Framework library · International strategy
Market entry modes
Once a market is chosen, the entry mode decides how much of the business you own and run there, and so how much you control, how much you put at risk and how fast you can start. The modes run from selling through others with little commitment to building your own operation, and the central trade-off, as Anderson and Gatignon put it, is control against the cost of committing resources.
Use it when
- You have decided to enter a foreign market and must choose between selling through others, partnering and investing.
- A regulator requires a local licence or local ownership and you need to compare the routes that satisfy it.
- An acquisition target has appeared and you want to compare buying with partnering or building before anyone becomes attached to the deal.
- You are already in a market through a partner and are deciding whether to deepen the arrangement or end it.
Avoid it when
- You have not yet decided whether, where or when to enter. That is market entry strategy, which comes first. This tool chooses the mode once those answers exist.
- Only one mode is legally possible. Spend the time choosing and negotiating with the partner instead, using joint ventures and alliances or the partnership go/no-go decision record.
- The question is whether to build, buy or partner for a capability in your home market. Use build, buy or partner.
How to run it
Confirm the market and the offer
The mode is the last choice, not the first. Write down the market already chosen and what you will sell there. The right mode for selling equipment differs from the right one for running a network.
List the modes that are open to you
Start from the full range: exporting, licensing, franchising, alliance, joint venture, acquisition and greenfield. Strike out any the law rules out, such as ownership limits that force a local partner.
Agree the weights
Decide how much control of customers, technology and brand matters, and how much capital and risk you can bear, before anyone scores. Control against commitment is the trade-off that usually decides.
Score each mode for this market
Score what the mode would mean here, with these partners and these targets. A joint venture with a strong partner and one with a weak partner are different options; list both if both exist.
Test the result against the weights
Raise the control weight by one, then lower it by one. If the leader changes, the decision is really about how much control you need, and the board should make it explicitly.
Plan the path between modes
Modes can be staged: export first, then a joint venture with an option to buy out the partner. Write the trigger and the contract terms that would let you move.
Work through it
Answer the questions below, or load the worked example to see a finished one. The drawing updates as you type. Export the result as a PowerPoint deck, a Word document, an Excel workbook, a PDF or plain text.
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Mistakes to avoid
- Scoring modes in the abstract. Exporting through a strong licensed reseller and through a weak one are different choices.
- Underweighting exit. Joint ventures and acquisitions are hard to unwind; agree the exit terms before choosing them.
- Choosing the mode that needs least capital and calling it low risk. Low commitment usually means low control, and the risk moves into the partner's behaviour.
- Treating close scores as a decision. When the top modes are within a few tenths of a point, the weights are deciding; say which judgement the choice rests on.
Where it comes from
Franklin R. Root, Entry Strategies for International Markets (Lexington Books, 1987; revised 1994), set out the range of entry modes and how to choose between them. Erin Anderson and Hubert Gatignon, "Modes of foreign entry: a transaction cost analysis and propositions", Journal of International Business Studies 17(3), 1986, framed the choice as a trade-off between control and the cost of resource commitment. Source.
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