Lafarge took advantage of the World cup 2010 In South Africa and exported cement in that state. This caused a crisp rise in monetary values here in Zambia and caused terrible deficits in the Zambian market.

Exporting has besides got its draw dorsums, because exporting does non necessitate to hold a physical presence in the foreign market, direction has fewer chances to larn about the clients, rivals and other alone facets of the market.

Exporting requires an organisation to get new capablenesss and expertness to cover with export minutess.firms must engage forces with competence in international gross revenues and foreign linguistic communications. For illustration Lafarge has to use Gallic speech production forces to make its dealing in the Democratic Republic of Congo because French is the national linguistic communication in that state. Otherwise they would happen it really hard to negociate since really few speak English in that mark market. Exporting is more sensitive to duties and trade barriers and the instability in exchange rates. For illustration the South African exporters complained to the strong Rand and asked authorities to devaluate it as it was doing its merchandises to be expensive.

Exporting methods include direct and indirect export. In Direct exporting the house may utilize agent ‘s distributers or mediators located in the foreign market or act via authorities bureau. These local mediators will negociate on behalf of the exporter and assume duty as a local supply concatenation direction, pricing and client service. The exporter ‘s undertaking is to take a market, find the representative or agent, set up a physical distribution and certification, promote and monetary value the merchandise.

For illustration we have the Food Reserve bureau here in Zambia, commercialized but

still has authorities control is the authorities bureau. This bureau is the lone

permitted maize exporter and is allowed to export by the authorities merely when they have a excess. The Food Reserve bureau finds a market and an agent to make the distribution and certification. This twelvemonth FRA was allowed to export to the Democratic Republic of Congo.

The advantage of direct exportation is that it gives the exporter greater control over the export procedure and it allows a closer relationship with foreign purchasers and the market topographic point.

The challenges to this scheme are that, there may be dissensions between

buyers and 3rd parties. It may be impossible to retrieve capital in states like the Democratic Republic of Congo were war interruptions out any clip.

Indirect exportation is when a house contracts an intermediary house or agents located in the houses local market. These mediators find markets and purchasers for its merchandises.

Export Management Companies ( EMCs ) or an international trading company based in

the exporter ‘s place state. They give the exporter entree to good set up

expertness and trade contacts.

The advantage of indirect exportation is hat it provides a manner to perforate foreign markets. The house can get down with little capital and has fewer hazards but with chances of incremental gross revenues. The disadvantage is that the foreign mediators may non be dependable as to market and administer the merchandises as intended.


Licensing is defined as the method of foreign operation where by a house in one state agrees to allow a company in a another state to utilize the fabrication, processing, trade grade or some other accomplishment provided by the licensor, in exchange for royalties or other compensation. This is done by a contractual entry scheme in international concern. It refers to traverse boundary line connexions where the relationship between the focal house and its foreign spouses are governed by a contract. Example of licencing here in Zambia is, Zambian Breweries which have the licence to do Coca Cola.

Similarly, service houses in retailing, auto leases rely on licensing and franchising. An illustration is Avis auto hire which operates in about all the states in Southern Africa. Licensing allows the licensee to bring forth and market a similar merchandise like the one the licensor may already bring forth in its place state.

This scheme is normally preferred by little and moderate-sized endeavors ( SMEs ) , because it requires less capital investing or

engagement of the licensor in the foreign market. SMEs lack resources to

internationalise through more dearly-won entry schemes.

Licensing gives the undermentioned advantages: The licensor bears no cost of set uping a physical presence in the market.Meanwhile, the licensee benefits by deriving entree to a cardinal engineering at a much lower cost than if it had developed on its ain. Licensing can besides be used as a low-priced scheme to prove the viability of the foreign markets and is a good manner to get down in foreign operation and it opens doors to low hazard fabrication relationship. Another advantage is that capital is non tied up in a foreign operation, for illustration Coca Cola does non hold its capital tied up in states that make its


Disadvantages of licensing: A hapless spouse may be unable to bring forth significant

gross revenues since royalties are based on the licensees sale volume, the licensor depends on the licensee ‘s gross revenues. The licensor has limited signifier of engagement this may do the licensee to bring forth deficient merchandises. The spouse develops know-how and so license is short. Licensee becomes rivals, because the engineering transportation causes the licensee to bring forth a similar merchandise like that of the licensor and market it in other states. For illustration the U.S toymaker Mittel licensed rights to administer Barbie to Brazilian toymaker Estrela. Estrela went in front after the contract expired and developed a Barbie double doll which did good on the market ( Cavusgil. Knight, Riesenberger )


Franchising is an agreement in which the house allows another the right to utilize an full concern system in exchange for fees, royalties or other signifiers of compensation.

