Marketing Strategies: Modes of Entry – FMSS (Foreign Market Service Strategy)

On October 4th, 2011, Posted by author

Last modified: October 26, 2015

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With the advent of globalization, internationalization is necessary for the growth of companies, especially in the largely untapped markets in Eastern European and Asian countries. Business enterprises that are growing internationally and contemplating whether to make or buy in the foreign market, have three options open to them in the market servicing strategies: they can export their products directly for sale in the host country; they can select a local company to manufacture and distribute their products under licence or franchise; or they can directly invest (FDI) in the foreign country by procuring land, plant and workforce in the host country and  manufacture and sell their own products.

FDI Theories – Dunning’s OLI Eclectic Paradigm

Dunning developed this theory in 1977 and later on added many amendments (1980, 1988, 1998, and 2000) to his OLI theory, also called OLI eclectic paradigm. In this paradigm, the empirica; analysis of the company and the host country are used. OLI stands for the three paradigms – Ownership, Location and Internalization. When the company is contemplating the make or buy decision, these are the three important advantages it has to consider.

OLI deliberates on the market entry mode choices across three types of perceived advantages that the company could have in the host country:

1.  Ownership advantages that are particular to the nature and nationality of the owner, for instance,

asset specifics  (financial capital and brand name),

transaction specifics (multi-nationality advantages, capacity to reduce   comparative transaction costs) (Hanf & Pall, 2009);

2.  Internalization advantages that could result from the transfer of ownership advantages to another location within the parent company; and

3.    Location advantages that ensue through diverse resources, institutions and regulations that affect the revenue and the cost of production (Zhao & Decker, 2004) as well as market imperfections such as government regulations (Hanf & Pall, 2009).Competitive advantages, market failure and collaboration and dynamic environments were the later additions to the theory (Zhao & Decker, 2004). This theory promotes foreign direct investment (FDI) method as the most advantageous to venture into a new country (see Table).

Dunning’s OLI Eclectic Paradigm

Market Entry Mode

Types of advantages

Ownership advantages

Internalization advantages

Locational advantages













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