fdi theory
DESCRIPTION
Elec V for FM wlang gandaTRANSCRIPT
![Page 1: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/1.jpg)
CORPORATE STRATEGY AND CORPORATE STRATEGY AND FOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENT
The process of Oversees Expansion
Theory of Multinational Corporation
The Strategy of Multinational Enterprise
Designing a Global Expansion Strategy
![Page 2: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/2.jpg)
2
Multinational Corporations
• Innovation-Based Multinationals – 3M (USA), N.V. Phillips (Netherlands), Sony (Japan)
• Mature Multinationals– Coca-Cola, McDonald’s, Nestle, Procter & Gamble
• Senescent Multinationals– Crown Cork & Steal
![Page 3: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/3.jpg)
3
Important Factors
• Cost Reduction
• Economies of Scale (world-scale)
• Multiple Sourcing
• Knowledge Seeking
• Keeping Domestic Customers
![Page 4: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/4.jpg)
4
Strategy Design
• Awareness of Profitable Investments• Selecting a Mode of Entry• Auditing the Effectiveness of Entry Mode• Using Appropriate Evaluation Criteria• Estimating the longevity of a competitive
advantage
![Page 5: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/5.jpg)
5
Example: Phillips
![Page 6: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/6.jpg)
6
Q&A
Q: What's the big trend in Asia?A: Thirty-five years ago, companies thought of Asia as a
place to sell things manufactured in Europe. The next phase was when manufacturing moved from Europe to Asia. The phase [after that], in the last five years, was the transfer of competencies from Europe and the U.S. into Asia. That happened to Taiwan, Japan, Korea, and Singapore. The shift now is that Philips is moving into China with competencies, product-creation processes, and development of new technologies.
![Page 7: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/7.jpg)
7
Q&A
Q: How important is China to Philips?A: China will be the leading part of our Asia
strategy. That's why we moved from Singapore to Hong Kong -- to be close to the driving force of the electronics industry, which will be Northeast Asia. And we believe that Greater China will be the leader over time. The origins of initiatives in the electronics sector will largely come out of China.
![Page 8: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/8.jpg)
8
Q&A
Q: What sort of R&D work is Philips doing in China?A: The continuous discussion is what kind of technology we
want to develop. If you look at TV, the transfer has been from Europe, 10 years back, to Singapore. Now Singapore is transferring TV development to Suzhou [near Shanghai]. Basic research is in the Shanghai area. The global audio division headquarters, which was in Hong Kong, is moving to Shenzhen [across the border from Hong Kong]. The LCD division for cell phones was headquartered in Hong Kong and has moved to Shanghai. We have no choice, we must move [there] more and more.
![Page 9: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/9.jpg)
9
Q&A
• Q: Why?
• A: There's a tremendous pool of well-trained people in China, and that's where the market is available.
![Page 10: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/10.jpg)
10
Q&AQ: Philips has had its share of difficulties in China,
especially when it comes to getting Chinese manufacturers of DVD players to pay royalties to Philips and other companies that control the intellectual-property rights. Are things getting better?
A: Philips had a lot of problems with the Chinese government over royalties. But those differences have been resolved. From a historic perspective on intellectual property [IP], they didn't understand the need to respect IP and pay for IP. With [Beijing's entry into] the WTO, this has been solved. The [agreement with the government over DVD royalties] has been the first real breakthrough showing that there's an understanding of IP in China.
![Page 11: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/11.jpg)
11
Q&A
Q: How do you see other Asian countries competing against China?
A: Taiwan is trying to achieve a fast change into a knowledge economy, which is the only way they can go. That's the same thing that Singapore is doing, that Japan is doing, that Korea will be doing. But the fact of life is that China is doing the same thing as well.
![Page 12: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/12.jpg)
12
Q&A
Q: In that case, what's the Philips division of labor for Asian R&D?
A: Our biggest [Asian center] is in Singapore. We have a major operation in Bangalore, [India,] which is a major part of Philips' software development. We have a big unit in Taiwan for semiconductors and components. And there's a new one in Shanghai, which started three or four years ago, doing basic research. Shanghai also is for product research: consumer electronics, a little bit of lighting.
