Business and Economics

INTERNATIONAL BUSINESS MGF2351

Objectives

Group Presentation (20 Minutes, QnA 10 minutes)

Tutorial Program Week 10

Internationalisation

When?

What Scale?

Which Country?

Modes of EntryExporting: Dilmah Tea

Turnkey Projects:

Projects such as the construction of airports, dams, roads and factory complexes such as refineries and chemical plants.

Licensing: Rip Curl,

http://www.ripcurl.com.au/index.php?international

Franchising: McDonalds

Join Ventures: Monash

Wholly Owned Subsidiary: Coca-Cola

Strategic Alliances: Star Alliance

Lets look at an Australian Success story: Boost Juice bars

https://www.youtube.com/watch?v=fpXpc2Zxd0I

Q1. Licensing propriety technology to foreign competitors is the best way to give up a firm's competitive advantage. Discuss.Risk:

Licensing proprietary technology to foreign competitors does significantly increase the risk of losing the technology. Therefore licensing should generally be avoided in these situations.

Use: When a licensing arrangement can be structured in such a way as to reduce the

risks of a firm's technological know-how being expropriated by licensees, then licensing may be appropriate OR

when a firm perceives its technological advantage as being only transitory, and it considers rapid imitation of its core technology by competitors to be likely. In such a case, the firm might want to license its technology as rapidly as possible to foreign firms in order to gain global acceptance for its technology before imitation occurs. Such a strategy has some advantages.

By licensing its technology to competitors, the firm may deter them from developing their own, possibly superior, technology. And by licensing its technology the firm may be able to establish its technology as the dominant design in the industry. In turn, this may ensure a steady stream of royalty payments. Such situations apart, however, the attractions of licensing are probably outweighed by the risks of losing control over technology, and licensing should be avoided.

e.g. Rip Curl. Can you think of some organisations where licensing will work and where it will not?

Q2. Discuss how the need for control over foreign operations varies with firms’ strategies and core competencies. What are the implications of the choice of entry mode?

If competitive advantage depends upon control of propriety knowledge and technical know how: AVOID Licensing and Joint Venture

If Management skills and know-how are sources of competitive advantage :combination of JV and Franchising

Q3. How do you explain the continued existence of counter trade? Under what scenarios might its popularity increase still further by the year 2015? Under what scenarios might its popularity decline?

Counter trade: Barter, Counterpuchase, Buyback, Offsets

Foreign Exchange Markets are limited.

Importers do not have access to Foreign Exchange reserves.

Currency Crises, Monetary Instability

Trade barriers increase and monetary system of countries strengthens then countertrade will decrease.

Q4. How might a company make strategic use of countertrade schemes to generate export revenues? What are the risks associated with pursuing such a strategy?

Useful in developing countries.

Countertrade may serve as a source of financing other developmental activities.

Case: General Electric’s Joint Ventures (Hill, 2013, pp. 511-

512)1) GE used to have a preference for acquisitions or greenfield ventures as an entry mode, rather than joint ventures. Why do you think this was the case?

2) Why do you think that GE has come to prefer joint ventures in recent years? Do you think that the global economic crisis of 2008-2009 might have impacted upon this preference in any way? If so, how?

3) What are the risks that GE must assume when it enters into a joint venture? Is there any way for GE to reduce these risks?

4) The case mentions that GE has a well-earned reputation for being a good partner. What are the likely benefits of this reputation to GE? If GE were to tarnish its reputation by, for example, opportunistically taking advantage of a partner, how might this impact the company going forward?

5) In addition to its reputation of being a good partner, what other assets do you think GE brings to the table that make it an attractive joint venture partner?

1) GE used to have a preference for acquisitions or greenfield ventures as an entry mode, rather than joint ventures. Why do you think this was the case?

Full control, No Profit Sharing

Many companies choose acquisitions or greenfield investments as an entry because they give the company full control and all the profits.

Firms may also find acquisitions attractive because they can immediately begin business in the foreign country, while greenfield investments allow companies to establish operations exactly as they want them.

Control was very important to GE. The company did not want to share control with another firm.

Q2. Why do you think that GE has come to prefer joint ventures in recent years? Do you think that the global economic crisis of 2008-2009 might have impacted upon this preference in any way? If so, how?

For the following reasons:

lower risk and cost associated with joint ventures. The company also believes that by linking with local companies, it

can gain invaluable knowledge of the local market. In addition, joint ventures have proved to be an easier route in some

countries where local laws prohibit other types of entry methods.

The recent economic crisis could play a role in future investment decisions by GE. The shared cost and risk implied by joint ventures may be attractive to the company in troubled economic times.

rket, Overcome entry laws in some countries, Troubled Economic times

General Electric has shifted away from its traditionally preferred method of entering new markets via wholly owned subsidiaries to entering new markets through

Q3. What are the risks that GE must assume when it enters into a joint venture? Is there any way for GE to reduce these risks?

Sharing Control, Reaching agreements with venture partners

Joint ventures, while offering firms the opportunity to share costs and risks, also imply that firms are sharing control. General Electric has run into some problems with its joint venture approach.

For example, General Electric could not reach an agreement with potential British partner Smiths Group, and ended talks with the company.

General Electric has also had to settle for minority stakes in some ventures when it would have preferred to have a majority position.

Q4. The case mentions that GE has a well-earned reputation for being a good partner. What are the likely benefits of this reputation to GE? If GE were to tarnish its reputation by, for example, opportunistically taking advantage of a partner, how might this impact the company going forward?

Firm’s innovative management techniques, Strong management development program, Firms Future Growth

GE is well recognized in the industry as being a good partner. GE’s partners find the firm’s innovative management techniques and strong management development program particularly attractive.

If GE were to act opportunistically it would certainly find it more difficult to find willing partners in the future. Because the firm now relies on joint ventures for a significant number of its investments, such a situation would be detrimental to the firm’s future growth.

Q5. In addition to its reputation of being a good partner, what other assets do you think GE brings to the table that make it an attractive joint venture partner?

Vast experience of GE, Financial Strength of the company, Flexibility

GE is recognized as being a good partner not only because of the management knowledge is shares with its partners, but also because of its vast experience doing business in other countries.

While GE may form a joint venture with a local company to gain knowledge of foreign markets, it has a long history of being able to deal with different currencies, different political systems, and different cultures that should help it be successful in new ventures.

The company’s size is also attractive to partners because of its financial strength.

Furthermore, GE appears to be a flexible partner – another asset that would make it attractive to partners.

Thank you