Login

Breaking Into Foreign Markets: International Marketing Strategies

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Understanding the Consumer Decision-Making Process: A Marketing Must

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:51 Exporting
  • 1:47 Licensing
  • 3:02 Franchising
  • 4:06 Contract Manufacturing
  • 4:42 Joint Venture
  • 5:25 Direct Investment
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Login or Sign up

Timeline
Autoplay
Autoplay
Create an account to start this course today
Try it free for 5 days!
Create An Account

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Jennifer Lombardo
Companies look to international markets to increase their sales and profits. Market managers must decide on the mode of entry into a foreign market. The options, ranging from least to most risky, are exporting, licensing, franchising, contract manufacturing, joint ventures and direct investments.

Sam's Sauce Italiano Goes Global

Sam is the CEO of Sam's Sauce Italiano. He has suggested to the board of directors a plan to take his sauce into international markets. The Italiano Corporation has had huge success nationally with the introduction of a homemade Italian tomato sauce called Sam's Sauce Italiano. The company prides itself on natural ingredients such as chopped garlic, fresh basil and whole peeled tomatoes imported from Italy. This past year's sales reached record proportions, resulting in the company considering the overseas market to continue their tremendous growth pattern. When entering a global marketplace, a company has six different options that range from low to high risk.

Exporting

The international marketing strategy with the lowest risk for the Italiano Corporation would be exporting. The company would sell their sauce to buyers in another country. Exporting offers the lowest risk for a company who wants to pursue international markets for a few reasons.

  1. First, it is the least expensive of the options. There is no need to set up manufacturing operations in another country.
  2. The company also does not have to deal with local government, as there are no stores or factories being established. The Italiano Corporation is highly considering this option since they have limited knowledge of selling their products overseas.
  3. Another plus to Italiano is that there is no real investment. If the product fails overseas, then it is easy to recoup the minimal investment in other ways.

The paths to entering the global marketplace have varying amounts of risk
Six Foreign Market Paths

Like anything, there are also some real disadvantages to exporting, including high transportation costs and dealing with trade barriers.

Licensing

Another low-risk method to enter the international market is licensing. It is the quickest way to start an international business, since the license is from the foreign market. In this strategy, the licensee is granted the right to use a manufacturing process, patent design or some other company-specific information to create the product. In return, Italiano would get a fee or royalty from the licensee.

There are some disadvantages to licensing. Italiano Corp would have to keep control over the licensee's activities to ensure proper quality of their sauce. In order to make sure their sauce remains the same, Italiano would have to supply the licensee with the same ingredients on a daily basis. Another concern for Italiano would be that the licensee could steal the recipe and try to market the sauce themselves. The licensee could become Italiano's biggest competitor someday! Since Italiano does not have a strong physical presence in the licensee's country, it would be easy to lose control of the operation. Constant communication and company visits must be implemented to ensure proper cooperation. Italiano has decided that the lack of control is a major reason not to pursue licensing.

Franchising

Italiano Corporation has also considered franchising as a way to reach international markets. It is an arrangement where the franchiser (Italiano) allows the franchisee (a foreign person or company) the ability to use the Italiano name and be given the process to actually make Sam's sauce. The franchisee usually pays the franchiser a large one-time fee and then a percentage of the profits. The franchisee gets marketing, sales, promotion and training support directly from the Italiano Company.

Franchising has grown rapidly in the last decade because of the many advantages, such as low risk, low involvement and the host country information is easy to obtain. If Italiano would pursue this strategy, they would have to have faith and trust in the franchisee. Also, it is hard to check up on the franchises overseas. Lastly, a franchise would be most suited for fast food restaurants, services, and other retail establishments, so Italiano has decided not to pursue this method of entry.

Contract Manufacturing

Some firms want to minimize their involvement in international business. Contract manufacturing is private-label manufacturing by a foreign company. The foreign company uses the firm's brand name and produces the product based on the firm's specification. The advantage is that Italiano would not have to invest in overseas factory costs. A big disadvantage is that the foreign company could produce some of the sauce after-hours and sell it to unauthorized dealers, diluting the brand name. Italiano wants to maintain control over their brand and product, so they decided not to pursue this avenue.

To unlock this lesson you must be a Study.com Member.
Create your account

Register for a free trial

Are you a student or a teacher?
I am a teacher

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back

Earning College Credit

Did you know… We have over 95 college courses that prepare you to earn credit by exam that is accepted by over 2,000 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it free for 5 days!
Create An Account
Support