Hi, guys, welcome back to Global Business Environment Course 2. This is module four and part two of module four. We're trying to understand how a company might structure and organize its business as it enters a foreign market for the first time. We've been looking in part one at trying to understand the timing of entry, as you see here, timing is not the only question. You have the whole globe now at your fingertips, so to speak, and you have to decide where to enter. And we're not going to talk as much about where to enter in this particular module. So let's assume that you've decided to enter a particular market. The question you might ask yourself is how we organize ourselves, how we enter that market. And so we'll talk about modes of entry, or ways to enter foreign markets, and as you can see from this slide, there several general categories of market entries. And this isn't necessarily the only categorization that we might use. There are other ways that I've seen other professors and other academics, researchers, organize and categorize market entry. But this particular slide talks about exporting, Licensing, Joint ventures, and then Direct Investments. And what I want you to focus on right now, because we're going to focus on each of these individually in other parts of this module, is this yellow arrow below. And as you can see as you move towards the right, these are forms of market entry that involve more commitment. Therefore more risk, but also more control, and potentially more profit potential. And so this form, compared to this form of entry into the market, involves less commitment, less risk, less control, and therefore a little bit less profit potential depending on the market and the product involved. So companies have this whole range of options available to them. Entrepreneurs, managers are looking at this saying, how are we going to get into this market? We've decided to enter, we mentioned India earlier. We've decided to enter Brazil. How are we going to organize ourselves? Well, here is a simple slide, or image, that looks at some of the factors that company managers and entrepreneurs are looking at when they consider these options. They're looking at the market size, the potential in the market. They're looking at the local conditions, what regulations govern the decision. Is there competition already there? Is there local competition, what types of risk do we face, are there political risks in this market, what types of costs are we facing, startup costs, and then, ongoing operational, production, and shipping costs? These are all types of factors that a company might face. Now, we haven't even talked about whether or not the company is just going to sell, or whether it's going to manufacture, or have some other form of operation in the market. Because obviously building a plant to assemble and manufacture would be much different than simply offering your product for sale. So those are other factors, you have here some other company level issues. A company might consider it's own international experience before entering into a foreign market and choosing one of these modes of entry. It would look at it's own strategy, it's own goals. The resources it realistically can commit to this new venture abroad. And how flexible they're going to be able to be if things don't workout, and they probably won't exactly like they expect. And so you might argue that a company that is new at entering into foreign markets would start out with a relatively simple way of being involved in foreign markets. Imagine Coca Cola just starting out, approximately 100 years ago, and it hears that people in Canada, or France, or wherever are interested in their product. It probably is not the case that Coca-Cola started out building plants all around the world making a very huge commitment and taking a lot of risk and spending a lot on resources. It is probably the case that Coca-Cola started out exporting. This is a very easy way to get involved in a foreign market without taking much risk, without making much of a commitment. All you need to do is establish a partner or distributor, a company that wants to sell your product. You've obviously determined there is some demand. And through that relationship, you're complying with regulations in most cases. I'm sure there are companies that don't always do that. You begin to ship your product into the foreign market. Again, there's no control of assets in the foreign market. There's no major investment involved and the relationship can be terminated quite easily if the experience doesn't work out. And so imagine yourself today that you are in your country, wherever you live across the globe, whether you're in China, or India, Russia, or wherever you might come up with an idea for a new product. Let's say that you came up with an idea for a new energy drink, and when I talk about energy drink I'm talking about things like Monster. And Rockstar and Red Bull which are drinks that are popular in many places in the world that have or marketed as products that provide you with energy through the ingredients such as caffeine or other ingredients in the drink. Let's say you come up with a new one, and you start selling it to your friends and you develop a relationship with some local stores and your local market. And it's very popular and somehow people hear about it across border from where you live. You probably would not build a plan either just like we said Coca-Cola probably didn't. Build a plan to come up with your new or to start selling your new energy drink, let's call it Torbal. To start selling it, you probably wouldn't build a complicated plant to distribute there. You probably would establish a relationship with another company and export it. To test it out, to see if it works, to learn about the market. And so exporting is the least involved way of entering a foreign market. And so as managers contemplate that decision, this is usually where they start. We have seen that over time, but it's not always the case. But it clearly is the most common way of Companies entering new markets abroad. So that's the beginning of trying to understand modes of entry. This is going to end part two, but in part three we'll look at some of these other forms of entry to try to understand them a little bit better. Thank you very much. I'll see back next time
