What foreign market entry strategy should a firm use when trying to enter a free trade area?Strategies are exporting, licensing & foreign direct investment i

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Of these, exporting is probably the least attractive in the long term.  Licensing may be best in the short term, and foreign direct investment might be best in the long term.

Exporting is the least attractive in the long term because a firm outside a free trade area can face trade barriers as it tries to enter the area.  Licensing would be a better option because it would allow the firm to enter the market with relatively low risk and then be able to market within the entire free trade area.  However, this is a very limited way to enter a market and may end up creating a competitor that knows the firm's strategies and has its technical know-how as well.  Foreign direct investment is probably best in the long term.  It is more risky, but at least all benefits will accrue directly to the firm rather than to a partner within the free trade area.

So, once a firm knows that its products will sell in a market, it is probably best for it to enter directly so that it does not have to deal with either trade barriers or the issues that go along with licensing to a partner firm within the free trade area.

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