FDI strategy vs. gaining competitive advantage in foreign markets- the case of Lenovo FDI in theory
FDI is one of the options companies have while considering doing business abroad. The other possibilities are exporting and licensing. Licensing allows the company to use the property of the licensor in a foreign market. It’s intangible kind of intellectual property e.g., trademarks, patents, and production techniques. The owner of the license is charged a fee in order to receive rights to use the intangible property with possible technical assistance. Many time licensing allows companies yield high returns. The main threat for the investors using this mode is loss of potential returns from marketing activities and manufacturing Exporting stands for the marketing and direct sale of domestically produced goods abroad. It’s one of the most traditional ways of reaching foreign countries. This mode does not require production of goods in the foreign market, so no cost of foreign production facilities is needed. Most of the investments demanded in the exporting procedure have the form of marketing and logistic expenses, these cost are most of the time higher than those in the domestic market, since the exporter has to get foreign sales data and also know-how of marketing customs in target market Doing business in a foreign country calls for additional activities which incur additional monetary and human costs. Additional tasks are among logistics of co-ordinating operations across multiple businesses, dealing with legal, institutional and cultural problems, and need to acquire local knowledge. Because of that going abroad many times means overcoming the issues connected with investing in a foreign market confronting the appearing challenges with a success. There are certain circumstances which favour FDI entry mode over licensing and exporting The three major advantages are: the ownership advantage, the location advantage and the internalisation advantage. (Wang 2009) The location advantage gives some benefits for the product to be produced locally in the hosting market what includes: lower labour costs and easy access to local finances;
lack of barriers to trade making exporting impossible or financially unfeasible easy access to the host country’s natural resources that are scarce in the home country easy access to customers.
The ownership advantage means that investments can be done better within one company than being negotiated between business partners. For instance, exist following benefits associated with the ownership of a branch in abroad: the technology potential can be more efficient;
possibility of transferring managing and organisational skills from parent company possible usage of local knowledge is made easier under the same management team; cultural differences can be managed with a proper way and the differences and diversities should serve in a positive way to the growth of the firm. Imperfect market is one of the reasons to internalise business activities. The benefits of internalisation are less higher external transaction costs;
coordinating actions in production and marketing can be effectively performed; performance can be easily monitored;
possible integration of production lines. (Dunning 1981)
Figure 1. The Relationship between the categories of advantages and form of entry model.
Lenovo Group was founded by group of 11 people bounded with Chinese Academy of Sciences who invested 200,000 Yuan RMB in 1984, in over 10 years, Lenovo Group has always been performing adhering to philosophy- “allow users to better”, trying to provide newest technology and promote Chinese IT. During the development of the company, Lenovo always tried to innovate, achieving a number of signiﬁcant technical commercial successes, for instance leading technology products of personal computers, Lenovo achieved the top of Chinese IT industry, its market sales is always the first among...
Bibliography: Dunning, J.H. 1981. International production and the multinational enterprise. London: Allen and Unwin.
Wang Peijie, 2009, The economics of foreign exchange and global market. 2nd edition. Heidelberg: Springer.
Ahrens, N. Zhou, 2013, China’s Competitiveness, Center For Strategic And International Studies
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