Franchising is an advanced signifier of licensing in that the franchisor allows an

enterpriser the franchisee the right to utilize an full concern system in exchange for royalties.

The franchisor provides the franchisee with preparation, selling and ongoing support.

The franchisee may necessitate purchasing certain equipment and supplies from the franchisor.

The franchise has to do certain the merchandise is precisely the same as the original. For illustration, if you buy nutrient from metro here in Lusaka it should savor and hold the same ingredients in Johannesburg. This is more comprehensive than licencing

because all concern activities are prescribed to the franchisee. The franchisor controls the concern system to guarantee consistent criterions.

The advantage is that its easy entry into the foreign market since there is no demand to put immense capital since the trade name is already established it ‘s easy to sale.

The disadvantage is that it ‘s hard for the franchisee to keep the same criterion and quality and this requires a traveling aid. It emphasizes standantized merchandises and selling.

5.3 Joint VENTURES

Joint ventures can be defined as “ an endeavor in which two or more investors portion ownership and control over belongings rights and operation. ” Joint Ventures are more extended signifier of internationalising than either exporting or licensing. For illustration, accounting houses like Pricewater house and Coopers and Lybrand went into a joint venture to organize Pricewater Coopers Lybrand. This creates a fiscal strength for an organisation.

Joint Ventures give the undermentioned advantages, uniting the two houses may be the lone means of entry into the market e.g. Vodacom South Africa was blocked from come ining the Zambian Mobile endorsers but of recent development Vodacom is traveling into a joint venture with Africonnet Zambia Ltd. Risks are shared and cognition of geting engineering from a foreign spouse. Further, joint ventures change the image of another company with combined thoughts from both companies come ining the joint venture.

The disadvantages, nevertheless, are those spouses do non hold the control of

direction. Vodacom is South African company so it will non hold full control of

direction at Africonnet here in Zambia. Partners may hold different positions on

expected benefits. It may be impossible to retrieve capital if demand be.

5.3 COUNTER Trade

This is another signifier of indirect method of exporting. Goods and services are traded for other goods and services when conventional agencies of payment are hard, dearly-won or non-existent. Counter trade refers to an international concern dealing where all partial payments are made in sort instead than hard currency. These types of minutess are prevailing in developing state authorities. Counter trade can take many signifiers.

But the most used is BARTER, which is the oldest signifier of trade. Barter is the direct exchange of one good for another without any money involved. By and large there no jobbers involved, normally contracts are short and less complicated. However if it is for a longer clip, commissariats to include exchange rates fluctuation should be considered.

The disadvantages with this scheme are that goods may be of inferior quality, as the purchaser may non hold inspected the goods, and may be hard to market the trade goods. You can non return to currency trading due to exchange of goods. There is no consistency on bringing of goods, so quality may worsen.


Foreign direct investing is the most advanced and complex foreign market entry

scheme and involves immense resources, accomplishments and expertness to be able to transport out this operation. This is an internationalisation scheme In which a house establishes a physical presence abroad through acquisitions of productive assets such as capital, engineering, labour, land works and equipment.This type of scheme is normally used by Multinational Enterprises ( MNE ) .For ample Toyota used foreign direct investing by puting in states like South Africa and them have easy entree to export to adjacent states.

6.0 Decision

Having done all the readying and planning, the house must so make up one’s mind on a suited market entry scheme. There are two chief ways of come ining a foreign market, by direct and indirect exportation. Direct which includes the usage of agents, distribution, Government and subordinates and indirect includes the usage of trading companies, direction companies and antagonistic trade.

Out of these two chief ways a seller should follow an appropriate manner of

internationalisation.Exporting has many benefits every bit good as disadvantages which must be considered before doing a pick. A house must look at the production, fiscal and direction capablenesss to be employed in the chosen scheme.



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