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Assignment 2 Mohammed Mustansir FA19-BAF-070

COMSATS University, Islamabad
Submitted To:
Ms. Kanwal Shahzadi
Submitted By:
Mohammed Mustansir
Due date: 10th/05/2021
Q: 01: 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 of this computer. Your CEO has asked you to
formulate a recommendation for how to expand into Western Europe.
Your options are (a) to export from the United States, (b) to license a European firm to manufacture and
market the computer in Europe, or (c) 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.
Ans: There are pros and cons of in all three options when considering to expand into Western Europe.
First, let’s consider exports, this is approach has the least costs assuming there are no barriers to trade,
the key aspects to consider would be exporting costs, transportation costs and localization. Trade
Infrastructure in the Western Europe is relatively advanced and hence the transport costs are likely to be
low for light and high value product like computers, however difficulties may be faced in localization. Since
Power Requirements keyboards, and preferences in models can vary from country to county, therefore
addressing the localization issue might be difficult.
Licensing is another option, this option too has low costs and is quick way of entering the market and
leaves the marketing and distribution to the other firm (licensee). As the Western Europe is
technologically advanced so there would be many manufacturers and distributors in Europe. Hence the
number of potential licensees will be great. However, in licensing the firm would have disclose its valuable
technological information and due to this the firm might lose its competitive advantage in case that the
licensee uses or disseminates the information improperly.
The Third option is setting up a wholly owned subsidiary (FDI), this approach although will be the most
costly and time consuming. However, setting up a subsidiary will guarantee that the firm’s proprietary
knowledge will be protected and localization can be done effectively. FDI will also place the firm in the
market and allow it to be in direct contact with its customers engage them. Given the constantly evolving
nature of this industry FDI would allow the firm to cater to the specific needs of the customers.
In order to determine which course of action would be best for the business there are various aspects to
be considered. I would recommend opting for a wholly owned subsidiary because it saves on shipping
costs. Wholly owning the subsidiary allows complete control and if it fails the company can abort the firms
operation. The firm would enjoy uninterrupted business, which incase of a licensing can arise due to any
dispute among the parties. However, a potential downside to this approach is if the innovation is not the
core of the product and can be easily copied, in that case, then licensing would allow the firm to get the
quickest large scale entry into Western Europe and reap as much profit as it can before losing its