There are several ways through which a company can gain entry into international markets. There is no single entry strategy that perfectly suits every company. A company chooses a market entry strategy based on several factors, including the available capital, the type of product, the competitors, and the operating environment. This report presents licensing and franchising as entry approaches to the foreign land market ( Doherty, 2000) . The cons and pros of each strategy is presented, and examples are given for companies using these strategies.
Licensing
Licensing market entry strategy is an arrangement where a local company transfers its legal rights to use a service or product to another company. Licensing entry strategy works perfectly well in situations where the licensing buying company has a significantly huge market share in the market; they look forward to gaining entry. The licensing comes in different forms, including and not limited to production or marketing.
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The benefits of using a licensing method to gain entry the other worlds market include the fact that it is an easy and quick entry strategy to a foreign market allowing the license buyer to escape tariffs and border barriers. Licensing entry strategy has a lower capital demand in comparison to other entry strategies like direct imports. The licensing approach has the potential for higher ROI, allowing the company to realize returns much faster. There are lower risks associated with licensing entry, including fewer legal and financial risks. The main weakness of using a licensing strategy to enter a foreign market is that the buying company will have a reduced level of control since not all rights to the license are given. The licensee may overtime become a direct competitor, and in the end, the buyer may lose the intellectual property. The licensing periods are never a lifetime; they are issued for a limited time. Poor quality control can damage the buyer’s brand in other license territories.
Back in May 2018, Starbucks and Nestle entered into licensing deal for coffee and coffee products worth over $7 billion. In the agreement, Nestle was the licensee, and it accented t paying Starbucks (licensor) $7 billion for full rights to trade in and sale Starbucks products, including bagged coffee, coffee, beans and teas amongst others across the globe through Nestlé’s world distribution channels. Starbucks in the agreement was to be given royalties from the coffee products and tea products that were packaged and sold to Nestle. This licensing deal gave Starbucks the powers to obtain recognition of its brand outside the North American market through Nestlé’s expanse distribution networks ( Buckley & Casson, 1998) . Another example of a licensing company is Microsoft. Microsoft is a software company, famously known for its Windows operating system (OS). Microsoft uses licensing to distribute its software, with agreements with different companies in different countries across the globe selling its software through licensing agreement.
Franchising
Franchising model of market entry is where a franchisee is given control over operations in a market in exchange for some payment and a promise to observe and stick to certain conditions and rules. Franchising entry strategy works well in where a business model is repeatable like food outlets, and it can be transferred easily to other markets. Franchising is a continuing relation where a franchisor gives a licensed privilege to the franchisee to do business and to provide assistance in training, organizing, and managing in return for profit sharing.
The main advantage of entering an international market through franchising strategy is that there are less financial, political and legal obligations involved. Franchising also allows for economies of scale through ordering with other franchisers and other owners. It is easy to brand and market a franchise because it is not an innovation; it is also easy to market a franchise because it is already a well-known brand name. The franchising partners can also see business opportunities much close and faster. The disadvantages of the franchising model include the fact that the licensor has little direct control over the business. The profits by the licensee are also lower in comparison to what they would earn if they owned the business.
Perfect examples of companies that use franchising as their international entry strategies are KFC, which is an American company but adopts a franchising approach to enter different markets across the globe. KFC is a fast-food franchise. InterContinental is another example of a franchise. Intercontinental Hotels and orts in a UK franchise operating in Hotel Franchises business across the world. Both KFC and InterContinental franchises are big global brands, they have unique identities to them, and they offer specific signature products.
Conclusion
This paper has presented two methods of entering the international market, including franchising and licensing. KFC and InterContinental have been given as perfect examples of franchising companies while Microsoft and Nestle/Starbucks agreements have been fronted as examples of licensing entry to international markets. These market entry approaches have their unique benefits entering a market, with the main advantage being leveraging on available markets, brands and reduced entry costs ( Doherty, 2000) . A company will not just choose these methods; it will need to consider the factors that would favour I before selecting an entry method. Selecting a method can significantly impact business outcomes and ROI for a business. Therefore, every company must look at the determining factors to enter a market using a specific strategy.
References
Buckley, P. J., & Casson, M. C. (1998). Analyzing foreign market entry strategies: Extending
the internalization approach. Journal of international business studies , 29 (3), 539-561.
Doherty, A. M. (2000). Factors influencing international retailers' market entry mode
strategy: qualitative evidence from the UK fashion sector. Journal of marketing management , 16 (1-3), 223-245.
