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 The concept of entry modes came into existence with
globalization. It was in the early 80s when Globalization started to gain impetus and business

entities Eastern Europe provided a natural experiment to examine multinationals' (MNCs͛) entry
decisions, as transition economies were largely closed to trade, investment and acquisition until the
late 1980s. In the following decade, the subsequent pattern of MNC͛s entry mode proved to be
much more diverse than predicted. Among these FDI emerged as the best route of entering a
foreign market as it provides the flexibility of a full scale production and which enabled the MNC to
tap the much market more swiftly and comprehensively. The previous theoretical literature on
MNC entry modes is separated into three important areas. These important areas or genre of entry
mode are:

^V   

Indirect export and direct exports

^V   

Licensing and Franchising

^V 

  
2V ºoint Venture
2V Direct Investment
2V Mergers and Acquisitions
2V èholly Own Subsidiaries

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DV [nlike other entry modes like franchising and licensing FDI entry mode promotes greater
knowledge of foreign competition and foreign markets and thereby allowing companies to
virtuously apply the phrase ͞!   ͟
 DV  romotes better utilization of resources and application of specialized skills like HR,
marketing, finance that fosters further optimum utilization of resources.

DV Through routes like M&A and joint venture an MNC is able to gain easier control of
operations of a foreign entity thereby promoting fast expansion and penetration in the
foreign market than other entry modes.

   

      :

DV  In case if there is an imposition of any tariff and non tariff barriers then
trade mode becomes ineffective. In such cases FDI packs the wallets for entering into
any foreign market.
DV Π !"In case of contractual or export entry modes the political risk factor is
always feasible. For instance, tensions between two nations or extreme political crisis
leading to war like situation creates penetration problem. But a strategic mode like FDI
is even operative even in such steep situations. For example- Reliance petroleum
continues to operate in war prone countries like Iraq which has disrupted the oil trade
form these nations worldwide over the past few years.
DV Π! 
Although export entry modes with bilateral or multilateral ties
are a good proposition to secure the strategic relations with the other nations but they
also wither away with time due to time constraints but routes like FDI are made with a
prime focus on gaining benefits from a foreign market for a prolonged market which
makes it the most prominent entry mode of all and with flexibility of penetration and its
longetivity in the foreign market, FDI is the most hailed entry mode



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DV Easy and prompt access to foreign markets.

DV Leads to creation of corporate synergies making the business to burgeon.
DV Inter benefit of better technology and cheap labor and competency



$ % 

DV Greatest degree of control

DV Greatest profit potential, highest risk management

DV Greater control over technology, marketing and distribution

DV Suitable in cases of absence or unsuitably of any ºV partner of high cost of Acquisition.

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DV Reduction of risk involved by introduction of new formats of direct investment
like wholly own subsidiaries and international SB[s which contribute better risk
management.

DV Availability of cheap labor and resources is reality today with emergence nations
like the BRIC and by forging of multilateral trading systems and free trade areas.

DV Better management of resources has been made possible by initiation of training

and development of skilled labor and development of human resource by many
MNCS worldwide.

   

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The Swedish furniture company IKEA pioneered a move towards globalization in the
furniture industry. IKEA successfully expanded into the European markets as easy
transportation and economic and geographic barriers like the sea were totally absent.

IKEA then ventured into the [.S. market but faced geographic barriers like long distances
spread over the seven seas. This posted problem for the company to source raw materials
from European nations and even finished goods couldn͛t be transported through ships due
to long distances and greater risk of damage to the goods leading to higher transportation
cost. Besides this, other hardships that came in the way were:

DV Different tastes in furniture and a requirement for more customized furniture.

DV Difficult to transfer IKEA's frugal culture to the [.S.

DV Stock-outs due to the one to two month shipping time from Europe

  — Keeping into account the present hardships, IKEA Inc. went for the direct
investment route and opened a wholly owned subsidiary by the name of IKEA Furniture
Group which benefited the company in dual terms. First, the company was able to
source cheap raw materials from Latin countries like Brazil and Mexico. Secondly,a
market which was easier to tap and a wide consumer base.
   [ndoubtedly, FDI has today become the most widely used entry mode
from the above description and analysis. èith Globalization on a prowl, companies in
order to tap mass markets with greater penetration prefer FDI over all other entry
modes.