Internationalization Strategies

Internationalization Risks: CAGE Cultural Distance Administrative Distance Geographic Distance Economic Distance

Internationalization Modes

Exporting Creating goods in the home country and shipping to another country Good place to start because low-cost way of seeing if products are appealing Problems? Cost, time, Logistics Theft/Loss Perception/market penetration Quality control/Image/Branding Lose control supply chain

Licensing Granting a foreign company the right to create or sell your product in exchange for a fee Common with patented technologies Avoids absorbing a lot of costs Key Issues? Lower Quality Brand Dilution Following Laws Specific Contract are burdensome & costly Determining l& tracking licensing fees

Franchising Renting a firm’s brand name and business process. Common in service industries Little financial investment from the franchisor Typical U.S. franchisor has 140 domestic locations before moving overseas When Appropriate?

Alliances & Joint Ventures Strategic Alliance describes firms that create agreements to work together without forming a new organization. Equity Joint Venture is when two or more organizations each contribute to creation of a new entity Advantages Provides local knowledge Facilitates acceptance in local markets Clears regulatory paths Challenges? Two org cultures, different end games Trust becomes paramount Delegating responsibilities What will you do with your proprietary technology Ownership issues (property rights) Imbalances of power Confusing to stakeholders Who is final decision maker?

Subsidiaries Business operation in a foreign country that a firm fully owns. Demonstrates strategic commitment, which is affirming for customers, suppliers and investors Greenfield Operation is building a subsidiary from scratch. Acquisition, sometimes called a brownfield operation

Acquisitions Acquisition: Takes place when one company purchases another company The acquired company is (generally) smaller than the firm that purchases it Merger: Joining of two companies into one Involves similarly sized companies Takeover A special type of acquisition when the target firm did not solicit the acquiring firm’s bid for outright ownership.

Acquisitions

If shareholders don’t gain value from acquisitions, then why do firms acquire other firms? Market share Eliminate competition Buying IP, knowledge Buying Revenue Acquiring People Resources (vertical/horizontal integration) Diversification Acquiring foothold (region, prod mkt) Overcoming regulations Prestige Tax writeoff issues Acquisitions -Executive compensation -Acquire patents -Buying PP&E -Personnel synergies -Avoid lawsuits -Find hidden value

Improving the likelihood of success Complementary assets/resources Friendly as opposed to hostile Careful, long selection processes Maintain financial slack, Low-to-moderate debt Maintain key personnel Sustain emphasis on innovation (continued R&D) Flexibility (managerial experience with change) Acquisitions