Define three modes of entry of companies entering foreign markets. Analyse the advantages and disadvantages of these methods.

Essay by kleftisUniversity, Master'sC+, February 2004

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Since the latter part of the twentieth century, there has been a trend towards globalization in business. This involves firms deciding to enter foreign markets. Firms can choose between several possible modes of entry. This essay will describe three: turnkey projects, franchising and joint ventures, discussing the strengths and weaknesses of each.

Firstly, turnkey projects. These normally involve a firm going to another country and being contracted by a firm there to set up a plant. The contractor agrees to undertake every detail of the project for a foreign client. This will involve the designing and building of the plant, supplying the necessary technology and raw materials and training of personnel. Upon completion of these tasks the plant is handed over. This type of mode of entry is considered to be an export of technology and management techniques. It is usually found in the chemical, pharmaceutical or petroleum industries, mainly because of the complexity and how expensive production technologies they involve.

Turnkey projects are mostly undertaken in less developed countries. Contractors often agree on these projects either because they are specialized in the industry or they want to make revenues from their expertise by delivering the project.

One argument in favor of this is that the expertise, knowledge and technology are a valuable asset in that host countries can earn great returns. Once a turnkey project is completed the host country is left with the technology and assembly techniques which are essential for the oil refining or even metal mining industries. In addition, turnkey projects are less risky than FDI's because they are short-term and in some cases host counties might have political or economical instability. Also, when the project is complete this new technology can be shared within the host country so as other firms can benefit.

On the...