Exporting

Exporting is administratively handled by the internationalizing firm with operations located in the external market (Anderson & Gatignon, 1986). It does not require the physical establishment of market presence in the foreign markets. Exporting firms have to establish “contractual agreements with host country firms” (Hitt, Ireland, & Hoskisson, 2011, p.232).

It also requires the exporting firm to develop its own marketing systems and distribution networks. The major disadvantages are the inherent distribution costs, which could make products uncompetitive, and there is minimal effective control (Hitt, Ireland, & Hoskisson, 2011). The main advantage is that it is relatively easy to establish than all the other entry modes.

Licensing

Licensing involves the establishment of international market presence with relatively low cost overlays through the limited exchange of patent and/or trademark rights (Ghauri & Cateora, 2010). It is increasingly become the most preferred strategic approach to international markets by SMEs as cost implications as relatively low (Kline, 2003).

It allows firm to enhance its returns by leveraging on previous innovations. This is especially practically for products with short product life-cycles. Its main advantage is the cost component of establishing. The main disadvantages are; the low returns and there is minimal control over the licensees (Hitt, Ireland, & Hoskisson, 2011).

Franchising

Franchising is an extended version of licensing which incorporates enhanced agreements that involve sharing of additional intangible obligations (Hill, 2007). This form of licensing involves the provision of standardized packaging “of products, systems, and management services” (Ghauri & Cateora, 2010, 278).

The franchisees offer capital, market knowledge, and personnel commitment in management and operations. It is slightly costlier than licensing but offers better returns since operations are standardized. There are three main models; licensing, master franchise, and joint venture with varying commitment levels (Ghauri & Cateora, 2010).

Joint-Ventures/Strategic Alliances

Joint venture or strategic alliances allow firms to share associated risks with international market entry (Hitt, Ireland, & Hoskisson, 2011). In the set up, firms establish equity stakes in a joint-partnership that are subject to the limitations of the host country. There are particularly prevalent in western multinationals expanding into emerging markets.

The major advantages are; shared costs, shared risks, shared resources, and the ability to develop new competencies (Hitt, Ireland, & Hoskisson, 2011). The major downsides are the cost implications, as they require substantial financial commitment and integration problems as a result of cultural conflicts between management.

Acquisitions

Acquisitions are increasing with the expansion of free trade agreements and they provide a relatively fast entry into new markets. This is usually a natural progression step after the establishment of a foreign joint venture. Cost implications are quite high as financial commitment is extensive.

The main advantage of acquisition is that it provides a relatively quick market access as the acquired firm has an existing functional local market. Disadvantages include; complexity of negotiations that result in the execution and there are emergent problems that result from the efforts in merging the new operations with existing business (Hitt, Ireland, & Hoskisson, 2011).