DIRECT INVESTMENT AND COLLABORATIVE STRATEGIES

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 arrangements with other companies To grasp what makes collaborative arrangements succeed or fail To see how companies can manage diverse collaborative arrangements

CHAPTER OVERVIEW
Although most companies operating internationally would prefer exporting to other market entry modes, there are circumstances in which exporting may not be feasible. In these cases, companies may engage in direct investment in other countries, or enter markets through various collaborative strategies such as joint ventures and alliances. ollaborative strategies allow firms to spread both assets and risk across countries by entering into contractual agreements with a variety of potential partners. hapter !ourteen first discusses reasons for not exporting and then explores the motives that drive firms to engage in noncollaborative and collaborative arrangements, as well as the various types of possible arrangements, including foreign direct investment, licensing, franchising, joint ventures, and e"uity alliances. It goes on to explore the various problems that may arise in !#I and collaborative ventures and concludes with a discussion of the various methods for managing these evolving arrangements.

CHAPTER OUTLINE
OPENING CASE: Cisco Systems [See Map 14.1] $lobali%ation has pushed isco &ystems into a broader range of markets in order to follow the expansion patterns of its customers, solicit new business, and study new ideas and products. isco's worldwide alliances spur the company to continue learning and to refine its competencies. They enable it to meet customer needs that fall outside its areas of core competencies, while simultaneously permitting isco and its partners to enhance their competitiveness by focusing on their respective competencies. Alliances have also permitted isco to limit its capital outlays in potentially lucrative but risky ventures. ()*

isco believes alliances improve its processes, reduce its costs and expose it to the best competitive practices. The firm's official &trategic Alliances Team manages crucial partnerships with industry+leading technology and integrator firms, and it is the driving force behind the collaborative development effort to accelerate new market opportunities. isco has generally standardi%ed the mechanics of partnership agreements. ,owever, it continues to work to improve the odds of collaborative success by better managing the matters of trust, commitment and culture that shape what isco calls -interwoven dependencies and relationships. with its partners. Teac i!" Ti#: /eview the 0ower0oint slides for hapter !ourteen and select those you find most useful for enhancing your lecture and class discussion. !or additional visual summaries of key chapter points, review the figures in the text. I. INTRODUCTION 1hen forming objectives and implementing strategies in a variety of country environments, firms must either handle international business operations on their own or collaborate with other companies 2!igure (3.45. Although exporting is usually the preferred alternative since it allows firms to produce in their home countries, participating in some markets may re"uire using a variety of other e"uity and none"uity arrangements 2!igure (3.65. These can range from wholly owned operations to partially owned subsidiaries, joint ventures, e"uity alliances, licensing, franchising, management contracts, and turnkey operations.

II$ WH% E&PORTING MA% NOT BE 'EASIBLE ompanies may find more advantages by producing in foreign countries rather than by exporting to them due to a variety of reasons. A$ C ea#e( to P(o)*ce A+(oa) ompetition re"uires companies to control their costs and to choose production locations with this factor in mind. B$ T(a!s#o(tatio! Costs &ome products and services become impractical to export after the cost of transportation is added to production costs. In general, the farther the target market is from the home country, the higher the transportation costs. Also, the higher transportation costs are relative to production costs, the more difficult it is to be competitive through exporting. &ome services are impossible to export and re"uire establishing operations in the target country. C$ Lac, o- Domestic Ca#acity As long as a company has excess capacity, it can service foreign markets and price on the basis of variable rather than full costs. 1hen demand exceeds capacity, however, new facilities are needed and are often located nearer to the end consumers in other countries. D$ Nee) to A.te( P(o)*cts a!) Se(/ices &pecial re"uirements for products in some markets may re"uire additional investments that are often better made in the country the company intends to sell to. The more that products must be altered for foreign markets, the more likely production will shift to those foreign markets.

