Q&A - Evaluate the benefits and drawbacks of international expansion options
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The four main methods of expanding a business into international markets each have their advantages and drawbacks. Some of the key issues are summarised below:
Exporting direct to international customers
Advantages:
Uses existing systems – e.g. e-commerce
Online promotion makes this cost-effective
Can choose which orders to accept
Direct customer relationship established
Entire profit margin remains with the business
Can choose basis of payment – e.g. terms, currency, delivery options etc
Disadvantages:
Potentially bureaucratic
No direct physical contact with customer
Risk of non-payment
Customer service processes may need to be extended (e.g. after-sales care in foreign languages)
Selling via overseas agents or distributors
Advantages:
Agent of distributor should have specialist market knowledge and existing customers
Fewer transactions to handle
Can be cost effective – commission or distributor margin is a variable cost, not fixed
Disadvantages:
Loss of profit margin
Unlikely to be an exclusive arrangement – question mark over agent and distributor commitment & effort
Harder to manage quality of customer service
Agent / distributor keeps the customer relationship
Opening an operation overseas
Advantages:
Local contact with customers & suppliers
Quickly gain detailed insights into market needs
Direct control over quality and customer service
Avoids tariff barriers
Disadvantages:
Significant cost & investment of management time
Need to understand and comply with local legal and tax issues
Higher risk
Joint venture or buying a business overseas
Advantages:
Popular way of entering emerging markets
Reduced risk – shared with joint venture partner
Buying into existing expertise and market presence
Disadvantages:
Joint ventures often go wrong – difficult to exit too
Risk of buying the wrong business or paying too much for the business
Competitor response may be strong
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