Ok, so you are on the verge of expanding your business internationally. You know the market you want to conquer and are planning how your products and services will be delivered to the target market.
As you plan this stage, keep in mind there are several options open to you regarding your approach. This choice will be influenced by factors such as cost, market behaviour, how adaptable your product is and the marketing strength you have.
Exploring alternative entry strategies could help you identify the best move for your company. Here are some options for your business:
Selling directly by creating a subsidiary
The subsidiary will be created from scratch and operate as an extension of your business. You will be able to control the operations as the parent company.
With this strategy, you sell directly to the new market.
The great thing about this method is that you have good control over the sales and interact directly with the customers. In addition, the potential profits are greater as you are eliminating intermediaries.
A potential drawback is that you have a lot more to handle. It takes more time, energy and money than you may be able to afford.
Nevertheless, if you have the funds, establishing a subsidiary may be the way forward. Please keep in mind that a successful implementation of this strategy requires deep investments in marketing.
Licensing, the foreign operation method where a firm in one country permits a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor.
The risk with that method is that you will have to share the product and technology knowledge with the local company. This risk is limited when you build strong contracts with mutually beneficial clauses to protect this information.
Companies find this option favorable because it involves little expense and involvement in comparison to setting up your operation in another country yourself.
Be aware you may also have to convince the local firm that your product is right for them and persuade them to sell it if there is any potential risk to them selling or launching it, so ensure the license is fit for the company or are approaching.
A franchise allows entrepreneurs to purchase the rights to open and run their own branch of your company. You would sign a contractual agreement with the franchisee explaining, in detail, the rules and terms for operating the franchise.
It is a good option for companies with product that can adapt easily to new markets, in addition, it works well for brands that are already successful and well-known.
The difficulty arises when you have to manage different franchises. As much as there is a legal agreement to represent the company as you would, it is not uncommon for companies to have certain variations to accommodate for their local custom.
It is therefore essential with this option that you have strong enough legal control that your ethos and will not be tarnished, yet give enough space that franchises feel empowered enough to take pride and ownership over their branch as their own business. That is where the beauty of Franchising comes in.
You have now a glimpse of 3 different entry strategies. On a second article we will review other types of strategies and you can decide which one is best for your business.