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CHAPTER TWELVE - CHAPTER TWELVE What is a turnkey operation...

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CHAPTER TWELVE What is a turnkey operation? What are the advantages and disadvantages? involve a contractor that agrees to handle every detail of the project for a foreign client, including the training of operating personnel o at completion of the contract, the foreign client is handed the "key" to a plant that is ready for full operation Turnkey projects are attractive because o they allow firms to earn great economic returns from the know-how required to assemble and run a technologically complex process o they are less risky in countries where the political and economic environment is such that a longer-term investment might expose the firm to unacceptable political and/or economic risk Turnkey projects are not attractive when o the firm's process technology is a source of competitive advantage Advantages and disadvantages of exporting, licensing, franchising, wholly owned subsidiary, joint ventures. When would you use each option? See Table 12.1 Licensing - an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified time period, and in return, the licensor receives a royalty fee from the licensee o intangible property includes patents, inventions, formulas, processes, designs, copyrights, and trademarks Licensing is attractive when o the firm does not have to bear the development costs and risks associated with opening a foreign market o the firm avoids barriers to investment o it allows a firm with intangible property that might have business applications, but which doesn’t want to develop those applications itself, to capitalize on market opportunities Licensing is unattractive when o the firm doesn’t have the tight control over manufacturing, marketing, and strategy necessary to realize experience curve and location economies o the firm’s ability to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another is compromised o There is the potential for loss of proprietary (or intangible) technology or property o to reduce this risk, firms can use cross-licensing agreements or link the agreement with the decision to form a joint venture Franchising - a form of licensing in which the franchisor sells intangible property and requires the franchisee agree to abide by strict rules as to how it does business o Franchising is attractive because can avoid costs and risks of opening up a foreign market
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o Franchising is unattractive because
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CHAPTER TWELVE - CHAPTER TWELVE What is a turnkey operation...

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