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