You are the international manager of a U.S. business that has just developed a r

Question

You are the international manager of a U.S. business that has just developed 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 for this computer. Your CEO has asked you to formulate a recommendation for how to expand in Western Europe.

Your options are: to export from the United States to license a European firm to manufacture and market the computer in Europe 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.

Explanation / Answer

Expansion using licensing would be the most appropriate way in this situation as first time exporting to European markets can be disastrous for an organisation as they do not know any kind of norms and availability of cultural as well as political aspects of the specific location. Licensing would reduce the overall cost of operation as company would not be having to set up their own manufacturing facilities in Europe and availability of flexibility because of the operational capabilities of European firm would already a line with the standards of euro creating better revenues for both of the companies by using licensing.
Licensing can be disastrous if the specific organisation does not carry correct Ethics of operation. If the specific Technology gets copied or redistributed then the overall approach would be highly affected as being copied is one of the most problematic scenario for any organisation which directly reduces the overall impact of business in international market.
Opening on subsidiary would provide competitive advantage to the farm over international Markets and it would also ensure security of the product as each and every part of the product be manufactured inside their own facility rather than being licensed.
One of the major drawbacks is the overall cost involved in Operation would be very high as compared to licensing. As licensing does not involve any kind of setting up for infrastructure, opening direct wholly owned subsidiary would be the most expensive way of entering an international market which is not feasible at all.
Definitely providing licensing to other form in international market is one of the most beneficial approaches in this type of operating environment as it directly provide adequate security to business operations and reduces the cost of operation in European markets.

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