Mode of Entry Strategy: a Comparison of a Commodity and an Equipment Type Business

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When deciding to engage in international trade an enterprise must make a choice of mode of entry into a foreign market. Depending on their resources, commitments, and long-term goals, the enterprise may select exporting (direct or indirect) or equity investment (foreign direct investment (FDI) or licensing/franchising) as a mode of entry (Peng, 2014). Exporting requires the least commitment, has the lowest investment of resources (and resulting risk), and capitalizes on use of home country capital – economy of scale. However, the tradeoff is higher transportation costs, potential loss of profit from local distribution, and liability of foreignness compared to equity based modes of entry. At the other end of the spectrum, FDI requires the most commitment, highest investment (and risk), and presents the necessity of managing a satellite facility in a foreign country. Conversely, it reduces transportation costs, greater access to local knowledge and profits, and counter liability of foreignness (Quick, 2010; Carter, 1997). Therefore, analysis of a business, the industry, and the environment of home and host country is necessary to determine the best mode of entry.
Agricultural commodities such as corn, is a type of business that would be most successful as an export business. From an industry point of view, there is little distinction amongst commodities; soybeans from the US are the same as corn from Brazil. Because of product homogeneity, the incentive to form strategic alliances between rival firms and resulting FDI is low. Research by Qui (2006) indicates competing firms are more likely to form strategic alliances as product differentiation increased. Those alliances gravitated towards FDI. When product differentiation...

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Tanzania. (2011, March). 2011 investment climate statement - tanzania. Retrieved from U.S. Department of State: http://www.state.gov/e/eb/rls/othr/ics/2011/157369.htm
Timeline. (2014). Timeline. Retrieved from John Deere: http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/history/timeline/timeline.page
UPI. (2012, December 21). Hungary bans foreign farmland ownership. Retrieved from UPI: http://www.upi.com/Business_News/Energy-Resources/2012/12/21/Hungary-bans-foreign-farmland-ownership/UPI-42121356066240/
USDA. (2013, December 16). Corn trade. Retrieved from USDA United States Department of Agriculture: http://ers.usda.gov/topics/crops/corn/trade.aspx
World. (2014). Worldwide locations. Retrieved from John Deere: http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/worldwide_locations/worldwidelocations.page?

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