Agriculture Reference
In-Depth Information
are exploited globally, and the fi rm may focus on building global brands. Managers move
across borders regularly to better understand the nuances of running a global enterprise. For
all three phases of evolution, decisions about market entry must be made—how do food and
agribusiness fi rms enter other countries?
Modes of entry
Three general methods are used to enter an international market: exporting, licensing, and
foreign production. There are, of course, many variations of these methods including indi-
rect and direct exporting, franchising, and foreign direct investment through acquisition,
joint venture, or greenfi eld investment. The choice of entry method into the global arena
depends on a fi rm's external and internal factors. External forces that infl uence the method
of entry are factors such as the political, economic, and cultural arrangement of the target
market. Internal fi rm factors include the agribusiness's strategic and fi nancial goals, the
fi rm's fi nancial resources, the type of product that is being produced, and the sensitivity of
the product or production method to the fi rm's competitiveness, and the fi rm's international
market experience (Stern, El-Ansary, and Coughlan). Historically, many fi rms have used a
strategy that gradually increases their presence in the global market over time.
Exporting
There are two general means used to export an agribusiness's products: indirect and
direct exporting. Most agribusinesses, especially those with little international marketing
experience, initially enter the global market via indirect exporting.
Indirect exporting
uses a trading company or an export management company to handle
the logistics of exporting. These trading experts manage the exporting and importing
procedures and regulations, and they use their established relationships with buyers
and distributors to distribute the product. Advantages offered through working with a
trading company include the expertise, knowledge, experience, and connections in the
market. These trading companies' networks within the distribution channels can be
extremely useful to fi rst-time exporters. Although overall, using indirect exporting
may reduce profi tability, many fi rms perceive this to be a low-risk strategy that entails
substantially lower investment.
Direct exporting
is where the agribusiness itself handles the details of exporting their prod-
uct. At this point, the fi rm conducts research, establishes contacts in the country, and
sets up its distribution channels. Firms often open an overseas sales offi ce to manage the
operations in that country. Direct exporting involves investments and salaries for the
items mentioned previously. In turn, the potential for profi ts are much higher, and the
fi rm can exert more control over product distribution.
In general, the advantages of exporting (over the other methods) are lower risk, lower fi xed
costs (compared to investing in a new plant in a country), and increased speed in reaching
the global market. Several U.S. government agencies assist exporters as well. The disadvan-
tages of exporting are primarily managing the trade barriers or protectionism that may exist
in a country. Regulations, inspections, tariffs, and quotas are just some of the barriers that
may be encountered, as well as less control and long distribution channels. Control over
pricing, promotion, distribution, and quality are some of the other problems that may be
