In this assignment, you are required to write about the strategic advantages and
ID: 433676 • Letter: I
Question
In this assignment, you are required to write about the strategic advantages and disadvantages of different entry modes. Choose 2 modes of entry, and compare them. First, explain the theoretical background of both entry modes and how to enter the international markets. Then, give practical examples of how the two entry modes have been applied in practice by business(es).
Remember to present clearly the strategic advantages and disadvantages of each entry mode for specified companies and products, supported by examples and appropriate references.
Explanation / Answer
The different mode of entry depends upon the company and their requirement especially their outlook and need when it comes to international expansion. The two types of modes of entry that I have selected for the process are exporting and franchising.
These two modes are the most common type of entry mode for a company and relatively simpler, especially when we need to consider their strategic requirements:-
Exporting
1. The advantage of exporting has to companies includes less capital investment.
2. It removes the need for upfront investment in order to create the proper supply chain infrastructure.
3. The company does not need to study the market extensively and can rely on third-party partners to take care of the processes.
4. Cheaper than any other mode of entry.
Franchising
1. It requires less investment than say, setting up a business for scratch.
2. Provides strategic advantage in terms of supply chain setup and management.
3. Allows a company to benefit from the reach in the market that the franchise has.
4. Increases market opportunity.
5. Reduces the need for marketing and other critical processes.
There are also a number of disadvantages which include:-
Exporting
1. Higher taxes and differences in trade laws and capacity.
2. Based on the political as well as socioeconomic factors of the market in the country.
3. Reliance on the third party for implementation and management.
4. A lesser degree of control
Franchising
1. Requires the company to increase management efforts due to the factors of involvement of a third party in some regards.
2. Lack of control.
3. Depends on the efficiency of the supply chain of the franchise.
4. Royalties are lesser in regards to profits that can be generated if the company was operating solely.
5. Can create a competition for the company if they decide to end the partnership and enter the market themselves.
Examples
Exporting
Exporting would be beneficial for a company that sells manufactured goods/ raw materials. This is because their main aim is to generate the sales of the goods first and then comes the need for efficient infrastructure. For example, an apparel company operating from their home country essentially would benefit from exporting their goods, especially in the case where their requirements are less and their capital investment scope is lesser.
Franchising
Fast food chains are the best example of this mode of entry. A company can essentially use this model and enter a market without the need for initial setup cost and therefore, get the lay of the land first and then enter the market in their own, with knowledge.