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I.
INTRODUCTION
When 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 (Figure 14.2). Although exporting is
usually the preferred alternative since it allows firms to produce in their home
countries, participating in some markets may require using a variety of other equity
and nonequity arrangements (Figure 14.3). These can range from wholly owned
operations to partially owned subsidiaries, joint ventures, equity alliances, licensing,
franchising, management contracts, and turnkey operations.
3. Avoid or Counter Competition. When 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.
4. Secure Vertical and Horizontal Links. 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 horizontal level, economies of scope in distribution, a better
smoothing of sales and earnings through diversification and an ability to
pursue projects too large for any single firm can all be realized through
collaboration.
5. Gain Knowledge. Many 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. International Motives for Collaborative Arrangements
Companies collaborate with other firms in their foreign operations in order to
gain location-specific assets, overcome legal constraints, diversify
geographically and minimize their exposure in high-risk environments.
1. Gain Location-Specific Assets. Cultural, political, competitive, and
economic differences among countries create challenges for companies that
operate abroad. To overcome such barriers and gain access to locationspecific assets (e.g., distribution access or a competent workforce), firms
may pursue collaborative arrangements.
2. Overcome Governmental Constraints. Countries may prohibit or
limit the participation of foreign firms in certain industries, or discriminate
against foreign firms via tax rates and profit repatriation. Firms may be able
to overcome such barriers via collaboration with a local partner.
3. Diversify Geographically. By operating in a variety of countries, a firm
can smooth its sales and earnings; collaborative arrangements may also
offer a faster initial means of entering multiple markets or establishing
multiple sources of supply.
4. Minimize Exposure in Risky Environments. The higher the risk
managers perceive with respect to a foreign operation, the greater their
desire to form a collaborative arrangement.
III. TYPES OF COLLABORATIVE ARRANGEMENTS
While collaborative arrangements allow for a greater spreading of assets across
countries, the various types of arrangements necessitate trade-offs among objectives.
Finding 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, unique, difficult-to-duplicate resource.
A. Some Considerations in Collaborative Arrangements
Two critical variables that influence the choice of collaborative arrangement are
a firms desire for control over its foreign operations and its prior expansion into
foreign ventures.
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