Benefits of Exporting the New Personal Computer from India - Essay Example

Course: Essay Title: Student Name and ID: Tutor’s name: The following are the pros of exporting the new Personal Computer from India: It will gain international market shares. By exporting the company will participate in the international market and gain a slice of their share from the enormous global market. (Dunning 1993, p. 258) It will diversify. By selling to various global markets it allows the company to diversify its trade and spread the risk. The company will not be tied down to the changes of the business cycle such as recession, changed preferences or lowered demand of the domestic market of India. It will lead to increased sales and profits. By selling personal computer to a market that the company never had before it will boost sales and increases profits. Due to surplus foreign sales over a long period it will lead to increased overall profitability after the export development overheads have been covered. (Dunning 1993, p. 258) It will boost domestic competiveness. The company will become competitive in the domestic market before venturing in the global arena. (Lall 1983, p.73) When the company become competitive in the local market it will be able to get some strategies that can benefit them in the global arena. It will lower per unit costs. When the company export the new personal computer it will capture an extra foreign market which will increase its production to meet foreign demand. (Hennart 1982, p. 376) When the company increases its production it will lower per unit costs which will lead to better use of existing capacities. It will create potential for company development. When the company venture into the exporting business it will have a representation or presence in the foreign market which will require extra workforces and thus lead to development. (Lall 1983, p.73) It will gain new skills and knowledge. When the company go international it will yield valuable concepts and information about new marketing techniques, new technologies and the foreign competitors. (Hennart 1982, p. 376)These gains will help the company business locally as well as internationally. It will expand the product life cycle. The products go through several cycles that is introduction, growth, maturity, and decline stage which is the end of their usefulness in a particular market. When the same product reaches the final stage in a particular market, it can be introduced in a different market where it has never been marketed before something that will earn the company more revenue. (Levitt 1983, p. 96) When the company export it will be able to take advantage of the economies of scale which refers to lowered average costs as a result of expanded procedures, therefore leading to improved efficiency and productivity. (Rugman 2005, p.278) This will work very well because the company have a universal product that can be sold to most other parts of the world without significant adjustment. The cons of the company exporting are: When exporting, the company will have to modify its product in order to meet the foreign country security and safety codes and other import constraints. (Levitt 1983, p. 96) Modification of product is often necessary in order to fulfil the importing country’s packing or labelling requirements. When exporting to foreign countries it is very difficult and time consuming to find information than finding and analysing local markets. For instance in developing countries reliable information on market characteristics, cultural barriers, business practices may be inaccessible. (Rugman 2005, p.278) When the company license a European firm to manufacture and market the computer in Europe it will have the following pros: The company will be able to take its product to the foreign market without incurring the costs of setting up locally and all the expenses and risks associated with that. (Rugman 2005, p.278) The company will be able to get instant access to a foreign market and without capital requirements to establish manufacturing operations overseas. The company will also be able to deter competitors as well as the imitators in the international market. By licencing a European firm the company will be able to supply products in the domestic market where there is no chance to manufacture or produce in the products domestically. (Lall 1983, p.73) The company will be able to work with the European firm in a foreign market and get to learn from them. (Dunning 1993, p. 258) For instance, it will be possible to improve the products or to adjust them so that they can meet the needs of the local market. This can often be done early on the products lifecycle in order to help achieve better market coverage. By licensing a European firm the company will save a lot of expenses in terms of research and development of the personal computer. For instance the can be able to exploit the fruits of research carried out by one company in order to help them improve their products due to the licensing. Another pro of licensing is that the business or the firm is basically local and is in the form of the local business that holds the license. Due to this, import barriers such as tariffs or regulation do not apply. (Rugman 2005, p.278) The company will be able to realise returns or revenue more quickly than for manufacturing ventures. The cons of licensing a European firm to manufacture and market the personal