The entry modes through which an organization can therefore enter the international market really have different risk, control, and investment levels. There are modes like exporting, licensing, franchising, joint ventures, and wholly-owned subsidiaries, as well as foreign direct investment in the form of mergers, acquisitions, or greenfield investments. Modes of Entry into International Business refer to the various strategies companies use to enter foreign markets, ranging from simple exporting to complex acquisitions. Choosing the right mode is crucial for business success in global expansion. When a firm wants to expand into foreign markets, it has several options. The firm must decide how much control and risk it wants to take in the foreign market. The main modes of entering international business range from low-risk, low-control options like exporting to higher-risk, higher-control options like foreign direct investment. Exporting does not need direct investment in the foreign nation but offers little control over the client experience. Other options like licensing, franchising, and joint ventures involve collaborating with a local partner in the foreign market. The firm shares risk and control with its partner, gaining better local knowledge and access. However, managing the alliance and aligning objectives become crucial.
Modes of entry into international business are a very important topic for the UGC-NET Commerce Examination, and learners are expected to have an in-depth knowledge of the topic.
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In this article, the learners will be able to go via the several modes of entry into international business and other suitable topics.
In this article learners will read the following:-
Also, read about Macro and micro economic policy.
Selecting an appropriate mode of entry into international business is now increasingly a key consideration for success as global trade continues to be on the rise. International trade refers to commercial trades across national borders among firms selling goods and services in other countries. The advent of improved technology and transportation facilities has made global trading even easier for both large and small-scale enterprises.
To better understand the various strategies firms use to enter international markets, it is helpful to categorize the entry modes based on the nature of involvement, resource commitment, control, and level of risk. Below is a detailed breakdown of the key categories:
Category |
Description |
Examples of Modes |
Export-Based Modes |
These involve selling goods or services produced in the home country to customers in foreign markets. These modes require minimal investment and risk. |
- Direct Exporting - Export Management Companies (EMCs) - Export Trading Companies (ETCs) |
Contractual Modes |
In these arrangements, a firm enters into a contract with a foreign entity to share know-how, technology, or business model in exchange for fees or royalties. These modes allow quicker expansion without ownership or heavy investment. |
- Licensing - Franchising - Contract Manufacturing |
Investment-Based Modes |
These require a higher level of commitment as the firm invests directly in assets or operations in the foreign country. They offer greater control but also come with higher risk and cost. |
- Joint Ventures - Wholly Owned Subsidiaries - Acquisitions |
Other/Indirect Modes |
These are alternative low-investment modes that rely on third parties (like agents or trading firms) to facilitate market entry. They are low-risk but offer limited control. |
- Agent/Distributor Relationships - Trading Houses - Global Tenders |
These categories help distinguish the core characteristics of each of the modes of entry into international business, aiding firms in decision-making
Let us explore some of the most widely used modes of entry into international business and their real-world applications. Here are some of the most effective modes of entry in international business that companies rely on for foreign market penetration
Importance of Economic System in business Environment can be understood here.
Fig: modes of entry into international business
Direct exporting is among the simplest modes of entry into international business, offering minimal risk and quick market testing. The explanation of direct exporting as a mode of entry into international business has been stated below.
Read about Economic Fiscal Policies.
Licensing, a contractual strategy, falls under low-risk modes of entry into international business, ideal for IP-driven organizations. Licensing as a mode of entry into international business has been stated below.
Also, read about FEMA.
Franchising stands out as one of the most scalable modes of entry in international business, especially for service-based industries. Franchising as a mode of entry into international business has been stated below.
Read about globalisation and liberalisation.
Contract Manufacturing as a mode of entry into international business has been stated below.
Know about Scope and Importance of International Business.
Joint ventures are unique modes of entry in international business where strategic partnerships pave the way for mutual benefits. Joint Venture as a mode of entry into international business has been stated below.
Read about Concepts and elements of business environment.
Among all modes of entry in international business, setting up a wholly owned subsidiary grants the highest degree of operational control. A wholly owned subsidiary as a mode of entry into international business has been stated below.
Read about economic system.
Acquisition as a mode of entry into international business has been stated below.
Understand about economic environment of business.
The firm appoints agents or distributors in foreign markets to define and sell its products locally. This allows the firm to enter new markets with low investment while agents handle marketing, sales, and client service. However, the firm has little control over how agents promote and service its products.
The firm outsources its export function to an export management firm that handles all logistics, documentation, payments, and foreign client relationships on the firm's behalf. This reduces the aid needs for the firm, but it loses direct control over its export operations.
The firm sells its products to an export trading firm that then markets and spreads the products in foreign markets. This allows the firm to expand globally with minimal costs and risks. However, the firm has limited control over the pricing and marketing of its products overseas.
Read about Financial markets.
The firm bids for contracts to supply foreign government agencies or multinational firms. If successful, the firm may need to establish a local presence to fulfill the contract. This allows a "trial run" in the foreign market before making larger investments.
