Question

You are the international manager of a us business that has just invented a revolutionary new personal computer that can perform the same functions as existing pcs 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 us, (b) to license a european firm to manufacture and market the computer in europe, and (c) to set up a wholly owned subsidiary in europe. evaluate the pros and cons of each alternative and suggest a course of action to your ceo.

Answer 1

A) Export from the US:

Pros: Little intial cost for the company. Export led growth which is high in return.

Cons:This has problems since we should need a local importer and distributor. We would be dependent on local partners and might not be able to compete effectively.

(B) to license a european firm to manufacture and market the computer in europe.

Pros: Very low cost. We can quickly enter the market. Leave marketing and manufacturing to another firm.

Cons: Again, we lose control over our export market. Dependent on another company. If the relationship breaks down for some reason, it can take the whole European business with it.

C) To set up a wholly owned subsidiary in Europe.

Pros: Can develop the whole company in our own vision. Can apply for and defend patents better. Understand the local market and adapt to it.

Cons: It is very expensive with high costs of investment and operations.