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Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
14-1
International Business
Environments & Operations
14e
Daniels ● Radebaugh ● Sullivan
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
14-2
Chapter 14
Direct Investment and Collaborative
Strategies
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14-3
Learning 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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14-4
Introduction Companies choose an international
operating mode to achieve their objectives When exporting and importing is not
possible, firms must explore other options
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14-5
IntroductionFactors Affecting Operating Modes in International Business
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14-6
IntroductionForeign Expansion: Alternative Operating Modes
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14-7
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
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14-8
Why Exporting May Not Be Feasible
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
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14-9
Non-Collaborative Foreign Equity Arrangements
Learning Objective 2: To comprehend why and how companies make foreign direct investments
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14-10
Non-Collaborative Foreign Equity Arrangements
Why do firms want control? Internalization
choose the lower cost between conducting operations internally and contracting to another party
it may be cheaper to handle operations internally
Appropriability do not transfer vital resources to another
company to avoid having competitive position undermined
Freedom to pursue a global strategy
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14-11
Non-Collaborative Foreign Equity Arrangements
There are two ways to invest in a foreign country Acquisition of existing facilities Building new facilities – known as
greenfield investment
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14-12
Why Companies Collaborate
Learning Objective 3: To understand the major motives that guide managers when choosing a collaborative arrangement for international business
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14-13
Why Companies Collaborate
Collaborative Arrangements and International Objectives
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14-14
Types of Collaborative Arrangements
Learning Objective 4: To define the major types of collaborative arrangements
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14-15
Types of Collaborative Arrangements
Learning Objective 5: To describe what companies should consider when entering into international arrangements with other companies
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14-16
Types of Collaborative Arrangements
Two key factors influence the type of collaborative arrangement Control Prior expansion
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14-17
Types of Collaborative Arrangements
Licensing a company grants intangible property rights to
another company to use in a specified geographic area for a specified period in exchange for royalties
Can be exclusive or nonexclusive used for patents, copyrights, trademarks,
and other intangible property
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14-18
Types of Collaborative Arrangements
Franchising a specialized form of licensing includes providing an intangible asset and
continually infusing necessary assets Franchise organization
Master franchise Operational modifications
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14-19
Types of Collaborative Arrangements
Management contract 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
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14-20
Types of Collaborative Arrangements
Turnkey operation one company contracts with another to build
complete, ready-to-operate facilities Most commonly performed by industrial-
equipment, construction, and consulting companies
Often performed for a governmental agency
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14-21
Types of Collaborative Arrangements
Joint ventures involve more than two companies, one of
which may own more than 50 percent may have various combinations of
ownership A consortium involves more than two
organizations
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14-22
Types of Collaborative Arrangements
Equity alliances an arrangement in which at least one of
the companies takes an ownership position in the other
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14-23
Types of Collaborative Arrangements
Collaborative Strategy and Complexity of Control
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14-24
Problems with Collaborative Arrangements
Learning Objective 6: To grasp why collaborative arrangements succeed or fail
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14-25
Problems with Collaborative Arrangements Problems with collaborative arrangements
include Relative importance Divergent objectives Questions of control Comparative contributions and appropriations Culture clashes Differences in corporate cultures
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Problems with Collaborative Arrangements
How to Dissolve a Joint Venture
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14-27
Managing International Collaboration
Learning Objective 7: To see how companies can manage diverse collaborative arrangements
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14-28
Managing International Collaboration
Collaborative arrangements are dynamic The motivation for collaboration can
change over time because of changes in the company’s capabilities the external environment
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14-29
Managing International Collaboration
Country Attractiveness/Company Strength Matrix
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14-30
Managing International Collaboration
Potential collaborative partners should be evaluated in terms of the resources they will supply their motivation compatibility
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14-31
Managing International Collaboration
Contracts should address 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
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14-32
Managing International Collaboration
When collaborating with another company, managers must Continue to monitor performance Assess whether to change the form of
operations Develop competency in managing a portfolio of
arrangements
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14-33
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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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.