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Welcome to class of Foreign Direct Investments in Emerging Markets by Dr. Satyendra Singh University of Winnipeg Canada

Welcome to class of Foreign Direct Investments in Emerging Markets by Dr. Satyendra Singh University of Winnipeg Canada www.uwinnipeg.ca/~ssingh5. What is not FDI. Internationalize business without investments Exporting Licensing  permission  patents, trademarks Franchising Outsourcing

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Welcome to class of Foreign Direct Investments in Emerging Markets by Dr. Satyendra Singh University of Winnipeg Canada

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  1. Welcome to class ofForeign Direct Investmentsin Emerging MarketsbyDr. Satyendra SinghUniversity of WinnipegCanadawww.uwinnipeg.ca/~ssingh5

  2. What is not FDI • Internationalize business without investments • Exporting • Licensing  permission  patents, trademarks • Franchising • Outsourcing • Contract manufacturing • Nike, Vietnam; Gap, India  public image • Management contract • Hilton logo • Air France, British Airways, KLM  booking system  EM • Turnkey projects • One time  airport, power plant, oil refinery  EM

  3. What is FDI • Internationalize business with investments • Want ownership • Control of assets of host country • Profit potential $ • Compete more effectively • But • Risks  economic and political • Foreign exchange fluctuations • Ban on acquisition on local firms • Restrictions on sending $ (dividends, capital) back home

  4. FDI: 3 Strategies • Greenfield strategy • Select the site, construct, modern plant, bring own corporate culture, not dealing with previous debt… • But time, patience, local rules, training workers • Brownfield (acquisition) strategy • Quick control, brand, workers, distribution • Good as it does not add capacity • But complex  need lawyer, banker, M&A, regulators • Joint Ventures  2 or more firms agree to work together to create a new business entity that is legally separate and distinct from its parents. (Special type of strategic alliance) • Imp  tech., communications, government policies outstrip the ability of international firms to exploit opportunities on their own

  5. Strategic Alliances:Firms Cooperate for Mutual Benefits • Ease of Market entry • Economies of scale, marketing, distribution, rapid entry, required by law to have local partner  save local brand • Shared risks • Boeing 777  Fuji+Mitsubishi+Kawaski Japan Airline • Shared knowledge and expertise • Learn from each other  Toyota + GM • Synergy and competitive advantage • Lipton Tea (mrf. exp) + Pepsi (distribution)  US market • Siemens ($) + Motorola (mrf exp) 256-MB DRAM Chip

  6. Strategic Alliances: Scope…ComprehensivevsFunctional

  7. Strategic Alliances: Scope • Comprehensive  all process meshed IJV • Need good structure, conflict of interest • Kellogs (Europe)  General Mills (Cheerios) + Nestle • Functional  narrow in scope  no formal IJV • Production • Chrysler (excess capacity, economies of scale) + BMW (design) 1.4 L small engine  EM, Mercosur • Marketing • Mattel (Barbie, US) ↔ Bandai (Power rangers, Japan) • Without Mattel, Bandai could not enter South America • Financial • 20th Century Fox + Paramount Pictures  Titanic • R&D • Kodak + Fuji  Advanced Photo system  Canon, Minolta, Nikon

  8. Strategic Alliances: Implementation…--Shared--Assigned--Delegated

  9. Strategic Alliances: Implementation • Selection of partners  compatibility  trust • Mgmt style: Finance (GM, UK) vs. Engr (Siemens, Germany) • Leaning potential of alliance: inventory, training, MIS… • Form of ownership • Country: tax and legal advantages  IJV  Bahamas • Public-private: drilling rights, lumber  Govt stability • Management considerations • Shared: firms participate actively, ask parent, conflict • Assigned: dominant firm has the power to make decision • Delegated: IJV has the power, implement strategy

  10. Strategic Alliances: Pitfalls…

  11. Strategic Alliances: Pitfalls • Incompatibility of partners • Who has the power, negotiate ahead—goals, beliefs • Access to information • Ford + Mazda (no visit to R&D)  Ford Escort • Unisys (no access to design) + Hitachi  Computers • Distribution of earnings • No reinvestment, accounting methods • Loss of autonomy • Opportunistic behavior, deliberate delay in supply • Changing circumstances • Ford + Volkswagen  Autolatina (Brazil), inflation, debt crisis  sometimes outdated technology

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