Management of Multinational Corporations

In this chapter, we discussed the various modes of entry into a foreign market-Exporting, Turnkey Projects, Licensing, Franchising, Joint Ventures and Wholly-Owned Subsidiaries and Strategic Alliances. We also discussed the advantages and disadvantages of each of these modes of entry. The advantage of exporting is that it facilitates realization of experience curve economies and prevents cost of setting up manufacturing operations in another country. Disadvantages include high transport costs, trade barriers and problems with local marketing agents. Turnkey projects allow firms to export their process technology where FDI is not permitted. The disadvantage is that the firm may create competitors in the process. The main advantage of licensing is that the licensee bears the cost and risk of opening a foreign market. The disadvantages include the risk of losing technological know-how to the licensee. The advantage of franchising is similar to that of licensing and the disadvantage is that the franchiser has to keep strict control over the franchisee. The advantage of joint ventures is the partners share the costs and risk of opening a foreign market and of gaining knowledge and political influence.