copyright © 2015 pearson education, inc.15-1 international business environments & operations...

Copyright © 2015 Pearson Education, Inc. 15-1

International Business

Environments & Operations

15e

Daniels ● Radebaugh ● Sullivan


Chapter 15

Direct Investment and Collaborative

Strategies


Learning Objectives Understand why companies collaborate Learn about various types of collaborative

arrangements Evaluate various types of collaborative

arrangements using a few criteria Learn how companies can manage various

collaborative arrangements


Why Companies Collaborate

Collaborative Arrangements and International Objectives


Foreign Expansion: Alternative Operating Modes


Equity Arrangements

There are two ways to invest in a foreign country Acquisition of existing facilities Greenfield Investment – Building new facilities

Why do firms want full or partial control? Internalization

choose the lower cost between conducting operations internally and contracting to another party

it may be cheaper to handle operations internally Appropriability

do not transfer vital resources to another company to avoid having competitive position undermined

Types of Collaborative Arrangements (Entry

Strategies) Licensing Franchising Management contracts Turnkey operations Joint venture Equity Alliance Wholly-owned subsidiary (WOS)-no

collaboration but is an important entry strategy

Criteria for EvaluatingCollaborative (Entry)

Strategies

Legal Cost Risk Control Competition Experience Product/industry Complexity Country factors

Evaluating Collaborative Arrangements (Entry

Strategies)

Country Country

ComplexityComplexity

ProductProduct

ExperienceExperience

CompetitioCompetitionn

ControlControl

RiskRisk

CostCost

LegalLegal

WOSWOSJoint Joint

VentureVentureTurnkeyTurnkeyManagement Management

contractscontractsFranchisinFranchisingg

LicensingLicensingExportingExporting


Licensing

Licensing: a company grants intangible property rights to another company to use in a specified geographic area for a specified period in exchange for royalties.

Examples/Applications of licensing: Patents, inventions, formulas, processes, designs,

patterns Copyrights for literary, musical or artistic compositions Trademarks, trade names, brand names Franchises, licenses, contracts Methods, programs, procedures, systems


Franchising

Franchising: a specialized form of licensing that includes providing an intangible asset and also operational assistance on a continuing basis

Examples: McDonalds, Subway, Wal-Mart, Intercontinental Hotels


Management Contract

Management contract: a company is paid a fee to transfer management personnel and administrative know-how abroad to assist a company

Foreign management contracts are used primarily when the foreign company can manage better than the owners

Host country gets assistance without any equity involvement


Turnkey Operation

Turnkey operation: one company contracts with another to build complete, ready-to-operate facilities Most commonly performed by industrial-

equipment, construction, and consulting companies

Often performed for a governmental agency


Joint Venture and Equity Alliance

Joint ventures: involve more than two companies, one of which may own more than 50 percent, may have various combinations of ownership

A Consortium involves more than two organizations

Equity alliances: an arrangement in which at least one of the companies takes an ownership position in the other


Types of Collaborative Arrangements

Collaborative Strategy and Complexity of Control


Problems with Collaborative Arrangements

Problems with collaborative arrangements include Relative importance Divergent objectives Questions of control Comparative contributions and appropriations Culture clashes Differences in corporate cultures


Problems with Collaborative Arrangements

How to Dissolve a Joint Venture


Country Attractiveness-Company Strength Matrix


Managing International Collaborations

International collaboration is a complex process. Potential collaborative partners should be evaluated in terms of… the resources they will provide their motivation Compatibility

Contract requirements vary by type of collaborative arrangement

Needs constant evaluation, monitoring


Contract Requirements

Contracts should address Whether the contract will be terminated if the

parties do not adhere to the directives What methods will be used to test for quality What geographic limitations should be placed on an

asset’s use Which company will manage which parts of the

operation What each company’s future commitments will be How each company will buy from, sell to, or

otherwise use intangible assets that result from the arrangement

Chapter 15: Discussion Questions1. What is a collaborative arrangement?

Why firms collaborate? Explain their reasons for collaboration.

2. What are the different types of collaborative arrangements we discussed in class? Explain.

3. Explain the criteria for evaluating collaborative strategies. When would a firm opt for licensing over joint venture? Make specific arguments. (Similar questions can also be asked for other strategies, one over the other).


All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

copyright © 2015 pearson education, inc.15-1 international business environments & operations...

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