“In your responses, provide constructive critiques along with supplemental insights. Support your critique with sound reasoning and evidence.”
Respond to the article below:
When a company is looking to expand into a foreign market there are many decisions that they must make including which market, when, and what exit strategy they have. However, one is the most important decisions that a company has when considering expansion into another company is how they will expand. There is both organic expansions and a host of inorganic expansion options for a company to consider each with their advantages and disadvantages. A company needs to assess which option works best for them.
Exporting- Exporting is when a company simply moves supplies to a market from their original host country. Some advantages to exporting are lower costs as no manufacturing facilities are set up and it allows a company to learn more about the culture and economics without a strong commitment. Two disadvantages to exporting are high transportation costs and some products arenâ€™t best produced at home or are so inexpensive that exporting doesnâ€™t make sense.
Turnkey projects- Turnkey projects are where a local firm sets up a plant and trains the staff for a foreign client and once established the client simply takes over. Advantages are that a turnkey project is less risky especially in areas where there is economic or political uncertainty and turnkey projects allow ways around government controlled markets. Disadvantages to a turnkey project are strategy as there are no long term interests in the country if it becomes successful, and that a turnkey project can actually create competitors from the partnership.
Licensing- Licensing is intangible assets are shared between 2 partners for an agreed upon timeframe in exchange for royalties. Licensing is typically used in the manufacturing industry. Advantages to licensing is little to no costs to set up development and lower risk as no assets are purchased. It is also a work around for when barriers to investment exist. Finally licensing is valuable when a company has a technology doesnâ€™t want to development themselves. A disadvantage of licensing is that the firm does not have tight control and it limits the firmâ€™s ability to realize experience curve and location economies by producing its product in a centralized location. It also limits the firm’s ability to manage profits especially internationally. A third disadvantage is that you are essentially giving your technology away for someone else to improve upon and use.
Franchising- Franchising is a specialized form of licensing that requires long term commitments the requires the licenses to abide by strict rules. It is mostly used in the service industry. Franchising advantages and disadvantages are similar to licensing although some of the disadvantages are less pronounced.
Joint Ventures – Joint ventures are the establishment of firm that is owned by 2 or more independent companies. Advantages are joint ventures allow a sharing of costs and knowledge of a local company. Disadvantages are that the firm doesnâ€™t have tight control over the subsidiaries that it might need to realize experience curve or location economies. Second, it gives control of a firm’s technology to their partner company.
Wholly Owned Subsidiary- A wholly owned subsidiary is when a company either purchases an existing company or starts a greenfield venture in a foreign country. They own 100% of the stock of the company. Advantages are that it keeps intangible assets within the company and gives a company tight control over operations and money. It also helps realize location and experience curve economics. Disadvantages to wholly owned subsidiaries is that it is the most costly and risky for a company to choose.