![Page 13: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/13.jpg)
13
Q&A
Q: What's the impact on your R&D operations elsewhere?
A: We are refocusing our number of development spots in the world, and Asia is the growing part of those activities. We used to have, in Europe, God knows how many places. Those days are over. We are centralizing development activities into competence centers: Bangalore for software, Singapore for consumer electronics, Taiwan for semiconductors and components -- and Shanghai for all of them.
![Page 14: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/14.jpg)
Fred Thompson 14
![Page 15: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/15.jpg)
15
Entry Modes
Exporting
TurnkeyProjects
Licensing
Franchising
JointVentures
Wholly OwnedSubsidiaries
![Page 16: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/16.jpg)
16
EXPORTING
Advantages:
Avoiding substantial set-up costs in a host country
Immediate profits
Achieving experience curve and location economies
Disadvantages:
High transportation costs
Trade barriers
Problems with local marketing agents
Inability to realize full sales potential of the product
![Page 17: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/17.jpg)
17
TURNKEY PROJECTS
A project in which a firm agrees to set up an operating plant for foreign client and hand over the “key” when the plant is fully operational
![Page 18: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/18.jpg)
18
TURNKEY PROJECTS
Advantages:
Ability to earn returns from process technology skills in countries where FDI is restricted
Less risky than conventional FDI
Disadvantages:
Creating efficient competitors
Selling the technology = selling competitive advantage
Lack of long-term market presence
![Page 19: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/19.jpg)
19
LICENSING
Agreements where licensor grants the rights to intangible property to another entity for a specific period, and in return, the licensor receives royalty fee from licensee.
![Page 20: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/20.jpg)
20
LICENSING
Advantages:
Reduces development costs and risks of establishing foreign enterprise
Lack capital for venture Unfamiliar or politically volatile
market Overcomes restrictive investment
barriers Others can develop business
applications of intangible property
Disadvantages:
Lack of control
Inability to involve into global strategic coordination
Cross-border licensing may be difficult
Creating a competitor
![Page 21: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/21.jpg)
21
FRANCHISING
A specialized for of licensing in which the franchiser not only sells intangible property to the franchisee (normally a trademark), but also insists that franchisee agrees to abide by strict rules as to how it does the business.
![Page 22: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/22.jpg)
22
FRANCHISING
Advantages:
Reduces costs and risk of establishing enterprise
Ability to build global presence quickly
Disadvantages:
May prohibit movement of profits from one country to support operations in another country
Quality control
![Page 23: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/23.jpg)
23
JOINT VENTURE
A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms
![Page 24: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/24.jpg)
24
JOINT VENTURE
Advantages:
Access to local partners knowledge
Sharing development costs and risks
Politically acceptable
Disadvantages:
Risk giving control of technology to partner
Absence of tight control
Shared ownership can lead to conflict
![Page 25: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/25.jpg)
25
WHOLLY OWNED SUBSIDIARY
Advantages:
Protection of technology
Ability to engage into global strategic coordination
Ability to realize location and experience economies
Disadvantages:
High costs and risks
![Page 26: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/26.jpg)
26
SELECTING AN ENTRY MODE
Technological Know-How:
Wholly owned subsidiary, except: 1. Venture is structured to reduce risk of loss of technology2. Technology advantage is transitory
Then licensing or joint venture OK
Management Know-How:
Franchising, subsidiaries (wholly owned or joint venture)
Pressure for Cost Reduction:
Combination of exporting and wholly owned subsidiary
![Page 27: Fdi theory](https://reader036.vdocument.in/reader036/viewer/2022081508/558bf474d8b42a5c578b459c/html5/thumbnails/27.jpg)
27
Theories of the Multinational Corporation
Market ImperfectionsTheory of Industrial Organization Internalization TheoryFinancial Market Imperfections
Strategic Behavior Theory (F.T. Knickerboker)
The Product Life Cycle Theory (R. Vernon)
Location-Specific Advantages Theory (J.Dunning)