How to enter
Identifying Potential Market
This reading is basically on how to develop
successful marketing strategy based on free
resources available in the Internet and a good
Step 1: Identify key
Step 2 : Potential Markets
How can I sell my product in the international market ?
How to find potential markets ?
Will my product sell there ?
Are there specific standards my product must meet in
order to be sold ?
What distribution channels should I consider ?
Strategic lookout for entering into International
Foreign Trade Statistics for Market Identification.
Analysis of Foreign trade statistics.
• Example :
– Analysis of spice export data for last few years.
– Increased rice export due to floods.
Identify seasonal bias or seasonal demand.
How to identify international market
How to Find Foreign Trade Statistics
United Nations publishes comparative trade statistics for most
countries in the world.
In India there are 2 sources
1.DGCIS Macro Level data analysis.
2. Customs Shipment records from seaport and airports
Different approaches for market selection
Reactive Foreign Market Selection: When a firm
enters a foreign market mostly based on ‘reacting’ to
opportunities presented to the firm or following
competitors rather than proactively seeking the best
opportunity for the firm
Proactive Foreign Market Selection: Involves a
planned approach of establishing a list of potential
markets, a time frame for entering the markets, and
incorporating those decisions into the international
1.0 PRODUCTION IN THE HOME COUNTRY
Firms can export using two methods:
Indirect involvement means that the firm
participates in international business through an
intermediary and does not deal with foreign
customers or markets.
Direct involvement means that the firm works with
foreign customers or markets with the opportunity to
develop a relationship.
Advantage of using an Export House/Merchant
The Manufacturer avoids the problems of direct
Saving in unit cost.
In case the export house works on commission
basis, expand sales.
Reduction in unit freight.
Export house is selling complementary products,
sales might increase.
Disadvantage of using Export House /
Producer gets neither the expertise nor the attention he is
Manufacturer continually depending on the export house
and not developing export expertise himself.
lacking personal involvement in the export business.
Foreign customers may not associate the product with the
manufacturer at all.
High cost of shipping of product to the export market;
Tariffs and non-tariff restrictions in the importing country;
Nationalist feelings in the country concerned not favouring import
Large size of the country, particularly regional groupings justifying
establishment of manufacturing facilities in that country/region;
Greater scope to be in constant touch with the changing requirements of
the foreign customer which is particularly true of fashion goods;
Lower production costs due to availability of cheaper/plentiful factor(s) of
Advantages of acquiring an existing foreign product with all his
Foreign manufacturing can take one or more
of the following forms:
Wholly-owned foreign production (100%
Finished products are assembled abroad.
All exports are on Completely Knocked Down
condition (CKD) are examples of assembly.
A company may go for this sort of arrangement
either to avoid high transportation cost of the
final product or to take advantage of the cheap
labor available in the export market or to get over
the high tariff and non-tariff restriction.
2.2 Contract Manufacture
In this method of market entry, manufacturer permits the
production of his product abroad by a local party under
contract with him but he reserves to himself the right of
marketing that product in that market.
Normally firms with comparative advantage in marketing and
service, rather than production, resort to contract
This method is advisable particularly in politically unstable
countries where one would always like to pull out at short
notice in case of trouble
2.2 Contract Manufacture
Disadvantages : -
The parent company has to forego the manufacturing profit to the
It is not always easy to locate a local party with the necessary
capabilities to manufacture the product upto the requirements of
the parent firm;
The possibility of the local party gaining experience in marketing in
the course of time and posing a threat to the parent party;
The difficulties faced in maintaining the quality of the product upto
the standard required of the parent firm.
Under a licensing agreement, one firm permits
another to use its intellectual property for
compensation designated as royalty.
The property licensed may include:
Advantages of Licensing Arrangement
Licensing arrangement does not involve any capital outlay on
the part of the licenser;
This is a very quick and easy way to enter the foreign market;
By this method, the licenser gains easy access to knowledge
about the local market;
Licensing normally gains local government approval more
quickly than foreign manufacturing because of inflow of
technology with very little cost and strings;
Licensing also has other advantages such as savings in shipping
freight,avoidance of tariff and non-tariff barriers, etc.
Disadvantages of Licensing
As in the case of contract manufacturing, there is a
possibility that the licensee might become
competitor to the licenser in the long run;
The return normally in licensing is limited as
compared to other forms of investment;
It is difficult to exercise much control on the
2.4 Joint Ventures
In Joint Ventures the international firm normally have equity
participation and management voice in Local Firms.
Potentially greater returns from equity participation as opposed to
Greater control over production and marketing;
Better market feedback; and
More experience in international marketing.
Disadvantage is it involves greater risks and greater investment of
capital and management resources
2.4 Wholly owned Foreign Production
Greatest commitment to foreign market.
Complete control over all activities of the firm.
Operation can be done in 2 ways
2.5.1 Acquisition: Acquiring an existing foreign production unit. Acquisition
means getting qualified management personnel and labor, gaining instant
local knowledge and contract with the local market and government and,
most of all, removing a potential competitor from the scene.
2.5.2 Establishment of a New Facility: A firm normally builds up its own
facilities from scratch where (a) it does not find a national producer willing
to sell out or the national government does not allow it and (b) there are no
local firms having the requisite standard of facilities.
Wholly owned Foreign
Advantages of wholly owned
100% ownership means 100% profit
Greater experience in international
No scope for conflict of interest with
any local party; and
Complete control leading to better
integration of various national
organisations into a synergistic
Disadvantages of wholly owned
They are costly in terms of capital
and management resources;
They may result in negative public
There always is the possibility of
expropriation by the host
Lack of involvement of a national
partner who might act as a bridge
between the international firm and
the country concerned.
Ways of entering into Foreign Market
No best way to enter foreign market
Proper analysis of foreign market needs
to be done.
Strength and weaknesses to be analyzed
before deciding upon way of entering
Opportunities and conditions in each
market must be analyzed
Whatever policy is adopted it must be
flexible to change with environment
2.6 OFFSHORE SOURCING, SUB-CONTRACTING AND
Although imports have always been important in
some sectors, companies in more and more
industries find offshore sources of components and
finished products a means of increasing their
profitability. As offshore sourcing has spread across
industries, it has also spread to countries in Asia,
South America and other developing areas.
The motivations for offshore sourcing are usually to
obtain lower-cost products.
Selecting the form of Offshore Sourcing
This is a relationship between
independent buyers and
sellers in which goods are
exchanged for money.
This term covers many
different relationships between
independent companies in
which the buyer is more
involved with the source than
in a simple buyer-seller
relationship. The buyer may
provide detailed product
assistance, raw materials or
needed components or even
some financing to the foreign
Joint Venture Offshore Manufacturing
This relationship involves the joint ownership with a foreign
company of an offshore manufacturing enterprise.
Controlled Offshore Manufacturing
This relationship is that of a parent and wholly-owned foreign
operation, generally a subsidiary corporation that supplies the
parent’s needs for a product.
Four important selection considerations are:
Company capabilities and resources
Availability and capabilities of suppliers or partners
Projected sourcing volumes and variability
Degree of integration of offshore sourcing with other operations.
The Selection of an International Market
An SME needs to critically examine several factors while selecting the
most appropriate entry mode for international markets. The major
factors which need to be examined are as under:
Structure of competition
Level of risks.
However, an in-depth detail analysis is required for the firm before a final
decision is taken on an international market entry mode.
How to enter International Markets
How to enter International Markets
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