It allow firms to export their process know-how to countries where FDI might be prohibited, thereby enabling the firm to earn a greater return from this asset. The disadvantage is that the firm may inadvertently create efficient global competitors in the process.

The most attractive foreign markets tend to be found in politically unstable developed and developing nations that have free market systems and where there is not a dramatic upsurge in either inflation rates or private-sector debt.

The magnitude of the advantages and disadvantages associated with each entry mode is determined by a number of factors, except:

Pioneering costs arise when the business system in a foreign country is not different from that in a firm’s home market that the enterprise has to devote considerable effort, time, and expense to learning the rules of the game.

The advantage of this in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. For example, it is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit.

When establishing a wholly owned subsidiary in a country, a firm must decide whether to do so by a greenfield venture strategy or by acquiring an established enterprise in the target market.

The optimal choice of entry mode depends on the firm’s strategy.

When technological know-how constitutes a firm’s core competence, they are preferred, since they best control technology.

When technological know-how constitutes a firm’s core competence, foreign franchises controlled by joint ventures seem to be optimal.

When the firm is pursuing a global standardization or transnational strategy, the need for tight control over operations to realize location and experience curve economies suggests this as the best entry mode.

The main disadvantage of licensing is that the licensee bears the costs and risks of opening a foreign market. Disadvantages include the risk of losing technological know-how to the licensee and a lack of tight control over licensees.

The main advantage of franchising is that the franchisor bears the costs and risks of opening a foreign market. Advantages center on quality control of distant franchisees.

These have the advantages of sharing the costs and risks of opening a foreign market and of gaining local knowledge and political influence. Disadvantages include the risk of losing control over technology and a lack of tight control.

This has the advantages of facilitating the realization of experience curve economies and of avoiding the costs of setting up manufacturing operations in another country.

Disadvantages of exporting include:

The advantages of wholly owned subsidiaries does not include tight control over technological know-how. The main disadvantage is that the firm must bear all the costs and risks of opening a foreign market.

There are several advantages associated with entering a national market early, before other international businesses have established themselves. These advantages must be balanced against the pioneering costs that early entrants often have to bear, including the greater risk of business failure.

Franchising is similar to licensing, although franchising tends to involve shorter-term commitments than licensing

This entry into a national market constitutes a major strategic commitment that is likely to change the nature of competition in that market and limit the entrant’s future strategic flexibility. Although making major strategic commitments can yield many benefits, there are also risks associated with such a strategy.