Selecting an Entry Mode

A firm contemplating foreign expansion must make three basic decisions: which markets to enter, when to enter those markets, and on what scale.

Once a firm decides to enter a foreign market, the question arises as to the best mode of entry. Firms can use six different modes to enter forelgn markets: exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host$-$country firm, or setting up a new wholly owned subsidiary in the host country. Each entry mode has advantages and disadvantages.

Match the advantages and disadvantages listed below with their corresponding mode of entry.

$1$

Franchising

$2$

Exporting

$3$

Turnkey Contracts

Wholly Owned

$5$

Joint Ventures

$6$

Licensing

Match each of the options above to the items below.

Avoids the substantial costs of establishing manufacturing operations, but has high transportation costs

Great strategy, particularly useful where FDI is limited by host$-$government regulations, but there is no long$-$term interest in the foreign country