Q.Explain the various modes of entry into international business.

This question requires covering each recognised mode of entry with its defining feature, generally moving from the least to the most committed form of foreign-market involvement. …

A firm can enter international business through several distinct modes, generally arranged from the least committed and least risky to the most committed and most risky.

1. Exporting: The firm continues to manufacture at home and sells its output into a foreign market. In DIRECT exporting, the firm deals directly with the foreign buyer or sets up its own sales presence abroad, keeping more control but bearing more of the administrative burden itself. In INDIRECT exporting, the firm sells to an export intermediary in its own home country, who then arranges the sale abroad — simpler, but with less control and a smaller margin for the exporting firm.

2. Licensing: The firm (the licensor) permits a foreign firm (the licensee) to use its brand name, patent, or production technology in the foreign market for a specified period, in exchange for a royalty or fee. This lets the licensor earn foreign income without investing in manufacturing abroad, though it does risk the licensee later using the transferred know-how to compete independently.

3. Franchising: Similar to licensing, but broader — the franchisor grants the franchisee the right to use its ENTIRE business format, brand, and standard operating procedures in the foreign market, for a fee and/or a share of revenue. This is especially common in service businesses such as food outlets and retail chains.

4. Joint Venture: The firm partners with a local firm in the foreign country, and together they jointly own and operate a new business entity, sharing investment, control, profit, and risk. The local partner's market knowledge and existing relationships reduce the risk of entering an unfamiliar market, though control and profit must be shared.

5. Wholly Owned Subsidiary: The firm sets up and fully owns a production or business facility directly in the foreign country, without a local partner. This gives the firm complete control and the entire profit, but requires the largest investment and carries the highest exposure to political and currency risk, since there is no local partner to share the burden. …

Students often list the modes without stating the defining feature of each, or confuse licensing with franchising (licensing transfers a specific asset like a brand or patent; franchising transfers an entire business …