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E$ T(a)e Rest(ictio!s Although import barriers have been on the decline, some significant tariffs continue to exist. In these situations, avoiding barriers through production in the target country must be weighed against other considerations such as the market si%e of the country and the scale of technology used in production. 1hen barriers fall within a group of countries, companies may be attracted to make direct investments to serve the entire region since the expanded market may justify scale economies. '$ Co*!t(y o- O(i"i! E--ects onsumers may prefer goods produced in their own country over imports because of nationalistic feelings. !or some products, consumers may prefer imported goods from specific countries due to a perception that those products are superior. 9ther considerations like the availability of service and replacement parts for imported products, or adoption of just+in+time manufacturing systems may influence production locations. III$ NONCOLLABORATIVE 'OREIGN E0UIT% ARRANGEMENTS Two forms of foreign direct investment 2!#I5 that do not involve collaboration are wholly owned operations and partially owned operations with the remainder widely held. A$ 'o(ei"! Di(ect I!/estme!t a!) Co!t(o. To "ualify as a foreign direct investment, the investor must have control. This can be established with a small percentage of the holdings if ownership is widely dispersed. The more ownership a company has, the greater its control over the management decisions of the operation. There are three primary reasons for companies to want a controlling interest:internali%ation theory, appropriability theory, and freedom to pursue global objectives. 1$ I!te(!a.i2atio!$ ontrol through self+handling of operations is known as internali%ation. Transactions cost theory holds that companies should organi%e operations internally when the costs of doing so are lower than contracting with another party to handle it for them. Internali%ation may result in lower costs because; #ifferent operating units with the same company likely share a common culture which expedites communications The company can use its own managers who understand and are committed to carrying out its objectives <egotiations that might delay the investment or complicate its management can be avoided The company can avoid possible problems with enforcing an agreement 3$ A##(o#(ia+i.ity$ Appropriability theory is the idea that companies want to deny rivals and potential rivals' access to resources such as capital, patents, trademarks, and management know+how that might be captured through collaborative agreements. 4$ P*(s*it o- G.o+a. St(ate"ies$ 1hen a company has a wholly owned foreign operation, it may more easily have that operation participate in a global or transnational strategy. !urthermore, the fact that most countries

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have laws to protect minority shareholders' interest means that sharing of ownership may restrict a company from implementing a global or transnational strategy. B$ Met o)s -o( Ma,i!" 'DI !#I usually involves international capital movement, but could also involve the transfer of other assets such as managers, cost control systems. ompanies can either ac"uire an interest in an existing company or construct new facilities, known as a greenfield investment. 1$ Reaso!s -o( B*yi!"$ ompanies may ac"uire existing operations in order to avoid adding further capacity to the market, to avoid start+up problems, obtain easier financing, and get an immediate cash flow rather than tying up funds during construction. A company may also save time, reduce costs, and reduce risks by buying an existing company. 3$ Reaso!s -o( G(ee!-ie.)$ ompanies may choose to build if no suitable company is available for ac"uisition, if the ac"uisition is likely to lead to carry+over problems, and if the ac"uisition is harder to finance. In addition, local governments may prevent ac"uisitions because they want more competitors in the market and fear foreign domination. II$ MOTIVES 'OR COLLABORATIVE ARRANGEMENTS =ach participant in a collaborative arrangement has its own basic objectives for operating internationally as well as its own motives for collaborating with a partner. A$ Moti/es -o( Co..a+o(ati/e A((a!"eme!ts: Ge!e(a. ompanies collaborate with other firms in either their domestic or foreign operations in order to spread and reduce costs, to speciali%e in particular competencies, to avoid or counter competition, to secure vertical and>or hori%ontal linkages and to learn from other companies. 1$ S#(ea) a!) Re)*ce Costs$ 1hen the volume of business is small, or one partner has excess capacity, it may be less expensive to collaborate with another firm. <onetheless, the costs of negotiation and technology transfer must not be overlooked. 3$ S#ecia.i2e i! Com#ete!cies$ The resource-based view of the firm holds that each firm has a uni"ue combination of competencies. Thus, a firm can maximi%e its performance by concentrating on those activities that best fit its competencies and relying on partners to supply other products, services, or support activities. 4$ A/oi) o( Co*!te( Com#etitio!$ 1hen markets are not large enough for numerous competitors, or when firms need to confront a market leader, they may band together in ways to avoid competing with one another or combine resources to increase their market presence. 5$ Sec*(e Ve(tica. a!) Ho(i2o!ta. Li!,s$ If a firm lacks the competence and>or resources to own and manage all of the activities of the value+added chain, a collaborative arrangement may yield greater vertical access and control. At the hori%ontal level, economies of scope in distribution, a better smoothing of sales and earnings through diversification

