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 To comprehend why and how companies make foreign direct investments  To understand the major motives that guide managers when choosing a collaborative.

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Presentation on theme: " To comprehend why and how companies make foreign direct investments  To understand the major motives that guide managers when choosing a collaborative."— Presentation transcript:

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2  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 14 -2

3 Production Ownership Production Location Equity Arrangements Home CountryForeign country a.Exportinga. Wholly owned operations: b. Partially owned operations: c. Joint Ventures: d. Equity Alliances: Non Equity Arrangements a.Licensing: b. Franchising: c. Management Contracts: d. Turnkey Operations: 14 -3

4  Non collaborative: Wholly and partially owned operations  Control/holding accompanies investment 14 -4

5 ◦ Internalization theory ◦ Appropriability theory ◦ Freedom to pursue global objectives 14 -5

6  Internalization theory holds that it is sometimes cheaper to handle operations oneself than to contract with another company  The idea of denying rivals access to resources (capital, patents, trademarks, and management know-how) is called the appropriability theory  When a company has a wholly owned foreign operation, it may more easily have option to participate in a global strategy 14 -6

7  The advantages of Acquiring an existing operation include: ◦ adding no further capacity to the market: in case of saturated market ◦ avoiding start-up problems ◦ easier financing  Companies may choose to build or have Greenfield Investments if: ◦ no desired company is available for acquisition ◦ acquisition will lead to carry-over problems ◦ acquisition is harder to finance 14 -7

8  To Spread work and Reduce Costs: Let specialist do the job.. handset n software n apps  To Specialize in Competencies: beverage and bottling..  To Avoid or Counter Competition: collusion.. telecom  To Secure Vertical and Horizontal Links: maruti suzuki..  To Gain Knowledge: tata fiat engine, hero honda.. Now??? 14 -8

9  Gain location-specific assets  Overcome legal constraints  Diversify geographically  Minimize exposure in risky environments 14 -9

10  A co. grants right to intangible property to another for a specific geographical region and time..  It is paid royalty..  Licensing agreements may be: ◦ Exclusive(only to 1) or nonexclusive ◦ used for patents, copyrights, trademarks, and other intangible property  Licensing often has an economic motive, such as the desire for faster start-up, lower costs, or access to additional resources  Licensing a molecular formula.. Pharma..  Abbott to Novartis… n vice versa

11  Franchising includes providing an intangible asset (usually a trademark) and continually infusing necessary assets (goodwill, advertising)  Franchisors face a dilemma: ◦ the more standardization, the less acceptance in the foreign country ◦ the more adjustment to the foreign country, the less the franchisor is needed  Form of vertical integration.. Coke concentrate to bottling plants

12  Management contracts are used primarily when the foreign company can manage better than the owners  Through Management contracts a company may transfer a part of its’ personnel to assist foreign company for a specified period for fee..  Software companies

13  Are a type of collaborative arrangement in which one company contracts with another to build, complete, ready-to-operate facilities..  Turnkey operations are: ◦ Most commonly performed by construction companies, industrial equipment manufacturers.. ◦ Often performed for a governmental agency  Reliance

14  Joint ventures may have various combinations of ownership  More than one organization owns the company..  The type of legal organization: ◦ may be a partnership, a corporation etc  When more than two organizations participate, the joint venture is sometimes called a consortium  Audi:…

15  An equity alliance is a collaborative arrangement in which at least one of the collaborating companies takes an ownership position (almost always minority) in the other(s)..  Both have shares in each other..  Equity alliances help solidify collaboration

16  The major strains on collaborative arrangements are due to five factors: ◦ Relative importance to partners ◦ Divergent objectives ◦ Control problems ◦ Comparative contributions and appropriations ◦ Differences in culture

17  The evolution to a different operating mode may: ◦ necessitate costly termination fees ◦ create organizational tensions  Steps: 1. Finding compatible partners 2. negotiating the arrangements 3. Drawing up the contract 4. Assessing performance


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