Advantages and disadvantages of establishing a firm in Brazil
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NTG's business, a toy-exporting company, continues to grow. Its primary products are the wooden children's toys it produces and exports to a distributor in Brazil. However, its recent joint venture with a Brazilian firm has also been successful. Under this arrangement, a Brazilian firm produces other toys for NTG; these toys are then delivered to that distributor. NTG intentionally started its international business by exporting because it was easier and cheaper to export than to establish a place of business in Brazil. However, it is considering establishing a firm in Brazil to produce the wooden children's toys there instead of in the United States. This firm would also produce the other toys that it now sells, so it would no longer have to rely on another Brazilian firm (through the joint venture) to produce those toys.
1. Given the information provided here, what are the advantages to NTG of establishing the firm in Brazil?
2. Given the information provided here, what are the disadvantages to NTG of establishing the firm in Brazil?
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Solution Summary
The advantages and disadvantages of establishing a firm in Brazil are examined.
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Analytical Application
Foreign market entry differ in the degree of risk that they present, the control and the commitment of resources they require and the return on investment they promise. An international licensing agreement allows foreign firms either exclusively or none exclusively to manufacture a proprietor's product.
There are several benefits arising as a result of NTG setting up their firm in Brazil (Murray, Kotabe, & Westjohn 2009) having in mind that Brazil forms the market for its wooden toy products. The first advantage is that the firm will be able to obtain a competitive advantage since this is considered as a well designed global strategy. It will be efficient for NTG to start a firm in Brazil because the firm will be able to obtain economies of scale which arise from accessing more customers and markets in Brazil, exploiting Brazil's labor and materials resources since NTG saves on the cost of transporting its labor and resources.
In addition to this, ...
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