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and an ability to pursue projects too large for any single firm can all be reali%ed through collaboration. 6$ Gai! 7!o8.e)"e$ ?any firms pursue collaborative arrangements in order to learn about their partners' technology, operating methods, or home markets and thus broaden their own competencies and competitiveness over time. B$ I!te(!atio!a. Moti/es -o( Co..a+o(ati/e A((a!"eme!ts ompanies collaborate with other firms in their foreign operations in order to gain location+specific assets, overcome legal constraints, diversify geographically and minimi%e their exposure in high+risk environments. 1$ Gai! Locatio!9S#eci-ic Assets$ ultural, political, competitive, and economic differences among countries create challenges for companies that operate abroad. To overcome such barriers and gain access to location+ specific assets 2e.g., distribution access or a competent workforce5, firms may pursue collaborative arrangements. 3$ O/e(come Go/e(!me!ta. Co!st(ai!ts$ ountries may prohibit or limit the participation of foreign firms in certain industries, or discriminate against foreign firms via tax rates and profit repatriation. !irms may be able to overcome such barriers via collaboration with a local partner. 4$ Di/e(si-y Geo"(a# ica..y$ @y operating in a variety of countries, a firm can smooth its sales and earningsA collaborative arrangements may also offer a faster initial means of entering multiple markets or establishing multiple sources of supply. 5$ Mi!imi2e E:#os*(e i! Ris,y E!/i(o!me!ts$ The higher the risk managers perceive with respect to a foreign operation, the greater their desire to form a collaborative arrangement. III$ T%PES O' COLLABORATIVE ARRANGEMENTS 1hile collaborative arrangements allow for a greater spreading of assets across countries, the various types of arrangements necessitate trade+offs among objectives. !inding a desirable partner can be problematic. A firm has a wider choice of operating forms and partners when there is less likelihood of competition and when it has a desired, uni"ue, difficult+to+duplicate resource. A$ Some Co!si)e(atio!s i! Co..a+o(ati/e A((a!"eme!ts Two critical variables that influence the choice of collaborative arrangement are a firm's desire for control over its foreign operations and its prior expansion into foreign ventures. 1$ Co!t(o.$ The loss of control over flexibility, revenues and competition is a critical variable in the selection of forms of foreign operation. The more a firm depends on collaborative arrangements, the more likely its control will be lessened over decisions regarding "uality, new product directions and production expansion. POINT9COUNTERPOINT: S o*.) Co*!t(ies Limit 'o(ei"! Co!t(o. o- 7ey I!)*st(ies;

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POINT: ountries should limit foreign control of key industries in order to protect their economic and security interests, especially in key industries such as transportation, mass media, and energy. ,istory has shown that home governments have used powerful foreign companies to influence policies in the countries where they operate, and that foreign companies have used their home governments as instruments to improve their interests in a country. 1henever a company is controlled from abroad, decisions about that company can be made abroad, possibly to the detriment of the host country. COUNTERPOINT: #ecisions made by foreign companies are not likely to be much different than decisions made by local companies. ?<=s staff their foreign subsidiaries mainly with nationals of the countries where they operate, and make decisions based on a good deal of local advice. Their decisions have to adhere to local laws and consider the views of suppliers and customers. 0rotection of certain industries from foreign control could reduce competitiveness in those industries and harm, rather than help, the local people. Those who argue for limits are relying on the outdated dependencia theory, which holds that emerging economies have practically no power in their dealings with ?<=s. ?ore recent bargaining school theory states that the terms for a foreign investor's operations depend on how much the investor and host country need the other's assets. ountries and foreign companies need each other, and both will lose if limitations are placed on foreign control.

