Fight or buy?

A comparison of internationalization strategies

Abstract

The paper evaluates three internationalization strategies of a company that considers invading a foreign market:
• It can buy a firm that resides in the target market (acquisition strategy),
• it can produce at home and export into the target market (export strategy),
• or the two firms can agree upon produce in the invader's home country and sell the products in the target market (OEM strategy).
For simplicity, we assume that the incumbent firm in the target country has a monopoly position. Under these circumstances, following the acquisition strategy would allow the newcomer to obtain this monopoly position, whereas the export strategy might result in a duopoly. We compare the outcomes of these two strategies for the two firms involved, allowing for different cost situations, and derive necessary conditions for a mutually beneficial acquisition. This analysis will allow us to derive sufficient conditions under which export would be the better strategy.
The case of Lenovo is helpful to illustrate the point made by this paper: Lenovo had the options to set up own production sites in China to conquer the North American and European markets competing against IBM thinkpads, or to buy out IBM and use their production sites (which is what Lenovo actually did).