BA 510 International Management Doha 2011 Class 5

 Review of Entry Modes  Selecting an Entry Mode  International Manufacturing Strategy  Case Study Discussion: Canada Solar  Pitch preparation; 7 minute Pitches

Joint Venture Company Licensing Acquisition Joint Venturing Local Firm New Subsidiary Company “Green Field” Entry HOME COUNTRYHOST COUNTRY Export MNC

 Ship to another country for sale or exchange  Advantages:  Avoid cost of establishing manufacturing operations  Help achieve experience curve and location economies  Disadvantages: May compete with low-cost location manufacturers Possible high transportation costs Tariff barriers Possible lack of control over marketing reps

 Licensor grants rights to intangible property to another entity for a specified period of time in return  Advantages:  Reduces development costs and risks of establishing foreign enterprise Lack capital for venture; Unfamiliar/volatile market  Overcomes restrictive investment barriers  Others can develop business applications of intangible property  Disadvantages:  Lack of control  Cross-border licensing may be difficult  Creating a competitor

 A franchiser sells intangible property and provides guidelines for operating the business.  Advantages:  Reduces costs and risk of establishing enterprise  Disadvantages:  May prohibit movement of profits from one country to support operations in another country  Quality control

 Advantages:  Benefit from local partner’s knowledge  Shared costs/risks with partner  Reduced political risk  Disadvantages:  Risk giving control of technology to partner  May not realize experience curve or location economies  Shared ownership can lead to conflict

 Pro:  Quick to execute  Preempt competitors  Possibly less risky  Con:  Often produce disappointing results Overpay for firm Too optimistic about value creation (hubris) Culture clash Problems with proposed synergies  Pro:  Can build subsidiary it wants  Easy to establish operating routines  Con:  Slow to establish  Risky  Preemption by aggressive competitors AcquisitionGreenfield

Technological Know-How Management Know-How Wholly owned subsidiary unless 1. Venture is structured to reduce risk of loss of technology 2. Technology advantage transitory Then licensing or joint venture OK Franchising, subsidiaries (wholly owned or joint venture) Pressure for Cost Reduction Combination of exporting and wholly owned subsidiary Entry ModeBasis for Competition

 SolarWorld  Bonn HQ  Qatar Polysilicon processing JV with Qatar Foundation (70%), Qatar Development Bank (1%) and SolarWorld (29%) “..a forward integration along the entire solar value chain all the way to the finished solar power module could be implemented.”  Portland Wafers, Cells, and Modules manufacturing Wholly owned subsidiary, US HQ

 Interface Engineering  Portland HQ Building engineering and design General administrative  Sacramento, San Francisco, Seattle and Abu Dhabi Building engineering and design

Pressures for Global Efficiency Pressures for Local Responsiveness High Low High Low Export Strategy

U.S. Germany Mexico Malaysia Export Strategy

Pressures for Global Efficiency Pressures for Local Responsiveness High Low High Low Export Strategy Multi-domestic Strategy

U.S. Germany Mexico Malaysia Multi-domestic Strategy

Pressures for Global Efficiency Pressures for Local Responsiveness High Low High Low Export Strategy ?? Multidomestic Strategy Global Strategy

U.S. Germany Mexico Malaysia Global Strategy

Pressures for Global Efficiency Pressures for Local Responsiveness High Low High Low Export Strategy ?? Multidomestic Strategy Global Strategy Transnational Strategy

U.S. Germany Mexico Malaysia Transnational Strategy

Hi Lo HiLo Strategic Importance of Country Attractiveness of Country/Region Lo Hi Resources,Control,Risk

H.Q. U.S. H.Q. GermanyJV MexicoWOS-G MalaysiaExport

 First-mover advantage.  Preempt rivals and capture demand  Build sales volume  Move down experience curve before rivals and achieve cost advantage  Create switching costs  Disadvantages:  First mover disadvantage - pioneering costs  Changes in government policy Costs early entrant bears that later entrant can avoid.

 Key factors  Country: Factor costs, location externalities, infrastructure  Technological: Economies of scale, manufacturing flexibility  Product: Value to weight ratio, universality of needs

The optimal location of activity X considered independently WHERE TO LOCATE ACTIVITY X? The importance of links between activity X and other activities of the firm Where is the optimal location of X in terms of the cost and availability of inputs? What government incentives/ penalties affect the location decision? What internal resources and capabilities does the firm possess in particular locations? What is the firm’s business strategy (e.g. cost vs. differentiation advantage)? How great are the coordination benefits from co-locating activities? Determining the Optimal Location of Value Chain Activities Determining the Optimal Location of Value Chain Activities Economic Cluster Considerations

Technological Factors Flexible manufacturing technology Available Not Available Minimum efficient scale High Low Fixed costs High Low Product Factors Serves universal needs Yes No Value-to-weight ratio High Low Country Factors Differences in factor costs Substantial Few Substantial Few Trade barriers Few Many Differences in political economy Differences in culture Substantial Few Concentrated Decentralized Favored Manufactured Strategy

 What is the structure of its existing value chain, both domestic and international?  What options for international market entry may exist, including but not limited to manufacturing in China?  What are the possible modes of entry for expanding its international presence?  If it enters China, what mode(s) of entry should it consider? What are the pros and cons of one or more entry modes?

 Cluster Assessment + “Fit-1” (Solar PV Mfg and Qatar) + “Fit-2” (The Company + Qatar Industrial Policy  7 minutes  2 page outline