chapter 10: direct investment and collaborative strategies Flashcards
Companies may find more advantages to locate production foreign countries than to export them. The advantages occur 6 conditions:
- when production abroad is cheaper than at home
- when transportation cost too much
- when domestic capacity isn’t enough
- when products and services need to be altered
- when trade restrictions hinder imports
- when countries of origin become an issue
reasons (4) for wholly owned foreign direct investment
- market failure
- internalization
- appropriability
- freedom to pursue a global strategy
4 reasons why internalization reduces costs
- different operating units within the same company are likely to share a common corporate culture, which expedites communications.
- the company can use its own managers, who understand and are comitted to carrying out its objectives
- the company can avoid protracted negociations with another company on such matters as partner responsibilities and how each will be compensated for contributions
- the company can avoid possible enforcement problems
4 advantages of acquiring an existing operation include
o Gaining vital resources that are otherwise hard to develop
o Making financing easier at times
o Adding no further capacity to the market
o Avoiding start-up problems
companies may hoose greenfield if
o Host governments discourage acquisition
o It is easier to finance
o Available acquisitions are performing poorly
o Personnel in acquiring and acquired firms may not work well together
general motives for collaborative arrangements (5)
- to spread and reduce cost
- to specialize in competencies
- to avoid or counter competition
- to secure vertical and horizontal links
- to gain knowledge
international motives for collaborative arrangements (4)
- to gain location-specific assets
- to overcome government constraints
- to diversify geographically
- to minimize risk exposure
4 considerations in choosing a form
- trade-offs and limitations
- what’s the purpose? alliance types
- prior company expansion
- compensation
2 types of licensing agreements may be:
- exclusive or on-exclusive
2. used for patents, copyrights, trademarks and other intangible porperty
major motives for licensing
- economic motive, lower costs or access to additional resources
- payments considerations greater potential sales -> higher value
- licensing to subsidiaries
4 motives for franchising
- franchising includes providing an intangible asset and a continual infusion of necessary assets
- many types of products, companies and countries participate in franchising
- franchise organization
- operation modifications
franchisors face dilemma
- Inadequacy of local supplies may hamper global product uniformity
- The more global standardization, the less acceptance in the foreign country
- The more adjustment to the foreign country, the less the franchisor is needed
turnkey operations are ready to use operations
- most commonly prformed by industrial-equipment, construction and consulting comapnies
- often performed for a governmental agency
- contracting to scale
- making contracts
- marshalling resources
turnkey operations generally differ from other IB collaborations because they…
- may be so large
- depend on top-level government contracts
- are often in remote locations
joint ventures
may vary by type of participants and the portion of ownership they hold.
the more equity a firm puts into a collaborative arrangment = the more control it will have over the foreign operations
