UNIVERSITY

OF ALGIERS 3 Learning objectives:

By the end of this lesson, students will
be able to:

FACULTY OF
1. Understand the Importance of
International Market Entry.
University of Algiers 2. Analyze the Benefits of
Faculty of Economic Sciences, Commercial Sciences and International Expansion.
Management Sciences Department of Commercial Sciences 3. Differentiate Between Market Entry

ECONOMIC
Strategies.
Financial and Commercial Sciences
4. Evaluate Strategic Fit for Business
“Specialized Foreign Language 02” Goals.
5. Develop a Global Business Mindset.

SCIENCES,
CHAPTER 1:
Foreign Market By: Dr. Ouahiba Chehat

COMMERCIAL
Dr. Fatiha Gueraria

Entry Strategies

SCIENCES AND
MANAGEMEN
Introduction: Entering international markets feels like embarking on an exciting new
adventure—filled with various possibilities and, of course, significant challenges. We understand
the thrill of reaching new customers and the importance of taking the right strategic steps. Whether
you’re just beginning to dream big or are already on the path to global success, understanding the
best strategies for entering foreign markets can be a game changer.

A study published by the Institute for International Economics concluded that U.S. companies that
export grow faster and are also 8.5% less likely to go out of business than non-exporting
companies. This is just one example of the significant impact of entering international markets.

Why should you enter foreign markets & benefits for your business?

Entering foreign markets is about more than expanding your business reach; it’s about unlocking
doors to unlimited opportunities.

Why go international? It’s simple, growth and resilience. No matter how large, domestic markets
have limits. However, entering foreign markets opens you up to a much broader and more diverse
customer base. It’s not just about boosting sales but also about minimizing risk by diversifying
your revenue streams.

Here’s some data that highlights the importance of international expansion.

• According to a report from the World Trade Organization, global trade reached $25
trillion, with merchandise and services exports totaling $19 trillion and $6 trillion,
respectively.
• Small business exports significantly contribute to the U.S. economy; in 2017, exports
generated $541 billion in output and supported over 6 million jobs.

These figures show that entering international markets, like through exports, can yield incredible
business profits. The benefits you will gain by entering foreign markets include risk diversification,
accessing global talent, increasing competitiveness, extending product life cycles, increasing brand
value. While entering foreign markets certainly has its challenges, the benefits far outweigh the
risks, transforming your business from a local player to a global force and opening the door to
sustainable growth and long-term success.
 10+ foreign market entry strategies

Before we discuss the strategies for entering foreign markets in detail, let’s remember that every
business is unique, with its own set of needs and challenges. Remember, there’s no one-size-fits-
all solution in the global business world. Choose the strategy that best aligns with your goals,
resources, and the characteristics of your target market.

1. Direct exporting
Direct exporting is a strategy where a company sells its products or services directly to customers
in another country, often through local distributors or agents. This approach provides complete
control over the marketing and sales processes, enabling the company to establish direct
relationships with foreign customers.

Example:

A U.S.-based software company decides to sell its products directly to businesses in Germany.
They work with a local distributor in Berlin to handle logistics and support while maintaining
control over marketing campaigns and customer communication. This allows the company to
tailor its services to the German market while strengthening its brand presence abroad.

Pros:

• Full control over marketing strategy and pricing

• Direct relationships with customers
• Potential for higher profit margins

Cons:

• Requires significant initial investment

• Higher risk due to limited knowledge of the local market
• Challenges in managing international logistics and regulations
 2. Licensing
Licensing involves granting a local company the right to use your trademarks, patents, or other
intellectual property in exchange for royalties. This strategy allows you to enter foreign markets
with lower financial risk.

Example:

A French cosmetic brand grants a South Korean company the license to produce and sell its
products under the French brand name. In return, the South Korean company pays royalties based
on sales. This arrangement allows the French brand to expand its presence in South Korea without
the cost of setting up its own operations.

Pros:

• Lower costs and risks for entering new markets

• Leverages the knowledge and network of local partners
• Potential for passive income through royalties

Cons:

• Limited control over operations and product quality

• Risk of intellectual property infringement
• Potential to create future competitors

3. Greenfield investment
Greenfield investment is a strategy where a company builds its business operations from the
ground up in the target country. This involves significant investment in constructing production
facilities, offices, or other infrastructure.

Example:

A Japanese car manufacturer decides to enter the Brazilian market by constructing a new factory
in São Paulo. This Greenfield investment includes building state-of-the-art production facilities,
hiring local employees, and creating a supply chain within the region. This approach enables the
company to have full control over its operations and adapt its production to meet local market
demands.

Pros:
• Full control over operations and strategy
• Potential for significant long-term profits
• Ability to leverage local government incentives

Cons:
• Very large initial investment
• High risk related to market and regulatory uncertainties
• It takes a long time to reach the break-even point
 4. E-commerce and digital expansion
This strategy involves using e-commerce platforms and digital technology to enter foreign markets
without a significant physical presence.

