Copyright? 2001 by Harcourt,Inc.,All rights reserved,Requests for permissions to make copies of any part of the work should be mailed to
the following address,Permissions Department,Harcourt,Inc.,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.
INTERNATIONAL MARKETING 6e
Global Market Expansion
Chapter 15
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-2
Foreign Investments
Objectives of foreign investments:
Firms invest to enter markets
Or
to assure themselves of sources of supply.
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-3
Foreign Investments
Foreign direct investment
An equity investment to create or expand a permanent
interest in a foreign enterprise.
Two phases of foreign investment
Portfolio investment
– The purchase of stocks and bonds internationally.
Manufacturing
Major foreign investors
More than 45,000 multinational corporations with 280,000
affiliates globally.
The terms,foreign” and,domestic” may no longer apply.
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-4
Reasons for Foreign Direct Investment
Marketing factors
Growth and profit motivations
Circumventing government-erected barriers to
trade
Access to low-cost resources and supply
Local customers preference for
domestic goods and services
Attempts to obtain low-cost
resources and ensure
their supply
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-5
Categories of International Firms
Resource seekers
are searching for natural and human resources
– Identify US international firms that can be categorized as
resource seekers
– Which US firms can be considered as human resources
seekers?
Market seekers
are searching for better opportunities
to enter or expand within markets.
Efficiency seekers
are attempting to obtain the
most economic sources
of production
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-6
Reasons for Foreign Direct Investment
Derived demand
results when businesses move abroad and
encourage their suppliers to follow them,
creating chain or pattern of direct
investment in a market.
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-7
Reasons for Foreign Direct Investment
Government incentives
Fiscal incentives
– tax holidays,allowances,credits and rebates
Financial incentives
– special funding for land or buildings,loans and
guarantees,wage subsidies
Nonfinancial incentives
– guaranteed purchases,protective tariffs,import
quotas,local content requirements,infrastructure
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-8
Foreign Direct Investors
Positive perspectives
Bring in capital,economic activity,and
employment
Transfer technology and managerial skills
Competition,market choice,and competitiveness
are enhanced
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-9
Foreign Direct Investors
Negative perspectives
Drain resources from host countries
Starve smaller capital markets
Discourage local technology development
Bring in outmoded technology
Create new competition for local firms
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-10
Types of Ownership
Ownership patterns may be based on past
experiences with similar ownership models.
Full ownership
Full control,full assumption of all risks
May be desirable,but is not necessary for
success internationally.
Joint ventures
Shared control,shared investment risks
Reasons for joint ventures:
– governmental pressure to join with local partners
– mutually beneficial commercial considerations in sharing
markets,pooling resources,and local suppliers
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-11
Joint Ventures
Advantages
Pooling of resources
Better relationships with local
organizations
Knowledge the partner brings of the
local market
Minimizing exposure risk of long-term
capital
Maximizing leverage of invested capital
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-12
Joint Ventures
Disadvantages
Different levels of control are permitted or
required
Difficulty in maintaining the relationship
Disagreements over business decisions
Disagreements over profit accumulation,
and distribution (profit repatriation)
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-13
Types of Ownership… continued
Recommendations for joint ventures
Find the right partner
Negotiate the joint venture agreement carefully
Maintain flexibility to adjust to changing market
conditions
Strategic alliances
,…more than the traditional customer -vendor
relationship,but less than an outright acquisition”
Government consortia
Public-private relationship in a specific project.
Typically government supported or subsidized
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-14
Contractual Arrangements
Cross marketing
The parties agree to carry out activities which are
complementary and non-competitive.
Contract manufacturing
An arrangement that allows one part to
outsourcing product manufacturing to another
party while retaining control over research and
development,
Management contracting
A supplier furnishes an integrated service (e.g.,
turnkey operation) internally to a client that is
functionally important to the client,
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-15
Management Contracting Advantages
Client Advantages:
Provide organizational skills not locally
available
Immediate availability of skills
Management assistance and support that is
not available locally
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-16
Management Contracting Advantages
Supplier Advantages
Lower risk because no equity capital is at stake
Exercise large amounts of operational control
The strategic advantage of being on the,inside”
Opportunity to commercialize,know-how”
Using experienced staff to offset business
fluctuations
Copyright? 2001 by Harcourt,Inc,All rights reserved,15-17
Management Contracting Risks
Risks to the client
Overdependence on the supplier
Loss of control to the supplier
Risks to the contractor
Bidding without fully detailed insight into
actual costs of delivering the service
The effects of the loss or termination
of the contract and resulting
personnel problems