Essay about Memo 1

Submitted By JoshLiew1
Words: 1234
Pages: 5

The company has developed some valuable and innovative medical products and wants to enter the U.K. market. What are the options available to us? Briefly assess the pros and cons of each option and let me know your recommendation whether to enter (if so how) or not.
I highly recommend that the company enter our valuable and innovative medicinal products into the U.K. market. I will discuss six different types of options/entry modes that the company should consider when entering the U.K market. I will briefly assess the advantages and disadvantages of each option and conclude by giving my opinion on which entry mode we should enter with.

By exporting our medicinal product to the U.K., the company will avoid large costs of establishing manufacturing operations in the host country. It also gives opportunities to access knowledge about the local market before the decision is made to invest there (Ireland et al. 2006, 201). This helps us achieve experience curve and location economies. If the medical products are manufactured in a centralized location and exported to other markets internationally, this company may realize large scale economies from its global sales volume. However, exportation is vulnerable to tariff barriers and high transportation costs of goods, which make the entry mode uneconomical especially as there is a large geographical discrepancy. Furthermore, exportation from our home base is not always effective if there are alternative locations that can manufacture the product at a lower cost abroad.

A turnkey project is advantageous for the company because it allows us to earn great economic returns on our medicinal product. It grants the ability to earn returns particularly where foreign direct investment (FDI) is limited by economic/political factors. However, due to the nature of the contract, assets are managed elsewhere while the company develops the competence it needs (Srinivasan 2008, 6). The company will lack long-term market presence in a foreign country, a major disadvantage if that country later on becomes a major market for the medicinal product project that has been exported. A turnkey project may also involuntarily create a competitor, especially if rival firms seek similar contractors. Furthermore, if the medicinal product is subsequently realized to be a source of competitive advantage, selling this through a turnkey project is selling this competitive advantage to potential and actual competitors.

Licensing avoids development costs associated with opening a foreign market and allows easier entry into a market with barriers to investment. It also allows another entity to develop business applications for our product if we choose not to do so. However, licensing loses its appeal as an entry mode as the company loses control over manufacturing, marketing and strategy required to realize experience curve and location economies. It limits the ability to use profits in one country to support competitive attacks in another, as a licensee is unlikely to allow a multinational firm to use its profits to support a different licensee operating in another country. This company can quickly lose control of the know-how regarding the technology required to make our medicinal product. Companies tend to avoid licensing to pursue a higher control mode, and so it is not a preferred option for entry into the U.K. market (Kim & Hwang 1992).

Franchising has similar benefits to licensing in that it also allows the company to earn large economic return for our medicinal product at low development costs and risks (Ireland et al. 2006, 201). Moreover, franchising tends to have less pronounced disadvantages than licensing. However, just like in licensing, a franchising firm is limited in its ability to use profits in one country to support competitive attacks in another. A more serious disadvantage of franchising is that of quality control, especially for products such as our medicine where health is the…