Kelly Steiner Steiner 1

SBU 240.45 International Business [Spring, 2022]

Professor Lyzona Marshall, MBA

January 30, 2022

FDI and Western Europe essay

Recommendation for Western Europe Expansion

I have been asked to formulate a recommendation for our expansion into Western Europe
with our revolutionary new personal computer. The choices for our Foreign Direct Investment
include exporting, licensing, or subsidiary. Some important information to keep in mind as you
read: our computer can perform the same functions as other PC’s, it costs only half as much to
manufacture as the other’s, we have several patents protecting our unique design. I chose to use
two large countries in Western Europe for my research, Germany and France.

I will start with the option of exporting. Although this is sometimes a very good option, it
is not with a “low value to weight ratio”. This means that the costs of transportation to export the
computer from the U.S. will be very costly and not profitable due to the size and weight (Hill,
218). This would also cost the consumers more to make up the difference on the import, which
would defeat the economic value of manufacturing. France ranges high on the power distance
scale as well, meaning that they have a very unequal power distribution in their society. This
could result in not only an unattractive high price and but also that only certain people would
able to obtain the computers (Hofstede).

Next, I explored licensing. We could lose control of our marketing, manufacturing,

operations, and strategy. The other downfall would be that because of our patents on the product,
we may not be amenable to licensing. We would have no say in over the “technological know-
hows”, and this could be putting our idea into the hands of a potential competitor (Hill, 220).
Again, France has an extremely high rating on uncertainty avoidance, meaning that they are
 Steiner 2

afraid for the unknown situation and require a lot of rules in their country (Hofstede). This could
impact the agreeance for taking on a licensing agreement.

Creating a wholly owned subsidiary which is, “the greenfield investment form of Foreign
Direct Investment” entails the U.S. establishing a new operation in Western Europe (Hill,217). I
recommend this option because the U.S. has been one of the largest sources of FDI since WWII.
Therefor we have a strong standing to do so. We will be able to invest directly in new facilities to
produce and market the computer. We would not lose profits for being undersold, or for paying
transportation on exports. We will also maintain our reputation and brand while growing with
significant presence abroad. France would be in favor, as there is very little risk on their behalf,
and Germany will be in favor of the technology and new product coming to them. Germany rates
very “high on the Long-Term Orientation scale”, and they “want to maintain links to the past
while dealing with challenges of the future and thrive to keep efforts going for education as a
way to prepare for the future” (Hofstede). Our product can do just that for them. I feel for the
best production and brand integrity that this is our best option to move into Western Europe.
Work Cited

Hill, C.W.L. & Hult, G.T.M. (2018). Global Business Today (11e). New York:
McGraw-Hill/Irwin. (pp. 217-220)

Hofstede Insights (2022). https://www.hofstede-insights.com/

*Power point note from chapter 8 were also referenced