The right choice of a foreign market entry method, that is, the choice of one of the direct or indirect export methods, is the main key to success in international trade. While creating the entry strategy, the exporter should research the price and profit rates in the target market, all costs, including customs tariffs, taxes, transportation costs, and most importantly, the legal processes. Many factors, including the capacity of the target market, potential competitors, laws, consumer habits, and brand awareness, contain clues that will enable you to choose the right method for entering that market.
If you are not going to export directly, the choice of commercial partner with which you will cooperate is as important as your method of entering the target market. Even if your target market entry method is correct, failure is inevitable if your trading partner selection is wrong. Therefore, before making a choice, you should gather information about your partner.
• Trade partner's industry and market experience and recognition in the business world
• Competence of human resources and company organization of the commercial partner
• Current sales capacity and customer portfolio of the commercial partner
• Other suppliers with whom the trading partner is currently working
While the basic strategy of entry into a foreign market is preferred through the company's export department for potential importers in the target market, it is sometimes the most likely option due to the trade laws in the destination country.
1. Direct Foreign Market Entry Methods for Exporters
a) Direct export (With an own Export team)
b) Agents
c) Distributors
d) B2B market places
e) Direct to End User B2C
a) Direct (direct) export
Indirect export, the exporter does not use an intermediary and carries out all export operations with his own team by establishing an export department. Overseas market research, customer research, export documentation processes, customs clearance, shipment, receipt of payment are entirely the exporter's responsibility.
Although the marketing process is costly and the sales process involves various risks, direct export also has many advantages:
• The company is able to control all export stages.
• It increases the profit margin by eliminating the intermediaries.
• The company can establish closer relations with its buyer.
b) Agents
Agents do not purchase directly from the exporting company. So agents are not importers. The agent may be authorized to find customers in a country, negotiate with importers, and make agreements on behalf of the exporter. Agencies are used to find customers and make the first sale and maintain relations with existing customers. Agents work on a fixed fee or commission with a certain percentage on the actual sales. Agencies can sign a sales contract on behalf of the exporter, but in the contract, the company that will sell the goods and receives payment is the exporter; the agency acts as an intermediary only.
c) Distributors
In the distributorship system, the exporter signs a distributorship agreement with an importer in the target country. Working conditions and payment terms may differ, but a basic distribution system works as follows: The importer buys the product directly from the exporter. The shipment and customs clearance processes of the purchased products are completed as agreed by both parties. The importer sells the imported products to his customers with a certain profit. Distributors are authorized to sell the exporter's effects, sometimes throughout the country, sometimes in a particular city. Processes such as marketing, advertising, after-sales service are the responsibility of the distributor. If the company chosen as the distributor has a market share and customer base in its own market, agreeing with the distributor ensures that the product enters the market safely and effectively.
d) B2B Market Places
On an international scale, B2B sites are online marketplaces where exporters can showcase their products. Every day, hundreds of thousands of companies export and import worldwide through B2B sites such as Alibaba, Amazon business, Global Sources.
For a standard membership fee, B2B sites have the chance to showcase their products and services in a store opened under the site domain throughout the year.
e) Direct End User Selling - B2C
Sites such as Alibabaexpress, amazon, ETSY give exporters the chance to make B2C sales abroad. Some companies may not prefer to retail in this way. Still, for those who do, B2C sites provide an opportunity to spoil sales to end-users in different countries without the occasional importer or wholesaler.
2. Indirect Foreign Market Entry Methods for Exporters
Exporters sometimes enter a foreign market by partnering with a company already operating in that market or by licensing their products to be manufactured in that country. In this case, direct export will not be made. Sometimes this option is a necessity due to the commercial laws of that country or the most logical method in the current circumstances.
a) Joint Venture
b) Licensing
c) offshore
a) Joint Venture
The exporting company enters into a partnership agreement with a local company already operating in the target country where it wants to sell, to carry out one or more of the shares, technology transfer, production, and marketing activities together. Such agreements are preferred to be more competitive in the target market, share costs and risks, and share knowledge and experience of the two parties about the product and market.
b) Licensing
The company that wants to enter a foreign market transfers its knowhow, design, or intellectual property rights to a local company in that country in return for specific conditions and fees. The licensing fee may be in the form of a certain amount or a percentage of sales. License agreements are often used for quick entry into a foreign market. License agreements do not allow the licensee company to intervene in the production and marketing processes to be carried out in the target country. Knowhow transfer carries the risk of sharing some trade secrets, product information, and technology with third parties without the consent of the parent company.
c) Franchising
International franchising is a strategic method for the worldwide growth of a company that has established a successful network in its own country and created a successful product and brand. Introducing a brand to a foreign market through franchising is both minimally costly and low-risk, as your commercial partner in that country will incur the investment costs. In this method, your product and brand are made available to a company in another country within a system. There is usually a certain initial fee and a dividend on sales.
d) On-site (offshore) production
Sometimes, companies prefer to establish a company in the target market and carry out production in that country due to overseas shipping costs, high taxes in the importing country, or difficulties experienced during the import phase. Sometimes, low labor costs and low input costs make this option very advantageous.
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