cavusgil_ib2_inppt06 SHORT

Firm with control over resources and capabilities in

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firm with control over resources and capabilities in the foreign market, and a degree of monopoly power relative to foreign competitors. Key sources of monopolistic advantage include proprietary knowledge, patents, unique know-how, and sole ownership of other assets International Business: The New Realities 6-35 Example Novartis earns substantial profits by marketing various patent medications through its subsidiaries worldwide.
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FDI Based Explanations: Internalization Theory Explains how the MNE chooses to acquire and retain one or more value-chain activities inside itself. Such ‘internalization’ provides the MNE with greater control over its foreign operations. Internalization avoids the drawbacks of dealing with external partners, such as reduced quality control and the risk of losing proprietary assets to outsiders. International Business: The New Realities 6-36 Example In China, Intel owns much of its value chain, to ensure that Intel knowledge, patents, and other assets are not misused or illicitly obtained by potential rivals.
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Example of the Eclectic Paradigm: Sony in China Ownership Specific Advantages. Sony possesses a huge stock of knowledge and patents in the consumer electronics industry, as represented by products like the Playstation and Vaio laptop. Location Specific Advantages. Sony desires to manufacture in China, to take advantage of China’s low-cost, highly knowledgeable labor. Internalization Advantages . Sony wants to maintain control over its knowledge, patents, manufacturing processes, and quality of its products. Thus, Sony entered China via FDI 6-37
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Non-FDI Based Explanations: International Collaborative Ventures A form of cooperation between two or more firms. Partners pool resources and capabilities to create synergies, and share the risk of joint efforts. Starting in the 1980s, firms increasingly began using collaborative ventures to venture abroad. Collaboration provides access to foreign partners’ know-how, capital, distribution channels, or marketing assets. Also helps overcome government imposed obstacles. International Business: The New Realities 6-38
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Two Types of International Collaborative Ventures Equity-based joint ventures result in the formation of a new legal entity. In contrast to the wholly-owned FDI, the firm collaborates with local partner(s) to reduce risk and commitment of capital. Project-based alliances do not require equity commitment from the partners but simply a willingness to cooperate in R&D, manufacturing, design, or any other value-adding activity. Since project-based alliances have a narrowly defined scope of activities and timeline, they provide greater flexibility to the firm than equity-based ventures. International Business: The New Realities 6-39
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