Compare and contrast equity and non-equity modes for international business
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Entering a new market can be tricky, especially if that market is abroad. Not all foreign countries offer economic, legal, political or financial stability conducive to business growth.
There are two methods of entering a foreign market that, if implemented wisely, may ensure a profitable return despite questionable conditions. These methods are the equity and non-equity modes of foreign entry. The equity mode requires owner involvement in the venture -- whether partly or wholly -- such as joint ventures and direct investments. The non-equity mode keeps owner involvement at a minimum. Licensing and exporting are non-equity modes of foreign entry.
Learn about the foreign market you want to enter. Research its culture, politics, economy, people, religion and other topics such as current events or issues. Learn about your company's industry in that country and who your competitors might be.
Learn about equity and non-equity modes of foreign entry. The equity mode calls for direct owner involvement, such as joint ventures and direct investment. The non-equity mode allows an owner to enter the new market in less direct ways, such as through the licensing of a logo or by exporting goods for distribution. Determining the best method is based on the current socio-economic and business conditions in the foreign market.
To help you decide on a mode of entry into an international market, ask yourself a series of questions -- how stable are the socio-economic conditions in this new market? Is piracy rampant? What is the legal system like? Will my product, brand or logo be protected by the country's legal system against copyright infringement? How competitive is the new market? What are consumer tastes and traditions? How will my product find its place in the market to ensure a profitable return? Besides helping you select a mode of entry, the answers to these questions will help you craft a strategy to do business in a foreign market.
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