Daniels ib13 ppt_14

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-1

International BusinessEnvironments and Operations

Part 5Global Strategy, Structure, and

Implementation


Chapter 14

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

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

arrangements


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


FactorsAffecting Operating Modesin International Business


ForeignExpansion: Alternative

Operating Modes


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


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


International Motives for Collaborative Arrangements

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


Types of Collaborative Arrangements

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


Licensing

Licensing agreements may be:• Exclusive or nonexclusive• Used for patents, copyrights, trademarks, and

other intangible property


Franchising

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

continually infusing necessary assets• Franchise Organization• Operational Modifications


Management Contracts

Foreign management contracts are usedprimarily when the foreign company canmanage better than the owners.


Turnkey Operations

Turnkey operations are:• Most commonly performed by industrial-

equipment, construction, and consulting companies

• Often performed for a governmental agency


Turnkey Operations

• Contracting to Scale• Making Contacts• Marshaling Resources• Arranging Payment


Joint Ventures

• More than one organization owns a company– Consortium: more than two organizations

participate– May have various combinations of

ownership


Equity Alliances

A collaborative arrangement in which atleast one of the collaborating companiestakes an ownership position


Problems with Collaborative Arrangements

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

Appropriations• Culture Clashes • Differences in Corporate Cultures


Managing International Collaborations

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


Future: Why Innovation Breeds Collaboration

Collaborative arrangements will bring bothopportunities and problems as companies movesimultaneously to new countries and tocontractual arrangements with new companies.


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Daniels ib13 ppt_14

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