Question

Provide the pros and cons for each of the nonequity and equity modes of entry.

Answer 1

Non - equity modes include indirect and direct exporting, franchising, and licensing.

Equity modes include joint venture and wholly owned subsidiaries. The structure of the company, nature of the foreign market and the regulations in the target country will be the factors in deciding which modes will be available.

Pros and cons non equity mode of entry:

1. Direct investment allows the investing company more direct control over the operations. Joint ventures allows the investing company to take advantage of its resident partners knowledge of government regulations, business culture and consumer marketing.

2. Requires larger investment on the part of the investing company. Investment is not only in term of monetary resources but also time in establishing relationships with either direct investment partners or joint venture partners in the target market

3. Exposure to higher risk if the target market becomes instable.

Pros and cons of non-equity mode of entry:

1. It allow the investors to enter overseas market with minimal investment and reduced risk.

3. It helps to enter the market much faster than equity mode.

4. The target company view the investing company as an outsider. So the consumers and business partners feel hesistant to deal with the company not willing to invest the money, time and effort to physically establish a presence in the market.

5. High costs include transportation cost and export duties for exporters from the source nation. Lack of control ove the product and limitations within the terms of licensing agreement faced by licensees.