6 Equity Flashcards
Equity investment
Equity modes preffered to transferring intangible assets
the more market are characterized by information asymmetries, the more likely MNEs prefer to handle this transaction internally -> so choose an equity mode
this decision depends essentially on two question: how do we access complementary local resources? how mucho control will we attain?
Entry mode decision should be base on?
- the industry’s competitive condition
- the market country’s situation
- Government policies
- Firm’s unique set of resources, capabilities & core competencies
The building blocks of an entry strategy
HRM Logistic Location Timing marketing ownership Greenfield acquisition
Strategic objectives of establishing foreign subsidiaries
operation abroad set up by FDI
- Natural resources seeking
- Market seeking
- Efficiency seeking (eco of scale + low-cost factors)
- Innovation seeking
when to enter?
frist mover advantages
- proprietary, technological leadership
- Establishment of entry barriers for late entrants
- relationship & connection with key stakeholders
frist-movers can maintain their leadership position if they continuously commit resources and if they actively learn about the local environment
when to enter?
lave mover disadvantages
- opportunity to free ride on first-mover investments
- resolution of technological & market uncertainty
- first mover’s difficulty to adapt to maker changes
merger
2 or more company become one company
acquisition
company buys most, if not all, of the target company’s ownership stake in order to assume control of the company
strategic alliance
arrangement between two companies that have decided to share resources to undertake a specific beneficial project
wholly owned subsidiaries (WOS)
Most investors prefer full control over their operation & so establish a WOS
WOS established in two ways:
- Greenfield project
- full acquisition
Difference of equity enter modes
Wholly owned greenfield: hoc degree of equity control and internal resources growth
Newly created JV: Internal resources growth, low degree of equity control
Full acquisition: high degree of equity control, external resources growth,
partial acquisition: low dredge of equity control and external resources growth
Greenfield
slam initially & growth with the market development
;)
- design operation to fit the parent
- complete equity & operation control, better protection & know-how & ability to coordinate globally
- option to scale operation to needs
:(
- add new capacity to industry
- slow entry seep
Risk: High investment risk (long pay back period)
full acquisition
an acquisition proved local organizationally embedded resources such as human capital and networks with local authorities
:)
- complete equity and operational control; better protection of know-how
- don’t add new capacity
- fast entry speed
:(
- political sensitivity
- post-acquistion integration challenges
High investment risk due to large up-front capital commitment
integration process related risks
JV
= corporate child: new entity owned by two or more parent companies.
monitory JV
50/50 JV
majority JV
JV appropriate in special situation
- the new business unit depends on resources contribution from 2 or more firms
- the transfer of these resources or the expected benefits for the investors is subject to high transaction costs
it is not feasible for the entire parent firms to be integrated into one firm
