INTERNATIONAL BUSINESS STRATEGIES Andrey G. Medvedev, Professor September 22, 2009 CEMS MIM Programme

© Andrey Medvedev 7. INTERNATIONAL ENTRY MODES: INVESTMENT MODES 1. MARKET AND INDUSTRY ENTRY 2. ACQUISITIONS OF FOREIGN COMPANIES 3. GREEN-FIELD PROJECTS 4. JOINT VENTURES 5. ENTRY-MIX 6. STEP-BY-STEP INTERNATIONALISATION VS. NETWORKING

© Andrey Medvedev SELECTING AN ENTRY MODE Responsibilities of International Manager Responsibilities of International Manager: opportunities and risks n Evaluate opportunities and risks of entering foreign economy local responsiveness n Define a degree of local responsiveness n Analyse advantages and disadvantages n Analyse advantages and disadvantages of alternative foreign direct investment options entry option n Select an appropriate entry option strategic partnerstarget companies n Search for strategic partners and target companies abroad

© Andrey Medvedev FOREIGN ENTRY: A MODEL FOR ANALYSIS Competences, values, overall strategy & OD entry mode; entry-mix; entry stages PEST-factors of opportunities and threats Implementation Goals of internationalisation Development (real option) Industry (SBA) / product nature (multi-domestic vs. global) Current performance Reasons to internationalise

© Andrey Medvedev FOREIGN DIRECT INVESTMENT n FOREIGN DIRECT INVESTMENT n FOREIGN DIRECT INVESTMENT IS USUALLY NEEDED EFFECTIVE CONTROL –THE AMOUNT INVESTED BY A HOME COUNTRY PARENT COMPANY IN A FOREIGN ENTERPRISE TO HAVE EFFECTIVE CONTROL LONG-TERM COMMITMENT –GENERALLY INVOLVES THE LONG-TERM COMMITMENT OF LARGE AMOUNTS OF FUNDS TO PROJECTS WHICH WILL PAY OFF OVER AN EXTENDED PERIOD CLOSER TO THE MARKET n BEING CLOSER TO THE MARKET HIGHER MARKET SHARE n ACHIEVING HIGHER MARKET SHARE RESOURCES AND SKILLS n GETTING ACCESS TO (CHEAPER) RESOURCES AND SKILLS LOCATION ECONOMY n REALISING LOCATION ECONOMY

© Andrey Medvedev HOW? FDI ENTRY MODES – INDUSTRY ENTRY n ACQUISITIONS n GREEN-FIELD ESTABLISHMENTS n JOINT VENTURES –MINORITY SHARE (ALLIANCE) –50/50 –MAJORITY SHARE

© Andrey Medvedev STEPS OF ACQUISITION n SEARCHING n SEARCHING FOR A TARGET COMPANY n APPRAISAL n APPRAISAL OF A TARGET COMPANY ACQUISITION TERMS n TAKING ACCOUNT OF ACQUISITION TERMS –INVESTMENT TENDERS POST-ACQUISITION n MAKING POST-ACQUISITION DECISIONS

© Andrey Medvedev STRATEGIC CONTEXT OF ACQUISITIONS n COMPANY’S GLOBAL DIVERSITY COULD BE REACHED THROUGH DIFFERENT TYPES OF ACQUISITIONS n CROSS-BORDERFOREIGN TARGET n CROSS-BORDER ACQUISITION OF A “FOREIGN TARGET” ONLY IN ITS HOME COUNTRY LOCAL ACQUISITION –A FOREIGN COMPANY WITH OPERATIONS ONLY IN ITS HOME COUNTRY (LOCAL ACQUISITION) FOREIGN COMPANY INTERNATIONAL OPERATIONS GLOBAL ACQUISITION – 1 –A MAJOR FOREIGN COMPANY WITH EXTENSIVE INTERNATIONAL OPERATIONS (GLOBAL ACQUISITION – 1) DOMESTIC TARGET n ACQUISITION OF A “DOMESTIC TARGET” GLOBAL ACQUISITION – 2 –COMPANY WHICH OPERATES IN MANY COUNTRIES (GLOBAL ACQUISITION – 2)

© Andrey Medvedev SUBSIDIARIES IN RUSSIA: STADA Stada Arzneimittel AG Nizhpharm OAO n In the beginning of 2005, Stada Arzneimittel AG, Germany's third- largest generic-drug maker, acquired 99 percent of shares in Nizhpharm OAO located in Nizhny Novgorod, Russia, for €80 million. n “Stada considers Russia an important growth market,”' the German company said in the statement. In 2006, STADA Group sales in Russia increased by 55 percent to EUR 87.5 million. The ongoing very positive business development of Nizhpharm mainly focuses on branded products contributed the major part of this increase. Makiz-Pharma n In August 2007, Nizhpharm acquired all of closely held Makiz-Pharma shares for €135 million to get low-cost production and expand in the growing Russian market. Makiz-Pharma is one of a few domestic pharmaceuticals producers that was planned and build according to the Russian and international GMP standards.

