You are the international manager of a U.S business that has just developed a revolutionary new personal computer than can perform the same functions as existing PC’s but costs only half as much to manufacture. Several patents protect the unique design of this computer. Your CEO has asked you to formulate a recommendation for how to expand into Western Europe.
Your options are
a) To export from the United States;
b) To license a European firm to manufacture and market the computer in Europe; or
c) To set up a wholly owned subsidiary in Europe.
Evaluate pros and cons of each alternative and suggest a course of action to your CEO.
First and foremost, before answering the question, we must understand on the question mentioned on the Foreign Direct Investment (FDI) indirectly that when a firm/companies invest directly in facilities to produce or market a product in a foreign country.
For us, we should also understand on the FDI’s personally that makes us easy to explain to the top level management firmly. In the FDI’s scenario, it involved on two (2) main forms as follows:
1. Greenfield Investment: This involves establishing a new operation in a foreign country.
2. Involves acquiring or merging with an existing firm in the foreign country.
As we discussed on the FDI, the most important is that to understand on how to distinguish between the flow of FDI and the stock of FDI. Thus, the flow of FDI is that refers to the amount of FDI undertaken over a given time period (normally a year). Secondly, we should also to understand on the stock of FDI that refers to the total accumulated value of foreign-owned assets at a given time. Further to these, we should look into outflow of FDI, meaning the flow of FDI out of a country, and inflow of FDI, the flow of FDI into a country.
After having rough idea on what is Foreign Direct Investment (FDI), now we can go deeper by answering the question step by step as follows?
a. To export from the United States;
As to formulate a recommendation for the company; how to expand into Western Europe i.e. to export from the origin country (United States), we should understand on a few terms as follows:
Firstly, we must understand on the definition of the export that derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer". In International Trade, "exports" refers to selling goods and services produced in home country to other markets.
Further elaborates on the export term in the Wikipedia by Jimmy Wales highlighted that “Any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. Export goods or services are provided to foreign consumers by domestic producers.”
Jimmy Wales also explain that “Export of commercial quantities of goods normally requires involvement of the customs authorities in both the country of export and the country of import. The advent of small trades over the internet such as through Amazon and eBay have largely bypassed the involvement of Customs in many countries because of the low individual values of these trades. Nonetheless, these small exports are still subject to legal restrictions applied by the country of export. An export's counterpart is an import.” As we discuss on the export our PC’s that have been patents protection on the unique design of the computer, we should also look into the advantages and disadvantages of the export the PC’s to the Western Europe as follows: a) Advantages of exporting
• Ownership advantages are the firm's specific assets, international experience, and the ability to develop either low-cost or differentiated products within the contacts of its value chain. • The locational advantages of...
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