Barrett Farm Foods, Case Study Example

Barrett chose exporting as its entry strategy for Europe as opposed to foreign direct investment (FDI) or licensing because the company wanted an inexpensive and quick entry into Europe without sacrificing much control. FDI requires high capital investment as well as careful planning and significant research due to the stakes involved. Licensing involves transferring the marketing rights to a foreign company which may result in high profit margins but also results in significant loss of control over the marketing of the product or service. Barrett might have wanted more controlled expansion into Europe so that it is able gauge the demand for its product before committing more resources and can also take time to learn more about European markets.

One of the benefits of exporting for Barrett will be that it won’t require significant setup costs. The company will be able to quickly expand into European markets. If the initial expectations are not achieved, it will be easier and less-expensive to exit markets unlike FDI which may require the company to sell assets first (probably at a loss) and wound up operations, a time-consuming process. Exporting will also allow Barrett to enter more international markets with limited resources due to lower average cost of entering a single international market. In addition, it may also help the company achieve higher asset utilization rates and economies of scale by putting excess production capacity into use.

The potential drawbacks of exporting for Barrett are that it will lose some control over how its products are marketed and distributed. It will also have lower profit margins because it will lose some pricing power to the local partners and in addition, tariffs and other import regulations may also increase the costs. It will also not be able to learn about European markets as much as if it directly setup operations and there is no guarantee that its local partners will market the product as they promise.