International Business Book Notes

International Business Book Notes - Strategies for...

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Strategies for International Expansion Overview - There is no optimal choice for expanding operations to other countries, Each decision depends on the: 1. Product & market in question 3. Company’s Risk Averseness 4. Overall Global Strategy Each way to enter foreign markets presents a strategic choice to managers: 1. Whether to produce inside the origin country or produce the items/services in the company’s existing plants and ship it to the new market The decision is between local production and exports Economic and strategy conditions that affect this choice: 1. Exporting to a foreign market means additional costs of freight, custom duties, insurance, special packing, and other taxes that can be avoided if it was produced in the foreign country itself 2. Setting up production in a foreign nation means additional capital investment and possibly higher production costs compared to the company’s existing facilities 3. Manager must consider risks and organizational issues associated with setting up a new foreign investment like (political instability/unfamiliar environment/currency fluctuations/currency fluctuations/training new management and staff to fit in with the culture/hierarchy and operating specifications/on-going and communication costs 2. Hands off approach to licensing=Licensing Licensing the company’s expertise/patents/brands to another firm in the foreign market and making them produce the good/service for customers there Licensee company gets training and rights to intellectual property and pays fees/royalties Involves less control over the foreign operation than an equity investment Licensee company takes the most risk by making the investment and developing the market in their country
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The royalties and technical fees that the licensor pays are often inferior to the dividends and growth equity value the company could have earned if they made the foreign investment themselves *Each option involves: 1. Different levels of Investment 2. Expected Return 3. Control 4. Risk Duration 5. Competitive Threat 6. Tax and Strategy implications Three Classic Strategy Options 1. EXPORTING Exporting Strategy: Benefits 1. Profit margins earned immediately 2. Shipment by shipment 3. Under control of the company Exporting Strategy: Disadvantages/Risks 1. Risks associated with exporting location 2. Profits are immediately taxable in the exporting nation Exporting Strategy: Type of Return -Immediate direct profit mark-up on item sold -Taxable in exporting country 2. FOREIGN DIRECT INVESTMENT (FDI) -Involves a new company being acquired or created abroad with a huge investment where the investing company owns its share -100% Owned Subsidiary when a parent company owns all the foreign affiliate’s shares
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-Equity Affiliate if shareholding is less than 100% -Majority Owned Affiliate is shareholding is above 50% -Joint Venture if some of the affiliate’s share are held by a local partner
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This note was uploaded on 04/21/2011 for the course INTERNATIO 220:335 taught by Professor Clare during the Spring '09 term at Rutgers.

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International Business Book Notes - Strategies for...

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