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Taking a business into an international market can be a difficult undertaking (Foley 2004, p. 1). When a company decides to join an overseas market, particularly the United States, it has a number of options to examine before taking the necessary steps and logistical requirements for the method's implementation. The dangers, the degree of control that the foreign government has over the enterprise, and the expenses connected with production, raw materials, and licensing are frequently different between possibilities. In most case, the modest entry option is to carry out exports activities through direct methods involving the use of agents and indirect methods involving countertrade (Pan and David 2000, p. 535). Nevertheless, there also exist complex forms of entry involving export processing zones and joint ventures.
The Most Appropriate Mode of Entry for an International Investment in the United States
The U.S. is among the foremost destinations for foreign direct investment and the prime investor in other economies. The country is an attractive investment hub due to its low-risk profile when compared to other economies around the world. Investment is technology industry requires adequate mode that fosters the nature of activities and the type of products. As such, the most appropriate entry for international investment in the United States in such an industry is a foreign direct investment (Pan and David 2000, p. 550). It is often capital intensive from an investor's point of view and hence need adequate considerations. Foreign direct investment refers to direct possession of facilities in the target country. It encompasses the transfer of resources such as capital, personnel, and technology. The investment may be made through the establishment of a new enterprise or the acquisition of an existing entity.
Why It Is the Most Appropriate Mode
Direct ownership often provides a high degree of control in the operations of an investment as well as the ability to know the competitive environment and customers better. Technology industry requires high skilled labor leading to the need to invest in markets with combinations of high and skilled labor productivity, developed transport infrastructure, political stabilities, and effective policies on property rights. Given the availability of such variables in the United States, investing in technology industry through FDI is hence the most appropriate mode.
Advantages and Disadvantages
Notably, there certain factors that often favor the use of direct investment as foreign marker entry. The existence of such factors often fosters the employment of such mode of business in the international market through the creation of a favorable environment for trade. Such variables include the existence of import barriers, high potential for sales, difficulty in pricing assets, low political risks as well as small cultural distance among others. Advantages of direct investment include minimization of knowledge spillover, entails insider trade with the United States, a possibility of applying specialized skills, tax incentives, increased productivity and existence of greater knowledge about the market (Ekholm, Forslid and Markusen 2007, p. 777). Nevertheless, the disadvantages of the mode include difficulty to manage various resources produced locally, the need to have more resource commitments and the mode is riskier than other modes.
There are different risks that the employers would face while investing in the Technology industry in the U.S. market via Foreign Direct Investment. Such risks include credit risk, transportation, and logistics risks, political risks, legal risks, exchange rate risks and risks associated with initial stages of investments (Chang and Rosenzweig 2001, p. 747).
Chang, S.J. and Rosenzweig, P.M., 2001. The choice of entry mode in sequential foreign direct investment. Strategic Management Journal, 22(8), pp.747-776.
Ekholm, K., Forslid, R. and Markusen, J.R., 2007. Export‐platform foreign direct investment. Journal of the European Economic Association, 5(4), pp.776-795.
Foley, J.F., 2004. Global Entrepreneur. Jamric Press International.
Pan, Y. and David, K.T., 2000. The hierarchical model of market entry modes. Journal of international business studies, 31(4), pp.535-554.
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