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Business and Strategy in Emerging Markets > Partnership Formation and Strategy > Flashcards

Partnership Formation and Strategy Flashcards

1
Q

What do firms need to consider when deciding to business in EMs?

A
  • Where to enter - trends, opportunities, market seeking, cost savings, constraints, voids
  • How to enter; exporting, subcontracting, licensing, franchising, WOS, JV
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2
Q

What are partnerships in emerging markets?

A

Two or more firms jointly pursue mutual interest though sharing resources and capabilities

  • Cooperative e.g exporting
  • Transfer related e.g franchising
  • Equity e.g 5050 JV
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3
Q

Why and how are joint ventures/partnerships common in EMs?

A

Common due to uncertainty, don’t want too much resource commitment.

220 JVs worth $12.1 bullion in 2011. China is home to the most

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4
Q

Why do MNEs do partnerships in EMs?

A
  • Complementary resources and capabilities e.g 2012 Starbucks and Tata in India
  • Avoid or circumvent local restrictions on foreign ownership e.g LCRs
  • Improved local acceptance
  • Knowledge acquisition
  • Competition mitigation
  • Risk reduction
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5
Q

Where are there no caps on Indian FDI?

A

Automatic route:

  • AutomobiLe
  • Airports, railways
  • B2B e-commerce
  • Pharmaceuticals
  • Hospitals
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6
Q

Where are there caps on Indian FDI?

A

Gov route:

  • Terrestrial broadcasting (26%)
  • Newspapers (26%)
  • Security agencies (49%)
  • Multi brand retailing (51%) e.g Tesco and Asda can only own 51% - have to JV the rest, Ikea sells all its own brand so doesn’t need a JV
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7
Q

How are FDI restrictions structured in China?

A

Encouraged (allowed) - waste water treatment, construction design

Restricted (tight control)
Telecommunications (49-50%), higher education

Prohibited - books, magazines, newspapers, broadcasting

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8
Q

What changes are occurring in Chinese FDI restriction?

A

Currently requires automobile firms to enter into JVs with local firms (cap at 50% since 1994) will be abolished by 2022

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9
Q

How do partnerships improve local acceptance?

A
  • Reduces exploitative perception

- Helps deal with liability of foreignness - disadvantage due to non-native status, complaints against Shell in Nigeria

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10
Q

How can the right partner be found in EMs?

A

1) Search for attractive partners, identify against criteria: strategic/organisational attributes
2) Selecting a preferred partner, ascertain the quality and intentions of partner
3) Attract the preferred partner, negotiation

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11
Q

What are the strategic attributes of the right partner?

A
  • Market position
  • Market competence
  • Networks
  • Firm age and previous firm exprience
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12
Q

How is market position a strategic attribute?

A
  • Market/industry leadership
  • Market share, bargaining power with government
  • Influence on industry restrictions
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13
Q

How is market competence a strategic attribute?

A
  • Distribution channels
  • Promotional skills
  • Local knowledge
  • Technical competence - technology and know-how, important in manufacturing industry
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14
Q

How are networks strategic attributes?

A
  • Built on trust, can be costly/unstable/unreliable
  • Utilising connections of partner
  • Relationships with local business community and gov authorities
  • E.g Chinese gov gave Kodak exclusive market access blocking foreign competitors until 2002
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15
Q

How is firm age and experience a strategic attribute?

A
  • Greater local experience = greater depth of networks
  • Longevity good for reputation and brand image
  • Previous partnership experience reduces culture clash, mistrust, sensitivity towards international competitiveness
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16
Q

What are the organisational attributes?

A
  • Structure and governance
  • Ownership type
  • Financial attributes
17
Q

How is structure and governance an organisational attribute?

A
  • Established procedures, annual reports, board of direction (experts vs family)
  • Compliance of domestic and international legislation - tax, anti-corruption, labour abuse, work safety
18
Q

How is ownership type an organisational attribute?

A
  • State owned - access to scarce capital and info, better relationship, favourable treatment, regulatory leniency
  • Private - strategic agility, responds quicker to opportiunities
  • Family owned e.g Tata - greater market logic, want growth and good reputation, prone to crisis due to poor governance
19
Q

What are partnership challenges?

A
  • Double parenting: time/disagreements
  • Dominant parenting: over controlling
  • Limited control: prominent in EMs, LCRs, division of management
  • Culture clashes: regiona capital in EMs, stereotypes
  • Opportunism: give-take relationship, expropriation of technological know-how
20
Q

What is an example of opportunism?

A

The Pizza Company was until 2001 a franchise for Pizza Hut, went into Thailand and franchised Pizza Hut brand, broke away in 2001 to become a competition to PH

21
Q

What are the possible outcomes of partnerships in EMs?

A

Sustainable power balance: successful for both

Powers shift to global partner: global partner acquires, may succeed or fail

Power collision: alliance short-lived, lose-lose

Power shift to local partner: local partner may acquire, may succeed or fail

22
Q

What is the success rate of JVs and what incites opportunism?

A

61% failure rate when JV ownership is 50-50

The fear of being bought out often incites opportunism or defensiveness

23
Q

What are the 4Cs for creating a successful partnership in EMs?

A

Complementary skills: fill gaps

Compatible goals: EM wanting international experience vs MNE wanting market access, efficiency, localisation

Cooperative cultures - mutual understanding imperative

Commensurable risk -take caution when sharing knowledge

24
Q

What factors should be considered in expatriate section?

A

Situational: HQ preferences, host/subsidiary preferences, language

Individual: technical ability and expertise, cross-cultural adaptability, spouse and family preferences

25
Q

What is the rate of expatriate failure and how is it measured?

A

50% failure rate in EMs

  • Premature return
  • Unmet business objectives
  • Unfulfilled career development objectives
26
Q

What is culture shock?

A

Psychological process affecting people working abroad e.g homesickness, irritability, confusion, aggravation, depression

27
Q

What are the stages of culture shock/overcoming culture shock?

A

1) Thrilling experience
2) Downward slide
- ———
3) Recovery begins
4) Embrace local customs

28
Q

What are some areas where EM culture can cause shocks for expatriates?

A
  • Working pace
  • Unprofessional practices - crime and safety
  • Different customs and religions
  • Decision making: particularism vs universalism, participation vs authority
  • Relationships - nepotism (granting jobs to relatives) vs trust
  • Leadership (competence vs age)
  • Deals and transactions verbal vs written
  • Deadlines and timing - indicative or firm
29
Q

What is reverse culture shock?

A

Experienced by people returning to their country of origin due to the company/country/expatriate having changed

30
Q

What are the repatriation challenges?

A
  • Career anxiety - a job when you get back?
  • Work adjustment - subsidiary smaller than HQ
  • Loss of status and pay; premiums gone such as maids
  • Difficult for spouse and children
31
Q

What are the adjustment strategies in terms of culture shock?

A
  • Repatriation agreement: outlines return job and duration of expatriation
  • Senior executive sponsorship - monitoring performance and ensuring availability of position
  • Maintain on-going communication

Business and Strategy in Emerging Markets (10 decks)

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