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Homework answers / question archive / 2) “SolBridge” is a multinational company who wants to expand its business worldwide
2) “SolBridge” is a multinational company who wants to expand its business worldwide. Next year, SolBridge wants to enter to new country, Japan, and considers two options of entering modes- either exporting the program and online courses to Japan, or, wholly owned subsidiary by acquiring (M&A) the international business department of Meiji University in Japan. What are the potential advantages and disadvantages of these entry modes? What strategy would you recommend for SolBridge? (5 points)
Solbridge is a multinational company woho wants to expand its operations and it is considering two types of entry mode in Japan market. The one is exporting the service and another is establishing company's own subsidiary. So these both methods have some advantages and disadvantages which we will discuss further after getting a basic understanding about these two entry modes in a new market.
1. Exporting the program : When a company is engaged in export of its goods and services then it means that the principle place of business is located in that country from which such export is taking place. It means that one country is providing service to another country. A company which wants to expand its operations in international boundaries think about exportation so that large profits could be earned. Solbridge wants to consider the option of exporting its program and online courses to Japan which has various benefits and disadvantages we are discussing below.
|
ADVANTAGES |
DISADVANTAGES |
|
Exporting the program will hep the Solbridge in expanding its market share rather depend on any single market. |
While concentrating on foreign market, you may loose focus from home market. |
| It will increase the profitability of the company because resources will be put to best possible use for exporting. | The cost of administration will be high in case of export of program and online course. |
| The company could enjoy the benefits of large scale production as it helps in reducing the cost associated with it. | There are different export rules and regulations which needs to be followed which makes the work tedious. |
| Business will find new development opportunities as the customer base will be increased with international market share. | There will be less control and coordination in an international market as compared to home market. |
| Better results could be produced by quality research so that needs of new market could be fulfilled. | Management of operations from different business place is difficult sometimes. |
2. Setting up a subsidiary : A company is known as a subsidiary when it has a holding company who acquire the shares of that subsidiary company. A holding has more than 50 % share holding in its subsidiary. But when a holding/parent company holds 100% share holding in an company than it is known as wholly owned subsidiary of that holding company. Holding company has a control over the operations of its subsidiary company as it closely watches its operations. In the given case Solbridge wants to acquire international business department of Meiji University as a wholly owned subsidiary which will have following advantages and disadvantages.
| ADVANTAGES | DISADVANTAGES |
| Establishing a subsidiary company overseas will provide an access to the new market and will help in reaching new customers efficiently. | There is a huge capital requirement for setting up of a subsidiary in an foreign market. |
| The resources and work experience, process of work,goals and techniques could be shared by the subsidiary company | There could be problems in understanding the social and cultural values of people there which could create conflicts among people. |
| It helps in creating a brand recognition in mind of people and the company could use the opportunity to expand the reach of their brand. | Tax provisions of one country is totally different from another and tax compliance is very necessary. |
| Regional knowledge and technical skills of local people help in setting up the company at a large scale. | There could be semantic barriers when we operate physically in an international market. |
| There are various business investment opportunities which yield revenues to the business. | The process of establishment is very time consuming and costly as risks are always associated with it. |
Solbridge could implement any strategy from the above two strategies of entering into a new market. However there are some points of differentiation needs to be considered before making any decision.
| BASIS | EXPORTING THE PROGRAM | WHOLLY OWNED SUBSIDIARY |
| CAPITAL REQUIREMENT | Low | High |
| RISK ELEMENT | Controllable | Uncontrollable |
| INVESTMENT | Low | Heavy |
| CONTROL LEVEL | Low | High |
| TIME CONSUMING | Less | More |
| MANAGEMENT OVERSEAS | Tough | Easy |
So if a company has low capital and time and wants the risk element to be manageable then it can choose the option of exporting the program otherwise it can go with another option of wholly owned subsidiary. Every mode has its advantages and disadvantages which tells us about the opportunities and risks associated with each mode. So all the points needs to be considered before investing in any mode.