computer in Europe are: By licensing, the company risks creating a competitor from the European firm if too much information or knowledge and know-how is transferred to the firm. It is important that the firm take care to protect intellectual property and trademarks. (Dunning 1993, p. 258) This can be done by patent and trademark registration. By licensing the company will be required to offer technical assistance and training in brand standards, design and specifications of the product. This will make the company to incur more costs hence reducing the outcome the company revenue and returns. (Lall 1983, p.73) The company may not generate maximum profits in the long run from royalty payments when they license the European firm as compared to setting up the company locally. (Williamson 1975, p 76) In order to license it requires a lot of fact finding, planning, investigation and interpretation of the information about the European firm which is located far away from India. If the company decided to set up a wholly owned subsidiary company in Europe it will have the following pros: It will reduce the company’s risk of losing control of the technology competency or know how, intellectual company and trademarks or patent rights. The company is able to ensure accuracy and authenticity of the information provided about management, production and financial operations of the company. (Aulakh 2007, p.242) It will give the company a tight control over operations in different nations that it requires if it is going to engage itself in global strategic coordination that is taking profits or returns from one country to fund competitive attacks in another country. (Williamson 1975, p 76) Due to cultural differences between India and Europe the risks related with learning to do business in a new culture are fewer compared if the company decided to set up or acquire a recognised local company. (Buckley & Casson 1976 p. 128) The cons of setting up a wholly owned subsidiary company in Europe include: One con of setting up a wholly owned subsidiary company is that it will be able to bear the full risks and costs of setting up overseas operations. (Aulakh 2007, p.242) The full amount of capital invested and the costs incurred by the company limits the flexibility in strategic planning and increases investment risk. The company will need to develop their own knowledge and capacity, advertising channels and develop new sales channels to operate efficiently in European environment. For instance sales representatives need to search for good advertisers and share the information with the advertising and management. (Buckley & Casson 1976 p. 128) The company will face new challenges in marketing, strategic planning, organisational design, and resource allocation especially in internal control, financial management and other aspects. (Lall 1983, p.73) The best option for the company to take is to export the new personal computer form India because the company is likely to make more profit by exporting as compared to the other options. In case the company decide to expand globally the course of action would change because emerging economies have great potential for growth because there is still major development occurring, the emerging economies hold great opportunity for faster growth than in already developed market, (Aulakh 2007, p.242) if a company can be able to set up shop and build early success it can be able to become the recognised brand in the industry, the emerging economies have a growing upper class population who are interested in purchasing luxury goods which were not available in their country before, (Aulakh 2007, p.242) it will also enable the company to source raw materials or labour at lower prices, it will also expose the company to foreign competition something that will increase efficiency and allow the firm to improve on the quality of their product in order to gain a competitive advantage, the firm will also be in a chance to diversify its market it does not become vulnerable to changes in the local demand. (Williamson 1975, p 76) The company will face challenges such as increased operations costs, the company may be required to make changes such as production process, specialised transport network, inputs and packaging hence incurring additional costs and delays in payments adversely affecting the company’s cash flows. (Kumar & Chadha 2009, p. 256) Reference Buckley, P.J & Casson, M 1976, The Future Of The Multinational Enterprise Macmillan, London. Aulakh, P.S, 2007, Special Issue On Emerging Multinationals From Developing Economies: Motivations, Paths And Performance. Journal of international management, vol. 13, no. 3, pp. 242 Dunning, J, 1993, Multinational Enterprise and Global Economy. Addison Wesley, Wokingham Berkshire. Kumar, N & Chadha, A, 2009, India’s Outward Foreign Direct Investments in Steel Industry in A Chinese Comparative Perspective Industrial and Corporate Change Vol. 18, no. 2, pp. 256. Hennart, J, 1982, A Theory Of Multinational Enterprise. University press, Michigan Lall, S, 1983, The New Multinationals: The Spread Of Third World Enterprise. Wiley, Chichester Levitt, T, 1983, The Globalisation Of Markets. Harvard Business Review. Vol. 61, no. 3, pp. 96. Rugman, A.M, 2005, The Regional Multinationals. Cambridge University Press, Cambridge UK Williamson, O.E, 1975, Markets and Hierarchies: Analysis and Antitrust Implications. Free Press, New York. Read More