Agriculture Reference
In-Depth Information
Table 5.3
Comparing exporting and investing in international markets
Choose exporting when…
Choose investment when…
Financial resources are small
Financial resources are large
Little experience in the new market
Experienced in the new market
Barriers of trade for product do not exist
High barriers to trade exist
Target market is small
Target market is large
Growth potential is limited
Growth potential is high
Barriers to investment and ownership exist
Barriers to investment or ownership do not exist
Control of market is unimportant
High desire for market control
Globalization is not a high business priority
Firm's goals include an international presence
Foreign market is unstable
Stable political and economic climate
Foreign market is culturally “distant”
Market is culturally “similar”
employees, access to distribution channels, market knowledge, experience, and reputation
may also be obtained in the purchase. An acquisition can allow a fi rm to gain country and
market-specifi c knowledge without incurring a long and costly learning process.
However, the acquired fi rm may contain unrelated or undesirable business lines. And, the
fi rm may have to make signifi cant investments in new equipment, and it may need to change
the mindset of current employees to the acquiring fi rm's style of management. In the global
food products industry, the number of mergers and acquisitions taking place ranged from
about 100 such transactions in 2002, peaked with nearly 300 such transactions in 2007, and
numbered around 130 by the end of the decade (Key and Company, LLC 2011).
Table 5.3
compares the factors that distinguish the decision to export or invest. It should
be emphasized that choosing to export, license, or invest is not an either/or proposition.
Firms that decide to invest in production facilities in a country may export products to the
country as well. In the case of U.S. fi rms, many have invested in foreign markets and used
their new base market to export to other markets. In contrast, foreign fi rms investing in the
United States have done so primarily to serve the U.S. market.
Start-up strategy
In general, most fi rms follow the same series of steps once they have decided to enter the
global market. First, markets are evaluated for their overall profi t opportunities for that fi rm's
products. Factors that they consider include market size, rate of growth, and adaptability of
that agribusiness's product to that country's culture, consumer income levels, and the politi-
cal and economic climate of that country.
If the agribusiness determines that the market is promising, the next step taken is choosing
the strategy to enter that market. In general, initial entry is made through exporting the fi rm's
products. If sales of the product start to grow, then the fi rm follows with some form of licens-
ing or investment into production facilities in the receiving country. This allows for higher
profi ts, more control, and greater fl exibility over the distribution and sales of the product.
Summary
International agribusiness is a fi eld that has seen signifi cant growth over the last several
decades. Advantages to conducting business abroad include sales growth, taking advantage
