Question

A small Canadian firm that has developed some valuable new medical products using its unique biotechnology know-how is trying to decide how best to serve the European Union market. Its choices are given below. The cost of investment in manufacturing facilities will be a major one for the Canadian firm, but it is not outside its reach. If these are the firm’s only options, which one would you advise it to choose? Why?

a. Manufacture the products at home, and let foreign sales agents handle marketing.

b. Manufacture the products at home and set up a wholly owned subsidiary in Europe to handle marketing.

c. Enter into a strategic alliance with a large European pharmaceutical firm. The product would be manufactured in Europe by the 50/50 joint venture and marketed by the European firm.

Answer 1

The Canadian company has developed an groundbreaking and highly regarded medical product that uses advanced biotechnology know-how to determine whether to join the European Union.

a. The exportation of the product is an choice for the business when the product is produced and labelled in European Union. A sales officer can be supported which would entail zero investment in the construction of production units in other countries.

b. The manufacture of and sale of the products at home through the establishment of a wholly owned subsidiary strengthens the reputation of and capacity for the company to service its customers. This will entail a fair amount of investment in the establishment of the international subsidiary.

c. It is also an option to enter an alliance or joint undertaking with the European union group. But, this needs a substantial cost in the construction of production facilities abroad, which the company can not afford.

Verdict: Therefore, a wholly owned subsidiary is the most suitable choice for the company, which cost least of all in terms of investment. The 2nd choice is therefore the most advantageous (b).

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