Strategic options for entering foreign markets

Foreign markets Strategic Entry Options Most large companies with their distributorship or licensing agreements in other countries often consider having their own subsidiaries or having licensing agreements that are long term in nature in foreign nations to enable them carry out their businesses. These business arrangements have their costs as well as their benefits and these may vary from one country to the other depending on the economic standards, the political situation and the human recourses available in the given country.

In the case study given herein, the acquisition of the Tokyo Tee subsidiary by the USA based clothing manufacturer will have related costs such as the lengthy and expensive process of doing the legal paper work involved in the acquisition of the subsidiary. The US firm will also have to meet hefty costs of the professional fees, the accountants, the solicitors and the surveyors.

The US firm will also have to contend with the several months’ worth of working capital that will assist in the cash flow of the obtained subsidiary. If there are shortcomings in the subsidiary, the buying company will have to inject in large sums on top of the purchasing price in order to give the subsidiary the likelihood of making better profits as compared to the time it was not a subsidiary.

The US company will also have the burden of either honoring or renegotiating any outstanding contracts or agreements that the subsidiary had before they purchased. The US Company will also have to invest in investigating any other possible reason why the company is abandoning the subsidiary apart from the obvious stated reason.

The US based company, upon purchasing the subsidiary will also have the burden of revamping and retraining of the members of staff in order to come to the levels they desire since the standards in Tokyo may not be the same as those in the USA firm. There are advantages that are also associated with the buying of the subsidiary, these include the fact that the groundwork for the establishment of the business shall have been made already.

In the event that the US based would like to get financing for this particular subsidiary after buying it, then it would be easy bearing the available track record of previous businesses. The subsidiary will also be beneficial in that it shall have already created market for its products hence there would be no need for investing in market penetration or brand positioning.

In this effect, the US based firm will have an already established customer base, a reputation as well as a reliable income to capitalize on as well as a significant network of contacts. The subsidiary may also save costs for the US firm in that there would be an already existing business plan and a marketing method in place (Treeby R.S., 2015).

On the other hand, the licensing purchasing can be beneficial in that it lowers the risks that the US firm may have to contend with as these shall have been already handled by the KUME Co. This licensing purchase is also an easy and quick means of entering into the foreign markets like this US based firm into Japan. The US firm will not have to content with the tariffs and jump straight into the foreign market using the preexisting licensing.

The US firm will also face lower capital requirements and will have the potential for quick return on investment as compared to establishing a new brand in the market.

The downside to such an arrangement is that the US firm will have a significantly low level of control over the operations of the firm, the licensee can easily become the competitor, the license period is often limited in time scope and the poor quality of operations and management may cost the already established US firm its brand name in the market (TCii Limited, 2012).

The option of exporting products to Japan sounds viable too since the US firm will have control over the quality of the T-Shirts they will be producing and.