Exporting is the best established and traditional form of the strategy used to enter into foreign markets. The advantages of exporting are: reduction in risk of operating in a foreign country, the opportunity of learning from a foreign market, manufacturing is done on a home basis so less risky. On the other hand, the disadvantages are the lack of control since the company is at hands of overseas agents.
Franchising is another famous form which involves Franchisor & Franchisee. The advantages of franchising have reduced the risk of failure, proven trademark, proven products & services and freedom of employment.
Licensing is “the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor”. Coca Cola is an excellent example of licensing. Advantages of licensing are it’s similar to franchise operations, low cost, and low involvement. It involves low-risk manufacturing relationships, the linkage of parent and receiving partner interests’ means both get most out of marketing effort. In this form, the capital is not tied up in the foreign operation and there is always the option to buy into a partner. The disadvantages are limited partnership, lost returns from manufacturing and marketing, the license can be terminated, licensees can become competitors and it requires considerable fact finding, planning, investigation, and interpretation.
“Joint ventures are an enterprise in which two or more investors share ownership and control over property rights and operation.” A joint venture may be brought about by a foreign investor showing an interest in the local company. Advantages of the joint venture are Joint financial strength and mutual risk sharing. Disadvantages of the joint venture are diverging views of partners, difficulty in recovering capital and lack of full management control.
Counter trade is that largest indirect method of exporting. In this situation, the organization may expand operations by operating in markets where competition is less intense but the currency-based exchange is not possible. The advantage is that it can be an alternate source of finances and disadvantages are that revert to currency trading is difficult, the inconsistency of delivery and specification and difficulty in setting prices and service quality.
Mergers and acquisition are an important a powerful driver of globalization. The advantages of M&A are a tax benefit, optimum utilization of resources, increase in the market power and minimization of risks and acquisition of technology. Disadvantages are a lack of experience can harm the operations.