Tutorial 4

You are the international manager of a US business that has just developed a revolutionary new personal computer that can perform the same functions as IBM and Apple computers and their clones but costs only half as much to manufacture. Your CEO has asked you to formulate a recommendation for how to expand into Western Europe. Your option are; a) to export from the US b) to license a European firm to manufacture and market the computer in Europe 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.

Introduction
Start from beginning - expand business in a different country, you are starting from the beginning again. In other words, you need to research the costs involved, the legalities and the business culture. Legal entity - Assuming you need to incorporate, the next stage is to decide which type of legal entity will best suit your requirements

Business cultures - applicable laws will be different from country to country Western Europe is a loose term for the collection of countries in the European continent, though this definition is context-dependent and carries cultural and political connotations Western european countries top world competitive ranking by World Economic Forum (WEF) -It is remarkable that countries with strong and effective governmental structures, good social cohesion and robust environmental policies.

a) export from US
Definition of exporting -This term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. Advantage of exporting from US Can easily involve in internationally - low cost activity in terms of outlet, factory, and raw material. Create economic scale - lead to lower cost and hence expansion of profit

Disadvantage Currency - different currency may occur high cost of delivering - 1 USD = 0.637514 GBP based on 14/3/12 1 GBP = 1.56859 USD

fluctuation of transportation costs - High transportation costs can make it uneconomical to get involved in the import or export of a certain good. - can be the availability of trade barriers such as tariffs and quotas or other hidden barriers.

License - doing exporting need get a export licenses based on the product exported. Control over marketing - an exporting firm will have to work with an agent which is not necessarily loyal to one brand (product).

b) to license a European firm to manufacturer and market the computer in europe

Licensing definition - The granting of permission to use intellectual property rights, such as trademarks, patents, or technology, under defined conditions.

The advantages on licensing Short channel of distribution - with license a european firm, can reduce cost of shipping on the product and reduce the broken risk of computer during delivering. Product is direcly to customer. Brand recognition - more subtle advantage of licensing a business process is the promotion of brand recognition.

The disadvantages of licensing Competition - the license places your competition on a level playing field because the competitor now has the right to use the same production processes you use Costly - the license agreement can require several types of payments, including a guaranteed license payment or variable payments. Confidentiality - If another business is willing to pay you for a license on your production process, your production process is a valuable property right. The risk with a license is that it increases exposure of your confidential, proprietary production process.

c) to set up a wholly owned subsidiary in Europe

Definition of subsidiary - is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. -Subsidiaries are a common feature of business life, and all multinational corporations organize their operations in this way

Type of subsidairy

Public Limited Liability Private Limited Liability Co-operative Company with limited liability

Advantages of subsidiary
Considerable tax advantages and legal protections - The parent can offset profits from one subsidiary with losses from others. -Liabilities attached to one subsidiary and legal actions against one company do not threaten the financial health of other subsidiaries or the parent organization Joint Ventures - Allows for joint ventures with other companies with each owning a portion of the new business operation Liabilities and credit -Liabilities and credit claims are locked in that subsidiary and cannot be passed on to the parent company

The disadvantages of subsidiary Costly - Legal paperwork involved with creating a subsidiary can be lengthy and expensive Control - Control also becomes an issue when a subsidiary is partially owned by another outside organization - The extra legal and tax work involved occur in subsidiaries.

Suggest of action is set up a wholly owned subsidiary in Europe

Presence Abroad - it gives the parent or holding company an international presence - helps market the company's products and services as well. Decreased Costs - raw materials, labor cost, technology, etc. Limited Liability -The foreign subsidiary acquired by a company is a legal entity separate from that of the parent or holding company, this means that should the company incur losses, the assets of the parent company will be untouched.

Conclusion

In order to expand a business, there is several aspect to be stress on to ensure the method of expandation is succeed.