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Foreign Market Entry Modes
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Flashcards
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Exporting
Sending goods or services to another country for sale; associated risks include trade barriers and exchange rate fluctuations.
Licensing
Allowing a foreign company to produce a firm's product for a fee; risks include loss of control over the technology and lower profit margins.
Franchising
A form of licensing where the foreign franchisee sells the franchisor’s products and follows their business model; risks involve quality control and maintaining brand reputation.
Joint Ventures
Two or more companies create a new business entity to operate in the foreign market; risks include conflicts between partners and loss of proprietary information.
Wholly Owned Subsidiaries
A firm invests directly to create its own operations in a foreign country; risks include high investment costs and exposure to political risks.
Greenfield Investments
A form of wholly owned subsidiary where a company builds its operations from scratch in the foreign market; risks include slow entry and high costs of setting up.
Acquisitions
Buying an existing company in the foreign market; while it allows rapid entry, risks include overvaluation of the target and integration difficulties.
Strategic Alliances
Agreements between firms to pursue shared objectives while remaining independent organizations; risks are opportunistic behavior and management complexity.
Turnkey Projects
A company designs and constructs a facility, then hands it over to the purchaser when it’s ready for operation; risks include project cost overruns and transfer of process knowledge.
Mergers
Combining with a foreign company to take advantage of synergies; risks can include antitrust issues and difficulties in merging operations and cultures.
Piggybacking
Using another company’s distribution network to enter a market; although it can be low-cost, risks include lack of control over the marketing and sales process.
Direct Investment
A company invests capital directly in facilities to produce or market products in a foreign country; this brings high returns but also high risks due to political and economic uncertainties.
Countertrade
Exchanging goods and services with other goods and services when currency exchange is not possible; risks include valuation of goods and complexity of agreements.
Build-Operate-Transfer (BOT)
A type of project financing where a private entity receives a concession to finance, design, build, and operate a facility and then transfer it to the public sector; risks include political changes and contractual misunderstandings.
Local Production
Manufacturing products within the target market to avoid import tariffs and reduce shipping costs; risks include high initial investment and potential operational inefficiencies.
Minority Ownership
Investing in a foreign operation, but not having a controlling interest; this reduces risk exposure but can limit control over the business.
Management Contracts
Providing management personnel to operate a foreign company’s facilities in exchange for a fee; these bear low risk but may result in less control over the business.
Export Processing Zones (EPZs)
Special areas within a country where goods can be imported, handled, manufactured, and exported without intervention from customs; this offers benefits like tax advantages but can depend heavily on local policies and regulations.
International Franchising
Extending a company's products or services to a global market through franchising agreements; risks can include misrepresentation of the brand and adherence to franchise agreements across different legal systems.
Foreign Direct Investment (FDI)
Investing in a foreign country by acquiring a controlling interest in a business; it can result in high financial gains, but risks include political instability and expropriation concerns.
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