assignment
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Chapter8-LicensingInvestmentandStrategicAlliances.pptxLicensing, Investment and Strategic Alliances
What’s this chapter about?
Important aspects of licensing, investments and strategic alliances
Key influencers for licensing, investments and strategic alliances
No Imports / Exports!
What can a company do when it is not possible to exploit market opportunities using importing / exporting?
Licensing
Licensing is the practice by which one company owning intangible property (the licensor) grants another firm (the licensee) the right to use that property for a specified period of time.
Cross licensing is the practice by which companies use licensing agreements to exchange intangible property with one another
Advantages
Licensing can be used to finance international expansion
It reduces international expansion risks
It reduces the likelihood of counterfeit production
Licensees can use licensing as a method of upgrading existing production technologies
Disney
Licensing cont…
Disadvantages
Licensing may restrict licensor’s future activities
It may reduce the global consistency of product’s quality and marketing
Licensing can also amount to lending strategically important property to its future competitors
Franchising
Franchising is the practice by which one company (the franchiser) supplies another (the franchisee) with intangible property and other assistance over an extended period.
Advantages
Franchising is a low-cost and low-risk entry mode into new markets
It allows for rapid geographic expansion
It makes use of local managers’ cultural knowledge
Disadvantages
Managing franchisees across several nations can become cumbersome
Franchising agreements can result in loss of organizational flexibility for franchisees
McDonald’s
Subway
Wendy’s
Management Contracts
Management Contract is the practice by which one company supplies another with managerial expertise for a specific period of time.
Two types of knowledge can be transferred through management contracts
Specialized knowledge of technical managers
Business-management skills of general managers
Management Contracts cont…
Advantages
Management contract doesn’t expose a great deal of its own physical assets to risk
Nations can finance projects
Nations can use management contracts to develop the skills of local workers and managers
Disadvantages
Political or social turmoil in a nation can threaten managers’ lives
Management contracts may lead to nurturing a formidable new competitor in the local market
Turnkey Projects
Turnkey (build-operate-transfer) project is the practice by which one company designs, constructs, and tests a production facility for a client firm.
Advantages
Turnkey projects let a firm specialize in its core competency to exploit international opportunities
It allows for nations to obtain the latest infrastructure from the world’s leading companies
Disadvantages
Turnkey projects may be awarded for political reasons instead of technical know-how
They can create future international competitors
Investment Entry Modes
Investment Entry Modes entail direct investment in plant and equipment in a country along with ongoing involvement in the local operation.
Investment entry modes take a company’s commitment in a market to a higher level
Three common forms of investment entry include
Wholly owned subsidiaries
Joint ventures
Strategic alliances
Wholly Owned Subsidiaries
Wholly owned subsidiaries are facilities that are entirely owned and controlled by a single parent company
Advantages
Wholly owned subsidiaries give managers complete control over day-to-day operations in the target market and access to valuable technologies, processes, and other intangible properties
They allow firms to coordinate activities of all of their various national subsidiaries
Disadvantages
Wholly owned subsidiaries can be expensive undertakings
They involve high risk exposure
Joint Ventures
A joint venture is a separate company that is created and jointly owned by two or more independent entities to achieve a common business objective.
SONY
ERICSSON
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SONY ERICSSON
* Please note that while Sony Ericsson started out as a joint venture between Sony and Ericsson, Sony now wholly owns the venture.
Joint Ventures cont…
Advantages
Joint ventures can reduce risk by sharing investments with other parties
They can help penetrate international markets that are otherwise off-limits
They provide access to another party’s distribution channels
Disadvantages
Joint ventures can result in conflict between partners
Parties may lose all control over a venture’s operations if the local government participates in the venture
Joint Ventures Configurations
Forward integration joint venture
Parties invest together in downstream business activities.
Backward integration joint venture
Parties invest together in upstream business activities.
Buyback joint venture
Each partner provides inputs and absorbs outputs.
Multistage joint venture
One partner integrates downstream while the other integrates upstream.
Strategic Alliances
Strategic Alliance is a relationship whereby two or more entities cooperate (but do not form a separate company) to achieve the strategic goals of each.
Advantages
Strategic alliances can allow firms to share the cost of an international investment project
They can allow firms to tap into competitors’ specific strengths
They provide access to partners’ distribution channels
Disadvantages
Conflict amongst partners may undermine cooperation
Alliances may create future competitors in a target market or even globally
Strategic Factors in Selecting an Entry Mode
The choice of entry mode has many important strategic implications for a company’s future operations.
Factors that influence a company’s international entry mode include
Selecting partners for cooperation
Cultural environment
Political and legal environments
Market size
Production and shipping costs
International experience
On Monday
Licensing, Investment and Strategic Alliances (Part 2)