Example:

A U.K.-based clothing brand launches an online store targeting customers in India. By leveraging
popular e-commerce platforms and social media advertising, the brand can reach Indian
consumers directly, eliminating the need for physical retail stores while minimizing costs. This
strategy allows the company to test the market and scale its operations based on demand

Pros:

• Relatively low market entry costs

• Ability to reach global consumers quickly
• Flexibility in adapting strategies

Cons:

• Challenges in building consumer trust without a physical presence

• Complexity in cross-border logistics
• Intense competition in the digital space

5. Turnkey projects
In this strategy, a company provides a complete, ready-to-use solution to clients in the target
country, including design, construction, and initial operations.

Example:

The Saudi Arabian oil company Saudi Aramco partnered with the American Irish oil services
company Weatherford International to acquire drilling and intervention services. In this turnkey
project, Weatherford was responsible for planning and executing all operations on behalf of Saudi
Aramco and delivering 45 wells per year to them.

Pros:

• Potential for significant revenue from large-scale projects

• Builds international reputation
• Facilitates technology and knowledge transfer

Cons:

• High risk associated with completing projects on time and within budget
• Complexity in managing local regulations and workforce
• Dependence on the political and economic stability of the target country
 6. Contract manufacturing
In this strategy, a company manufactures goods based on specifications provided by another brand.

Example:

Many companies in Indonesia produce clothing for global brands like Nike, Adidas, and H&M.

Pros:

• Low market entry costs

• Leverage existing production expertise
• Opportunity to learn from international standards

Cons:

• Lower profit margins

• Lack of control over branding and marketing
• Risk of dependency on a few large customers

7. Piggybacking
Piggybacking involves partnering with an established company in the target market to leverage its
distribution network and market knowledge.

Example:

The Swiss chocolate company Lindt & Sprüngli partnered with Hershey’s to enter the U.S. market.
Lindt used Hershey’s extensive distribution network and local market expertise to expand its reach
in this highly competitive market.

Pros:

• Quick access to new markets with lower risk

• Leverage the reputation and network of the partner
• Rapid market learning

Cons:

• Dependence on the partner for success

• Potential conflicts of interest if products compete
• Limited control over marketing and distribution strategies

Each of these strategies has its advantages and disadvantages. The right strategy choice should
consider various factors, such as company resources, product characteristics, target market
dynamics, and the company’s long-term goals.
 8. Joint ventures
A joint venture is a strategic partnership in which two or more companies create a new entity that
they jointly own. This collaboration enables the sharing of resources, risks, and profits while
working towards shared business objectives.

Example:

BMW and Brilliance Auto Group. Due to local regulations in force at the time, BMW needed a
partner from China to produce cars in that country. Therefore, BMW collaborated with Brilliance
Auto Group to build BMW Brilliance. This collaboration allowed both companies to access new
markets that could not be reached individually: BMW gained access to the Chinese market. At the
same time, Brilliance Auto Group was able to enter the luxury car market.

Pros:

• Shared investment and risk

• Access to the partner’s local market knowledge and resources
• Combined expertise and capabilities

Cons:

• Potential for conflicts between partners

• Shared control can lead to slower decision-making
• Complexity in managing and aligning interests

9. Strategic alliances
Strategic alliances involve partnerships between companies to achieve specific objectives while
remaining independent. This can include collaborations on marketing, technology, or product
development.

Example:

A global car manufacturer might ally with a technology company to develop advanced in-car
infotainment systems.

Pros:

• Flexibility in the collaboration terms

• Access to complementary resources and expertise
• Enhanced innovation through shared knowledge

Cons:

• Risk of misalignment in goals and priorities

• Limited control over the alliance’s operations
• Potential for disputes over intellectual property and profits
 10. Acquisition
Acquisition involves one company purchasing another company to gain control over its assets,
technology, or market presence. This strategy allows for quick market entry or expansion.

Example:

A large retail chain might acquire a smaller regional competitor to increase its market share and
expand its geographic reach.

Pros:

• Immediate access to new markets and resources

• Enhanced market presence and competitive advantage
• Potential for increased revenue and market share

Cons:

• High costs associated with the acquisition

• Integration challenges and potential cultural clashes
• Risk of overestimating the target company’s value

11. Franchising
Franchising is a strategy that enables a company to expand its brand and operations by granting
others the right to use its established business model and intellectual property in exchange for fees
or royalties.

Example:

A U.S.-based fast-food chain grants franchise rights to an entrepreneur in Saudi Arabia. The
entrepreneur opens and operates restaurants under the chain's brand name, following its proven
business model and standards. In return, the entrepreneur pays an initial franchise fee and
ongoing royalties based on revenue, allowing the company to grow its global presence without
directly managing local operations.

Pros:
• Quick growth into new markets with lower financial risk for the franchisor.
• Franchisees benefit from operating under a recognized and trusted brand.
• Comprehensive support and training for franchisees help maintain operational
consistency.

Cons:
• Less direct control over franchise locations can impact brand consistency.
• Royalties and fees reduce profitability for both franchisor and franchisee.
• Franchisees rely on the franchisor for support and adherence to system standards,
limiting flexibility.