A Swiss pharmaceutical company decides to set up a foreign affiliate in the US to develop and market new drug.
It will incur capital costs in setting up a foreign affiliate and coordinating its operations with those of other parts of its network of activities. At the same time, by internalising the market for the drug formula, not only may the Swiss firm be able to control its use better that if its licensed the production rights to a foreign firm, but it also lessens the likelihood of any infringement or dissipation of its property rights.
Furthermore, by locating an affiliate in the US, the Swiss company hopes that it will be able to access the local networks of innovation connecting pharmaceutical firms to research institutes and smaller biotechnology firms.