ANALYSIS ON MARKET ENTRY STRATEGIES EXPANDING INTO EUROPE

In the given situation, it is said that the company has developed a revolutionary new
personal computer that offers the same functionality as existing PCs at half the
manufacturing cost. As the international manager of the business that owns this, this
presents a significant opportunity for expansion into Western Europe, a large and
lucrative market. Ideally, there are three main options given for entering the European
market: exporting from the United States, licensing a European firm to manufacture and
market the computer, or setting up a wholly owned subsidiary in Europe. These options
have their own pros and cons, and we will be looking into which among the following
ways would be the best option for the company based on our personal perspectives.

As for the first option which is to export the product from the US, exporting requires
minimal initial investment compared to licensing or setting up a subsidiary. It allows us to
use our existing manufacturing setup and avoid the costs of building new facilities in
Europe. This way, we can keep full control over our product's design, manufacturing,
and marketing, ensuring the computers meet our high standards and that our
marketing message stays consistent with our brand. However, exporting also comes
with significant transportation costs and possible delivery delays, which could make our
computers less appealing to European consumers, especially if competitors offer similar
products at lower prices. Additionally, exporting to Europe might face trade barriers
and tariffs, which could increase our costs and reduce profit margins. Moreover,
exporting from the US might limit our ability to understand and respond effectively to
the European market's preferences and competition, leading to less effective
marketing campaigns. Therefore, while exporting has its advantages, the associated
challenges must be carefully considered before deciding on the best approach for
expanding into Western Europe.

The next possible option is licensing a European firm. Licensing allows us to enter the
European market with minimal investment and risk. By giving a license to a well-
established European firm, we can avoid the high costs and risks of setting up new
facilities, as the licensee will handle manufacturing, marketing, and distribution. This can
be very advantageous because the European firm will have local expertise and
established networks. They know the market well, have good relationships with retailers
and distributors, and can quickly introduce our product to consumers. However, there
are some downsides. Licensing means we give up control over how our product is
made and sold. If the licensee does not stick to our standards, it could harm our brand
image and product quality. There is also a risk of technology leakage. By sharing our
technology, we might unintentionally help potential competitors, which could hurt our
competitive advantage. Lastly, licensing agreements usually involve royalty payments,
so we won’t get the full economic benefits of our product. The licensee will take a big
chunk of the profits, leaving us with a smaller share. So, while licensing has its benefits,
the potential downsides need to be carefully considered as well.

For the third and last given option which is to set-up a wholly owned subsidiary in
Europe, what we think makes this good is that this option gives us complete control over
all aspects of the business, including production, marketing, and distribution. This means
we can maintain our brand image and ensure product quality by establishing our own
manufacturing facilities, marketing teams, and distribution channels. We can also
capture the full economic benefits of our revolutionary product since we control
pricing, distribution, and marketing strategies, allowing us to set our own prices,
negotiate with distributors, and develop marketing campaigns tailored to the European
market. In addition, a wholly owned subsidiary offers great long-term growth potential.
We can invest in local research and development, build brand loyalty, and establish a
strong market presence. However, setting up a wholly owned subsidiary requires a high
initial investment and carries higher risk compared to exporting or licensing. We need to
invest in new facilities, staff, and infrastructure, which requires a significant upfront
investment. Additionally, managing a wholly owned subsidiary in a foreign market can
be complex and challenging. We must navigate cultural differences, legal regulations,
and language barriers, adapting our business practices to comply with European laws
and understanding local cultural nuances. Lastly, operating in a foreign market exposes
us to political and economic risks, such as currency fluctuations, trade disputes, and
government regulations. Therefore, while setting up a wholly owned subsidiary offers
many benefits, it also comes with significant challenges that must be carefully
considered too just like the other previous options.

With these options discussed in terms of their pros and cons, we have come to our own
conclusion about what we believe is the best option for the international manager if we
were in his/her place. Based on our analysis, we recommend to the CEO of the
company, the third option which is setting up a wholly owned subsidiary in Western
Europe. We will be convincing him by telling that this option gives us the most control
over all aspects of our business, including production, marketing, and distribution, which
helps us maintain our brand image and ensure product quality. It also offers the best
potential for profit and long-term growth. Although this approach involves a significant
initial investment and comes with challenges, such as managing local regulations and
dealing with economic uncertainties, the benefits outweigh these risks. To make this
option work at its best, we will also explain that we need to conduct detailed market
research, choose the right location, and build a strong local team with expertise in the
European market. So, while setting up a subsidiary requires more effort and resources, it
seems like the best choice for achieving our goals in Europe.

As for the other options we didn’t choose, we will explain to the CEO that, while
exporting from the US offers a low initial investment and allows us to use our existing
manufacturing setup, avoiding the costs of establishing new facilities in Europe, it also
has significant downsides. We will point out that exporting could lead to high
transportation costs and potential delivery delays, which might make our products less
attractive to European customers, especially if competitors offer similar products at
lower prices. Additionally, we might face trade barriers and tariffs that could increase
costs and reduce profits. Regarding licensing, we will explain that although it reduces
our initial investment and provides access to local market knowledge and distribution
channels, it also comes with risks. These include losing control over how our product is
made and marketed and the possibility of our intellectual property being exposed to
competitors. While both options have their benefits, we believe that the advantages of
setting up a wholly owned subsidiary, which offers greater control and profit potential,
outweigh these drawbacks.

BSBA 1B | GROUP USA