Global businesses employ various strategies to enter foreign markets, from exporting to direct investment. Each method offers unique advantages and challenges, requiring companies to carefully consider factors like control, risk, and resource commitment when expanding internationally.

Alternative international transactions, such as countertrade, provide flexible options for companies dealing with currency restrictions or unstable economies. These methods, along with understanding trade balances and comparative advantages, are crucial for navigating the complex landscape of global commerce.

Global Market Entry Strategies

Methods of global market entry

• Exporting involves selling goods or services produced domestically to buyers in foreign countries
  • Indirect exporting utilizes intermediaries such as export management companies (EMCs) or export trading companies (ETCs) to handle logistics and sales
  • Direct exporting involves selling directly to customers in foreign markets, providing greater control but requiring more resources and expertise
• Licensing grants a foreign company the right to produce and sell the licensor's product in a specific country or region in exchange for royalties based on sales
  • Licensee assumes responsibility for production, marketing, and distribution, reducing risk and investment for the licensor (Coca-Cola)
• Franchising grants a foreign company the right to use the franchisor's business model, brand, and operational support in exchange for fees and royalties
  • Franchisee operates the business according to the franchisor's guidelines, ensuring consistency and quality (McDonald's)
• Direct foreign investment establishes a physical presence in a foreign market through ownership of facilities or subsidiaries
  • Greenfield investment involves building new facilities from the ground up, providing full control but requiring significant capital and time
  • Acquisition involves purchasing an existing company in the foreign market, providing quick market entry but potentially facing integration challenges (Walmart's acquisition of Flipkart in India)
  • Foreign direct investment can lead to the creation of multinational corporations with operations in multiple countries

Strategies for international expansion

• Joint ventures involve partnering with a local company to share risks, costs, and resources
  • Advantages include access to local market knowledge, distribution channels, and potential for technology and expertise sharing (Sony-Ericsson)
  • Challenges include potential conflicts between partners, difficulty aligning goals and strategies, and possible loss of control over operations and intellectual property
• Contract manufacturing involves outsourcing production to a foreign manufacturer to lower costs and leverage their expertise
  • Advantages include flexibility to focus on core competencies (product design and marketing), reduced capital investment, and operational risks
  • Challenges include potential quality control issues, supply chain disruptions, limited control over the manufacturing process, and risk of intellectual property theft or imitation (Apple's contract manufacturing with Foxconn)

Alternative International Business Transactions

Countertrade in global commerce

• Countertrade involves exchanging goods or services directly or partially, without the full use of money
  • Barter involves the direct exchange of goods or services without money (oil for wheat)
  • Counterpurchase requires the seller to purchase goods from the buyer equal to a percentage of the original sale (Boeing selling aircraft to China and agreeing to purchase Chinese goods)
  • Buyback involves the seller providing equipment, technology, or production facilities and agreeing to purchase a portion of the output (construction company building a factory and purchasing a portion of its output)
• Countertrade is commonly used in countries with foreign exchange shortages or unstable currencies, helping companies enter markets with trade restrictions or limited foreign currency reserves
• Estimated to account for 10-15% of world trade, particularly in developing countries and emerging markets (India, Brazil, and Russia)

International Trade and Economic Factors

• Balance of trade refers to the difference between a country's exports and imports, which can result in a trade surplus or trade deficit
• Comparative advantage is the ability of a country to produce a good or service at a lower opportunity cost than other countries, influencing international trade patterns
• Free trade agreements aim to reduce barriers to trade between participating countries, potentially increasing economic cooperation and growth