Topic outline
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As markets open up through increasing levels of free trade, companies and investors must develop competitive strategies to enter new international markets and create opportunities for themselves. This unit will highlight the strategies that many companies use to expand into new markets effectively.
Completing this unit should take you approximately 2 hours.
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Direct exporting is when a company exports directly to a consumer in another country instead of using a distributor or agent. Direct exporting has the advantage of increased profitability since companies have greater control over the process and fewer middlemen to take a share of the profits. However, there are also disadvantages, such as more time and resources needed to service end products and manage their delivery to the consumer.
These are a few ways that you can use direct exporting to enter a new market:- Hire employees as sales representatives to travel to emerging markets and conduct business on behalf of the company.
- Establish fully-owned local subsidiaries of the company to have full control over the business' operations in the local market.
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There are several ways to export a product into an international market when it does not need to be shipped directly to consumers. Companies often search for foreign agents or distributors who live or operate in those markets and already have established networks to market and sell within a country. This approach has a few advantages, such as utilizing the agent or distributor's on-the-ground knowledge of the local market and allowing them to troubleshoot problems that could be difficult to do outside the country. Companies must find trusted partners if they want to do this since those partners will have some control over the company's local operations.
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One option for companies to market products abroad has been to create "pop-up shops" that allow them to sell their products in areas of heavy foot traffic, such as in busy streets or outside popular venues. Read this chapter to see how this setup can work from a financial standpoint.
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Customers in some international markets may feel more comfortable dealing with manufacturers directly. This is popular in industries that produce expensive products or machinery. An example of this would be Boeing, which manufactures expensive airplanes and sells them directly to international customers. How do customers buy expensive products like airplanes across international borders? This video explains how Emirates Airlines makes large direct-purchase airplane orders and touches on the complicated agreements and financing structures involved.
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Mergers and acquisitions are common for a variety of reasons. Companies may find that their competitors have unique capabilities or resources, and they see the opportunity to create a much more effective business organization when merging. Companies also often seek to acquire other companies that would add valuable resources or operations to the parent company.
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Read more about mergers and acquisitions in this section and answer the questions at the end. How could mergers or acquisitions benefit a company seeking new international markets?
Mergers and acquisitions allow for business synergy and cost savings. Synergy is the idea that a larger organization's combined value and overall performance would be greater than two separate companies. Synergy can also come about through cost savings or by combining operations to create more efficient processes.
Mergers and acquisitions can often reduce a company's spending on administrative staff, accounting, management, facilities, insurance, and other overhead costs by removing redundancy and duplicated functions. -
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Companies seeking to expand into a new industry or international market may find mergers and acquisitions an attractive option. For an example, think of when Amazon purchased Whole Foods. Amazon has a massive distribution network and will want to integrate Whole Foods' operations to be more efficient and cost-effective by combining resources. Watch this video to learn more.
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Typically, a company will want to establish partnerships with other companies that have track records in its target market and understand its culture. There are several things to keep in mind when establishing international partnerships, such as finding the right fit and establishing trust.
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Read this article about the important factors to consider when establishing an international partnership.
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Companies must establish effective and enforceable partnering agreements using contracts that lay out the entire business relationship, avoid misunderstandings, and make sure both sides understand their responsibilities. Both parties must be clear on what is communicated and agreed to in the contract. When disputes happen, companies may seek international courts that interpret and enforce international contractual issues. These are found in major global business centers such as London and Dubai. Watch this video to see how tech companies leverage strategic partnerships in new markets.
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Joint ventures can be between large corporations with many resources or smaller companies who want to combine efforts on a project. Joint ventures typically focus on a narrow field of work, such as a project. Read this page to learn more about the value of a joint venture and how they affect the global business environment.
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This review video is an excellent way to review what you've learned so far and is presented by one of the professors who created the course.
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Watch this as you work through the unit and prepare to take the final exam.
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We also recommend that you review this Study Guide before taking the Unit 6 Assessment.
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Students mustReceive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.
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