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Chapter 4: International Market Entry Decisions

4.1 Analyzing international marketing
4.1.1 Indicators of International Marketing Opportunity
Broadly speaking, international marketing opportunities could be identified by recognizing the existence
of unfulfilled demand in a foreign country that your company can effectively service; or, by recognizing
the existence of goods and services in foreign markets that your company can obtain to fulfill domestic
demand. In other words, international marketing opportunities exist in one of these two forms:
1. Existing, latent, or incipient demands in foreign countries that a firm can effectively fulfill
through its offerings. The managerial task is to assess the nature of foreign market demand and
your company's ability to serve that demand.
 Existing Demand in foreign Countries
The primary indicators of international marketing opportunity are the demand and supply situation for
products; in foreign country, moderated by the international marketer's ability to effectively service
those markets. When there are already existing demand for certain products and services in foreign
countries, you may choose to serve that market by offering products and services that meet the current
demand. Your marketing task, in this context, is to offer superior value to the customers, whereby their
preferences can be channeled in favor of your company's offerings. Such existing demand is visible in
local shortage of goods, substantial imports, or higher prices charged for these goods in local markets.
 Latent Demand in foreign Countries
Latent demand may exist in foreign markets because of unavailability of certain products that will fulfill
the need or want of a substantial number of people in the country. Such unavailability of products could
be due to the lack of technological solutions for certain problems. In many countries, we can see this, in
the need for drugs or vaccines to cure AIDS or prevent cancer. In other cases, latent demand may exist
when technological solutions are available but marketers have not yet developed liable products to meet
customer needs. For example, in most parts of the world there is latent demand for efficient automobiles
that can operate without expensive gasoline. In order to benefit your company of the opportunities in
latent markets, you must study the needs and wants of people in foreign markets and then be prepared to
undertake market development activities to stimulate the latent demand into 'ready demand' for products
and services that you will offer to these markets.

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 Incipient Demand in foreign Countries

One of the most exciting opportunities for international marketing arises when there is incipient
demand for some products in foreign markets. Incipient markets are usually characterized by emerging
demand for certain products and services. They provide early signals for a high market growth that one
would expect to follow in the near future. Since most marketers like to be in growth markets, they are
likely to be attracted to incipient markets.
Incipient demand usually corresponds with the emerging and growth stages of market evolution.
International marketers interested in identifying such opportunities often look for trends in recent growth
rates and consumption patterns of certain products. It is not the volume of the market, which is
important, but the rate of growth and potential interest in the product among a country's population.
Servicing incipient demand is both challenging and exciting as it involves market development activities
as well as the threat of new entrants into the marketplace.
2. An opportunity to source goods and services from foreign countries to fulfill demand in domestic
markets and/or other foreign countries.
In this situation you need to assess the supply position of the foreign country and, your ability to acquire
the foreign goods and services to fulfill demand in domestic markets and other foreign countries.
As an international marketing manager, you should be aware of both types of opportunities because a
global orientation to business connotes that we look for opportunities to serve world markets by
obtaining resources from around the world.
Sourcing as an international marketing opportunity
The following factors are indicative of international sourcing opportunities.
When the price of a product or service- is significantly lower in a foreign country than in
domestic or third country markets for comparable quality goods or services;
Where superior quality goods are available in another country and have the potential to
better meet the needs of domestic and/or third country markets, given comparable prices;
If there is shortage of supply in domestic market or another foreign country. This has to
be complemented by available capacity or short term elasticity of supply in the foreign
country from where you wish to source the goods; or
Among the indicators of sourcing opportunities are the changing preference of people
towards foreign goods and services. These could be a favorable image regarding a

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particular country's products in general, or it may be related to specific products and

