Global Market Entry, M&A & Exit Strategies

Instructor: Michele Buckley
Selling your products or services in a foreign country for the first time is considered ''entering a new market.'' This lesson provides an overview of the different strategic options available to conduct business in other countries.

Congratulations! Your T-shirt design was voted the hottest trend among teenagers in a fashion magazine! Teenagers in other countries certainly would love your design, too. But how can you reach them and expand your T-shirt business?

In this lesson, you'll learn how businesses have seven strategic options for reaching customers in other countries, also known as global markets. Each option offers differing levels of investment, ownership, partnership, and risk. We'll begin with the greatest degree of ownership. We'll also provide options for exiting global markets.

Global Market Entry Strategies

1. Exporting

Exporting refers to a business producing products and/or services in its home country and selling them in other countries. Exporting can be done either:

  • Direct via company staff based in the home country (e.g., by processing orders placed online or by telephone). For example, victoriassecret.com allows international users to order online. It then ships orders internationally from the United States.
  • Indirect management of an agent or distributor in the foreign country (e.g., by the agent placing products into local stores). For example, Converse sells shoes globally directly via its website as well as indirectly via foreign distributors.

2. Investing

Another option is to establish a local site (i.e., office, store, warehouse, or factory) inside a foreign country through foreign direct investment (FDI). In this option, the company buys resources and assets in the foreign country. This is implemented by:

  • Building a greenfield site by hiring local staff, leasing commercial space, and/or setting up equipment in the foreign country. Starbucks and Godiva, for example, often build their own sites or stores overseas, which the businesses fully own.
  • Buying a local established company via merger or acquisition. For example, amazon.com has entered the Middle East markets by acquiring a local site, souq.com.

3. Joint Ventures

In joint ventures (JV), two individuals or companies come together to invest in a third new business, reducing risk of market entry and sharing key resources. JVs are often temporary because they focus on specific objectives and often present challenges sharing control, equity, or profits. For example, Exxon is considering a joint venture with Petrobras, Brazil's state-run energy company, that would establish a deep-water oil-drilling rig off the Brazilian coast.

4. Franchising

Franchising involves a local individual buying the rights to use a global entity's branding, resources, materials, and best practices, resulting in a local version of the business in a foreign country. Franchising is most often used by service companies for which exporting alone is not practical. Fast food restaurants are well-known for allowing local operators to run a McDonald's, Subway, or KFC restaurant as long as it follows the global entity's specified procedures. Other service firms, such as financial services, also use franchises.

A KFC franchise in Moriguchi, Japan
A KFC franchise in Japan

5. Licensing

Licensing intellectual property, such as a T-shirt design, to a foreign company is another option. In this arrangement, a foreign company uses your brand or design to produce and distribute its own products, paying a royalty for using the design. Lucasfilm often utilizes this strategy, allowing foreign companies to use its ''Star Wars'' characters to produce products such as toys, hats, T-shirts, etc. This is an attractive option if the business is not interested in creating products for global markets or managing distribution channels. If you wanted to show a ''Star Wars'' related image on one of your T-shirts in a foreign country, you would need a license from Lucasfilm with the geographic scope specified in the agreement.

For this toy, Lego licensed the rights to use Star Wars from Lucasfilm.
A Star Wars Lego toy is an example of Licensing

6. Piggybacking

Piggybacking refers to engaging another company, usually a customer, to deliver your products and/or services in its international channels. For example, if Apple is carrying your T-shirts in its American stores, it also could offer them in its overseas stores.

7. Partnership

In a partnership, two companies agree to work together, specified in an agreement. Every partnership is different, depending on the products and the businesses' needs. Technology companies such as IBM often use a broad partnership strategy, enabling local overseas service providers with knowledge and expertise to install and configure IBM products while allowing them to resell IBM products. In this partnership, each company benefits as the product cannot be sold without service (and vice versa). Vendors often provide a discount or rebate, training, and special staff to help partners be successful.

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