Question

Describe the different entry modes for firms to enter the foreign markets. What are the various methods of export and import financing?

Answer 1

The following entry modes can be considered by a firm trying to establish a new market:

1. EXPORT

Export allows the consideration for a company to utilize an intermediary and directly sell its product in another country.

2. FRANCHISING / LICENSING

Through licensing, a company allows another to utilize its IP in return for a fee. Franchising has the same considerations, but, it also includes its brand name, management strategies, and other business models.

3. ACQUISITION / MERGERS

A company can enter another market by either acquiring another company that is already operating in the market or by creating a merger with them to cater to the competition in the market.

4. GREENFIELD INVESTMENT

It incurs the highest cost but also provides the most flexibility for a company. In this model, a company sets up its business in another country from scratch, using a large investment and creating a business, supplier relationships, and other necessary considerations such as brand marketing on its own.

The various methods of import and export financing are:

LETTER OF CREDIT
A bank issues for an importer to safeguard their interest. The bank acts as the middleman.

BILL OF DRAFT OF EXCHANGE
Given by the exporter to the importer or its bank to pay a sum of money upfront or after the delivery has been done.

BILL OF LADING
That is issued by the carrier to the exporter and used as a form of collateral.