designs of foreign countries.
4.2. International Marketing Entry Evaluation Process
The International Marketing Entry Evaluation Process is a five stage process, and its purpose is to gauge
which international market or markets offer the best opportunities for our products or services to
succeed. The five steps are Country Identification, Preliminary Screening, In-Depth Screening, Final
Selection and Direct Experience.
Step One – Country Identification
You can choose any country to go into. So you conduct country identification – which means that you
undertake a general overview of potential new markets.
Step Two – Preliminary Screening
At this second stage one takes a more serious look at those countries remaining after undergoing
preliminary screening. Now you begin to score, weight and rank nations based upon macro-economic
factors such as currency stability, exchange rates, level of domestic consumption and so on. Now you
have the basis to start calculating the nature of market entry costs.
Step Three – In-Depth Screening
The countries that make it to stage three would all be considered feasible for market entry. So it is vital
that detailed information on the target market is obtained so that marketing decision-making can be
accurate. Now one can deal with not only micro-economic factors but also local conditions such as
marketing research in relation to the marketing mix i.e. what prices can be charged in the nation? – How
does one distribute a product or service such as ours in the nation? Step Four – Final Selection
Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic goals
and look for a match in the nations at hand. The company could look at close competitors or similar
domestic companies that have already entered the market to get firmer costs in relation to market entry.
Managers could also look at other nations that it has entered to see if there are any similarities, or
learning that can be used to assist with decision-making in this instance. A final scoring, ranking and
weighting can be undertaken based upon more focused criteria. After this exercise the marketing
manager should probably try to visit the final handful of nations remaining on the short, shortlist.
Step Five – Direct Experience
Personal experience is important. Marketing manager or their representatives should travel to a particular
nation to experience firsthand the nation’s culture and business practices. On a first impressions basis at

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least one can ascertain in what ways the nation is similar or dissimilar to your own domestic market or
the others in which your company already trades.

4.3. Forms of Entry (International Market Modes)

International market modes refer to the methods or channels a company uses to enter and operate
in a foreign market. There are various market entry modes, each with different levels of control,
investment, risk, and commitment. The most common international market modes include:

1. Exporting
Exporting can be defined is a strategy in which a company, without any marketing or production
organization overseas, exports a product from its home base.
Exporting takes two forms:
Indirect Export
Companies typically starts with indirect exporting that is they work through independent intermediacies
to export their products. There are four types of intermediaries.
Domestic – based export merchant
Buys the manufacturer’s products and then sells them abroad.
Domestic based export agent
Seeks and negotiate foreign purchases and is paid a commission.
Cooperative organization
Carries on exporting activities on behalf of several producers and is partly under their
administrative control. Often used by producers of primary product – fruits, nuts and so on.
Export – management company
Agrees to manage a company’s export activities for a fee.
Direct Export
Companies eventually may decide to handle their own exports. The investment and risk are somewhat
greater. The company can carry on direct exporting in several ways;
Domestic based export department or division
An export sales manager carries on the actual selling and draws market assistance as needed. The
department might evolve into a self – contained export department performing all the activities involved
in export and operating as a profit center.

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Overseas sales branch or subsidiary

An overseas sales branch allows the manufacturer to achieve greater presence and programs control in
the foreign market. The sales branch handles sales and distribution and might handle warehousing and
promotion as well. It often servers as a display center and customer – service center also.
Traveling export sales representation
The company sends home – based sales representatives abroad to find business.
Foreign – based distributors or agents
The company can hire foreign based distributors or agents to sell the company’s goods. These
distributors and agents might be given exclusive rights to represent the manufacturer in that country or
only limited rights. Whether companies decide to enter foreign markets through or indirect exporting,
one of the best ways to initiate or extend export activities is by exhibiting at an overseas trade show.
From the forms of entry in international marketing exporting is the most common and least risky entry
mode, especially for companies with limited resources or experience in international markets. It allows
firms to test foreign markets with minimal investment, although it may be less profitable than other
modes due to middlemen and limited control over marketing and sales.

2. Licensing
A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to
another entity (the licensee) for a specified period of time, and in return, the licensor receives a royalty
fee from the licensee. The licensor license a foreign company to use a manufacturing process, trademark,
patent, or other item of value for a fee or royalty. The licensor thus gains entry into the foreign market at
a little risk. The license gains production expertise or a well-known product or name without having to
start from scratch. Licensing allows companies to enter foreign markets with lower investment and risk.
However, it also means giving up some control over the brand and its operations.
3. Franchising
A company can enter a foreign market through franchising, which is a more complete form of licensing.
It is an agreement to sell company products exclusively in a particular area or to operate a business that
carries company names. Here the franchiser offers a franchisee a complete brand concept and operating
system. In return, the franchisee invests in and pays certain fees to the franchiser.

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Unlike licensing, franchising involves a more integrated system with the franchiser providing
training, support, and ongoing monitoring. This mode is commonly used by service-based
businesses (such as fast food chains) to expand internationally while minimizing risk.

4. Joint Venture
Foreign investors may join with local investors to create a joint venture in which they share ownership
and control. Forming a joint venture might be necessary or desirable for economic or political reasons.
The foreign firm might lack the financial, physical or managerial resources to undertake the venture
alone. Or the foreign government might require joint ownership as a condition for entry.
Joint ventures are typically employed when entering complex or high-risk markets, as local partners can
provide valuable insights and connections. However, they require careful negotiation and alignment of
goals.
5. Foreign Direct Investment
The ultimate form of foreign involvement is direct ownership of foreign-based assembly or
manufacturing facilities. The foreign company can buy part or full interest in a local company or build its
own facilities. As a company gains experience in export, and if the foreign market appears large enough,
foreign production facilities offer distinct advantages, as enumerated below.

