Question

Clubpro Golf Inc., is a U.S. firm that sells high-quality golf clubs in the United States. Clubpro wants to expand internationally and sell the same golf clubs in Japan.
a. Describe the trade-offs that are involved for each method (such as exporting, direct foreign investment, etc.) that Clubpro could use to achieve its goal.
b. Which method would you recommend for this firm? Justify.

Answer 1

A. The company can use exporting as a method of expanding into the international market and exporting will mean that there will be a chance of making high rate of return from other country, but there will also be a risk related to naked exposure of these companies into other Markets and this company will just be able to sell the products to few specified party but it cannot expand in other countries just by exporting and it needs to get into business combinations which are not the part of exporting so exporting will be having a higher chance of making a higher rate of return but it will expose the company for various types of foreign exchange risk and the company should be trying to manage with the risk through entering into the derivatives contract.

B. Company can also enter other markets through foreign investment and the company can either enter through joint venture or through having the substantial influence over the other company or it can also make subsidiaries in other country so it will help overall maximization of the interest of the company in other country and it will also help to manage with their risk and manage with the rate of return, so it is a better method than exporting if the company is looking to expand for the longer period of time.

2. I will be recommending this company to enter into the international market by foreign direct investment because it will help in having a significant control in other country and it will also help the company to gain through the economies of the scale and expertise of the another organisation in other country so the company should be trying to explore the opportunities of entering into mergers and acquisitions in the other country companies and it will help to maximize the rate of return and minimise the risk.