14-1 copyright © 2009 pearson education, inc. publishing as prentice hall part five global...
TRANSCRIPT
14-1 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Part FiveGlobal Strategy, Structure, and
Implementation
Chapter Fourteen
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 arrangements with other companies• To grasp what makes collaborative arrangements succeed or
fail• To see how companies can manage diverse collaborative
arrangements
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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
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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
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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.
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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
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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
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International Motives for Collaborative Arrangements
• Gain location-specific assets
• Overcome legal constraints
• Diversify geographically
• Minimize exposure in risky environments
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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
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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
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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
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Management Contracts
• Management contracts are used primarily when the foreign company can manage better than the owners
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Turnkey Operations
• Turnkey operations are: Most commonly performed by construction
companies Often performed for a governmental agency
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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
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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
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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
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Managing Foreign Arrangements
• The evolution to a different operating mode may: be the result of experience necessitate costly termination fees create organizational tensions
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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
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Performance Assessment
• When collaborating with another company, managers must: continue to monitor performance assess whether to take over operations