Given the scenario where the Indian automobile company is willing to invest in marketing arrangements abroad but not in production facilities, two suitable modes of market entry are Exporting and Licensing.
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- Exporting:
- Merits:
- Low Investment: Exporting requires relatively low initial investment compared to setting up production facilities in foreign markets. The company can leverage its existing manufacturing facilities in India to produce vehicles for export.
- Quick Market Entry: Exporting allows the company to quickly enter international markets without the need for significant lead time required for establishing local production facilities.
- Risk Mitigation: Exporting helps mitigate risks associated with establishing local production facilities, such as regulatory compliance, market uncertainties, and currency fluctuations.
- Control over Marketing: The company retains control over its marketing strategies, branding, and distribution channels in foreign markets, enabling it to tailor its approach to suit local market conditions.
- Limitations:
- Transportation Costs: Exporting involves transportation costs, including shipping, customs duties, and logistics expenses, which can affect the competitiveness of the company’s products in foreign markets.
- Trade Barriers: Exporting may face trade barriers such as tariffs, quotas, and non-tariff barriers imposed by foreign governments, which can hinder market access and increase costs.
- Market Access Challenges: Exporting may encounter market access challenges, including competition from established local manufacturers, cultural differences, and preferences of consumers in foreign markets.
- Limited Market Presence: Exporting alone may limit the company’s market presence and brand visibility compared to establishing a local production presence, potentially limiting its ability to capture market share and compete effectively.
- Licensing:
- Merits:
- Low Investment and Risk: Licensing involves low upfront investment and risk for the company, as it allows the company to leverage the manufacturing capabilities of local partners in foreign markets.
- Market Knowledge and Expertise: Licensing enables the company to benefit from the local market knowledge, distribution networks, and expertise of its licensing partners, facilitating market entry and market penetration.
- Rapid Market Expansion: Licensing allows the company to rapidly expand its market presence by granting licenses to multiple local partners in different geographic regions, accelerating market coverage and sales growth.
- Flexibility: Licensing offers flexibility in terms of product customization, adaptation to local preferences, and scalability, as the company can enter into licensing agreements with multiple partners for different product lines or regions.
- Limitations:
- Limited Control: Licensing entails relinquishing control over production, quality control, and marketing activities to the licensee, which may impact the company’s ability to maintain consistent product quality and brand image.
- Dependency on Licensees: Licensing depends on the capabilities and performance of the licensee, and the company may face challenges in ensuring compliance with quality standards, intellectual property protection, and contractual obligations.
- Intellectual Property Risks: Licensing involves sharing proprietary technology, know-how, and intellectual property with licensees, exposing the company to the risk of unauthorized use, infringement, or misappropriation by competitors.
- Competitive Risks: Licensing may lead to the creation of new competitors or strengthen existing competitors in foreign markets, potentially eroding the company’s market share and profitability over the long term.
In summary, Exporting and Licensing are suitable modes of market entry for the Indian automobile company seeking to enter international markets without investing in production facilities. While both modes offer advantages in terms of low investment and market access, they also entail certain limitations and risks that need to be carefully evaluated and managed by the company to ensure successful market entry and sustainable growth in foreign markets.