THE BMZ ACADEMY
THE BMZ ACADEMY
053 8213
BMZ ACADEMY 061 262 1185/068 053 8213Page 1 of 26
, THE BMZ ACADEMY
1. Foreign market entry modes
When firms go international, they have strategic decisions, particularly when making
foreign market entry modes. This is a decision that has implications on control, cost, risk,
payback, and flexibility in the future. The following discussion outlines common foreign
market entry modes, illustrating their advantage and disadvantage, links them with
theories like internalization theory and the eclectic paradigm, and takes a look at the entry
into the Iranian mobile market by MTN. It illustrates the entry mode utilized by MTN
(ownership, partnership), supports the theoretical basis of the decision, and the trade-
offs.
Types of Entry Modes
Firms venturing into foreign markets utilise varied modes of entry, including control, risk,
resource intensity, and investment. Most common modes include:
1. Exporting – producing in the home country and shipping the goods or services to the
host country (direct or indirect exporting).
2. Turnkey Projects – in which a company designs, builds, and equips a facility, then turns
the key over to host-country management, commonly employed on great infrastructural,
industrial, or energy projects.
3. Licensing – providing the rights to intangible property (patents, trademarks, technology,
etc.) to a local company in exchange for royalties or payments.
4. Franchising: this is a special type of licensing, under which the franchisor also exercises
a meticulous control over system, branding, operations, commonly applied in fast food,
hospitality, retail.
Licensing and franchising involve granting a foreign entity the right to use intellectual
property or a business system. For instance, Microsoft licenses its Windows OS to PC
BMZ ACADEMY 061 262 1185/068 053 8213Page 2 of 26
, THE BMZ ACADEMY
manufacturers globally, while McDonald's franchises its brand and operational model.
These modes enable rapid market entry with limited investment but risk knowledge
leakage and quality control issues (Hill, 2023).
5.Joint Ventures (JVs)/Strategic Alliances: establishment of new entity or alliance
between one/multiple local firms, common ownership, risk-sharing, often involving local
partner's expertise/inputs-localization combined with foreign firm's technology, know-how
or financing.
6. Wholly Owned Subsidiaries (WOS): can be started from scratch or through the
purchase of a local company, providing total control but also all risk and cost exposure.
These involve established via Greenfield investment or acquisition, offer maximum control
and profit retention but require substantial resource commitment and bear all risks, as
seen when Starbucks bought out its JV partners in China to gain full control over its
operations.
Theoretical Perspectives on Entry Mode Choice
The selection of an entry mode is not arbitrary; it is guided by several key theories:
According to the theory on internalization, businesses will opt for the former when the
markets on the exterior are imperfect. Higher control modes like JVs or wholly-owned
subsidiaries are favored when the purpose is that of protecting technology, quality, or
coordinating on a worldwide basis.
Internalization Theory argues that firms choose high-control modes like WOS to avoid the
transaction costs and risks of opportunism associated with external markets, especially
when protecting valuable knowledge (Rugman, 1981). Furthermore, the Uppsala Model
suggests that firms internationalize gradually, starting with low-commitment modes and
increasing their resource commitment as they gain market knowledge (Johanson &
Vahlne, 1977).
BMZ ACADEMY 061 262 1185/068 053 8213Page 3 of 26
THE BMZ ACADEMY
053 8213
BMZ ACADEMY 061 262 1185/068 053 8213Page 1 of 26
, THE BMZ ACADEMY
1. Foreign market entry modes
When firms go international, they have strategic decisions, particularly when making
foreign market entry modes. This is a decision that has implications on control, cost, risk,
payback, and flexibility in the future. The following discussion outlines common foreign
market entry modes, illustrating their advantage and disadvantage, links them with
theories like internalization theory and the eclectic paradigm, and takes a look at the entry
into the Iranian mobile market by MTN. It illustrates the entry mode utilized by MTN
(ownership, partnership), supports the theoretical basis of the decision, and the trade-
offs.
Types of Entry Modes
Firms venturing into foreign markets utilise varied modes of entry, including control, risk,
resource intensity, and investment. Most common modes include:
1. Exporting – producing in the home country and shipping the goods or services to the
host country (direct or indirect exporting).
2. Turnkey Projects – in which a company designs, builds, and equips a facility, then turns
the key over to host-country management, commonly employed on great infrastructural,
industrial, or energy projects.
3. Licensing – providing the rights to intangible property (patents, trademarks, technology,
etc.) to a local company in exchange for royalties or payments.
4. Franchising: this is a special type of licensing, under which the franchisor also exercises
a meticulous control over system, branding, operations, commonly applied in fast food,
hospitality, retail.
Licensing and franchising involve granting a foreign entity the right to use intellectual
property or a business system. For instance, Microsoft licenses its Windows OS to PC
BMZ ACADEMY 061 262 1185/068 053 8213Page 2 of 26
, THE BMZ ACADEMY
manufacturers globally, while McDonald's franchises its brand and operational model.
These modes enable rapid market entry with limited investment but risk knowledge
leakage and quality control issues (Hill, 2023).
5.Joint Ventures (JVs)/Strategic Alliances: establishment of new entity or alliance
between one/multiple local firms, common ownership, risk-sharing, often involving local
partner's expertise/inputs-localization combined with foreign firm's technology, know-how
or financing.
6. Wholly Owned Subsidiaries (WOS): can be started from scratch or through the
purchase of a local company, providing total control but also all risk and cost exposure.
These involve established via Greenfield investment or acquisition, offer maximum control
and profit retention but require substantial resource commitment and bear all risks, as
seen when Starbucks bought out its JV partners in China to gain full control over its
operations.
Theoretical Perspectives on Entry Mode Choice
The selection of an entry mode is not arbitrary; it is guided by several key theories:
According to the theory on internalization, businesses will opt for the former when the
markets on the exterior are imperfect. Higher control modes like JVs or wholly-owned
subsidiaries are favored when the purpose is that of protecting technology, quality, or
coordinating on a worldwide basis.
Internalization Theory argues that firms choose high-control modes like WOS to avoid the
transaction costs and risks of opportunism associated with external markets, especially
when protecting valuable knowledge (Rugman, 1981). Furthermore, the Uppsala Model
suggests that firms internationalize gradually, starting with low-commitment modes and
increasing their resource commitment as they gain market knowledge (Johanson &
Vahlne, 1977).
BMZ ACADEMY 061 262 1185/068 053 8213Page 3 of 26
