What are the advantages of becoming a multinational corporation?
- superior technical know-how
- Ability to leverage existing reputation, brand-image, goodwill
- Large size leads to scale + scope economics
- Managerial expertise + experience
- Ability to locate activities elsewhere (lower taxes)
- Info advantages
- Risk diversification across countries
What are the potential disadvantages of MNC’s?
- business risks (FX)
- host country regulations
- diff legal systems
- political risks (nationalisation, war, …)
- operational difficulties
- cultural differences
- coordination costs
How can small and medium-sized firms acquire / learn new capabilities for internationalisation?
- Learning through following - trade associations, affiliation w MNCs as part of supply chain
- Indirect internationalisation (=indirect exporting, become part of intl supply chain)
- Local firms become the vehicle for multinational corporations trying to market the ‘bottom of the pyramid’
What is the difference between equity and non-equity?
The higher the degree of control, the higher the equity, and the higher the degree of commitment.
equity = control
non-equity = non-control
What are reasons why exporting may not be feasible?
- When production abroad is cheaper than at home
- when transportation costs to move goods/services internationally is too expensive
- when companies lack domestic capacity
- when products/services need to be altered a lot to gain sufficient consumer demand abroad
- when gvt prohibit the import of foreign products
- when buyers prefer products originating from a particular country
What are reasons why one might pursue wholly-owned FDIs?
- market failure
u know too little abt a company to consign signif resources to a collab, and wholly-owned collaboration can help overcome issues of foreignness - internalisation = control through self-handling situations to reduce costs
diff operating units within same company are likely tp share common corp cultural, expediting comm
company can use own managers who understand + are committed to accomplishing objectives - appropriability (theory) = companies may want control through FDI to lessen the chance of improving competitor’s capabilities
- freedom to pursue global strategy = easier
What are motives for collaborative arrangements for companies?
- spread and reduce costs
- specialise in competencies
- avoid/counter competition
- secure vertical + horizontal links -> may enable companies to fill competency gaps, reduce costs, and deal with customers/suppliers more effectively.
- learn from other companies
specific to IB
- gain location-specific assets
- overcome legal constraints
- diversify geographically
- minimise exposure in risky env
What is licensing?
a company grants intangible property rights to another company to use in a specified geographic area for a specific period of time in exchange for royalties. It can be exclusive or non-exclusive → used to protects intangible property
What is franchising?
specialised + particular form of licensing which includes providing an intangible asset + operational assistance on continuing basis
ie McDonalds
What are some of the dilemmas with franchising?
- inadequacy of local supplies may hamper uniformity of product
- more global standardisation, less acceptance in foreign country
- more adjustment to foreign country, less franchisor is needed
What is a strategic alliance?
Agreement to closely collaborate/integrate on a long-term basis. It combines the strength of each in the alliance, and there is no equity-investment
What is particular about management contracts?
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 owner
EX: common in hotel industry
What is a turnkey operation?
A turnkey business is a for-profit operation that is ready to use as-is the moment it is purchased by a new owner or proprietor. The term “turnkey” is based on the concept of only needing to turn the key to unlock the doors to begin operations, or to put the key in the ignition to drive the vehicle.
What are the 3 main approaches for entry modes?
collaborative arrangements, Management Approaches, Equity approaches
what is an equity alliance?
arrangement in which at least 1 of the companiess takes an ownership position in the other. You acquire certain assets, enter a market, providing deeper commitment + control as a way of expanding than a strategic alliance
what is the difference between Joint ventures and a consortium?
Joint ventures: involve 2+ companies, one of which may own more than 50%. They may have various combos of ownership - A and B invest together in C and get co-ownership
A consortium involves more than 2 orgs and is a type of joint venture - A.B.C.D.E all come together and make a new company
What are some of the problems of international collaborative agreements?
- Relative importance (matters more to one party)
- Divergent objectives (differing goals)
- Questions of control (who decides what)
- Comparative contributions and appropriations (different inputs, returns, etc.)
- Culture clashes (company AND country)
- Differences in corporate cultures (within corp)
What should contracts of intl collaborative agreements include?
- 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
What are the two overarching ways to directly invest abroad where you can keep complete control?
- Acquisition of existing facilities
- Greenfield investment = you build the new facilites
Why would a firm want complete control over foreign investments?
- internalisation = choose lower cost between conducting ops int and contracting to another party; it may be cheaper to do it internally
- appropriability = not transfer vital resources to another comp
- freedom to pursue a global strategy
What are the advantages and disadvantages of exporting?
+: ability to realise location + experience curve economies
-: high transportation costs, trade barriers, problems w local marketing agents
What are the advantages and disadvantages of licensing?
+: low dvp costs and risks
-: inability to realise location and experience-curve economies, inability to engage in global stratic coordination, lack of control over techno
What are the advantages and disadvantages of franchising?
+: low development costs and risks
-: inability to engage in global strategic coordination, lack of control over equity
What are the advantages and disadvantages of joint ventures?
+: access to local partner’s knowledge, shared dvp costs and risks, political dependency
-: inability to realise location and experience-curve economies, inability to engage in global stratic coordination, lack of control over techno
