International Investing-DB3 - Essay Example

Content Cow Dairy is currently only considering exporting as its only market entry strategy into international locations. Exporting is a very effective and practical way to achieve expansion into the foreign market, but is not the only option. The current strategy used by the firm of exporting has the advantages of being fast to implement and it requires limited investment in capital resources to achieve market penetration. A major con of this strategy is that the profitability for the companies is lower because there are intermediaries in the exporting game that are taking away a large chuck of the profits.

An alternative market strategy that Mr. Swanson should consider is foreign direct investment. Foreign direct investment is a market entry strategy that can be used to achieve market penetration into foreign locations. A foreign direct investment can be defined as a long term investment by a foreign direct investor in a firm resident in an economy other than the one in which the foreign direct investor is based (Kamal, 2011). For example if an American company starts a joint venture with a Canadian company that would be considered a foreign direct investment.

In order for the United Nations to validate a foreign direct investment the investing company must purchase a controlling interest of at least 10%. A lot of countries depend on the capital foreign direct investment brings. In 2008 the amount of foreign direct investment worldwide was $1697 billion (Toscano, 2009). The implementation of foreign direct investment has several advantages. One of the greatest benefits of the use of foreign direct investment is that it benefits the local economy of the country receiving the investment.

The economy benefits from the creation of jobs and from tax revenues for the local governments. Foreign direct investments are considered a durable type investment that will benefit the community in the long run (About, 2011). Often these companies also invest money in the infrastructure of the community. The host country benefits by receiving a source of new technologies, capital, processes, products, organizational technologies and management skills (Graham & Spaulding, 2004). Foreign direct investment is a market entry strategy that is well respected by the international community.

Companies often invest money in the new communities they penetrate to help out social causes such as education and health (Businessweek, 2011). It is harder for corporations to penetrate countries with socialist regimes in political power. Prior to China’s entrance into the WTO in 2001 the only way for American companies or corporations of any nationality to penetrate China was by using foreign direct investment (Wto, 2001). The firms that are created from a foreign direct investment are categorized as multinational corporations.

Despite the advantages of the use of foreign direct investment there are cons associates with its implementation. The FDI involves making an association with a different firm. A potential problem many FDIs face is a clash of cultures between the employees of the two firms. Another con of the use of FDIs is that the investing company has to share the profit participation with the host country firm. References About.com (2011). Definition of FDI / Foreign Direct Investment. Retrieved May 13, 2011 from http://economics.about.com/cs/economicsglossary/g/fdi.

htm Businessweek.com (2011). Foreign Direct Investment. Retrieved May 13, 2011 from http://bx.businessweek.com/foreign-direct-investment/ Graham, J., Spaulding, B. (2004). Understanding Foreign Direct Investment (FDI). Retrieved May 13, 2011 from http://www.going-global.com/articles/understanding_foreign_direct_investment.htm Kamal, P. (2011).Foreign direct investment. Retrieved May 13, 2011 from http://hubpages.com/hub/pks Toscano, P. (2009). The Most Foreign Direct Investment. Retrieved May 13, 2011 from http://www.cnbc.com/id/33230032/Countries_with_the_Most_Foreign_Direct_Investment Wto.com (2001).

WTO successfully concludes negotiations on China’s entry. Retrieved May 13, 2011 from http://www.wto.org/english/news_e/pres01_e/pr243_e.htm