Welcome to class of International Business Strategy by Dr. Satyendra Singh University of Winnipeg Canada

What is not FDI Internationalize business without investments –Exporting –Licensing –Franchising –Outsourcing Contract manufacturing –Nike, Vietnam; Gap, India  public image Management contract –Hilton logo –Air France, British Airways, KLM  booking system  EM Turnkey projects –One time  airport, power plant, oil refinery  EM

What is FDI Internationalize business with investments –Want ownership –Control of assets of host country –Profit potential $ –Compete more effectively But –Risks  economic and political –Foreign exchange fluctuations –Ban on acquisition on local firms –Restrictions on sending $ (dividends, capital) back home

FDI: 3 Strategies Greenfield strategy –Select the site, construct, modern plant, bring own corporate culture, not dealing with previous debt… –But  time, patience, local rules, training workers Brownfield (acquisition) strategy –Quick control, brand, workers, distribution –Good as it does not add capacity –But  complex  need lawyer, banker, M&A, regulators Joint Ventures  2 or more firms agree to work together to create a new business entity that is legally separate and distinct from its parents. (Special type of strategic alliance) –Imp  tech., communications, government policies outstrip the ability of international firms to exploit opportunities on their own

Strategic Alliances: Firms Cooperate for Mutual Benefits Ease of Market entry –Economies of scale, marketing, distribution, rapid entry, required by law to have local partner  save local brand Shared risks –Boeing 777  Fuji+Mitsubishi+Kawaski  Japan Airline Shared knowledge and expertise –Learn from each other  Toyota + GM Synergy and competitive advantage –Lipton Tea (mrf. exp) + Pepsi (distribution)  US market –Siemens ($) + Motorola (mrf exp)  256-MB DRAM Chip

Strategic Alliances: Scope Comprehensive  all process meshed  IJV –Need good structure, conflict of interest –Kellogs (Europe)  General Mills (Cheerios) + Nestle Functional  narrow in scope  no formal IJV –Production Chrysler (excess capacity, economies of scale) + BMW (design)  1.4 L small engine  EM, Mercosur –Marketing Mattel (Barbie, US) ↔ Bandai (Power rangers, Japan) Without Mattel, Bandai could not enter South America –Financial 20 th Century Fox + Paramount Pictures  Titanic –R&D Kodak + Fuji  Advanced Photo system  Canon, Minolta, Nikon

Strategic Alliances: Implementation Selection of partners  compatibility  trust –Mgmt style: Finance (GM, UK) vs. Engr (Siemens, Germany) –Leaning potential of alliance: inventory, training, MIS… Form of ownership –Country: tax and legal advantages  IJV  Bahamas –Public-private: drilling rights, lumber  Govt stability Management considerations –Shared: firms participate actively, ask parent, conflict –Assigned: dominant firm has the power to make decision –Delegated: IJV has the power, implement strategy

Strategic Alliances: Pitfalls Incompatibility of partners –Who has the power, negotiate ahead—goals, beliefs Access of information –Ford + Mazda (no visit to R&D)  Ford Escort –Unisys (no access to design) + Hitachi  Computers Distribution of earnings –No reinvestment, accounting methods Loss of autonomy –Opportunistic behavior, deliberate delay in supply Changing circumstances –Ford + Volkswagen  Autolatina (Brazil), inflation, debt crisis  sometimes outdated technology