international business chapter 14

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

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International BusinessEnvironments and Operations

Part 5

Global Strategy, Structure, and Implementation


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Chapter 14

Direct Investment

and Collaborative

Strategies


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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

international arrangements with other companies• To grasp why collaborative arrangements succeed or fail• To see how companies can manage diverse collaborative

arrangements


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Exporting May Not Be Feasible

• When production abroad is cheaper than at home• When transportation costs to move goods or services

internationally are too expensive• When companies lack domestic capacity• When products and services need to be altered

substantially to gain sufficient consumer demand abroad

• When governments inhibit the import of foreign products

• When buyers prefer products originating from a particular country


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FactorsAffecting Operating Modesin International Business


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ForeignExpansion: Alternative

Operating Modes


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Non-collaborative Foreign Equity Arrangements

• Taking Control: Foreign Direct Investment– Internalization– Appropriability– Freedom to Pursue a Global Strategy

• How to make FDI– Buying– Greenfield Investments


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Motives for Collaborative Arrangements

• To Spread and Reduce Costs• To Specialize in Competencies• To Avoid/Counter Competition• To Secure Vertical and Horizontal Links• To Gain Knowledge


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International Motives for Collaborative Arrangements

• To Gain Location Specific Assets• To Overcome Governmental Constraints• To Diversify Geographically • To Minimize Exposure to Risky Environments


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Types of Collaborative Arrangements

• Factors Influencing Choice of Arrangement Type:– Control– Prior Expansion


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Licensing

Licensing agreements may be:

• Exclusive or nonexclusive

• Used for patents, copyrights, trademarks, and other intangible property


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Franchising

• A specialized form of licensing– includes providing an intangible asset and

continually infusing necessary assets• Franchise Organization• Operational Modifications


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Management Contracts

Foreign management contracts are used

primarily when the foreign company can

manage better than the owners.- Company transfer management personnel &

administrative know-how abroad to assist another company for a fee. (3-5 years contract)

- A company believes other company can manage its operation more efficiently than it can.


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Turnkey Operations

Turnkey operations are:

• Most commonly performed by industrial-equipment, construction, and consulting companies

• Often performed for a governmental agency

- One company contracts with another to build complete, ready-to-operate facilities.


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Turnkey Operations

• Contracting to Scale

• Making Contacts

• Marshaling Resources

• Arranging Payment


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Joint Ventures• More than one organization owns a company

– Consortium: more than two organizations participate

– May have various combinations of ownership

Possible Combinations:

• Two companies from the same country joining together in a foreign market

• A foreign company joining with a local company

• Companies from two or more countries establishing a joint venture in a third country

• A private company and a local government forming a joint venture

• A private company joining a government-owned company in a third country


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Equity Alliances

A collaborative arrangement in which at

least one of the collaborating companies

takes an ownership position


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Problems with Collaborative Arrangements

• Relative Importance• Divergent Objectives• Questions of Control• Comparative Contributions and

Appropriations• Culture Clashes • Differences in Corporate Cultures


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Managing International Collaborations

• Dynamics of Collaborative Arrangements• Finding Compatible Partners• Negotiating the Arrangement• Drawing Up the Contract• Improving Performance


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Future: Why Innovation Breeds Collaboration

Collaborative arrangements will bring both

opportunities and problems as companies move

simultaneously to new countries and to

contractual arrangements with new companies.


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international business chapter 14

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