© Andrey Medvedev GREEN-FIELD INVESTMENT: VOLKSWAGEN Volkswagen n The foundation stone was laid in Kaluga on October 30, 2006 for Volkswagen's new factory, the largest foreign project in the Russian automobile industry. Kaluga technopark n Volkswagen has reserved 800 hectares of land in Kaluga Region: 400 hectares for the factory itself, in which the company will invest 400 million euros, and 400 hectares for its partners in the automobile parts industry. The Kaluga technopark will be the largest project in the history of the post-Soviet automobile manufacturing industry.

© Andrey Medvedev UPM-KYMMENE n UPM-Kymmene n UPM-Kymmene is a global forest products group with core businesses in printing papers, speciality papers, label materials and wood products. n UPM has 64 wood production units in 14 countries and 21 paper mills in 8 countries (Finland, Germany, France, the UK, Austria, the US, Canada and China). They employ about 28,000 people. The UPM’s sales in 2006 were about EUR 10 billion, of which three quarters came from Europe. Sveza n In the end of 2007, UPM agreed to form a joint venture with Russian Sveza to invest more than 1 billion euros in Russia. n The venture will produce about 800,000 tons of pulp, 300,000 cubic meters of wood and 450,000 cubic meters of building panels per year.

© Andrey Medvedev THE ROLE OF A PARTNER MARKETING SATELLITE n LOCAL PARTNER COULD SERVE AS A MARKETING SATELLITE (TRADE AND SERVICE COMPANIES, CONSULTING AGENCIES) –THEY KNOW LOCAL CONDITIONS BETTER –THEY MAY CONCENTRATE ON SALES, MARKETING AND SERVICES LEARN AND UNDERSTAND n LOCAL PARTNERS MAY HELP A FOREIGN FIRM LEARN AND UNDERSTAND LOCAL CONDITIONS BETTER JOINT VENTURES n MANY JOINT VENTURES IN RUSSIA WERE TURNED INTO FULLY-OWNED SUBSIDIARIES AFTER FOREIGN PARTNERS HAD ACCUMULATED ENOUGH LOCAL EXPERIENCE TEST n JOINT VENTURE MAY SERVE TEMPORARY AS A “TEST” MODE

© Andrey Medvedev ENTRY MIX – GENERAL MOTORS EXPORTING n 1993EXPORTING JOINT VENTURE n 2001JOINT VENTURE (WITH AVTOVAZ) CO-OPERATION n CO-OPERATION (WITH ASSEMBLER IN ST. PETERSBURG) GREEN-FIELD n 2008GREEN-FIELD (ST. PETERSBURG)

© Andrey Medvedev ENTRY MIX – FRANCHISING PLUS INVESTMENT: OBI OBIfranchising n German OBI (do-it-yourself retailer) has franchising agreements with two stores in Moscow Region and one in Leningrad Region near St. Petersburg. investment DIY Project Russia n 49 percent of investment were made by OBI, 51 percent by franchisee, DIY Project Russia.

© Andrey Medvedev ENTRY STAGES – WRIGLEY FOLLOWING WINDOW OF OPPORTUNITIES INDIRECTEXPORTING n 1991INDIRECT EXPORTING LEARNING LOCAL CONDITIONS DEVELOPING DISTRIBUTION REPRESENTATION n 1995REPRESENTATION WRIGLEY’S RUSSIA GREEN-FIELD n 1999GREEN-FIELD (ST. PETERSBURG) RECONSTRUCTION n 2004RECONSTRUCTION OF ST. PETERSBURG PLANT DIVERSIFICATIONACQUISITION n 2008DIVERSIFICATION THROUGH ACQUISITION (ODINTSOVO CONFECTIONERY PLANT IN MOSCOW REGION) n 2008WRIGLEY HAS BEEN ACQUIRED BY MARS

© Andrey Medvedev ENTRY STAGES – TIKKURILA FOLLOWING WINDOW OF OPPORTUNITIES JOINT VENTURE n 1993JOINT VENTURE (LENBYTCHIM), BUY-OUT (FINNCOLOR) LEARNING LOCAL CONDITIONS DEVELOPING DISTRIBUTION GREEN-FIELD n 1999GREEN-FIELD (KRASKI TIKKURILA) ACQUISITION n 2006ACQUISITION (TEKS) PLANT IN BELGOROD REGION WAREHOUSE IN CHELYABINSK REGION

© Andrey Medvedev ENTRY STAGES – KRAFT FOODS VERTICAL INTEGRATION EXPORTING n 1993EXPORTING GREEN-FIELD n 1999GREEN-FIELD (INSTANT COFFEE PACKAGING PLANT NEAR ST. PETERSBURG) VERTICALLY INTEGRATED GREEN-FIELD n VERTICALLY INTEGRATED GREEN-FIELD (INSTANT COFFEE MANUFACTURING) ACQUISITION n 2007ACQUISITION FROM DANONE (BOLSHEVIK PLANT IN MOSCOW)

© Andrey Medvedev «SCANDINAVIAN» MODEL OF FOREIGN EXPANSION GRADUAL PROCESS n ENTRY IS VIEWED AS A GRADUAL PROCESS THAT CAN BE SUBDIVIDED –EXPORTING –LICENSING –CONTRACT MANUFACTURING –JOINT PROJECTS –DIRECT INVESTMENT

© Andrey Medvedev STEP-BY-STEP INTERNATIONALISATION ADVANTAGES n DISADVANTAGES