110
GLOBAL FINANCE
advantage must be specific to your firm and it should be transferable to
the foreign market.
Before embarking on an FDI, defined as creating a wholly- or partly-
owned foreign subsidiary, consider the other options, which may be
less risky.
» Exporting: Selling to foreign agents and distributors. The least risky,
but least profitable, method.
» A strategic alliance: Many EU firms are swapping shares and entering
into joint ventures with other European companies as a way of
pooling resources and protecting themselves against competitors.
» Licensing and management contracts: Licensing technology or
``lending'' managers to a foreign firm.
FDI is a much more risky and expensive option. It should only be under-
taken where the potential rewards outweigh the risks for example, if
your company will dominate the foreign market.
9. VALUING FOREIGN ACQUISITIONS
Buying a foreign company is often a better way of entering a foreign
market than starting from scratch. It is quicker, eliminates some local
competition (they're working for you now), and companies are some-
times available at bargain prices.
As with all acquisitions, the great danger is in paying too much.
Buying a foreign firm in a developing country is likely to be costly in
terms of due diligence, and the likely actions of the host government
need to be fully understood. The acquiring company also needs to be
sensitive to how it is perceived by local people. Don't assume that
US-style market capitalism works the same way in developing nations.
10. MNC INTERNATIONAL PORTFOLIOS
Investment theory tells us that you can reduce risk by diversifying
across several investments in different sectors. This idea can be applied
to MNCs too, because the returns on operations in different countries
vary and do not normally fluctuate in tandem. In other words, when
some countries are doing poorly, other countries may be doing well,
