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Foreign Market Entry Modes

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Exporting

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Sending goods or services to another country for sale; associated risks include trade barriers and exchange rate fluctuations.

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Licensing

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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.

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Franchising

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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.

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Joint Ventures

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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.

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Wholly Owned Subsidiaries

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A firm invests directly to create its own operations in a foreign country; risks include high investment costs and exposure to political risks.

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Greenfield Investments

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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.

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Acquisitions

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Buying an existing company in the foreign market; while it allows rapid entry, risks include overvaluation of the target and integration difficulties.

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Strategic Alliances

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Agreements between firms to pursue shared objectives while remaining independent organizations; risks are opportunistic behavior and management complexity.

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Turnkey Projects

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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.

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Mergers

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Combining with a foreign company to take advantage of synergies; risks can include antitrust issues and difficulties in merging operations and cultures.

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Piggybacking

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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.

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Direct Investment

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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.

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Countertrade

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Exchanging goods and services with other goods and services when currency exchange is not possible; risks include valuation of goods and complexity of agreements.

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Build-Operate-Transfer (BOT)

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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.

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Local Production

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Manufacturing products within the target market to avoid import tariffs and reduce shipping costs; risks include high initial investment and potential operational inefficiencies.

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Minority Ownership

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Investing in a foreign operation, but not having a controlling interest; this reduces risk exposure but can limit control over the business.

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Management Contracts

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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.

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Export Processing Zones (EPZs)

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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.

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International Franchising

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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.

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Foreign Direct Investment (FDI)

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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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