Fundamentals of Management, 8th ed

Table 2.1

Advantages and Disadvantages of Different

Approaches to Internationalization

Approach to

Internationalization

Advantages

Disadvantages

Importing or exporting

1. Small cash outlay

2. Little risk

3. No adaptation

necessary

1. Tariffs and taxes

2. High transportation

costs

3. Government

restrictions

Licensing

1. Increased

profitability

2. Extended profitability

1. Inflexibility

2. Competition

Strategic alliances

or joint ventures

1. Quick market entry

2. Access to materials

and technology

1. Shared ownership

(limits control and

profits)

Direct Investment

1. Enhanced control

2. Existing

infrastructure

1. Complexity

2. Greater economic and

political risk

3. Greater uncertainty

©

C

engage

Learning

When organizations

decide to increase

their level of interna-

tionalization, they

can adopt several

strategies. Each

strategy is a matter

of degree, as

opposed to being

a discrete and

mutually exclusive

category. And each

has unique advan-

tages that must be

considered.

exporting

Making a product in

the firm’s domestic

marketplace and

selling it in another

country

importing

Bringing a good,

service, or capital

into the home

country from abroad

licensing

An arrangement

whereby one

company allows

another company to

use its brand name,

trademark,

technology, patent,

copyright, or other

assets in exchange

for a royalty based

on sales

52

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into a number of licensing arrangements with breweries in other markets. These brewers

make beer according to strict guidelines provided by the Japanese firm and then package

and market it as Kirin Beer. They pay a royalty to Kirin for each case sold. Molson pro-

duces Kirin in Canada under such an agreement, and the Charles Wells Brewery does

the same in England.

39

Strategic Alliances

In a

strategic alliance

, two or more firms jointly cooperate for

mutual gain.

40

For example, Unisys and Oracle have a strategic alliance that provides

customers with the service and technology of Unisys and the enterprise software of

Oracle. A

joint venture

is special type of strategic alliance in which the partners actually

share ownership of a new enterprise. Strategic alliances have enjoyed a tremendous

upsurge in the past few years.