Organizations looking to distribute outside their home market may experience challenges that are significantly greater than what they face in their home market. Marketers, who are new to selling internationally, often discover the learning-curve for doing this effectively can be quite steep. Additionally significant cultural differences and financial burdens (e.g., differences in exchange rates, increased shipping expense, additional packaging costs) may also be issues. Consequently, upon entering a new foreign market, many companies discover that strategies they utilized successfully in their home market do not work in the new market.
Because organizations often find it difficult to replicate their success when entering new markets, they may need to consider different strategies for establishing a marketing presence beyond their home country. In general, marketers have available the following options for gaining distribution in global markets:
- Exporting – With this distribution method, a marketer does not set up a physical presence in a foreign market. Instead, product is shipped by the company to buyers in the foreign market. In the simplest arrangement, a marketer will accept customer orders on their website then arrange for international shipment to reach the customer (e.g., FedEx shipment). In some exporting arrangements, the marketer negotiates with a marketing firm located in the foreign country to assist in generating orders, managing customers, and possibly handling some distribution activities. The main benefit of the export option is that risks and costs are relatively low. On the downside, exporting may not enable a company to realize full demand for the product since the marketer does not have a local presence and, consequently, cannot dedicate full attention to developing the market.
- Joint Operation – In general, this is a relationship where two or more organizations team to market products. For instance, a company may agree on a licensing arrangement where the marketer allows another company in a foreign country to handle its products. This arrangement may even extend to allowing the foreign company to manufacture the product. Other forms of joint operation occur when a marketer forms a partnership with a company in the host country, often resulting in the creation of a new company. Ownership in such an arrangement may be equally split or one partner may have a greater percentage of the final company. Under this arrangement, the risk is split between the partnering organizations.
- Direct Investment – This represents the most involved business situation where the marketer owns nearly all key aspects of conducting business in another country. The key advantage with direct investment is the control it offers as the company can make all decisions and retain all profits. However, the risks are quite high as the marketer must often invest heavily to establish and maintain operations.