For international trade, Foreign market entry modes are the ways in which a company can expand its services into a non-domestic market.
There are two major types of market entry modes: equity and non-equity. The non-equity modes category includes export and contractual agreements. The equity modes category includes joint ventures and wholly owned subsidiaries. Different entry modes differ in three crucial aspects:
The degree of risk they present. The control and commitment of resources they require. The return on investment they promise.
Exporting
Exporting is the process of selling of goods and services produced in one country to other countries.
There are two types of exporting: direct and indirect.
Direct Exports
Passive exports represent the treating and filling overseas orders like domestic orders.
Types
Sales representatives Sales representatives represent foreign suppliers/manufacturers in their local markets for an established commission on sales. Provide support services to a manufacturer regarding local advertising, local sales presentations, customs clearance formalities, legal requirements. Manufacturers of highly technical services or products such as production machinery, benefit the most from sales representation.
Importing distributors Importing distributors purchase product in their own right and resell it in their local markets to wholesalers, retailers, or both. Importing distributors are a good market entry strategy for products that are carried in inventory, such as toys, appliances, prepared food.
Advantages
Control over a selection of foreign markets and choice of foreign representative company Good information feedback from target market, developing better relationships with the buyers Better protection of trademarks, patents, goodwill, and other intangible property Potentially greater sales, and therefore greater profit, than with indirect exporting.
Disadvantages
Higher start-up costs and higher risks as opposed to indirect exporting
Requires higher investments of time, resources and personnel and also organizational changes Greater information requirements Longer time-to-market as opposed to indirect exporting.
Indirect exports
Indirect export is the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market.
Types
Export trading companies (ETCs) These provide support services of the entire export process for one or more suppliers. Attractive to suppliers that are not familiar with exporting as ETCs usually perform all the necessary work: locate overseas trading partners, present the product, quote on specific enquiries, etc.
Export management companies (EMCs) These are similar to ETCs in the way that they usually export for producers. Unlike ETCs, they rarely take on export credit risks and carry one type of product, not representing competing ones. Usually, EMCs trade on behalf of their suppliers as their export departments.
Export merchants Export merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers for resale overseas under their own brand names. The advantage of export merchants is promotion. One of the disadvantages for using export merchants result in presence of identical products under different brand names and pricing on the market, meaning that export merchant's activities may hinder manufacturer's exporting efforts.
Confirming houses These are intermediate sellers that work for foreign buyers. They receive the product requirements from their clients, negotiate purchases, make delivery, and pay the suppliers/manufacturers. An opportunity here arises in the fact that if the client likes the product it may become a trade representative. A potential disadvantage includes supplier's unawareness and lack of control over what a confirming house does with their product.
Nonconforming purchasing agents These are similar to confirming houses with the exception that they do not pay the suppliers directly – payments take place between a supplier/manufacturer and a foreign buyer.
Advantages
Fast market access
Concentration of resources towards production
Little or no financial commitment as the clients' exports usually covers most expenses associated with international sales. Low risk exists for companies who consider their domestic market to be more important and for companies that are still developing their R&D, marketing, and sales strategies. Export management is outsourced, alleviating pressure from management team No direct handle of export processes.