3$ P(io( E:#a!sio! o- t e Com#a!y$ If a firm already owns and controls operations in a foreign country, the advantages of collaboration may not be as attractive as otherwise. B$ Lice!si!" Bnder a licensing agreement, a firm 2the licensor5 grants rights to intangible property to another company 2the licensee5 to use in a specified geographic area for a specified period of timeA in exchange, the licensee ordinarily pays a royalty to the licensor. &uch rights may be exclusive or nonexclusive. Bsually the licensor is obliged to furnish technical information and assistance, while the licensee is obliged to exploit the rights effectively and pay compensation to the licensor. Intangible property may be classified as; patents, inventions, formulas, processes, designs, patterns copyrights for literary, musical, or artistic compositions trademarks, trade names, brand names franchises, licenses, contracts methods, programs, procedures, systems. 1$ Ma<o( Moti/es -o( Lice!si!"$ Cicensing often has an economic motive, such as the desire for faster start+up, lower costs, or access to additional property rights 2e.g., technology5. !or the licensor, the risks and costs of a given venture are lessenedA for the licensee, costs are less than if it had to develop a product or process on its own. Cross-licensing represents

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C$

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the situation in which companies in various countries exchange technology rather than compete with each other with every product in every market. 3$ Payme!t$ The amount and type of payment for licensing arrangements may vary. =ach contract tends to be negotiated on its own meritsA the bargaining range is based on dual expectations. @oth agreement+ specific and environment+specific factors may affect the value of a license. 4$ Sa.es to Co!t(o..e) E!tities$ ?any licenses are given to firms owned in part or in whole by the licensor. !rom a legal standpoint, subsidiaries are separate companiesA thus, a license may be re"uired in order to transfer intangible property. '(a!c isi!" !ranchising represents a speciali%ed form of licensing in which the franchisor not only sells an independent franchisee the use of the intangible property essential to the franchisee's business, but also operationally assists the business on a continuing basis. In a sense, the two partners act like a vertically integrated firm because they are interdependent and each produces a part of the product that ultimately reaches the customer. 1$ O("a!i2atio! o- '(a!c isi!"$ A franchisor may penetrate a foreign country by dealing directly with its foreign franchisees, or by setting up a master franchise and giving that organi%ation the right to open outlets on its own or to develop sub+franchises in the country or region. 3$ O#e(atio!a. Mo)i-icatio!s$ !ranchise success is derived from three factors; product standardi%ation, effective cost control and high recognition. <onetheless, franchisors face a classic dilemma; the more they standardi%e on a global basis, the lower the potential for product acceptance in a given countryA the more they permit adaptation to local conditions, the less the franchisor can offer the franchisee, the higher the costs and the less the control by the franchisor. Ma!a"eme!t Co!t(acts A management contract represents an arrangement in which one firm provides management personnel to perform general or speciali%ed functions to another firm for a fee. A firm usually pursues such contracts when it believes a partner can manage certain operations more efficiently and effectively than it can itself. T*(!,ey O#e(atio!s Turnkey operations represent a type of collaborative arrangement in which one firm contracts with another to build complete, ready+to+operate facilities. Bsually, suppliers of turnkey facilities are industrial+e"uipment and construction companiesA projects may cost billions of dollarsA customers most often are government agencies or large ?<=s. Joi!t Ve!t*(es A joint venture represents a direct investment in which two or more partners share ownership. As a firm's share of the e"uity declines, its ability to control a given operation also declines. A consortium represents the joining together of several entities 2e.g., companies and governments5 to combine resources and>or to strengthen the possibility of pursuing a major undertaking. 9ther forms of joint ventures include;

