Question

Foreign market entry mode – International joint venture vs. Exporting

ABYZ Company is a successful Australian business. Currently, it manufactures within Australia and exports its products to overseas markets. From the perspective of ABYZ Company, discuss why the use of Exporting might be a more appropriate international foreign market entry mode than entering through a Foreign Direct Investment (FDI) Greenfields approach. Discuss the advantages and disadvantages of both for the company.  

Recommended length is approximately 250 words.

Answer 1

In this case exporting will be the appropriate foreign market entry mode for ABYZ Company when compared to entering foreign market through a FDI (or foreign direct investment) Greenfield approach. This is because of the fact that the company currently has its entire manufacturing based in Australia and hence it can easily scale up its manufacturing capacity in Australia and then export its products to countries which are seeing good demand traction.

The advantage of using exporting as an entry strategy is that no new investment will be required to set up manufacturing infrastructure in overseas market. This will help ABYZ Company on two fronts – it will be able to preserve its cash and this can be used in future for further expansion and to chase viable business opportunities as and when they become due. Secondly it will also mitigate the risk exposure for ABYZ Company to a large extent. In terms of disadvantages ABYZ Company will have to incur large amount of expenses towards marketing its product in the overseas market so that the target consumers are effectively reached.

In case of FDI Greenfield approach the advantage is that it will increase the competitive intensity of the company in the overseas market in which the greenfield project is set up. In terms of disadvantages it will require the company to earmark large amount for investment purposes and this can create liquidity problems for the company in the near future.

After considering the pros and cons of both options we can see that exporting is a better entry mode for ABYX Company given its current standing and its manufacturing based totally in Australia.

(273 words)