Internationalization Strategies

Internationalization Risks: CAGE• Cultural Distance• Administrative Distance• Geographic Distance• Economic Distance

Internationalization Modes

Exporting• Creating goods in the home country and

shipping to another country• Good place to start because low-cost

way of seeing if products are appealing• Problems?

• Cost, time, Logistics• Theft/Loss• Perception/market penetration• Quality control/Image/Branding• Lose control supply chain

Licensing• Granting a foreign company the right to create or

sell your product in exchange for a fee• Common with patented technologies• Avoids absorbing a lot of costs• Key Issues?

• Lower Quality• Brand Dilution• Following Laws• Specific Contract are burdensome & costly• Determining l& tracking licensing fees

Franchising• Renting a firm’s brand name and

business process.• Common in service industries• Little financial investment from the

franchisor• Typical U.S. franchisor has 140

domestic locations before moving overseas

• When Appropriate?

Alliances & Joint Ventures• Strategic Alliance describes firms that create agreements to work

together without forming a new organization. • Equity Joint Venture is when two or more organizations each

contribute to creation of a new entity• Advantages

• Provides local knowledge• Facilitates acceptance in local markets• Clears regulatory paths

• Challenges?• Two org cultures, different end games• Trust becomes paramount• Delegating responsibilities• What will you do with your proprietary technology• Ownership issues (property rights)• Imbalances of power• Confusing to stakeholders• Who is final decision maker?

Subsidiaries• Business operation in a foreign country that a

firm fully owns.• Demonstrates strategic commitment, which is

affirming for customers, suppliers and investors

• Greenfield Operation is building a subsidiary from scratch.

• Acquisition, sometimes called a brownfield operation

Acquisitions

• Acquisition: Takes place when one company purchases another company

• The acquired company is (generally) smaller than the firm that purchases it

• Merger: Joining of two companies into one• Involves similarly sized companies

• Takeover• A special type of acquisition when the target firm did not

solicit the acquiring firm’s bid for outright ownership.

Acquisitions

If shareholders don’t gain value from acquisitions,

then why do firms acquire other firms?• Market share• Eliminate competition• Buying IP, knowledge• Buying Revenue• Acquiring People• Resources (vertical/horizontal integration)• Diversification• Acquiring foothold (region, prod mkt)• Overcoming regulations• Prestige• Tax writeoff issues

Acquisitions

-Executive compensation-Acquire patents-Buying PP&E-Personnel synergies-Avoid lawsuits-Find hidden value

• Improving the likelihood of success• Complementary assets/resources• Friendly as opposed to hostile• Careful, long selection processes• Maintain financial slack, Low-to-moderate debt• Maintain key personnel• Sustain emphasis on innovation (continued R&D)• Flexibility (managerial experience with change)

Acquisitions