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Modes of International Expansion

Modes of International Expansion
If a business wants to expand internationally, it needs to consider various modes of expansion.
These include: importing and exporting, licencing and franchising, strategic alliances and joint ventures, and wholly-owned foreign subsidiaries. Let’s take a closer look at each of these four categories. Importing and exporting. Importing is when products are brought into your country from another country. Exporting is when products are sold to customers outside of your country. The BBC, for instance, produces television shows such as “The Office” and “Top Gear” from revenue earned from paying UK audiences. Yet more income is obtained through exportation by selling the rights of these shows to international TV networks. Licencing or franchising. Licencing is when a company sells the rights to use their company name on a product or service by a different company.
For example, the merchandise, based on the Disney film “Frozen”, was produced by third parties who paid a licence fee. Franchising might also require the replication of a business in another physical location. Some McDonald’s, for instance, are owned by independent owners who bought rights to franchise. These franchisees have to adhere to strict rules, so that a customer’s experience remains similar for one franchise to another. Strategic alliances and joint ventures. A strategic alliance is when a business relationship is formed that aims to benefit each party, even if they are competitors. Star Alliance, which includes British Airways, American Airlines and Turkish Airlines, empowers airlines to provide a more comprehensive travel service to customers. As a result, business is increased for each.
A joint venture involves two businesses committing the resources to a shared business venture. When Sony entered the mobile phone market, they struggled to attract market share. They therefore teamed up with Ericsson to co-produce phones, which eventually led to the Sony Ericsson brand. Joint ventures also occur between seemingly unrelated businesses. For example, when Starbucks entered the Indian market, they formed a joint venture with Tata - a company known for manufacturing cars. Tata offered Starbucks a better understanding of the Indian market, while Starbucks provided the power of an internationally famous brand. Together, they stood a better chance of conquering the local coffee industry. Wholly-owned foreign subsidiaries.
A wholly owned foreign subsidiary, is when a company sets up a physical operation within a foreign country independently and without any direct local involvement. Nissan manufactures and sells cars in the UK, despite being a Japanese company. Whilst this provides logistical benefits, it requires a high level of resources and considerable investment. This graphic displays the level of risk associated with each method of expansion, importing and exporting being the lowest risk and wholly-owned foreign subsidiaries being the riskiest. This does not mean that one is more favourable than the other. The choice of how to expand will depend on several risk factors. We will review the features and advantages and disadvantages of the different forms of expansion in the sections that follow.

If a business wants to expand internationally, it needs to consider various modes of expansion. Watch this video on the modes of international expansion. As you watch, try to think of different examples for the 4 categories of international expansion that you have encountered in your life.

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