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Two companies from the same country joining together in a foreign market, such as <= and ?itsubishi 2Dapan5 in the Bnited Eingdom A foreign company joining with a local company, such as $reat Cakes hemical 2B.&.5 and A. ,. Al Famil in &audi Arabia ompanies from two or more countries establishing a joint venture in a third country, such as that of #iamond &hamrock 2B.&.5 and &ol 0etroleo 2Argentina5 in @olivia A private company and a local government forming a joint venture 2sometimes called a mixed venture5, such as that of 0hilips 2#utch5 with the Indonesian government A private company joining a government+owned company in a third country, such as @0 Amoco 2private @ritish+B.&.5 and =ni 2government+ owned Italian5 in =gypt G$ E=*ity A..ia!ces An equity alliance represents a collaborative arrangement in which at least one of the collaborating firms takes an ownership position 2usually a minority5 in the other2s5. The purpose of an e"uity alliance is to solidify a collaborating contract, thus making it more difficult to break. IV$ PROBLEMS O' COLLABORATIVE ARRANGEMENTS #issatisfaction with the results of collaboration can cause an arrangement to break down. 0roblems arise for a number of reasons. A$ Co..a+o(atio!>s Im#o(ta!ce to Pa(t!e(s 9ne partner may give more attention to the collaboration than the other:often because of a difference in si%e. An active partner will blame the less active partner for its lack of attention, while the less active partner will blame the other for poor decisions. B$ Di--e(i!" O+<ecti/es Although firms may enter into collaborative arrangements with complementary capabilities and objectives, their views regarding such things as reinvestment vs. profit repatriation and desirable performance standards may evolve "uite differently over time. C$ Co!t(o. P(o+.ems 1hen no single party has control of a collaborative arrangement, the venture may lack directionA if one party dominates, it must still consider the interests of the other. @y sharing assets with another firm, a company may lose some control over the extent and>or "uality of the assets' use. !urther, even when control is ceded to one of the partners, both may be held responsible for problems. D$ Pa(t!e(s> Co!t(i+*tio!s a!) A##(o#(iatio!s 9ne partner's ability to contribute technology, capital and other assets may diminish 2at least on a relative basis5 over time. !urther, in almost all collaborations the danger exists that one partner will use the others' contributed assets, or take more than its fair share from the operation, thus enabling it to become a direct competitor. &uch weaknesses may cause a drag on a venture and even lead to the dissolution of the agreement. E$ Di--e(e!ces i! C*.t*(e

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#ifferences in both national and corporate cultures may cause problems with collaborative arrangements, especially joint ventures. !irms differ by nationality in terms of how they evaluate the success of an operation 2e.g., profitability, strategic market position and>or social objectives5. <onetheless, joint ventures from culturally distant countries tend to survive at least as well as those between partners from similar cultures. V$ MANAGING 'OREIGN ARRANGEMENTS As a collaborative arrangement evolves, partners need to reassess certain decisions in light of their resource bases and external environmental changes. A$ Dy!amics o- Co..a+o(ati/e A((a!"eme!ts The evolutionary costs of a firm's foreign operations may be very high as it switches from one operational mode to another, especially if it must pay termination fees. Thus, a firm must develop the means to evaluate performance by separating the controllable and uncontrollable factors at its various profit centers. B$ 'i!)i!" Com#ati+.e Pa(t!e(s A firm may actively seek a partner for its foreign operations, or it can react to a proposal from another company to collaborate with it. 0otential partners should be evaluated both for the resources they can offer and their willingness to work together. The proven ability to handle similar types of collaboration is a key professional "ualification. C$ Ne"otiati!" P(ocess ertain technology transfer considerations are uni"ue to collaborative arrangementsA often pre+agreements are set up to protect concerned parties. The secrecy of financial terms, especially when government authorities consult their counterparts in other countries, is an especially sensitive area. ?arket conditions may dictate the need for different terms in different countries. D$ Co!t(act*a. P(o/isio!s To minimi%e potential points of disagreement, contract provisions should address the following factors; Terminating the agreement if the parties do not adhere to the directives ?ethods of testing for "uality $eographical limitations on the asset's use 1hich company will manage which parts of the operation outlined to the agreement 1hat each company's future commitments will be ,ow each company will buy from, sell to, or use intangible assets that come from the collaborative arrangement E$ Pe(-o(ma!ce Assessme!t All parties should establish mutual goals so all involved understand what is expected, and a contract should spell out expectations. In addition to the continuing assessment of the venture's performance, a firm should also periodically assess the possible need for a change in the type of collaboration.