The firm sells its products to trading houses that import, stock, and resell the products across multiple foreign markets. This needs little investment from the firm, but the trading house sets product prices and markets alone.
The various modes of entry into international business differ in terms of control, investment, and risk.
The table below provides a side-by-side comparison to help businesses choose the most suitable strategy for global expansion.
Mode |
Control |
Investment |
Risk |
Best For |
Exporting |
Low |
Low |
Low |
Beginners |
Licensing |
Low |
Low |
Moderate |
IP-rich firms |
Franchising |
Medium |
Low |
Moderate |
Retail/Service brands |
Joint Venture |
Shared |
Medium |
Medium |
Local market access |
Wholly Owned Subsidiary |
Full |
High |
High |
Long-term presence |
Acquisition |
Full |
Very High |
Very High |
Fast market entry |
Agent/Distributor Relationships |
Very Low |
Low |
Low |
Firms seeking market entry with minimal presence |
Export Management Companies (EMCs) |
Low |
Low |
Low–Moderate |
Firms lacking export expertise or logistics setup |
Export Trading Companies (ETCs) |
Very Low |
Very Low |
Low |
Manufacturers wanting to offload export function |
Global Tenders |
Medium |
Moderate |
Moderate |
Firms testing foreign markets through contracts |
Trading Houses |
Very Low |
Very Low |
Low |
Firms wanting fast reach with minimal control |
Also, read about Capital market.
To better grasp how firms apply various modes of entry into international business, let’s look at prominent global brand case studies.Expanding into international markets requires strategic planning and the right entry mode. This guide explores various modes of entry into international business, their types, strategies, and real-world examples.
Entry Mode |
Brand/Company Example |
Explanation / Case Insight |
Direct Exporting |
Bajaj Auto exporting motorcycles to Africa and Southeast Asia |
Bajaj ships its bikes directly to dealers abroad, without investing in local operations. |
Export Management Company |
Small U.S. textile firms using EMCs to enter European markets |
EMCs handle documentation, sales, and logistics for firms lacking export expertise. |
Export Trading Company |
Japanese Trading Houses like Mitsui & Co. and Marubeni Corp. |
These firms purchase goods from domestic producers and resell them globally, handling all export responsibilities. |
Licensing |
Walt Disney licensing characters and merchandise rights to firms in India and China |
Disney allows other firms to use its intellectual property (IP) while collecting royalties. |
Franchising |
McDonald’s expanding into India through local franchise partners like Connaught Plaza Restaurants |
McDonald’s provides branding and systems; franchisees invest and operate restaurants under strict brand guidelines. |
Contract Manufacturing |
Apple Inc. outsourcing iPhone production to Foxconn in China |
Apple retains design and brand control but contracts manufacturing to Foxconn to save costs. |
Joint Venture |
Maruti Suzuki (India–Japan) |
Suzuki entered India by partnering with Maruti Udyog Ltd., leveraging local government ties and market access. |
Wholly Owned Subsidiary |
Tesla establishing a fully-owned manufacturing unit in Shanghai, China |
Tesla did not partner with any local firm and retains complete control over its Chinese operations. |
Acquisition |
Tata Motors acquiring Jaguar Land Rover from Ford (UK-based) |
Tata gained access to premium global car markets instantly by acquiring an established firm with tech and brand equity. |
Agent/Distributor Relationship |
Patanjali Ayurved using distributors in Middle East markets |
Instead of setting up shops abroad, Patanjali uses distributors to expand reach with minimal investment. |
Global Tenders |
Larsen & Toubro (L&T) winning infrastructure projects in Gulf countries through global bidding |
L&T enters international markets through government tenders, without setting up local units initially. |
Trading Houses |
Sumitomo Corporation acting as a trading house for electronics and machinery globally |
It purchases, stores, and resells products from various firms across global markets. |
The benefits and drawbacks of modes of entry have been stated below.
Some modes of entry into international business, like licensing and franchising, provide firms with an edge by minimizing investment and sharing responsibilities. The advantages of modes of entry in international business have been stated below.
Despite their benefits, several modes of entry into international business can limit operational control or increase complexity. The drawbacks of modes of entry in international business have been stated below.
There are many options for firms to enter international markets, each with pros and cons depending on the firm's goals, aids, and risk appetite. Choosing the right mode of entry needs careful review of factors like loyalty level, control, costs, speed, and risks. Firms often start with less aid-intensive modes like exporting and later move to options that give them more control and benefits like mergers, acquisitions, and foreign subsidiaries.Ultimately, choosing the right modes of entry into international business depends on a firm’s objectives, market familiarity, and long-term vision
Students preparing for UGC NET should master the various modes of entry in international business as they frequently appear in exams and case-based questions.
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Major Takeaways for UGC NET Aspirants:-
|
Which mode of entry is most suitable for a company with minimal experience in international markets?
Options:
Correct Answer:2. Exporting
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