Important Factors for Foreign Market Entry

 Important Factors for Foreign Market Entry

There are number of factor considered by the company before taking the entry decision in the foreign market. These factors include size of the firm, option availability, market size, risk assessment, Brand image & Quality, availability of resources and economies of scale & cost. These factors have been explained below;

1.    Size of Firm

First factor is size and capacity of the firm. Large firm go for establishing manufacturing facility, where small firm opt for exporting option. Small firm cannot afford to set an independent manufacturing facility, because it requires huge investments.

2.    Option Available

In liberal economies there is open competition, but in case of controlled economies, there are some restrictions are placed by the government. It means that foreign company cannot set manufacturing facility in all sectors. Some countries also have some export restrictions (exports Quotas etc)

3.    Market Size

Size of market is also one of important factor for deciding the type of entry. For large market like china and India, the direct manufacturing is more feasible than exporting, because exporting is an expensive option.

4.    Different Risk

There are number of risk associated with foreign investment. In case of export the risk are limited (foreign currency exchange risk), where foreign subsidiary is exposed to number of risks which included different political risks (risk of war, political instability, policy change, tax rate change risk) and also face foreign currency risk.

5.    Brand Image

In case of contract manufacturing the brand image and quality is at stake. For large companies brand image and quality has fundamental importance and these companies are most concerned about the quality of product and brand image.

6.    Availability of Resources

Availability of resources (skilled labour, material, technology) is also important factor for deciding entry mode for foreign market. For example a Boeing company cannot be set up in Afghanistan.

7.    Economies of Scale & Cost

Economies of scale and cost are also important factors for deciding the entry mode. It is important to note that labors are cheaper in country like china and India. Therefore many large organizations are setting manufacturing facilities in India & china.