14-1 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Part Five Global...

14-1 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Part FiveGlobal Strategy, Structure, and

Implementation

Chapter Fourteen

Direct Investment and Collaborative Strategies


Chapter Objectives• To clarify why companies may need to use modes other than

exporting to operate effectively in international business• To comprehend why and how companies make foreign direct

investments• To understand the major motives that guide managers when

choosing a collaborative arrangement for international business

• To define the major types of collaborative arrangements• To describe what companies should consider when entering

into arrangements with other companies• To grasp what makes collaborative arrangements succeed or

fail• To see how companies can manage diverse collaborative

arrangements


Why Exporting May Not Be Feasible

1. When production abroad is cheaper than at home2. When transportation costs to move goods or services

internationally are too expensive3. When companies lack domestic capacity4. When products and services need to be altered

substantially to gain sufficient consumer demand abroad

5. When governments inhibit the import of foreign products

6. When buyers prefer products originating from a particular country


Foreign Direct Investment

• Control accompanies investment

• Three primary reasons that spur companies to want a controlling interest: internalization theory appropriability theory freedom to pursue global objectives


Foreign Direct Investment (FDI) approaches

• Internalization theory holds that it is sometimes cheaper to handle operations oneself than to contract with another company

• The idea of denying rivals access to resources (capital, patents, trademarks, and management know-how) is called the appropriability theory

• When a company has a wholly owned foreign operation, it may more easily have that operation participate in a global strategy.


Methods for Making FDI

• The advantages of acquiring an existing operation include: adding no further capacity to the market avoiding start-up problems easier financing

• Companies may choose to build if: no desired company is available for acquisition acquisition will lead to carry-over problems acquisition is harder to finance


General Motives for Collaborative Arrangements

• To Spread and Reduce Costs

• To Specialize in Competencies

• To Avoid or Counter Competition

• To Secure Vertical and Horizontal Links

• To Gain Knowledge


International Motives for Collaborative Arrangements

• Gain location-specific assets

• Overcome legal constraints

• Diversify geographically

• Minimize exposure in risky environments


Types of Collaborative Arrangements

• Companies have a wider choice of operating form when there is less likelihood of competition

• Internal handling of foreign operations usually means more control and no sharing of profits

• MNEs want returns from their intangible assets


Licensing

• Licensing agreements may be: exclusive or nonexclusive used for patents, copyrights, trademarks, and

other intangible property

• Licensing often has an economic motive, such as the desire for faster start-up, lower costs, or access to additional resources


Franchising

• Franchising includes providing an intangible asset (usually a trademark) and continually infusing necessary assets

• Many types of products and many countries participate in franchising

• Franchisors face a dilemma: the more standardization, the less acceptance in the

foreign country the more adjustment to the foreign country, the less

the franchisor is needed


Management Contracts

• Management contracts are used primarily when the foreign company can manage better than the owners


Turnkey Operations

• Turnkey operations are: Most commonly performed by construction

companies Often performed for a governmental agency


Joint Ventures

• Joint ventures may have various combinations of ownership

• The type of legal organization may be a partnership, a corporation, or some other form permitted in the country of operation

• When more than two organizations participate, the joint venture is sometimes called a consortium


Equity Alliances

• An equity alliance is a collaborative arrangement in which at least one of the collaborating companies takes an ownership position (almost always minority) in the other(s).

• Equity alliances help solidify collaboration


Problems of Collaborative Arrangements

• The major strains on collaborative arrangements are due to five factors: Relative importance to partners Divergent objectives Control problems Comparative contributions and appropriations Differences in culture


Managing Foreign Arrangements

• The evolution to a different operating mode may: be the result of experience necessitate costly termination fees create organizational tensions


Negotiating Process

• In technology agreements: seller does not want to give information

without assurance of payment buyer does not want to pay without evaluating

information


Performance Assessment

• When collaborating with another company, managers must: continue to monitor performance assess whether to take over operations

14-1 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Part Five Global...

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