Types of Entry in Foreign Market

Types of Entry in Foreign Market

A company can enter into a foreign company in number of ways. Entry options of company can be explained in term of direct exporting, indirect exporting, contract manufacturing and setting up a manufacturing facility. each entry has its own advantages and disadvantages, which has been briefly mentioned below;

1.    Direct Export

Manufacture may directly export and sell product in the foreign country without any third party. The advantages of direct export include maximum profit, exploring and understanding the market, retention the market. There are also some disadvantages of indirect export, which include high staff cost, high risk exposures, no cost sharing.

2.    Indirect Export

In indirect export the goods are not directly sold in foreign market, rather it is sold through a distributor or other agent. The advantages of indirect export include more market access, limited political risks etc. Disadvantages of indirect export include profit sharing, risk of losing market etc.

3.    Contact Manufacturing

In contract manufacturing company does not establish its own manufacturing facility, rather manufacturing rights (trade mark) is offered to some local manufacturer against fees. The typical arrangement in this regard is to use brand name of the company against fees or royalty. Company can earn more profit with no investment, limited foreign investment risk.

4.    Owned Manufacturing Facility

Organization may decide to set up a fully owned subsidiary in the foreign country. This arrangement has number of advantages like customer relationship, wining public orders, lowering the cost of production. Disadvantages of wholly owned manufacturing facility are more exposure to different kind of risk i.e. foreign currency risk, political risks etc.