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 for this computer. Your CEO has asked you to formulate a recommendation for how to expand in Western Europe. Your options are: to export from the United States to license a European firm to manufacture and market the computer in Europe 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.

Answer:

The pros and cons of the methods used to expand into the European marketplace are:

(a) Pros: positive national image as the product’s made domestically and creates American jobs, protection/control of proprietary processes and technology, and the potential for government endowments, etc. Cons: shipping/distribution costs, potentially higher wages, and taxes and other penalties or charges imposed by the European government;

(b) Pros: Possible avoidance of import fees, reduced shipping/distribution costs, startup costs reduced. Cons: Force to share trade secrets, reduced control of manufacturing processes;

(c) Pros: Possible avoidance of import fees, reduced shipping/distribution costs, protection/control of proprietary processes and technology. Cons: High startup costs, negative company image if perceived as taking U.S. jobs overseas.

                Option C seems the least feasible. Despite being touted as revolutionary, computer technology is often quickly duplicated and/or surpassed in short amounts of time. The risk is not worth the reward. Between A and B, I would probably choose to produce domestically. The drastically low manufacturing costs should cover for shipping/distribution costs incurred. One would think the trade relationship between the US and European markets would preclude any additional government-imposed fees or taxes.