Question

Felix, a U.S. technology company has recently developed a revolutionary wireless phone. The product offers exciting new features along with all of the features of current products, but at a fraction of the manufacturing costs. As the international business manager of Felix, you have been asked to choose the best mode of entry into the European market. Your have the following options: o Export your product from the United States. o Enter into an alliance with a large European company. o Manufacture the product in the United States and set up a wholly owned subsidiary in Europe. o License a European firm to manufacture and market the phone in Europe. In preparation for your choice, list the pros and cons of each method of entry. Which choice do you present to your CEO? Support your decision.

Answer 1

So, the first consideration to launch any product in foreign market is the laws and regulations of the foreign country and also the business environment of the country for example sometimes foreign countries may put non-tariff barriers on its imports like red-tapism and delays in clearances etc. and then it may not remain profitable for an outside firm to launch its product via exports. Considering that all options are open to Felix, let's see pros and cons of different strategies of new product launch:

1. Export the product from the United States:

Pros:

• Greater market access and higher sales as there is no competitor of new technology.
• The most important advantage is becoming competitive in international market. As only most efficient companies survive in international markets.
• No setting up costs of shifting factory.

Cons:

• Less market information about other country's markets.
• Cultural differences can sometimes lead to preference difference for the demand of a service.
• Transportation costs.
• Tariff or non-tariff barriers.

2. Enter into an alliance with a large European company:

Pros:

• Better market knowledge about domestic market and hence better competence.
• Less complexities in terms of investing time and resources on understanding laws and regulations.
• access to already established markets.
• Division of costs.
• Access to complementary resources and skills of domestic employees

Cons:

• Demands more patience. Can be time-consuming exercise.
• Can be hard to manage, specially when technology is changing so fast.
• It is very important to have clear contract (terms & conditions ) to avoid any unforeseen situation or complexity.

3. Manufacture the product in the United States and set up a wholly owned subsidiary in Europe:

Pros:

• Better market access and higher returns.
• Complete managerial and operational autonomy.
• Tapping in to regional knowledge and skills to customise accordingly.
• Better focus on quality of service inspite of legalities.

Cons:

• Cost of establishing the subsidiary in terms of time and money which are significantly high in the beginning.
• Compliance to other country's laws related to labour, wages etc.
• Establishing recognition in foreign market.
• Cultural barriers.

4. License a European firm to manufacture and market the phone in Europe:

Pros:

• Least costly and less complex.
• Assured returns (even in dynamic markets).
• More suitable if the company does not have very good marketing skills.

Cons:

• Loosing control of the product.
• Licensee can develope the technology over time and can become competitor.
• License generally expire after a limited time period.

Selecting a strategy depends on number of factors not just related to foreign markets but on internal factors like financial capacity of the firm, Felix, or say risk appetite of the leadership of the firm etc. So, each strategy needs to be evaluated considering both internal as well as external factors. However, given all the information, third strategy i.e.  Manufacture the product in the United States and set up a wholly owned subsidiary in Europe is the most suitable in this case because (a). the firm has developed a revolutionary wireless phone which has no competitor and (b). the huge size and potential of European market.