1. Direct investment> Why 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
government inhibit the import of foreign products. •When buyers prefer products originating
from a particular country. Non-collaborative Foreign Equity Arrangements A company may
simply contract with another company to produce or provide services on its behalf. Or a
company may take some ownership equity in foreign operations, such as in warehousing, sales
offices or production facilities. Taking Control: Foreign Direct Investment (FDI): 1.❑
Internalization-- Choose the lower cost between conducting operations internally and
contracting to another party. (transaction cost theory) It may be cheaper to handle operations
internally. Different operating units within the same company are likely to share a common
corporate culture, which expedites communication. ❑ The company can use its own managers,
who understand and are committed to carrying out its objectives. 2. Appropriability- The idea
of denying rivals access to resources is called the appropriability theory.3.Freedom to pursue a
global strategy. How to Make FDI • Acquire an Obtain interest some in vital an existing
resource difficult Gain for the investor goodwill, to brand secure that. •Construct new facilities
(Greenfield Investment)-Finding a company to buy may be difficult.-Local governments may
prevent acquisitions.-Turning around a poorly performing operation is difficult. Sometimes
acquisition is harder to finance. Why Companies Collaborate OBJECTIVES OF INTERNATIONAL
BUSINESS: •Sales Expansion •Resource Acquisition •Risk Minimization GENERAL MOTIVES FOR
ARRANGEMENTS •Spread and reduce costs •Specialize in competencies •Avoid or counter competition
•Secure vertical & horizontal links •Learn from the companies INTERNATIONAL MOTIVES FOR
COLLABORATIVE ARRANGEMENTS •Gain location-specific assets •Overcome legal constraints
•Diversify geographically •Minimize exposure in risky environment Types of Collaborative
Arrangements: Licensing, Franchising, Management Contracts, Turnkey Operations, Joint
ventures, Equity Alliances. Licensing •A business arrangement, where in a company authorizes
another company by issuing a license to temporarily access its intellectual property rights, i.e.
manufacturing process, brand name, copyright, trademark, patent, technology, trade secret
etc. • It is the simplest form of business alliance, where in a company rents out its product
based knowledge in exchange for entry to the market. Franchising •A business relationship,
where in the owner authorizes another party to use their brand, product, business system and
process in return for adequate consideration. •The franchisee acquires franchise by paying
initial start up and annual licensing fees to the franchiser, who in return provides training and
assistance to the franchisee at regular intervals. Problems with Collaborative Arrangements
•Relative Importance. •Divergent Objectives-. •Control Problems-. •Comparative Contributions &
Appropriations-. •Differences in Culture Managing International Collaboration • Potential
collaborative partners should be evaluated in terms of ❑ The resources they will supply ❑ Their
motivation ❑ Compatibility When collaborating with another company, managers must ❑ Continue to
monitor performance ❑ Assess whether to change the form of operations ❑ Develop competency in
managinga portfolioof arrangements.
