Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-1 International Business...

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

14-1

International Business

Environments & Operations

14e

Daniels ● Radebaugh ● Sullivan


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Chapter 14

Direct Investment and Collaborative

Strategies


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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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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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IntroductionFactors Affecting Operating Modes in International Business


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IntroductionForeign Expansion: Alternative Operating Modes


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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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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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Non-Collaborative Foreign Equity Arrangements

Learning Objective 2: To comprehend why and how companies make foreign direct investments


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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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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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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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Why Companies Collaborate

Collaborative Arrangements and International Objectives


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Types of Collaborative Arrangements

Learning Objective 4: To define the major types of collaborative arrangements


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Learning Objective 5: To describe what companies should consider when entering into international arrangements with other companies


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Two key factors influence the type of collaborative arrangement Control Prior expansion


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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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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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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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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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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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Equity alliances an arrangement in which at least one of

the companies takes an ownership position in the other


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Collaborative Strategy and Complexity of Control


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Problems with Collaborative Arrangements

Learning Objective 6: To grasp why collaborative arrangements succeed or fail


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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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Managing International Collaboration

Learning Objective 7: To see how companies can manage diverse collaborative arrangements


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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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Country Attractiveness/Company Strength Matrix


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Potential collaborative partners should be evaluated in terms of the resources they will supply their motivation compatibility


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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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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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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.

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-1 International Business...

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