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‡ Relatively low ‡ Vulnerability to
financial exposure
tariffs and NTBs
‡ Permit gradual
market entry ‡ Logistical
‡ Acquire knowledge complexities
about local market ‡ Potential conflicts
‡ Avoid restrictions on with distributors
foreign investment

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‡ Companies may find more advantages by producing in foreign

countries than by exporting to them. The advantages occur
1. In situations where production abroad is cheaper than at
home;
2. when transportation costs to move goods or services
internationally are too expensive;
3. when companies lack domestic capacity;
4. when products and services need to be altered substantially to
gain sufficient consumer demand abroad;
5. when governments inhibit the import of foreign products; and
6. when buyers prefer products originating from a particular
country.

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leases the right to use its intellectual property²
technology, work methods, patents, copyrights,
brand names, or trademarks²to another firm,
called the 6
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‡ Specifying the boundaries of the agreement

‡ Determining compensation
‡ Establishing rights, privileges, and constraints
‡ Specifying the duration of the contract

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‡ Low financial risks ‡ Limited market
‡ Low-cost way to opportunities/profits
assess market ‡ Dependence on
potential licensee
‡ Avoid tariffs, ‡ Potential conflicts
restrictions on foreign
investment with licensee
‡ Licensee provides ‡ Possibility of creating
knowledge of local future competitor
markets

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entrepreneur or organization, called the d
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Franchising, actually a special form of licensing, allows the
franchisor more control over the franchisee and provides
for more support from the franchisor to the franchisee than
is the case in the licensor-licensee relationship. The
franchisor provides its franchisees with trademarks,
operating systems, and well-known product reputations, as
well as continuous support services such as advertising,
training, reservation services (for hotel operations), and
quality assurance programs.

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‡ Like licensing agreements, franchising agreements are spelled out
in formal contracts, with a typical set of terms. The franchisor
generally receives a fixed payment plus a royalty based on the
franchisee's sales for the rights to use the franchisor's name,
trademarks, formulas, and operating procedures. The franchisee
usually agrees to adhere to the franchisor's requirements for
appearance, financial reporting, and operating procedures.
However, franchisors are likely to allow some degree of flexibility in
order to meet local customs and tastes. As with other licensing
arrangements, one of the services the franchisee offers the
franchisor is knowledge about the local market's culture and
customs.

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‡ Low financial risks ‡ Limited market
‡ Low-cost way to opportunities/profits
assess market potential
‡ Avoid tariffs, ‡ Dependence on
restrictions on foreign franchisee
investment ‡ Potential conflicts
‡ Maintain more control with franchisee
than with licensing
‡ Possibility of
‡ Franchisee provides
knowledge of local
creating future
market competitor

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It is used by firms, both large and small, that

outsource most or all of their manufacturing
needs to other companies. This strategy
reduces the financial and human resources
firms need to devote to the physical
production of their products.

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‡ Low financial risks ‡ Reduced control
‡ Minimize resources (may affect quality,
devoted to delivery schedules,
manufacturing etc.)
‡ Focus firm¶s ‡ Reduce learning
resources on other potential
elements of the value ‡ Potential public
chain relations problems

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an arrangement in which a contractor
provides management personnel to per-form general or
specialized functions to a client for a fee
‡ On the one hand, host countries and clients get needed
assistance without foreign ownership or control of operations;
on the other, the management firm is able to generate revenues
without making a capital investment.
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is a contract under which a firm agrees to fully
design, construct & equip a facility & then turn the project over
to the purchaser when it is ready for operation. The contract
may be for a fixed price, in which the firm makes its profit by
keeping its costs below the fixed price. Or it may be on a cost
plus, which shifts the risk of cost overruns from the contractor to
the purchaser. International turnkey contracts often involve
large, complex, multiyear projects such as: airports, nuclear pl.
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‡ Focus firm¶s ‡ Potential returns limited
resources on its area by contract expertise
of contracts ‡ May unintentionally
‡ Minimal financial transfer proprietary
exposure knowledge and
techniques to contract

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‡ Focus firm¶s ‡ Financial risks
resources on its area ± Cost overruns
of expertise ‡ Construction risks
‡ Avoid all long-term ± Delays
operational risks
± Problems with
suppliers

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an arrangement in which at least one of
the collaborating partners takes an ownership position
(usually a minority) in the other's)
‡ The purpose of an equity alliance is to solidify a
collaboration, thus making it more difficult to break a
contract.
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‡ Partners view the importance of a collaborative arrangement very
differently.
‡ Partners have different objectives for a collaborative venture,
particularly as a venture evolves over time.
‡ Partners disagree on control issues, or provide insufficient direction
to a venture.
‡ Partners¶ abilities to contribute, and their tendencies to appropriate
each others¶ contributions, change over time.
‡ Differences in both national and corporate cultures lead to
(i) incompatible operations or (ii) conflicting evaluations of the
success of a venture.

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‡ Motivations for collaborative arrangements specific to
international operations are to gain location-specific
assets, to overcome legal constraints, to diversify across
countries, and to minimize exposure in risky
environments.
‡ Although the type of collaborative arrangement a firm
chooses should match its strategic objectives, the choice
will often mean a trade off amongst objectives. Although
the type of collaborative arrangement a firm chooses
should match its strategic objectives, the choice will
often mean a trade off amongst objectives.

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‡ A firm may use more than one mode of operation within

the same country, as well as in different countries or for
different products.
‡ A common motive for jointly owned operations is to take
advantage of complementary resources that firms have
at their disposal.

‡ The dissolution of collaborative ventures can be planned

or unplanned, friendly or unfriendly, mutual or non-
mutual.

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