ACTIVITY 3
International expansion as a viable diversification strategy. In today’s global and dynamic
business environment, organizations of all sizes have the opportunities to establish operations
overseas. When ever we look at expanding, we have to think about a term called globalization,
meaning the rise of market capitalism around the world has undeniably created tremendous
business opportunities for multinational corporations.
Diversification has become a catalyst for achieving competitive advantage. Many businesses
expand internationally to diversify their assets; however, it does not necessarily lead to
improved performance and not all diversified organizations are profitable. Diversification is
a form of growth strategy which helps the business to grow, it opens up new opportunities for
them. Organizations have many options available to it when it decides to expand into
international markets, including Exporting, Licensing or Franchising, Strategic alliance or
Joint venture, and Wholly owned subsidiary. The key tradeoff in each of these strategies is
the level of investment or risk versus the level of control, many organizations first start on a
small-scale and then increase their level of investment and risk as they gain greater experience
with the overseas market.
Exporting, this enable organization to invest the least amount of resources in terms of its
product, its organization, and its overall corporate strategy.it is a common method used by
organizations when they first enter a new market. Licensing and franchising are both forms
of contractual arrangements. Licensing enables a company to receive a royalty or fee in
exchange for the right to use its trademark, patent, trade secret, or other valuable intellectual
property. While Franchising contracts generally include a broader range of factors in an
operation and have a longer time period during which the agreement is in effect. Strategic
Alliances and Joint Ventures, these two forms of partnership differ in that joint ventures
entail the creation of a third-party legal entity, whereas strategic alliances do not. In
addition, strategic alliances generally focus on initiatives that are smaller in scope than joint
ventures. Wholly owned subsidiary is a business in which a multinational company owns
100 percent of the stock. Two ways a firm can establish a wholly owned subsidiary are to