Académique Documents
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Investment
and
Collaborative
Ventures
What is Foreign Direct
Investment
?
A strategy in which the firm establishes a
physical presence abroad through acquisition of
productive assets such as capital, technology,
labor, land, plant and equipment.
International Portfolio
Investment
Passive ownership of
foreign securities such
as stocks and bonds to
generate financial
returns.
Joint
Venture
A form of collaboration between two or more firms to create a
new, jointly owned enterprise.
Factors to
consider in
Choosing FDI
Locations
1 Political and
Governmental
Factors
Extent of
Political bureaucracy
and red tape
Stability
Openness Transparency
to foreign and
investment corruption
2 Human Resources
Factors
Cost,
Availability
and quality
Availability & of
productivity managerial
of skilled workforce
labor
Involvement
of labor Employment
unions Regulations
3 Infrastructural
Availability
Factors
Cost,
availability
and quality and quality
of local of utilities &
manufac- finance
turing Efficiency Quality of
of physical marketing
distribu- and
tion distribution
4 Economic
Factors
Cost of Stability of
land and currency
facilities
State of Extent of
the local regional and
economy free trade
5 Legal and
regulatory factors
Regulation Intellectua
on FDI & l property
technology collection
transfer
Nature of Extent of
legal tarifs, other
systems trade
and laws barriers
6 Profit Retention
Factors
Complexity
Types and of tax
level of system
taxes
Tax rates
Rate of
for profit
repatriation inflation
7
Size and
Market
Factors
growth of Proximity to
national key export
market Size and
growth of
regional
market
Characteristics
of Foreign Direct
Investment
FDI is an advanced form of foreign market entry
with distinctive characteristics. Key features of FDI
include:
Acquisition
Horizontal
Merger
Integration
LD
INVESTME
NT
-a direct investment to build a new existing
manufacturing, marketing, or administrative
facility as opposed to acquiring existing facility.
ACQUISITIO
N
- a direct investment to purchase an existing
company or facility.
VERTICAL
INTEGRATI
ON
an arrangement whereby the firm owns, or seeks to
own, multiple stages of a value chain for producing,
selling, and delivering a product or service.
MERGER
- a special type of acquisition in which two firms join
to form a larger enterprise.
Nature of
Ownership in FDI
Equity participation or equity ownership – acquisition of
partial ownership in an existing firm.
CONSORTIUM
A type of project-based, non-equity
venture in which partners agree to
access licensed technology developed
by the other on preferential terms.
The initial decision in internationalization is
MANAGING
COLLABORA- to choose the most appropriate target
TIVE market because the market determines the
VENTURE characteristics needed in a business partner.
If the firm plans to enter an emerging
market, for example, it may need a partner
with political clout or connections. In this
way, country targeting and partner selection
are interdependent choices.
Exhibit 14.7 outlines the process for identifying and working with a suitable
business partner. It reveals that managers need to draw on their cross-cultural
competence, legal expertise, and financial planning skills.
When managers first contemplate internationalization through FDI, they usually
think in terms of a wholly owned operation. Many are accustomed to retaining
the control and sole.
Exhibit 14.7
A Systematic Process for International Business Partnering
What advisors,
Do we need a business consultants, and
partner in this market? How What qualifications secondary sources of
can we choose between a should we seek in the information and
collaborative venture versus business partner? assistance can we tap to
a wholly owned operation? identify suitable
partners?
4.Determine the nature of
5.Negotiate a formal 6.Build trust, empathy,
legal relationship with the
agreement and reciprocity
prospective partner