Exam_2_Material_Review_rdcd_original to post to BB

Risk return control commitmentexpertise modes of

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RISK RETURN CONTROL COMMITMENT/EXPERTISE
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Modes of Entry 1. Exporting / Importing 2. Licensing 3. Franchising 4. Strategic Alliances 5. JV (joint ventures) 6. WOS Buyout 7. WOS Greenfield RISK, RETURN CONTROL COMMITMENT COORDINATION
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Franchising: A special form of licensing: LICENSING + MARKTG, MNGMENT SUPPORT) Franchisee operates business under name of franchisor Pays fee, and receives supplies, training, & technical support Includes brand name, operating system, advertising, reputation, quality control, etc.
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Foreign Direct Investment Ownership of foreign facilities Enables greater control, coordination Greenfield, Acquisition, Ownership Joint Venture
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Trade-offs between Greenfield & Acquisition (Buy-out) Greenfield: less ‘baggage’ acclimate at own pace customize to firm’s needs Acquisition: time to begin operations country expertise new technology
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3. Foreign Direct Investment: Defs Foreign direct investment (FDI) happens when a firm invests directly in facilities in a foreign country A firm that engages in FDI becomes a multinational enterprise (MNE) Multinational = “more than one country”
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Why FDI? (vs. export and non-investment JV) Vs. Exporting: Transportation costs Trade barriers Vs. Licensing Control of technology Strategic issues Global coordination Vs. Strategic Alliance
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Patterns in FDI General growth in FDI (Flow & Stock) 10 times in last 10 years Changing philosophy Decreased regulation/increased treaties Incentives FDI inflows US dominant; Japan low Shift from developed to developing nations (1985-90 avg. $27.4 Bil. To $165 Bil. In 1998) Shift in outflows U.S. dominant; Japan low – since 1991 Increasing Asian investments in Asia
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Political Philosophies re FDI 2 extreme points: Radical, Free Market Many points in between: Pragmatic Nationalism Radical Free Mkt Pragmatic Nationalism No FDI at all; FDI is evil FDI is most welcome One eye on FDI and one on national industries
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Host Country and FDI BENEFITS Resource - transfer Employment Balance-of-payment (BOP) Import substitution Source of export increase DRAWBACKS Adverse effects on the BOP Capital inflow followed by capital outflow + profits Production input importation Threat to national sovereignty and autonomy Loss of economic independence
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Home Country and FDI BENEFITS Repatriation of foreign earnings (BOP) Increased employment/exports (raw materials/ components / machinery) Transfer of learning to home DRAWBACKS Economic jobs, foreign exchange, technological advantages Military, security related Circumvent social programs: environmental, labor standards (sweatshops)
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Government Policy and FDI Home country Outward FDI encouragement Risk reduction policies: financing, insurance, tax incentives, politics * Outward FDI restrictions Sanctions, taxes * Host country Inward FDI encouragement Low interest, tax incentives Infrastructure improvement
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