International business environment and operations 13e pearson chapter 14

International Business
Environments and Operations,
13/e
Part 5
Global Strategy, Structure, and
Implementation
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Chapter 14
Direct
Investment
and
Collaborative
Strategies

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Chapter Objectives
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To clarify why companies may need to use modes other than

exporting to operate effectively in international business
To comprehend why and how companies make foreign direct
investments
To understand the major motives that guide managers when
choosing a collaborative arrangement for international business
To define the major types of collaborative arrangements
To describe what companies should consider when entering into
international arrangements with other companies
To grasp why collaborative arrangements succeed or fail
To see how companies can manage diverse collaborative
arrangements
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Exporting May Not Be Feasible
• When production abroad is cheaper than at home
• When transportation costs to move goods or services
internationally are too expensive
• When companies lack domestic capacity
• When products and services need to be altered
substantially to gain sufficient consumer demand
abroad
• When governments inhibit the import of foreign
products
• When buyers prefer products originating from a
particular country
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Factors
Affecting Operating Modes
in International Business

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Foreign
Expansion: Alternative
Operating Modes

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Non-collaborative Foreign Equity
Arrangements
• Taking Control: Foreign Direct Investment
– Internalization
– Appropriability
– Freedom to Pursue a Global Strategy
• How to make FDI
– Buying
– Greenfield Investments
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Motives for Collaborative
Arrangements
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To Spread and Reduce Costs
To Specialize in Competencies
To Avoid/Counter Competition
To Secure Vertical and Horizontal Links
To Gain Knowledge

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International Motives for
Collaborative Arrangements
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To Gain Location Specific Assets
To Overcome Governmental Constraints
To Diversify Geographically
To Minimize Exposure to Risky Environments

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Types of Collaborative
Arrangements
• Factors Influencing Choice of Arrangement
Type:
– Control
– Prior Expansion

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Licensing
Licensing agreements may be:
• Exclusive or nonexclusive
• Used for patents, copyrights, trademarks, and
other intangible property

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Franchising
• A specialized form of licensing
– includes providing an intangible asset and
continually infusing necessary assets
• Franchise Organization

• Operational Modifications

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Management Contracts
Foreign management contracts are used
primarily when the foreign company can
manage better than the owners.

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Turnkey Operations
Turnkey operations are:
• Most commonly performed by industrialequipment, construction, and consulting
companies
• Often performed for a governmental agency

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Turnkey Operations
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Contracting to Scale
Making Contacts
Marshaling Resources
Arranging Payment

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Joint Ventures
• More than one organization owns a company
– Consortium: more than two organizations
participate
– May have various combinations of
ownership

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Equity Alliances
A collaborative arrangement in which at
least one of the collaborating companies
takes an ownership position

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Problems with Collaborative
Arrangements
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Relative Importance
Divergent Objectives
Questions of Control
Comparative Contributions and
Appropriations
• Culture Clashes
• Differences in Corporate Cultures
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Managing International
Collaborations
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Dynamics of Collaborative Arrangements
Finding Compatible Partners
Negotiating the Arrangement
Drawing Up the Contract

Improving Performance

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Future: Why Innovation Breeds
Collaboration
Collaborative arrangements will bring both
opportunities and problems as companies move
simultaneously to new countries and to
contractual arrangements with new companies.

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All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher. Printed in the
United States of America.

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