Question

You are the international manager of a Canadian pharmaceutical company that has just developed a new drug that can perform the same functions as the competition’s but costs only half as much to manufacture. Your CEO has asked you to formulate a recommendation for how to expand into Western Europe. You can choose to 1. Export from Canada; 2.License a European firm to manufacture and market the new drug in Europe; or 3.Set up a wholly owned subsidiary in Europe. Which option would you choose and why?

Answer 1

1. Export from Canada:

Pros: The company's low initial cost. Export-led growth, which in return is high.

Cons: This is complicated because we need a central importer and dealer. We may depend on local partners and will not be able to market efficiently.

2.License a European firm to manufacture and market the new drug in Europe

Pros: Relatively low cost. We will reach the market easily. Leave promotion and development to another company.

Cons: Again, we are losing leverage in our demand for exports. Based on another entity. If for whatever reason the partnership breaks down, it will take the whole European business with it.

3.Set up a wholly-owned subsidiary in Europe

Pros: With our own imagination, the entire business can be created. Patents should be claimed for and defended easier. Understand, and respond to, the local economy.

Cons: With high prices for investment and activities, it is very costly.

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An international manager could consider three options when considering expansion into Western Europe: FDI, licensing, and export. For exports, assuming there are no trade restrictions, shipping costs and localization will definitely be the primary factors. Although transport costs for a comparatively light and high-value commodity such as a computer can be very minimal, localization may present some difficulties. Power specifications, keyboards, and model expectations all differ from nation to region. These localization problems from the US can be difficult to resolve entirely, but not impossible. Since several device makers and distributors operate in Europe, a variety of possible licensees are expected to operate. However, a license agreement means that it will be appropriate to reveal useful technical knowledge and that of the companies. If the licensees use or disseminate this, the economic gain will be missed. Improperly patented info.

Clearly, the most expensive and time-consuming solution is FDI (setting up a wholly-owned subsidiary), but the one that ideally ensures that vital information can not be disseminated and that localization will be achieved successfully. FDI would also position you in the market you want to sell to, helping you to be close to the customer. It is impossible to predict how long this innovative new computer will survive, considering the rapid speed of development in the personal computer industry.

Maintain a competitive edge. FDI can pay off and help ensure that essential information is not wasted if the organization can maintain its advantage for a period of time. Licensing would allow the business to have the fastest large-scale entrance into Europe and make as much as possible before losing advantage if the innovation is not central and can be quickly replicated.