1)Why is Ford entering the Russian car market now as a wholly owned subsidiary?
ID: 1110990 • Letter: 1
Question
1)Why is Ford entering the Russian car market now as a wholly owned subsidiary?
a)Why did they not invest earlier, and why do they not postpone investment until the market is larger?
b)What three specific advantages did Ford obtain by establishing a wholly owned subsidiary?
c)What three specific disadvantages did Ford risk by establishing a wholly owned subsidiary?
d)Why didn’t Ford choose to use a licensing strategy versus a wholly owned subsidiary? Be sure to compare the two strategies in your paper.
Explanation / Answer
Answer:-
There are some constraints for the company for not giving the license to the subsidiary company in the foreign market.
We can understand this in term of the know- how. Know-how is the company’s competitive advantage over the competitor that company knows, how to make the better technological product.
If a company wants to license this know-how it can have the luxury of earning royalty but there are risks involved in it so the Ford decided to go with a wholly owned subsidiary in Russia.
First, the licensing may result in a firm’s giving away its know-how that is giving away his competitive advantage to the competitor in the foreign market.
Suppose Ford gives license to AvtoVAZ, one of the large Russian manufactures then it can start its own car manufacturing using Ford’s know how.
The second disadvantage is providing the license to the company there is no tight control over the subsidiary firm in the foreign market.
Ford wants to exploits the opportunity that it has in Russia by its own way. Licensee may not follow all instruction of Ford.
The last problem with the giving license is that some terms of know-how cannot be defined on a page or documented.
Like service industry (Hospitality industry) that how to license the subsidiary for “how to well come and how to greet” as a part of the service.
Since there is a vast opportunity for Ford as a first-mover advantage it wants to make sure of the 100% command over its operation in Russia. This may be the reason why it started its fully owned subsidiary.
Answer B and C:- Firms can establish a wholly owned subsidiary in a foreign market by setting up a new operation in the host country or by acquiring an established firm in the host country. The advantages include tight control over technology, the selection of management practices and efficient operations and customer service. The main disadvantage is that the firm must bear all the costs and risks of opening a foreign market, lot of infrastructural development activities and inability to have greater knowledge of local market.
Answer:- The main advantage of licensing is that the licensee bears the costs and risks of opening a foreign market. A licensor grants a licensee rights to intangible property to use in a specified area for a specified period in exchange for a fee. Disadvantages center on problems of quality control of distant franchisees. Examples of licenses include a company using the design of Minnie Mouse on their products. Another example would be a clothing manufacturer licensing its designs and brand in a certain country to a local company.
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