1 Theoretical framework
When a company seeks to enter a foreign market, they have to choose the most appropriate
entry mode for their needs. Entry mode is defined by Root (1994) to be the way a company
transfers its products, technology, human skills, management or other resources to a
foreign country.
There are six ways a company can enter a foreign market: exporting, licensing,
franchising, joint venture, merger/acquisition and Greenfield.
Since Raisio chose licensing as their entry mode to the international markets, I’m going to
talk about the advantages and disadvantages of this specific mode. Licensing or
franchising can be a good entry mode if the company doesn’t have much knowledge of
international business, or specifically of the host country’s culture and habits. This is also a
way to avoid market barriers and it has a low financial risk, due to limited capital
requirements. It can also allow manufacturing closer to different customer segments. (Hill,
2007: 488-493)
The disadvantages of this entry mode are that these licensing partners can often be less
profitable than own manufacturing facilities. Licensing can also limit the control of
operations, thus you are dependent on the other partner in questions like marketing,
strategy and goals. Licensing partner may also turn into a future competitor if things don’t
work out or if the other partner wants to make on it’s own (Hill, 2007: 486-488)
The question about timing of the internationalization process is also vital. Early entry
refers to a company being first on the international market and late entry means that you
enter after other companies. First-mover advantages means that you can gain profit by
being a pioneer on the market. All of these models have their pros and cons; you have to
find the one that is suitable for you. If you’re strong in R&D then early entry is the one for
you and if you’re good in manufacturing and marketing then late entry can serve you
better. (Hill 2009: 489)
Another problem that Raisio has to face is the difficulty of choosing the right strategy for
the company’s operations abroad. According to Porter (1985) there are two basic
competitive strategies for a company; cost leadership strategy and differentiation strategy.
Cost leadership seeks to manufacture at a lower price than competitors, thus creating more
value for customers and at the same time generate more profits by selling in volumes.
While differentiation strategy emphasizes on the quality instead of mass production. In
differentiation a company creates a unique product for customers, which makes them want
