1. Welcome to class of International Business Strategy by Dr. Satyendra Singh University of Winnipeg Canada www.uwinnipeg.ca/~ssingh5

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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