EECS 1019 Lecture Notes - Lecture 21: International Trade, Franchising
15 Jun 2018
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EECS 1019 Lecture 21 Notes
Introduction
Establishment of New Foreign Subsidiaries
• The approach requires a smaller investment than that of a full international acquisition
and so exposes the firm to less risk.
• On the other hand, the firm will not have complete control over foreign operations that
are only partially acquired.
• Firms can also penetrate foreign markets by establishing new operations in foreign
countries to produce and sell their products.
• Like a foreign acquisition, this method requires a large investment.
• Establishing new subsidiaries may be preferred to foreign acquisitions because the
operatios a e tailored eatl to the fir’s eeds.
• In addition, a smaller investment may be required than would be needed to purchase
existing operations.
• However, the firm will not reap any rewards from the investment until the subsidiary is
built and a customer base established.
Summary of Methods
• The methods of increasing international business extend from the relatively simple
approach of international trade to the more complex approach of acquiring foreign
firms or establishing new subsidiaries.
• Any method of increasing international business that requires a direct investment in
foreign operations normally is referred to as a direct foreign investment (DFI).
• International trade and licensing are usually not viewed as examples of DFI because they
do not involve direct investment in foreign operations.
• Franchising and joint ventures tend to require some investment in foreign operations
but only to a limited degree.
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