ENTRY MODES IN INTERNATIONAL BUSINESS

1) CONCEPT:

LICENSE:"A permit from an authority to own or use something, do a particular thing , or carry on a trade"*
LICENSING AGREEMENT:"Under a licensing agreement, company (the licensor) grants rights to intangible property to another company (the licensee) to use in a specified geographic area for a specified period. In exchange, the licensee ordinarily pays a royalty to thr licensor"**

FRANCHISING:"It is a specialized form of licensing in which the franchisor not only sells an indepent franchisee the use of the intangible property (usually trademark) essential to the franchisee's business but also operationally assists the business on a continuing basis, such as through sales promotion and training. In many cases, the franchisor provides supplies"*** 

TURNKEY OPERATIONS:"Turnkey operations are a type of collaborative arrangement in which one company contracts another to build complete, ready-to-operate facilities"****

INVESTMENT:"The action or process of investing money for profit or material result"*****

2) QUESTION:Which are the types of entry modes in International business?

ANSWER: When a company decides to enter in business in a foreign country, we can say that basically there are three modes to enter these markets, at this point is important to remenber that a company decides to expand its operations in order to expand sales, to acquire better resources, and to minimize all types of risks.
According with Daniels, the most important Entry modes are: direct or indirect EXPORT; LICENSING under the figures of Franchising, Management contract, and Turnkey Operations; and the last entry mode is INVESTMENT under the figures of portfolio and foreign direct investment (FDI).

      

Daniels says exactly that "Entry mode depends on ownership advantages of the company, location advantages of the market, and internalization advantages that result from integrating transactions within the company. Companies that have lower levels of ownership advantages either do not enter foreign markets or use low-risk strategies such as exporting."******
Through exporting, the companies may expand sales, take minimal risks in comparison with FDI, and implement the use of economies of scale in production. With licensing, companies can specialize in its primary competencies  and learn from other companies, the risk taken in this mode is higher than the risk taken in exporting. To conclude, investment is the most risky entry mode, but profitability is also the greatest compared with  the export and licensing modes.

3) POINT OF VIEW: Any company that wants to internationalize their operations, must do  a series of political, economic, financial, monetary and cultural analysis, in order to  know whether a country is good to expand and implement actions and operations of the company  in order to increase profitability and create value.

One of the most important strategic decisions in the process of internationalization is the choice of form of entry to any country, as I said earlier, there are many alternatives that involve different degrees of investment risk level, market integration, and control over the distribution chain

I think that besides all the above external variables, that companies must study and analyze, also it should look at a number of internal variables, where each company must choose the most appropriate entry form.

In my opinion between the internal variables that the company should consider are: general business goals, objectives of the internationalization of the company, type of products or services that will be offered, economic performance, human and management capacity, level of internationalization of the company, and finally the knowledge of foreign markets.

To conclude, once the company has evaluated all these variables, it must make the best decision based on improving economic and financial performance, which allows the company to get a good consolidation worldwide exporting their goods, invest directly or indirectly, by licensing to other companies in the same industry or other different industries, companies have been able to focus their efforts in the entry mode that represents a competitive advantage,these  companies become in the best companies worldwide in terms of profitability and competitiveness.

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*Oxford Dictionaries.(2010).License.[Online]: http://oxforddictionaries.com/view/entry/m_en_us1263289#m_en_us1263289.006
**Daniels, John D (2004). International Business:Environments and operations.Chapter 14: Direct Investment and Collaborative Strategies.p 497
***Daniels, John D (2004). International Business:Environments and operations.Chapter 14: Direct Investment and Collaborative Strategies.p 498
****Daniels, John D (2004). International Business:Environments and operations.Chapter 14: Direct Investment and Collaborative Strategies.p 500
 *****Oxford Dictionaries.(2010).Investment.[Online]: http://oxforddictionaries.com/view/entry/m_en_us1258911#m_en_us1258911
******Daniels, John D (2004). International Business:Environments and operations.Chapter 13: Export and Import Strategies.p 457

-Image 1: Getty Images.Business Network.(2010).Available at: http://www.gettyimages.com/detail/56503961/Stock-Illustration-Source
-Image 2 Taken and adapted from: Daniels, John D (2004). International Business:Environments and operations.Chapter 13 & 14. p 451-517.