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International Business
Environments and Operations,
13/e
Global Edition
Part 5
Global Strategy, Structure, and
Implementation
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Chapter 14
Direct
Investment
and
Collaborative
Strategies
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Chapter Objectives
To clarify why companies may need to use modes other than
exporting to operate effectively in international business
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
To describe what companies should consider when entering into
international arrangements with other companies
To grasp why collaborative arrangements succeed or fail
To see how companies can manage diverse collaborative
arrangements


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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 governments inhibit the import of foreign
products
When buyers prefer products originating from a
particular country

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Factors
Affecting Operating Modes
in International Business

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Foreign
Expansion: Alternative
Operating Modes

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Non-collaborative Foreign Equity
Arrangements
Taking Control: Foreign Direct Investment
Internalization
Appropriability
Freedom to Pursue a Global Strategy
How to make FDI
Buying
Greenfield Investments
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Motives for Collaborative
Arrangements
To Spread and Reduce Costs
To Specialize in Competencies
To Avoid/Counter Competition
To Secure Vertical and Horizontal Links
To Gain Knowledge
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International Motives for
Collaborative Arrangements
To Gain Location Specific Assets
To Overcome Governmental Constraints
To Diversify Geographically
To Minimize Exposure to Risky Environments

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Types of Collaborative
Arrangements
Factors Influencing Choice of Arrangement
Type:
Control
Prior Expansion
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Licensing
Licensing agreements may be:
Exclusive or nonexclusive
Used for patents, copyrights, trademarks, and
other intangible property

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Franchising
A specialized form of licensing
includes providing an intangible asset and
continually infusing necessary assets
Franchise Organization
Operational Modifications


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Management Contracts
Foreign management contracts are used
primarily when the foreign company can
manage better than the owners.

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Turnkey Operations
Turnkey operations are:
Most commonly performed by industrial-
equipment, construction, and consulting
companies
Often performed for a governmental agency

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Turnkey Operations
Contracting to Scale
Making Contacts
Marshaling Resources
Arranging Payment
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Joint Ventures
More than one organization owns a company
Consortium: more than two organizations
participate
May have various combinations of
ownership
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Equity Alliances
A collaborative arrangement in which at
least one of the collaborating companies
takes an ownership position

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Problems with Collaborative
Arrangements
Relative Importance
Divergent Objectives
Questions of Control
Comparative Contributions and
Appropriations
Culture Clashes
Differences in Corporate Cultures
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Managing International
Collaborations
Dynamics of Collaborative Arrangements
Finding Compatible Partners
Negotiating the Arrangement
Drawing Up the Contract
Improving Performance
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Future: Why Innovation Breeds
Collaboration
Collaborative arrangements will bring both
opportunities and problems as companies move
simultaneously to new countries and to
contractual arrangements with new companies.

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