How does the entry mode in international business affect the transactions?

International business transactions are the cornerstone of global commerce and are the lifeblood of the modern economy. They can take place between countries, between multinational corporations and small businesses, and between individuals and organizations. However, the success of these transactions depends on a number of factors, including the entry mode used to enter the international market. The entry mode is the way in which a business enters a foreign market, and it can have a significant impact on the transactions that take place.

There are several entry modes that can be used to enter the international market, including exporting, licensing, franchising, joint ventures, and wholly-owned subsidiaries. Each of these entry modes has its own advantages and disadvantages and is suited to different types of businesses and markets.

Exporting is the simplest and most straightforward entry mode and involves the sale of goods or services to a foreign market. It can be an attractive option for businesses that have a proven track record and are looking to expand into new markets. Exporting can be a low-risk, low-cost way of entering the international market, but it can also limit a business’s ability to control its operations in the foreign market.

Licensing is another popular entry mode that involves the transfer of technology or intellectual property to a foreign company in exchange for a fee or a percentage of the sales generated. This can be a low-risk, low-cost way of entering the international market, but it can also limit a business’s ability to control its operations in the foreign market and to protect its intellectual property.

Franchising is a popular entry mode that involves the transfer of a business model and brand to a foreign franchisee in exchange for a fee and a percentage of the sales generated. This can be a low-risk, low-cost way of entering the international market, but it can also limit a business’s ability to control its operations in the foreign market and to protect its brand.

Joint ventures are another option for businesses looking to enter the international market. A joint venture involves the formation of a new company with one or more foreign partners. This can be an attractive option for businesses that want to share the risk and control of their operations in the foreign market. However, joint ventures can be complex to set up and can require a high level of trust and cooperation between the partners.

Wholly-owned subsidiaries are another option for businesses looking to enter the international market. A wholly-owned subsidiary is a separate company that is 100% owned by the parent company. This can be an attractive option for businesses that want to have complete control over their operations in the foreign market and to protect their intellectual property. However, wholly-owned subsidiaries can be expensive to set up and can involve a high level of risk.

In conclusion, the entry mode used to enter the international market can have a significant impact on the transactions that take place. Each entry mode has its own advantages and disadvantages and is suited to different types of businesses and markets. It is important for businesses to carefully consider their options and to choose the entry mode that is best suited to their needs. By doing so, they can increase their chances of success and ensure that their international transactions are smooth and profitable.