Ways of entering foreign markets

A firm can enter a foreign market in several ways. Generally, the more control it wants, the more it must invest and the more risk it takes on.

• Exporting and importing: selling goods to, or buying them from, another country, either directly (the firm deals with foreign buyers itself) or indirectly (through middlemen). It is the easiest way in, with the least investment and risk. But there are extra costs of packing, transport and insurance, and the firm stays far from its customers.
• Contract manufacturing (outsourcing): a firm gets local manufacturers in another country to make its goods to its own specifications. Sports brands such as Nike and Reebok have long done this. It needs little investment, but the firm may find it hard to keep the quality right.
• Licensing and franchising: a firm allows a foreign firm to use its patents, trademarks, technology or way of working, in return for a payment called a royalty or fee. Licensing is used for goods; franchising for services. The investment is small, but the licensee may learn the secrets and later become a competitor.
• Joint ventures: a foreign firm and a local firm jointly own a business. The foreign firm gets local partners' knowledge of the market, and they share the capital and the risk. But the partners may disagree, and technology may leak to the partner.
• Wholly owned subsidiaries: the firm owns 100 per cent of a business abroad, either by setting up a new firm there or by buying an existing one. It gets full control and keeps its secrets. But it must put in all the money, bear all the losses, and faces the full political risk of the foreign country.