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Legal Myth #3 – There are so many methods of market entry that it is impossible to know which is best for my company

November 12, 2018

 

This article first appeared on the EACCNY website. It is part of a series of articles written by Marc S. Friedman, Director of Professional Relations at Global Commerce Education, Inc. as a collaboration with the European American Chamber of Commerce in New York.

 

In the most recent article in this series, I explained how many non-US companies are discouraged from exploiting a robust US marketplace by Myth #2 – that forming a business in the US takes a very long time with too many hurdles to overcome. Today I will address Myth #3 – There are so many methods of market entry that it is impossible to know which is best for my company. Like the other Myths, this one, too, is easily debunked.

 

The most important choice you must make when starting to do business in the US is to select the right market entry strategy for your European company. It is important to remember that what works for you in Europe may not be the right pathway into the US market. But careful assessment of your marketplace, and development of a sound US business plan will likely move you in the right direction.

 

Fundamentally there are six different methods for entering the US market. They are exporting, licensing, franchising, creating a strategic alliance or alliances, form one or more joint ventures, or creating a wholly-owned subsidiary.[1] Each of these has its own advantages and disadvantages, which, broadly speaking, fall into two distinct categories. First, in selecting the method of entry you must consider the extent of your investment risk. Second, you must also consider the degree of ownership and control you are willing to relinquish. There are additional considerations such as the tax consequences of each strategy but those are beyond the scope of this article.

 

Below is a chart that graphically illustrates how each of the six methods of market entry can generally be measured by the extent of investment risk and the degree of ownership and control.  As you move from exporting to the creation of a wholly-owned subsidiary, the investment risk goes from low to high, and the degree of ownership and control also grows from low to high.        

International Strategy: Creating Value in Global Markets - Chapter Seven

McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

 

To determine which method of entry is best for your company, you should undertake  a careful analysis of your target market, consider the investment risk you can tolerate, evaluate the degree of ownership and control you wish to attain, and assess the tax consequences of each method. All this can effectively be accomplished by your company’s management together with the advice of an accountant and a lawyer who are experienced in cross-border business. 

 

Thus turning to Myth #3, it clearly is possible to determine which method of entry into the US is best suited for your European and company if you understand the basic entry models and the guidelines you should follow to determine what is best for your company.

 

In the next article in this series I will address Myth #4 – There are too many governmental regulations that will make it very difficult to grow a business in the US.

 

[1] The methods of formation of a wholly-owned subsidiary are discussed in the most recent article in this series.

 

Compliments of Global Commerce Education, a member of the EACCNY

 

 

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