IBM 16e PPT15

3/6/2024
International Business
Sixteenth Edition
Chapter 15
Direct Investment
and Collaborative
Strategies
Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objectives (1 of 2)
15-1 Comprehend why export and import may not
suffice for companies’ achievement of IB
objectives
15-2 Explain why and how companies make wholly
owned foreign direct investments
15-3 Ascertain why companies collaborate in
international markets
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Learning Objectives (2 of 2)
15-4 Compare and contrast forms of and
considerations for selecting an international
collaborative arrangement
15-5 Grasp why IB collaborative arrangements fail
or succeed
Why Export and Import May Not

Suffice
Objective 15-1
• Advantages to locate production in another
country
• production abroad is cheaper than at home,
• transportation costs are too high for moving goods or
services internationally,
• companies lack domestic capacity,
• products and services need to be altered substantially to gain
sufficient consumer demand abroad,
• governments inhibit the import of foreign products, or
• buyers prefer products originating from a particular country.
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Alternatives to Foreign Expansion

Objective 15-1
Figure 15.2 Foreign Expansions: Alternative Operating Modes
Why Wholly-Owned FDI?

Objective 15-2
• Market Failure
• Internalization Theory: companies should seek the
lower cost between self-handling of operations and
contracting another party to do so for them
• Appropriability Theory: Companies are reluctant to
transfer vital resources—capital, patents, trademarks,
and management know-how—to another organization
for fear of their competitive position being
undermined.
• Freedom to Pursue Global Objectives
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Acquisition versus Greenfield

Objective 15-2
• Acquisition
• Greenfield Investments
• Leasing
Why Collaborate in International Markets?

Objective 15.3
Figure 15.3 Collaborative Arrangements and International Objectives
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Factors to Consider in Collaborative

Arrangements
Objective 15.4
• Trade offs and Limitations
• Alliance types
– Scale alliances: alliances aim to provide efficiency for partners by
pooling similar operations
– Link alliance: use their partners’ complementary resources to
expand into a new business.
– Vertical alliance: connects firms in different links of their value
chain
– Horizontal alliance: enables each partner to extend its product
offerings
• Prior company expansion

• Compensation Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
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Types of Arrangements (1 of 2)
Objective 15.4
• Licensing
• Franchising
• Management Contracts
• Turnkey Operations
• Joint Ventures
• Equity Alliances
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Objective 15.4
• Licensing The rights for use of intangible property may be for an
exclusive license (the licensor can give rights to no other company for
the specified geographic area for a specified period of time) or a
nonexclusive one.
• Franchising is a specialized form of licensing, the parties act almost as
a vertically integrated company because they are interdependent and
each creates part of the product or service that ultimately reaches the
consumer.
• Management Contracts An organization may pay for managerial
assistance under a management contract when it believes another can
manage its operation more efficiently than it can, usually because the
contractor has industry-specific capabilities.
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Objective 15.4
• Turnkey operations Companies handling turnkey operations are
usually industrial-equipment manufacturers, construction companies, or
consulting firms. Manufacturers also sometimes provide turnkey
services when they are disallowed to invest.
• Joint Ventures Although usually thought of as 50/50 companies, JVs

may nonetheless involve more than two companies and ones in which
a partner owns more than 50 percent.
• Equity alliance is a collaborative arrangement in which at least one of

the companies takes an ownership position (almost always minority) in
the other(s).
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Objective 15.4
Figure 15.4 Collaborative Strategy and Complexity of Control
Source: Based on Shaker Zahra and Galal Elhagrasey, “Strategic Management of International Joint Ventures,” European
Management Journal 12:1 (March 1994):83–93. Reprinted with permission of Elsevier.
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Reasons for Collaborative Failures

Objective 15-5
• Why do collaborative arrangements fail?
• Relative importance to partners.
• Divergent objectives.
• Control problems.
• Comparative contributions and appropriations.
• Differences in culture
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Considerations for Success

Objective 15-5
• Things to consider for Collaborative Success
• Fitting modes to country differences.
• Finding and evaluating partners.
• Negotiating agreements: The question of
secrecy.
• Controlling through contracts and trust.
• Evaluating continually.
• Adjusting the internal organization.
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Country Attractiveness/Strength Matrix

Objective 15-5
Figure 15.5 Country Attractiveness/Company Strength Matrix
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3/6/2024

Why Export and Import May Not

Alternatives to Foreign Expansion

Why Wholly-Owned FDI?

Acquisition versus Greenfield

Why Collaborate in International Markets?

Factors to Consider in Collaborative

• Prior company expansion

• Joint Ventures Although usually thought of as 50/50 companies, JVs

• Equity alliance is a collaborative arrangement in which at least one of

Reasons for Collaborative Failures

Considerations for Success

Country Attractiveness/Strength Matrix

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