International Business Environments Operations 14 e Global Edition

Chapter 14 Direct Investment and Collaborative Strategies Copyright © 2013 Pearson Education 14 -2

Learning Objectives p p p p 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 Copyright © 2013 Pearson Education 3

Introduction Companies choose an international operating mode to achieve their objectives p When exporting and importing is not possible, firms must explore other options p Copyright © 2013 Pearson Education 4

Introduction Factors Affecting Operating Modes in International Business Copyright © 2013 Pearson Education 5

Introduction Foreign Expansion: Alternative Operating Modes Copyright © 2013 Pearson Education 6

Why Exporting May Not Be Feasible Learning Objective 1: To clarify why companies may need to use modes other than exporting to operate effectively in international business Copyright © 2013 Pearson Education 7

Why Exporting May Not Be Feasible p p p Production abroad is cheaper than at home Transportation costs to move goods or services internationally are too expensive Companies lack domestic capacity Products and services need to be altered substantially to gain sufficient consumer demand abroad Governments inhibit the import of foreign products Buyers prefer products originating from a particular country Copyright © 2013 Pearson Education 8

Non-Collaborative Foreign Equity Arrangements Learning Objective 2: To comprehend why and how companies make

Non-Collaborative Foreign Equity Arrangements p p Why do firms want control? Internalization n choose the lower cost between conducting operations internally and contracting to another party n it may be cheaper to handle operations internally Appropriability n do not transfer vital resources to another company to avoid having competitive position undermined Freedom to pursue a global strategy Copyright © 2013 Pearson Education 10

Non-Collaborative Foreign Equity Arrangements p There are two ways to invest in a foreign country n Acquisition of existing facilities n Building new facilities – known as greenfield investment Copyright © 2013 Pearson Education 11

Why Companies Collaborate Learning Objective 3: To understand the major motives that guide managers when choosing a collaborative arrangement for international business Copyright © 2013 Pearson Education 12

Why Companies Collaborate Collaborative Arrangements and International Objectives Copyright © 2013 Pearson Education 13

Types of Collaborative Arrangements Learning Objective 4: To define the major types of collaborative

Types of Collaborative Arrangements Learning Objective 5: To describe what companies should consider when entering into international arrangements with other companies Copyright © 2013 Pearson Education 15

Types of Collaborative Arrangements p Two key factors influence the type of collaborative arrangement

Types of Collaborative Arrangements p Licensing n a company grants intangible property rights to another company to use in a specified geographic area for a specified period in exchange for royalties p Can be § exclusive or nonexclusive § used for patents, copyrights, trademarks, and other intangible property Copyright © 2013 Pearson Education 17

Types of Collaborative Arrangements p Franchising n n a specialized form of licensing includes providing an intangible asset and continually infusing necessary assets p Franchise organization § Master franchise p Operational modifications Copyright © 2013 Pearson Education 18

Types of Collaborative Arrangements p Management contract n p a company is paid a fee to transfer management personnel and administrative know-how abroad to assist a company Foreign management contracts are used primarily when the foreign company can manage better than the owners Copyright © 2013 Pearson Education 19

Types of Collaborative Arrangements p Turnkey operation n one company contracts with another to build complete, ready-to-operate facilities Most commonly performed by industrialequipment, construction, and consulting companies p Often performed for a governmental agency p Copyright © 2013 Pearson Education 20

Types of Collaborative Arrangements p Joint ventures n p involve more than two companies, one of which may own more than 50 percent p may have various combinations of ownership A consortium involves more than two organizations Copyright © 2013 Pearson Education 21

Types of Collaborative Arrangements p Equity alliances n an arrangement in which at least

Types of Collaborative Arrangements Collaborative Strategy and Complexity of Control Copyright © 2013 Pearson

Problems with Collaborative Arrangements Learning Objective 6: To grasp why collaborative arrangements succeed or

Problems with Collaborative Arrangements p Problems with collaborative arrangements include n n n Relative importance Divergent objectives Questions of control Comparative contributions and appropriations Culture clashes Differences in corporate cultures Copyright © 2013 Pearson Education 25

Problems with Collaborative Arrangements How to Dissolve a Joint Venture Copyright © 2013 Pearson

Managing International Collaboration Learning Objective 7: To see how companies can manage diverse collaborative

Managing International Collaboration Collaborative arrangements are dynamic p The motivation for collaboration can change over time because of changes in n the company’s capabilities n the external environment p Copyright © 2013 Pearson Education 28

Managing International Collaboration Country Attractiveness/Company Strength Matrix Copyright © 2013 Pearson Education 29

Managing International Collaboration p Potential collaborative partners should be evaluated in terms of n the resources they will supply n their motivation n compatibility Copyright © 2013 Pearson Education 30

Managing International Collaboration p Contracts should address n n n Whether the contract will be terminated if the parties do not adhere to the directives What methods will be used to test for quality What geographic limitations should be placed on an asset’s use Which company will manage which parts of the operation What each company’s future commitments will be How each company will buy from, sell to, or otherwise use intangible assets that result from the arrangement Copyright © 2013 Pearson Education 31

Managing International Collaboration p When collaborating with another company, managers must n n n Continue to monitor performance Assess whether to change the form of operations Develop competency in managing a portfolio of arrangements Copyright © 2013 Pearson Education 32

Why Innovation Breeds Collaboration p Collaborative arrangements will bring both opportunities and problems as companies move simultaneously to new countries and to contractual arrangements with new companies Copyright © 2013 Pearson Education 33

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