Why Export & Import May Not Be Sufficient
- When it is cheaper to produce abroad (Zara)
- When transportation costs are too high (renova)
- When domestic capacity isn’t enough (VW)
- When products and services need altering
- When trade restrictions hinder imports (sumol + c)
- When country of origine becomes an issue (frezite GER)
Why Companies Opt for FDI
When business is the “experience” and location is critical
- hospitality & toursim
- physical restaurants
- Physical retail
Equity arrangements
Wholly owned
Partially owned
JV
Equity alliances
Non equity arrangements
Licensing
Franchising
Management contracts
Turnkey operations
Collaborative arrangements
JV
Equity alliances
Licensing
Franchising
Management contracts
Turnkey operations
JV example
Critical tech works BMW
Equity Alliance example
Ahold Delhaize owns 49% of Pingo Doce and JM owns 51%.
Licensing example
Coca-Cola licensing for industrial production, bottling and distribution.
Franchising example
McDonalds franchising contract for store owners.
Management contract example
Meliá has management contracts to explore locations of a third party.
Turnkey operation example
Meliá has turnkey operations with companies from Building & Construction industry to build infrastructures for hospitality business.
Non equity alliance example
Star alliance
Motives for collaborative arrangements - general
- Spread and reduce costs
- Specialize in competencies
- Avoid or counter competition
- Secure vertical and horizontal links
- Learn from other companies
Motives for collaborative arrangements - specific to IB
- Gain location-specific assets
- Overcome legal constraints
- Diversity geographically
- Minimize exposure in risky environments