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LOO7ING TO THE 'UTURE: W y I!!o/atio! B(ee)s Co..a+o(atio! @ecause the cost of invention is often so high, it follows that firms of considerable si%e will carry out most innovation. Although firms can become ever larger through mergers and ac"uisitions, collaborative arrangements are likely to be increasingly important in the future as governments opt to restrict such activities because of antitrust concerns. At the same time, collaborative arrangements will bring forth both opportunities and problems as firms move simultaneously into new countries and to new types of contractual arrangements with new partners. The more partners in a given alliance, the more strained the decision+making and control processes will likely be.

CLOSING CASE: I!te(!atio!a. Ai(.i!e A..ia!ces [See Map 14.2] Most of the world s a!rl!"es ha#e for$ed all!a"%es w!th other a!rl!"es %o#er!"& th!"&s s'%h as %o$(!"ed ro'tes) sales) a!rl!"e ter$!"al ser#!%es) a"d fre*'e"t fl!er pro&ra$s. I" add!t!o") $a"+ a!rl!"es hold a" ow"ersh!p pos!t!o" !" other a!rl!"es. M'%h of th!s %ooperat!#e a%t!#!t+ !s dr!#e" (+ &o#er"$e"t re&'lat!o"s that l!$!t fore!&" part!%!pat!o" !" do$est!% $ar,ets) $a,!"& all!a"%es the o"l+ pra%t!%al alter"at!#e to !"%reas!"& (readth of ser#!%e. Other fa%tors s'%h as %ost sa#!"&s a"d !"te"se %o$pet!t!o" ha#e also led to the for$at!o" of all!a"%es.

0*estio!s
1. Discuss a question raised by the manager of route strategy at American Airlines: Why should an airline not be able to establish service any here in the orld sim!ly by demonstrating that it can and ill com!ly ith the local labor and business la s of the host country" 1hen considering either the international or simply the domestic environment, a major consideration is whether economic interests in the airline industry are better served through regulation via the market. 0roponents of deregulation argue that competition has forced carriers to become efficient or else go out of business, instead of being subsidi%ed by regulated route and fare structures. 0roponents also argue that the survival of mega+carriers leads to economies of scale in handling passengers and cargo. 9pponents argue that local interests are often ill+served by deregulation since airlines are free to discontinue service and to wage predatory price wars that put competitors out of business, at which point the survivors will then raise prices. 9pponents also raise fears there may eventually be too few survivors to allow for the competition that was envisioned by the proponents of deregulationA the high barriers

