What is the fundamental difference between equity and non-equity entry types?

The distinction between equity and non-equity entry types primarily revolves around the level of financial commitment involved. Equity entry types, such as foreign direct investment, require a substantial financial investment in establishing or acquiring operations in a foreign market. This can involve buying or building facilities, hiring staff, and committing capital to ensure a firm presence in the new market.

On the other hand, non-equity entry modes, which may include exporting, licensing, or franchising, typically demand a lower financial outlay. These options allow firms to enter new markets with less risk and investment since they often rely on partnerships or contracts rather than ownership.

Understanding this fundamental difference highlights why equity methods are generally associated with a greater commitment to market presence and operational control, as they involve significant stakes in the foreign market's economic environment.