Many industrial firms begin their international expansion by exporting goods or services to other countries. Exporting does not require the expense of establishing operations in the host countries, but exporters must establish some means of marketing and distributing their products. Usually, exporting firms develop contractual arrangements with host country firms. The disadvantages of exporting include the often high costs of transportation and tariffs placed on some incoming goods.Licensing is an increasingly common form of organizational network, particularly among smaller firms. A licensing arrangement allows a foreign company to purchase the right tomanufacture and sell the firm’s products within a host country or set of countries. The licensor is normally paid a royalty on each unit produced and sold. The license takes the risks and makes the monetary investments in facilities for manufacturing, marketing, and distributing the goods or services. As a result, licensing is possibly the least costly form of international expansion.In recent years, strategic alliances have become popular meansof international expansion. Strategic alliances allow firms to share the risks and the resources required to enter international
markets. Moreover, strategic alliances can facilitate the development of new core competencies that contribute to the firm’s future strategic competitiveness.As free trade has continued to expand in global markets, cross-border acquisitions have also been increasing significantly. Acquisitions can provide quick access to a new market. In fact,acquisitions often provide the fastest and the largest initial international expansion of any of the alternatives. Thus, entry is much quicker than by other modes.The establishment of a new wholly owned subsidiary is referred to as a greenfield venture. The process of creating such ventures is often complex and potentially costly, but it affords maximum control to the firm and has the most potential to provide above-average returns.Please go to the next slide.9Strategic Competitive Outcomes Firms have numerous reasons to diversify internationally. International diversificationis a strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets. Because of its potential advantages, international diversification should be related positively to firms’ returns.Research has shown that, as international diversification increases, firms’ returns decrease initially but then increase quickly as firms learn to manage international expansion. In fact, the stock market is particularly sensitive to investments ininternational markets. Firms that are broadly diversified into multiple international markets usually achieve the most positive stock returns, especially when they diversify geographically into core business areas.
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- Spring '14
- Business, International Trade