As Globalisation takes over the world, more and more businesses are expanding and opening their manufacturing units, branches, outlets, offices all over the globe. While some grow exponentially and expand their market, sales and customer base, some fail to get any response and incur huge promotional, travel, administration and financial costs.
This is why it is extremely crucial to form an entry strategy that suits the organisation. It is also important to assess the financial position and capacity of the organisation and to understand that International business gives delayed returns as spreading awareness, competing with the competitor’s product and building an International customer base takes time and incurs promotional costs.
Once the business is ready to enter the international market, there are several factors to be considered.
- Firstly, the organisation needs to conduct market research and choose the country and the specific locations where there is demand for their product/service.
- Secondly, assessing the culture, language of the country and city is also very important. The organisation can make the necessary changes (if any) to its product/service and its packaging and labelling accordingly.
- The last step is to form an entry strategy that suits the organisation and the market and implement the stategy.
Ways of entering an International Market
There are several ways to enter a market depending on the product/service reach preferred by the organisation and the financial capacity of the organisation.
- Direct Exporting- In this method, the organisation directly sends its products, transfers its employees and workers to the location chosen. It involves huge setup, transportation and transfer costs. Therefore, this method is only used when the product that is being exported has a lot of demand in the new market and will definitely get a response from the target audience. For example, exporting machines to developing countries where there’s no manufacturing of such machines but a huge demand for the same.
- Through a distributor- In this method, products are sold to distributors who are wholesale buyers. The distributor uses his own selling and pricing strategies to sell the product in the market.
- Licensing- Through licensing, the organisation can share its technology, method and basic know how with local companies. However, through this method, the product is sold under the local companies’ name and brand so there is no scope of building an international brand and consumer base.
- Contract Manufacturing– Through this method, the company pays a local manufacturing unit to manufacture their products by sharing their technology and design. It saves the cost of exporting or setting up a manufacturing unit abroad and is ideal for products that require large scale production.
- Strategic Alliance- This method includes Mergers, Acquisitions and Joint Ventures. In Joint Ventures, two companies form another company to work as partners. For example, Hero Honda. In Mergers and Acquisitions, one company merges with or acquires another company. There is no formation of third company or new identity in this case. For example, Walmart acquired Flipkart.
- Through an Overseas agent- Using this method, the company hires a local agent to make business relationships on behalf of the company. The agent acts as a sales representative who sells the products on behalf of the company and has no direct relationship with the customers. The agent gets commission on his sales. This is an effective method to save costs in case the organisation wants to test out the response of the foreign potential consumers or distribute their products on small scale without incurring huge costs.