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to entry in the industry further exacerbate this situation. Another major consideration deals with the political dimensions of the "uestion. @ecause most governments see airlines as a key national industry, they oppose giving foreign carriers access to domestic routes on grounds of both national security and consumer welfare. #. $he !resident of %a!an Air &ines has claimed that '.(. airlines are dum!ing air services on routes bet een the 'nited (tates and )uro!e, meaning they are selling belo their costs because of the money they are losing. (hould governments set !rices so that carriers ma*e money on routes" It is very difficult to separate profits and losses on a route+by+route basis. 1hile fares and loads on certain routes may seem to be low, they may in fact be generating marginal revenues that make major routes profitable. A second issue is that of price elasticity. If governments were to set prices above the e"uilibrium point, traffic and revenues, and hence profitability, would all fall. A third issue is that of ownership. If privately owned carriers abandon routes to government+owned airlines, they could well give advantages to those airlines that could then be used against them on other routes. !inally, the issue of profitability raises the "uestion of subsidies. It is nearly impossible to determine whether dumping is taking place when competitors receive so many direct and indirect subsidies. What ill be the consequences if a fe large airlines or net or*s come to dominate global air service" The conse"uences would be both positive and negative. 9n the positive side, passengers should be able to travel almost anywhere in the world on a single airline 2or network5. That in turn should minimi%e the risk of missed connections and lost baggage. 9perating economies should be reali%ed as a result of the higher utili%ation of airport gates and ground e"uipment:conse"uent savings may or may not be passed along to passengers through lower prices. 9n the negative side, it is "uite possible that minimal competition would lead to poor service and>or high prices. In addition, competition among the destinations associated with particular airlines would likely decline, as would the special services offered by the -niche. airlines. (ome airlines, such as (outh est and Alas*a Air, have survived as niche !layers ithout going international or develo!ing alliances ith international airlines. Can they continue this strategy" 1hen there is sufficient traffic on the city pairs that a route serves, there is little need to have feeder or connecting routes for an airline to be profitable. In fact, without the need for hubs to make connections, some airlines can operate in smaller but closer+ to+downtown airports, such as ?idway in hicago or Ca $uardia in <ew Iork. They can avoid the costs associated with the transfer of bags to connecting flights and the payment of overnight expenses to passengers who miss connections. In addition, they may be able to overcome any disadvantages from small+scale operations by targeting their promotion to regional and niche groups and by running low+cost operations that charge low fares. onventional wisdom would suggest they can in fact survive in their present operational mode and that attempts to expand and>or modify their operations might make them more, rather than less, vulnerable.

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WEB CONNECTION Teac i!" Ti#: Jisit www.prenhall.com/daniels for additional information and links relating to the topics presented in hapter !ourteen. @e sure to refer your students to the on+line study guide, as well as the Internet exercises for hapter !ourteen. KKKKKKKKKKKKKKKKKKKKKKKKK CHAPTER TERMINOLOG%: internali%ation, p. 3H* appropriability theory, p. 3H* resource+based view, p. 3*4 dependencia theory, p. 3*7 bargaining school theory, p. 3*7 KKKKKKKKKKKKKKKKKKKKKKKKK consortium, p. )84

ADDITIONAL E&ERCISES: Co..a+o(ati/e St(ate"ies Exercise 14.1. Ask the students to identify several foreign owned companies with operations in their local area. Are these companies viewed as good corporate citi%ens and contributors to the local communityL #o they employ mostly local people or do they have a large number of expatriatesL ,ow do the wages paid by these companies compare to those of other companies in the same industryL Exercise 14. . Assume that a company near you wanted to expand into foreign markets. 1hat issues should that company explore before deciding whether to export or to engage in foreign direct investmentL Exercise 14.1. Ask students to name companies, both domestic and foreign, that operate internationally. Then ask them to discuss the potential types of collaborative arrangements they feel would be appropriate for the various firms. onclude the discussion by examining the list of firms and asking students if there are particular industries that seem to lend themselves to particular types of collaborative arrangements more readily than others. @e sure the students discuss why this might be so. Exercise 14. . Identify the various home countries of students in your class. Then lead the class in a discussion of the likely types of collaborative arrangements foreign firms might pursue in those countries. @e sure students cite the various

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economic, political and cultural factors that would influence decisions regarding viable collaborative strategies. Exercise 14.!. 1hile offering desirable advantages, licensing agreements also limit the amount of control a licensor can exercise over a foreign production process. =ngage the students in a discussion of the type of firm that would most likely be willing to allow a licensee to use its established brand name, and the type of firm that would not be willing to do so. =xplore the reasons for each position as well as the reasons a licensee would be willing to accept a license that did not include rights to the use of the associated brand name.

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