Reading: Entry Strategies in Global Markets
Choosing a Global Entry Strategy
Firms typically approach international marketing cautiously. They must analyze the market opportunity as well as their internal capabilities to determine which approach will be the best fit. Often businesses start with a lower-risk strategy and progress to other strategies involving additional investment and risk and additional opportunity after they have proven initial success. The most common market entry strategies are outlined below.
Exporting
Read: Canada Trade Statistics: Exports, Imports, Products, Tariffs, GDP and related Development Indicator published by the World Integrated Trade Solution.
Exporting means sending goods produced in one country to sell them in another country. Exporting is a low-risk strategy that businesses find attractive for several reasons. First, mature products in a domestic market might find new growth opportunities overseas. Second, some firms find it less risky and more profitable to export existing products, instead of developing new ones. Finally, some firms might export because there is less competition overseas. Smaller firms often choose to export over other strategies because it offers a degree of control over risk, cost, and resource commitment. Smaller firms often only export in response to an unsolicited overseas order, which is also perceived as low risk. Canada exports approximately one-third of its goods and services.
Licensing and Franchising
Under a licensing agreement, a firm (licensor) provides a product to a foreign firm (licensee) by granting that firm the right to use the licensor’s manufacturing process, brand name, patents, or sales knowledge, in return for payment. Since its debut in the late 1970s, Star Wars remains the most lucrative source of licensing in the entertainment business and has generated more than $42 billion from the sale of licensed merchandise. The licensee obtains a competitive advantage in this arrangement, while the licensor obtains inexpensive access to a new market. Scarce capital, import restrictions, or government restrictions often make this the only way a firm can market internationally. This method does contain some risks. It’s typically the least profitable method for entering a foreign market, and it entails a long-term commitment. Furthermore, if a licensee fails to successfully reproduce a licensed product, or if the licensee markets licensed products ineffectively, it could tarnish the original product’s brand image.
Read: The 10 Largest Franchises that Originated in Canada by Paige Watts (April 28, 2017) in Franchise Direct.
A longer-term and more comprehensive way to access the global market is through franchising. Under the terms of a franchise agreement, a party (franchisee) acquires access to the knowledge, processes, and trademarks of a business (the franchisor) in order to sell a product or service under the business’s (franchise’s) name. In exchange for the franchise, the f