We're talking about internationalization strategy. Now once you've decided where you want to enter, what foreign market it is you want to expand into, you now have a really important question, which is how are we going to enter that market? It turns out there's several different ways an organization can enter a new foreign market. First of all you can enter that new market simply by exporting. Pursuing an exporting strategy is something we see in so-called trading industries. This is where there's an internationalized customer base and we simply take our products, our services as is and we're just selling them, providing them to that new, expanded customer base in that new, foreign location. Alternatively, we might pursue what's known as a licensing or a strategic alliance approach to internationalization. This is more of a partnering approach where we partner with a local organization that's already in that foreign market, and as we work together with them, that allows us to be a little more responsive to local customization. It allows us to be a little more responsive to the nuances or the differing preferences in that new, foreign market. Finally, we could go all in with what's known as foreign direct investment. Here's where we essentially establish direct operations in that new, foreign location. Now we'll have to decide how we want to go about that. Do we do it by acquiring a local business that's already there? Or do we do a so-called green field approach which is we build a new organization there from scratch and start up our operations on our own. So these are three ways that you can enter a new, foreign market. Let me speak briefly about the first of these. I'll speak about them each in turn, but let me talk first about exporting. So, this is again, where a firm manufactures its products if you want to use a manufacturing example. Manufactures its products in a home country, and ships them to a host country market. So there are pro's and con's with this kind of approach. There are some potential advantages. First of all, we can essentially make use of excess domestic capacity and start to build some economies of scale. So for example, if we're a manufacturing company and we aren't utilizing all of our plant manufacturing capacity, we can, you know, top that off and utilize that excess capacity and then simply sell those units in this new market. And that's exactly what we mean by economies of scale. Our cost structure, our fixed cost structure stays roughly the same, but we're able to just use our excess capacity to make a few more units and sell them in this new, foreign market. I would also say an advantage of an exporting approach is that you can rapidly enter that new, international foreign market. So this is potentially the fastest way to enter a new market because all we have to do is ship our stuff there, right? And we can even establish distribution channels through contracts with existing distributors that are already there. So there's no need for us to establish operations in that new country. So these are all the potential pros or some of the potential pros. Let's think about what some of the cons might be. What are some of the potential disadvantages? Well, we may actually, depending on our industry or product market, we may have high transportation cost. It might cost us a lot simply to ship or export our stuff to that new, foreign location. We might also encounter high import tariffs depending on what the local government or regulatory body requires of an exporting firm from outside that country, it may just be cost inefficient to pay those high tariffs or taxes. So these things like high transportation costs, high tariffs, these are things that can eat into the potential margins you would gain by entering that new location. So it may turn out that it's simply not worth it, right? If all we're doing is exporting, it might also prevent us from taking advantage of some better costs or capabilities by establishing locations in that new, foreign market. Maybe it might just be cost effective for us to build the plant and manufacture some stuff locally, because we can save some on transportation costs and import tariffs, and maybe it's more cost effective. Maybe the labor costs are to our advantage in that new location. Another disadvantage is, if we're just pursuing an exporting strategy, is that we're gonna have less control over the marketing and distribution of that product. So we can't control all the aspects of that, if we're just contracting with locals to market and distribute our stuff, we give up some control. And the other thing is, product customization is going to be more difficult. And again, we talked about that a moment ago as and advantage of an exporting strategy. If there's an international market for the exact stuff we sell, we see this in things like consumer electronics, we don't need to highly customize those products, those laptops or smartphones in a new foreign market. We can just simply send them there. But if we are operating in a product market or segment where there's a high degree of sort of national differentiation and we need to specialize and customize our stuff. It's much harder to do that if your pursing an exporting strategy.
