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Rick Politician 873454/15/2007 I BUS 300 Chapter 6 Homework a. Export- Exporting moves our product to Europe faster than any other methods. Less deals and negotiations need to be worked through in order to sell the PCs in Western Europe. Also, by making all the PCs our selves, we can assure quality to our customers. Unfortunately, exporting has some strong drawbacks. The governments of the Western European countries would impose tariffs on our PCs and we would need to pay for shipping costs making them PCs less price competitive. Furthermore, no local support would exist for European customers for questions or customer care. All problems would have to be dealt with by the middleman and there is no way to make sure the middlemen are doing a good job. The middleman could also undersell the PCs due to incentives from other companies, or just stock our PCs in hard to find places. License- Licensing would save money for our company in the form of tariffs and transportation since the PCs would be produced in Western Europe. We could make more money because the licensee would be more motivated to sell the product with licensee's own stake in the profits. Europeans would also have someone local to help them with questions or repairs on the PCs The drawback to licensing is that our company would lose control over the manufacturing process. We would not know how high quality the PCs made in Western Europe would be. The licensee may not have the organizational, management or logistics skills needed to be successful. Subsidiary- Creating a subsidiary in Western Europe provides many benefits. Just like a license the barriers to entry would not exist. A Subsidiary exceeds a licensee in that our company would have almost complete control over the production, advertising and sales in Western Europe. We could impart our successful values and management philosophy. Lastly, we may also gain advantages in resources, location or brand equity of the subsidiary. There are some drawbacks to creating a subsidiary. It would take time to find company to purchase and smooth out deal. In addition, many employees work less effective under new ownership for fear of losing their job and the idea of change. b. India remains an attractive market for foreign investors due to the large population and lack of modern infrastructure. Opportunities exist throughout the country. The government's entry barriers and the political instability keep many companies from investing in India. Enron saw the enormous future potential of working with India. Since India lacks a modern infrastructure billions, billions of potential projects exist for Enron. If they secured their first power plant and natural gas lines in India, Enron would not only create a market for their Qatar plant, but also open the door for future projects. Enron could potentially be the number one power distributor in the world's second largest county. This means unbelievable profits and a precedent with other developing nations that Enron can help build a country. I am not sure if the potential benefits compensated Enron for the risks. I would guess that since Enron knew how to do a net present value calculation, the potential benefits did outweigh the risks. Plus, Enron had the $200 million cancellation fee, which must have significantly lowered the risk.