Forelæsning 7

Question 1

When should a firm produce products locally

Answer 1

When,

• Shipping and tariff costs associated with exporting is too high.
• Need for local customization of product design is high.
• No means of protecting own inventions abroad.
• Local content requirements are strong.

Question 2

Alliance partner is good when

Answer 2

• Psychical and cultural distance between the home and host countries is high.
• The subsidiary would have low operational integration with the rest of the multinational operations.
• The risk of asymmetric learning by the partner is low.
• The company is short on capital.
• Government regulations require local equity participation.

Question 3

Exporting

Answer 3

• Accessing foreign markets through local distributors.
• Accessible to small businesses that usually compete in a very narrow category.

Advantages: Low risk, no long-term assets, easy market entry and exit.

Disadvantages: Choice of distributors is difficult, tariffs, quotas, transportation costs, synchronization of shipments.

Question 4

Licensing

Answer 4

• Getting exclusive license for patent, technology or trademark use in a specific geographic territory
• Suitable for firms with many diverse product lines.

Advantages: No asset ownership, fast market access, avoid regulations, tariffs and quotas.

Disadvantages: Quality and trustworthiness of licensee – track – record, could licensee develop competence and become direct competitor? Host country royalty limits, secure protection of intellectual property.

Question 5

Agency theory

Answer 5

Used to explain and resolve issues in the relationship between business principals and their agents.

Question 6

Contract manufacturing/Outsourcing

Answer 6

• Contracting for the production of finished goods or component parts.

Question 7

Service-sector outsourcing

Answer 7

• Outsourcing value-adding part of value chain, convenient outsourcing of research for SME’s.

Question 8

Offshoring

Answer 8

• Moving own factories abroad, producing parts abroad, but still putting them together at home.
• Possibility to split the production, often accompanied with clustering – multiple suppliers in one concentrated area.

Question 9

Reshoring/nearshoring

Answer 9

• Trend of bringing production back home or at least closer to home in order to cut down the time/distance to market, the complexity of multi-stage-production.
  o Risks: Pressure of social responsibility and bringing jobs back home.
  The rising price of labor abroad, the risks associated with foreign production.
  Quality control and logistics.

Question 10

Non-equity strategic alliances

Answer 10

• Contractual agreement between parties
• Could be for marketing purposes
• Alliances with supplier, distributors, manufacturers

Advantages: Realization of all revenues and control, protection of technology and skill base, global economies of scale.

Disadvantage: Prohibiting locals in emerging markets to compete. Home countries sees foreign WHS (Work, Health and Safety) as export of jobs.

Question 11

Equity Modes

Answer 11

Greenfield vs Brownfield
- Greenfield describes a completely new project that has to be executed from scratch, (Greenfield: Build your own subsidiary from scratch) while a brownfield project is one that has been worked on by others and is now being handed off to someone else for completion.

Y: Market growth rate
Y: Uniqueness of corporate culture
High-low-low-high.

Question 12

Joint Venture

Answer 12

• A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.

Advantage: Insider access to markets, curtailing trade barriers, shared costs and risks, leverage partners’ skills base, technology and network.

Disadvantage: Must have strategic fit, difficulties to culturally adapt to the partner, asymmetric knowledge-leaking know how.

Question 13

Types of Mergers and Acquisitions

Answer 13

1. Overcapacity M&A
2. Geographic roll-up M&A
3. Product or market extension M&A
4. The M&A as substitutes for R&D
5. The industry convergence M&A

Question 14

1. Overcapacity M&A

Answer 14

Merger of two equals with strategic goal to achieve economies of scale by improving efficiency and use the excess capacity to gain market share.

Question 15

2. Geographic roll-up M&A (Larger company)

Answer 15

“industry giant in making” overtakes smaller companies in new geographical locations to penetrate the market, keeps the local staff.

Question 16

3. Product or market extension M&A

Answer 16

Involves two companies that are functionally related but sell products that do not directly compete or sell in two different markets, their success is usually determined by the comparative size of the partners.

Question 17

4. The M&A as substitutes for R&D

Answer 17

Usually larger company acquiring innovative one, retaining HR is very important. (Used in high-tech companies to build market position quickly)

Question 18

5. The Industry convergence M&A

Answer 18

The merging partners are entering a new industry and come from industries with ending borders.

Question 19

Strategy and Equity modes?

Answer 19

4 quadrants:

1. Predisposition: Gocentric - Strategy: Transnational
2. Predisposition: Ethnocentric - Strategy: Global
3. Predisposition: Polycentric/regiocentric - Strategy: Multidomestic
4. Predisposition: Ethnocentric - Strategy: International

Question 20

Internal isomorphism

Answer 20

Pressure on SDs from parent company
Global strategy is a sign of stronger internal isomorphism, SDs are mirror image of the HQs, including procedures, norms, policies – therefore it is easier to produce with greenfield investment.

Question 21

External isomorphism

Answer 21

Pressure on SDs from the host country environment
Multidomestic strategy is a sign of stronger external isomorphism, SDs are resembling other local organizations and are incorporated into the local network – therefor it is easier to acquire existing companies.