Question

You are the CEO of a major Japanese consumer electronics company and are considering selling your products in North America. You have several options of how to enter this new foreign market. List and explain one (1) potential non-equity mode of market entry and one (1) potential equity mode of market entry. Discuss one (1) major advantage and one (1) major disadvantage of each mode of market entry.

Answer 1

Answer:

When a company uses the non-equity mode in order to reach foreign markets, it will export their goods to a trading company, or license it products to a foreign company or it might even establish franchises in a foreign company that are owned and operated by third parties. I.e. the company does not invest directly in the foreign country. The main advantage is less capital required and less risk assumed. The main disadvantage is that the company doesn't control the operations in the foreign country.

When a company uses the equity mode in order to reach foreign markets, it will establish a subsidiary, or form a joint venture with a local company. I.e. the company will invest directly in the foreign country. The main advantage is that the company can control the operations in the foreign country. The main disadvantage is that it requires a larger investment and risk is also higher.