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Five strategies which could be adopted by a local enterprise to become a multinational company
i)Branches
Branches are the more straightforward way to expand to another country. Simply take some cash, get the pertinent business licenses, hire a localization team and set up a branch a branch in a foreign country.
ii)Subsidiaries
If your company is cash rich then acquisitions may be a better strategy than establishing branches. Acquiring a local company for the purpose of vertical or horizontal integration is fast and comparatively easy, provided that you plan to leave the original business (branch management, infrastructure) intact. By making the acquired company your subsidiary, you have the advantages of instant localization, name recognition and an experienced team at the helm. However, do your homework before acquiring a subsidiary, lest your company experience acquisition indigestion.
iii)Joint venture
Perhaps you don‘t want to purchase local companies due to the hefty price tag. Maybe a local competitor, who cannot be acquired, is already dominating the market .In this case, the old adage ?if you can‘t beat =them, join ?them? comes, into play. Establishing a joint venture or, a partnership with a foreign company in the same industry is an attractive option. Both, companies set aside capital, resources and technology in a new, shared company which is separate from the main operations at both companies. This is a popular option in countries, such as China, where the law is extremely strict with foreign businesses. Joint ventures have all the advantages of foreign acquisitions such as localization and brand recognition at a fraction of the cost. Most joint ventures split expenditures and profits 50/50.
iv)Franchises
A foreign affiliate will purchase a license from your company to use your brand in a foreign country. While the foreign affiliate retains ownership of your branded business, your company will receive royalties from each franchise. Franchising is the cheapest option and the fastest way to build an established presence in a foreign country with minimal risk. The higher risks (sales profitability) are all absorbed by the foreign affiliate. However, foreign franchises have to be monitored closely, since the geographic and cultural divide can mask brewing problems.
iv)Turn key Projects
Turn key projects are more common in businesses requiring precise technological expertise such as power plants, factories or oil drilling platforms. In this setup your business sells Its technological know-how to a foreign firm, which pays your company to build a modified copy of your plant to their specifications, from scratch to the operational stage. This includes all of your technologies and trade secrets. Once the plant is completed, you hand over the keys to the fully working- plant to the foreign firm. All they have to do is ?turn the key? to get started. While selling factories is extremely profitable, you also forfeit your own direct expansion plans in the country, due to another firm already holding the license to your technology. This is the trickiest of the five criteria and the one you‘re least likely to encounter, unless your company specializes in mass production or resource exploration plants focused on developing markets.
marto answered the question on January 30, 2019 at 10:34
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