1. Entry Strategies and Organizational Structure
How an MNC develops and implements entry strategies and ownership structures.
The major types of organizational structures used in managing international operations.
The advantages and disadvantages of each type of organizational structure, including the conditions that make one preferable to others.

2. DEVELOPED MARKETS
North America
Western Europe
Japan
Australia and New Zealand
% OF RESPONDENTS

3. EMERGING MARKETS 20 40 60 80
100
% OF RESPONDENTS

4. Wholly Owned Subsidiary
An overseas operation that is totally owned and controlled by an MNC.
MNC’s desire for total control and belief that managerial efficiency is better without outside partners.
Today many multinationals choose a merger, alliance, or joint venture rather than a fully owned subsidiary. Why?

5. Mergers and Acquisitions
The cross-border purchase or exchange of equity involving two or more companies.
The strategic plan of merged companies often calls for each to contribute a series of strengths toward making the firm a highly competitive operation. R/N yes. D/C no.
Purchase and pooling of interest accounting

6. Alliances and Joint ventures
Any type of cooperative relationship among different firms.
International joint venture (IJV)
An agreement under which two or more partners from different countries own or control a business
Non equity venture
Equity joint venture
Advantages
Improvement of efficiency
Access to knowledge
Political factors
Collusion or restriction in competition

7. Licensing
An agreement that allows one party to use an industrial property right in exchange for payment to the other party
By licensing to a firm already there, the licensee may avoid entry costs
Licensor usually may be a small firm that lacks financial and managerial resources
Companies that spend a relatively large share of their revenues on research and development (R&D) are likely to be licensors
Companies that spend very little on R&D are more likely to be licensees

8. Franchising
Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee
Widely used in the fast-food and hotel/motel industries
With minor adjustments for the local market, it can result in a highly profitable international business

9. Import and Export
Often the only available choices for small and new firms wanting to go international
Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment
Exporting and importing can provide easy access to overseas markets
Strategy usually is transitional in nature

10. Basic Organizational Structures
Initial division structures
Subsidiary
Common for finance-related businesses or other operations that require an onsite presence from the start
Export arrangement
Common among manufacturing firms, especially those with technologically advanced products
On-site manufacturing operations
In response to local governments when sales increase
Need to reduce transportation costs

11. Basic Organizational Structures
Chief Executive Office
Home-office departments
Production
Marketing
Finance
Human Resources
V.P. International Operations
Overseas subsidiaries
China
Japan
Germany
Australia
Vietnam
Use of Subsidiaries during the Early Stage of Internationalization

12. Problem 1, Bond Pricing Notes and Bonds payable
Notes are at Face value, and may be sold after underwriting.
Bonds mature at face value, and are traded
and valued inversely with interest rate fluctuations.

13. Problem 2, Cost of Equity Capital
Example:
1. US Beta IBM = 1.0 which is the average B risk level, meaning = to the market.
2. Expected rate of return = 12%. 6% for the risk, then
extra volatility (B).
3. U.S. Treasury bill = 6%.
CAPM = 6% + (12% - 6%)(1.0) = 12%.
Real world = 6% + 6% = 12%.

14. Problem 3, Weighted Average Cost of Capital
after tax borrowing cost and the cost of equity
capital.

15. Problem 4, Mergers and Acquisitions
EBITDA X 3
Cash flow from operations X 3 – 5
DCF of future cash flows (NPV)
Purchase companies by assets or earnings.
Stock buy
Publicly traded stock, higher multiples
Wall Street Road Shows, White Knight vs. Venture Capital
Real world valuations

16. Problem 5, Goodwill
Goodwill = Purchase Price – Fair Market Value of Net Assets

17. Problem 6, Project Expansion – Capital Budgeting
NPV - the PV of future cash flows minus the purchase price
IRR - is a rate of return used to measure the profitability of an investment
Payback - period of time required for the return on an investment to repay the sum of the original investment.

18. Problem 7, Entry Strategies
Mergers
Acquisitions
Alliances
Joint ventures
Licensing
Franchising
Import
Export

19. M&A and Valuations
How to buy…asset or earnings
Goodwill
NPV, IRR, EVA, Payback

20. Renault/Nissan I. Introduction:
Introduce Renault. Interesting history.
1. History from startup until alliance.
2. Their cars and market.
3. Fundamentals (summary) of their financial
condition.
Introduce Nissan
1. History from startup until alliance.
2. Their cars and market
3. Summary of their financial condition. Page 1.

21. Renault/Nissan II. The Alliance: - Page 1, Introduce RNBV
- Page 1, Renaults infusion of capital
- Page 1,2,3,4 The deal and history of the Alliance
- Page 4,17 Synergies, what did each bring to the table?
- Page 4,5 CCT’s, summary of these
- Page 6, Six major project areas
- Page 9 Kaizen
- Page 10 Difference in French and Japanese
- Page 13,14, a little on the culture, like a marriage

22. Renault/Nissan III. Financial:
- Renault - Key ratios in trends, charts are fine,
to include, share price, current ratio,
debt to net worth, gross profit %, net
profit %, EPS, revenue, and net
income. Bring current in Euros.
- Nissan - As above, and comparisons. Bring
current in Yen.

23. Renault/Nissan IV. Summary:
- Did the Alliance work? Financial support.
- Current niche of each manufacture
- Where do they combined rank?
- Strategy – what is their future?