When a firm's domestic market becomes mature and saturated, becoming an international corporation can offer an opportunity for continued financial growth. There is no one way to become an international corporation, but firms commonly use four distinct strategies to achieve this objective.
Firms can become multinational corporations by simply exporting their goods to another country. This option offers a low-risk means of internationalizing; because the firm does not need to invest in a foreign country, it does not have the associated risk of failure. On the flip side, however, an exporting strategy is less likely to yield the same profits as a riskier internationalization strategy.
Licensing also offers businesses a low-risk method for becoming an international corporation. When a firm licenses internationally, it sells the rights to its name, logos or products to a third party that will operate the business in that country. Licensing requires a minimal investment as most of the risk is taken on by the licensee. If the business is highly successful in the foreign market, however, most of the profits will be in the hands of the licensee.
Firms that want to become an international corporation and want higher profits with a moderate risk should consider a joint venture. A joint venture is a partnership between two firms, often one foreign firm and one local firm. This allows a firm to split both the risks and profits of internationalization with another firm. It also allows the firms to share knowledge and resources, such as the local firm's knowledge of the domestic market and the foreign firm's knowledge of international business.
Wholly Owned Subsidiary
A wholly owned subsidiary provides the greatest potential profits for a firm that wishes to become an international corporation, but it also provides the greatest risks. When a firm sets up a wholly owned subsidiary, it opens a new business in a foreign country of which it has complete ownership. Because it has complete ownership, the firm will reap all of the benefits if the internationalization is successful. If the firm fails however, it must bear the full expense of the failure.