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SAI INTERNATIONAL SCHOOL

CLASS-XI
Sub: Business Studies

Chapter 10: International Trade
Topic: Modes of Entry into International Business I(Exporting importing and Contract
Manufacturing)
(LESSON NOTES - 49)

MODES OF ENTRY INTO INTERNATIONAL BUSINESS

Simply speaking, the term mode means the manner or way. The phrase ‘modes of entry into
international business’, therefore, means various ways in which a company can enter into
international business. While discussing the meaning and scope of international business, we
have already familiarised you with some of the modes of entry into international business. In
the following sections, we shall discuss in detail important ways of entering into international
business along with their advantages and limitations. Such a discussion will enable you to
know as to which mode is more suitable under what conditions.

Exporting and Importing

Exporting refers to sending of goods and services from the home country to a foreign
country. In a similar vein, importing is purchase of foreign products and bringing them into
one’s home country. There are two important ways in which a firm can export or import
products: direct and indirect exporting/importing. In the case of direct exporting/importing, a
firm itself approaches the overseas buyers/ suppliers and looks after all the formalities related
to exporting/ importing activities including those related to shipment and financing of goods
and services. Indirect exporting/ importing, on the other hand, is one where the firm’s
participation in the export/import operations is minimum, and most of the tasks relating to
export/import of the goods are carried out by some middle men such as export houses or
buying offices of overseas customers located in the home country or wholesale importers in
the case of import operations. Such firms do not directly deal with overseas customers in the
case of exports and suppliers in the case of imports.
Advantages

Major advantages of exporting include:

• As compared to other modes of entry, exporting/importing is the easiest way of gaining
entry into international markets. It is less complex an activity than setting up and managing
joint-ventures or wholly owned subsidiaries abroad.

• Exporting/importing is less involving in the sense that business firms are not required to
invest that much time and money as is needed when they desire to enter into joint ventures or
set up manufacturing plants and facilities in host countries.