Based on Essentials of Marketing, 12 edition, by William D. Perreault, Jr., Joseph P. Cannon, and E. Jerome McCarthy, how do the international market entry strategies of exporting, management contracting, and joint venturing compare and contrast? If one were to expand a successful solar panel business into Mexico, which approach would one use? Why?
As online access to Essentials of Marketing, 12 Edition, is limited and we are limited in space, below are a few ideas to help get you started.
Market entry strategy is a plan for "delivering goods or services to a new target market," such as an international market. It specifically refers to "establishing and managing contracts in a foreign country"("Market Entry Strategy"). There are many different market entry strategies, including exporting, licensing, joint venturing, management contracting, etc.
Exporting is a means of selling products and services "across international borders or territories" ("International Trade"). Many different models have been developed for exporting trade, including the Adam Smith model, the Ricardian model, and the Heckscher-Ohlin model, among others. Exporting can have many advantages but also many disadvantages. Through exporting, we augment our likelihood of selling goods and services because we increase the number of areas in which we are selling. Exporting can be beneficial for large- and medium-sized companies because such companies will benefit from larger markets; however, small companies may prosper more easily by focusing on the local market. As ExportHelp phrases it, "Exports can contribute to increased profits because the average orders from international customers are often larger than they are from domestic buyers, as importers generally order by the container instead of by the pallet" ("The Various Benefits of Exporting"). However, one must also be aware that the international market is highly competitive, often forcing exporters to reduce their prices. Reduced prices can of course lead to earning smaller profits rather than greater profits ("The Various Benefits of Exporting").
Aside from exporting products and services in order to increase profits by developing an international market rather than just a regional market, a second international market entry strategy would be developing a joint venture. As the encyclopedia found on Inc.com states, "A joint venture is a business enterprise undertaken by two or more persons or organizations to share the expense and (hopefully) profit of a particular business project" ("Joint Ventures"). There can be many different methods for forming a joint venture, including a simple handshake. Some joint venture partners even decide to start a new company they mutually operate. One benefit of joint ventures is that they are extremely flexible because partners can choose who will share what and decide how to manage. Joint ventures can also be beneficial in that the parties involved can "save money and reduce their risks through capital and resource sharing" ("Joint Ventures"). They are especially useful in that they give "smaller companies the chance work with larger ones to develop, manufacture, and market new products" ("Joint Ventures").
All in all, joint ventures differ from the export strategy in that the export strategy is only a means for one company to increase profits by selling goods and services internationally, while joint ventures can be a means for one company to join forces with an international company. Joint ventures are also more profitable for smaller companies than exporting because smaller companies can work with larger companies and increase profits while also reducing costs. Joint ventures can be more profitable than exporting in general, even for large companies, because companies often have to lower prices of exported goods and services to be able to compete in the international market.
Since you intend to expand your successful solar panel business into Mexico, one thing to keep in mind is Mexico's economic state. Mexico is a much poorer country than the US; therefore, you would need to significantly lower your prices to make them affordable, which would significantly reduce your profits. You should also keep in mind the fact that, though successful, you are probably a small start-up company. Therefore, out of the two strategies discussed above, exporting is less likely to bring you maximum profit, and joint venturing is more likely to be beneficial for both you and an alternative energy company in Mexico.