The globalization and clearance of trade barriers between nations and industrial business have expanded the horizon of national companies to strengthen their global web and develop into a powerful multinational company. Thus, self-assessment is a necessary decision and an invincible step before undertaking a foreign direct investment to enter a new market. Following are the strategies a company must adopt to self assess a foreign direct investment ()
Companies consider the foreign direct investment as it improves its growth and increases the shareholder’s wealth. Finding the objective of foreign direct investment is its primary strategy. It includes: ()
Revenue - draw new sources of demand for the product or service. When the growth in the local becomes stagnant, demand from foreign countries for its resources helps the company expand. ()
Cost – if the cost benefit analysis suggests that better profits earned in a foreign market through the better sale of products and other companies working in the same market get the same result, a company can improve its horizon in that country. ()
2. Monopolistic market
Some companies take advantage of the monopoly market. If a company has been able to capture the domestic monopoly market through its advanced technology, it can try to use the same policy in the international market. A technologically backward country can be an excellent market for a monopoly company with technologically advanced tools. Some set up production locations where land and labour are inexpensive. In contrast, others opt to use foreign raw materials and placer their production line, wherein the raw materials' site reduces the import charges.
3. Domestic advantage
Assessing the domestic competitive advantage is the next strategy of continuing the business in the home market. The company’s competitive advantage must be exclusive and robust enough to balance the likely disadvantage of running the business abroad. The primary competitive advantage of a national company is the economies of scale, which includes development in production, finance, brand management, transportation, research and development and purchasing niches. Production economies take place because of extensive equipment automation or production rationalization through worldwide specialization.
4. Production control of advanced technology
The production control of advanced technology is instead the most crucial strategy of foreign development investment. Located in developed countries, the large Multinational companies have access to upgraded technology to develop differentiated products that other firms cannot copy. Production of these products requires thorough research and marketing, which most rival companies cannot bear. Moreover, these companies cannot devote the time and resources to replicate the original magnificent product. Accompany that developed and marketed such products in the national market can do the same with significant effort in the foreign market.
The 4 strategies mentioned above help a company to self assesses for foreign direct investment.