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International Business
Environments & Operations
15e
Daniels ● Radebaugh ● Sullivan
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Chapter 15
Direct Investment and Collaborative
Strategies
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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
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Why Companies Collaborate
Collaborative Arrangements and International Objectives
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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
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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
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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
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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
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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
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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
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Types of Collaborative Arrangements
Collaborative Strategy and Complexity of Control
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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
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Problems with Collaborative Arrangements
How to Dissolve a Joint Venture
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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
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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).
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