Advantages of foreign direct investment:

 The firm could secure cost economies in the form of cheaper labor or raw materials, foreign
government incentives, freight savings and so on.
 The firm will gain a better image in the host country because it creates jobs.
 The firm develops a deeper relationship with government, customers, local suppliers, and
distributors, enabling it to adapt its products better to the local marketing environment. Etc.
The main disadvantages of direct investment is that a firm exposes its large investment to risks such as
blocked or devalued currencies, worsening markets, or expropriation.

6. Strategic Alliances:

Strategic alliances involve partnerships between companies to collaborate on specific business

activities such as product development, marketing, or distribution in a foreign market. Unlike
joint ventures, these alliances do not involve the creation of a new legal entity. Strategic alliances

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allow companies to share expertise and resources, but they require mutual trust and clear
agreements on roles and responsibilities.

7. Turnkey Projects:

In a turnkey project, a company designs, builds, and equips a facility and then hands it over to a
foreign company upon completion. This is common in industries such as construction or
manufacturing.

Turnkey projects allow firms to enter foreign markets without establishing a long- term presence but still
involve significant expertise and investment.

4.4 Selecting an Entry Mode

The selection of an entry mode depends on several factors, including:

Market Size and Growth Potential:- Large and fast-growing markets may justify higher
investment and greater control through methods like wholly owned subsidiaries or joint ventures.

Resource Availability: A company’s financial resources, expertise, and managerial capacity can
determine the level of involvement it can handle in the foreign market. If resources are limited,
indirect exporting, licensing, or franchising may be more suitable.

Risk Tolerance: - Some markets are more volatile or uncertain than others, requiring a company
to weigh the risks involved. Licensing or exporting might be preferred in markets with higher
political or economic instability, while direct investment modes might be used in more stable
markets.

Control and Flexibility: Companies that want to maintain strict control over product quality,
branding, and operations may prefer wholly owned subsidiaries or joint ventures. For those
seeking less control or wishing to avoid heavy investments, licensing or franchising might be
better options.

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Market Knowledge and Experience: Companies entering markets with unfamiliar cultures,
regulations, or consumer behavior may find joint ventures with local firms a beneficial way to
gain market knowledge and share risks.

Competitive Factors: The level of competition in the target market can influence the entry
strategy. If competition is intense, a company might opt for more aggressive modes like wholly
owned subsidiaries to establish a stronger market presence.

Legal and Regulatory Environment: The legal framework and government policies in the
target country can impact the feasibility of certain entry modes. Some countries impose
restrictions on foreign ownership or require joint ventures with local firms.

4.3 Export Documents and Procedures

Exporting involves several legal and administrative steps to ensure the smooth shipment of
goods from one country to another. These documents and procedures are essential to comply
with local regulations, customs, and international trade laws.

4.3.1 Components of export documents:

Proforma Invoice: A preliminary invoice provided by the exporter to the buyer, indicating the
product details, price, and terms of sale. It is often used for customs clearance and obtaining
financing.

Commercial Invoice: A final invoice issued by the exporter once the goods are shipped. It
provides detailed information about the products, including their value, quantity, and terms of
sale. This document is required by customs authorities for assessing duties and taxes.

Packing List: A document detailing the contents, weight, and packaging specifications of each
shipment. It helps customs officials and logistics providers understand how the goods are packed
and processed.

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Bill of Lading (B/L): A key shipping document issued by the carrier, which serves as a receipt
for the goods and a contract for their transport. It also acts as proof of ownership, making it a
critical document in international trade.

Certificate of Origin: This document certifies the country where the goods were manufactured or
produced. It is required by customs authorities to determine the appropriate tariffs and trade
regulations.

Insurance Certificate: A document that proves the goods are insured during transit. This is often
required to protect the buyer and seller in case of damage or loss during transport.

Export License: In some countries, an export license is required for certain goods or services.
The license is issued by the relevant government authority and ensures that the exporter is
authorized to send products abroad.

Customs Declaration Form: This form is required by customs authorities to declare the nature of
the goods, their value, and their destination. It helps facilitate the smooth movement of goods
across borders and ensures compliance with customs regulations.

Export Packing Declaration: This document specifies the materials used in packing the goods,
ensuring that they comply with international standards and regulations.