Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-1 International Business Environments and Operations, 13/e Part 5 Global Strategy, Structure, and Implementation

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-2 Chapter 14 Direct Investment and Collaborative Strategies

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-3 Chapter 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

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-4 Exporting May Not Be Feasible When production abroad is cheaper than at home When transportation costs to move goods or services internationally are too expensive When companies lack domestic capacity When products and services need to be altered substantially to gain sufficient consumer demand abroad When governments inhibit the import of foreign products When buyers prefer products originating from a particular country

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-5 Factors Affecting Operating Modes in International Business

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-6 Foreign Expansion: Alternative Operating Modes

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-7 Non-collaborative Foreign Equity Arrangements Taking Control: Foreign Direct Investment –Internalization –Appropriability –Freedom to Pursue a Global Strategy How to make FDI –Buying –Greenfield Investments

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-8 Motives for Collaborative Arrangements To Spread and Reduce Costs To Specialize in Competencies To Avoid/Counter Competition To Secure Vertical and Horizontal Links To Gain Knowledge

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 14-9 International Motives for Collaborative Arrangements To Gain Location Specific Assets To Overcome Governmental Constraints To Diversify Geographically To Minimize Exposure to Risky Environments

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Types of Collaborative Arrangements Factors Influencing Choice of Arrangement Type: –Control –Prior Expansion

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Licensing Licensing agreements may be: Exclusive or nonexclusive Used for patents, copyrights, trademarks, and other intangible property

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Franchising A specialized form of licensing –includes providing an intangible asset and continually infusing necessary assets Franchise Organization Operational Modifications

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Management Contracts Foreign management contracts are used primarily when the foreign company can manage better than the owners.

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Turnkey Operations Turnkey operations are: Most commonly performed by industrial- equipment, construction, and consulting companies Often performed for a governmental agency

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Turnkey Operations Contracting to Scale Making Contacts Marshaling Resources Arranging Payment

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Joint Ventures More than one organization owns a company –Consortium: more than two organizations participate –May have various combinations of ownership

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Equity Alliances A collaborative arrangement in which at least one of the collaborating companies takes an ownership position

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Problems with Collaborative Arrangements Relative Importance Divergent Objectives Questions of Control Comparative Contributions and Appropriations Culture Clashes Differences in Corporate Cultures

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Managing International Collaborations Dynamics of Collaborative Arrangements Finding Compatible Partners Negotiating the Arrangement Drawing Up the Contract Improving Performance

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Future: 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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