Chapter 15 module

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Putting a Price on Intangible Assets

15.4.2

Which of the following illustrates a​ company's need to internalize in order to use people who are committed to carrying out its​ objectives?

A company places their managers in key positions in order to expedite control and changes.

When Domestic Capacity Isn't Enough

A company with excess capacity may export effectively as long as the excess exists. In fact, its average cost of production per unit usually falls as it uses more of its capacity, such as by selling abroad, because of spreading fixed costs over more sales units. But this decrease continues only as long as there is unused capacity. Volkswagen, for instance, located its first plant to build the new Beetle at its Mexican facilities, which served global markets. When demand pushed that plant toward capacity, Volkswagen built a second plant in Europe to serve the markets there, thus freeing Mexican capacity to serve nearby markets while reducing transport costs for European sales.5

Franchise Organization

A franchisor may deal directly with individual franchisees abroad or set up a master franchise that has rights to open outlets on its own or to develop subfranchisees in the country or region. Subfranchisees pay royalties to the master franchisee, which then remits some predetermined percentage to the franchisor. Companies are most apt to use a master franchise system when they are not confident about evaluating potential individual franchisees and when overseeing and controlling them directly would be too expensive.56 Picking good franchisees is, of course, essential for success.57

Freedom to Pursue a Global Strategy

A wholly owned foreign operation permits a company to more easily participate in a global strategy. For instance, a U.S. company owning 100 percent of its Brazilian operation might be able to take actions that, although suboptimizing Brazilian performance, could deal more effectively with competitors and customers globally, such as by decreasing prices to an industrial customer in Brazil to gain that customer's business in Germany. Or it might standardize its product to gain global cost savings even though this loses some sales in Brazil. But if the company shared ownership in Brazil, its partners would balk at such practices.

Making Greenfield Investments

Acquisitions often don't succeed.27 First, turning around a poorly performing operation is difficult because of potential personnel and labor relations problems, ill will toward its products and brands, and inefficient or poorly located facilities. Second, managers in the acquiring and acquired companies may not work well together because of different management styles and organizational cultures or because of conflicts over decision-making authority.28 For instance, after acquiring IBM's PC division, Lenovo had to overcome cultural differences between its Chinese and U.S. managers (e.g., the former thought the Americans talked even when having nothing to say, and the latter disapproved of publicly shaming latecomers to meetings).29 Intuition tells us that acquisitions in more culturally distant countries, such as in the Lenovo example, would perform less well than those in more culturally similar countries; however, some evidence shows the contrary. Evidently, there are performance gains from added diversity. In addition, acquiring companies take greater care in culturally distant countries to get a better match between organizational cultures, thus easing their integration into the corporate culture.30

diversifying geographically. overcoming legal constraints minimizing risk exposure gaining​ location-specific assets

All of the following are motives for collaborative arrangements that are specific to international business

When Products and Services Need Altering

Altering products to gain sufficient sales in a foreign market affects production costs by requiring firms to make an additional investment, such as adding an assembly line to put automobile steering wheels on the right as well as on the left. As long as they must make an investment to run an added assembly line, they may place it near the market they wish to serve. The more a product must be altered for foreign markets, the more likely some production will shift abroad. Whirlpool finds that most U.S. washing machine demand is for top-loading, large-capacity washing machines using 110 electrical voltage, whereas most European demand is for front-loaders with less capacity using 220 volts.6 Given the differences in preference, Whirlpool produces in both the United States and Europe

When It's Cheaper to Produce Abroad

Although companies may offer products or services desired by consumers abroad, producing them in their home markets may be too expensive. For example, Turkey has been a growing market for automobiles. However, it is generally less expensive to produce the vehicles in Turkey than to export them there because the country's skilled laborers and sophisticated engineers cost less and are willing to work more days per year and longer hours per day than workers in the home countries. Thus, automakers (e.g., Toyota, Renault, Fiat Chrysler, Ford) and many of their parts suppliers have established Turkish production to serve that market.4

cross-licensing example

An example is Google (U.S.) and Samsung (Korea) entering a cross-licensing agreement for access to each other's current and future patents.54

General Motives for Collaborative Arrangements

Both domestically and internationally, companies collaborate to spread and reduce costs, enable them to specialize in their competencies, avoid competition, secure vertical and horizontal links, and gain knowledge.

Culture Clashes

Both national and company cultural differences can affect the relationship between partners.

Pressures from Switching Collaborative Modes

Changes in operating mode, such as from exporting to foreign production to serve a market, cause some individuals to gain and others to lose responsibilities. For example, the size of domestic marketing and manufacturing divisions may contract, thus disadvantaging people who lost responsibilities if bonuses and promotions are based largely on their sales or profits. Given that lower performance is due to decisions outside their control, companies will need to revise performance evaluations.

Compensation

Collaboration also implies sharing revenues and knowledge—an important consideration when profit potentials are high. How to divide revenue is not clear-cut because many variables influence the outcome. Certainly, the bargaining power of the collaborative partners is important in any agreement, but such factors as government mandates, partners' perception of risk, and competitive constraints are all important.49 Further, the mode of collaboration guides normal practices. As we discuss the different modes, we will introduce some of these practices.

Market Failure

Collaboration is appealing as an entry strategy because it is a means whereby a firm may reduce its liability of foreignness. But this works only if management can find an associate knowledgeable about the host country at acceptable terms, which may be impossible since such companies may be inadequately equipped to deal efficiently with the entry company's technology.11 Or, they may know too little about the entering company to entice them to consign sufficient resources to a collaboration. In these instances, companies must control foreign activities within their own management structures (internal hierarchies) rather than depending on the external market to do it for them.12 Of course, the failure of the market to connect firms as collaborators will entice a company to enter with wholly owned operations only if it perceives having operating advantages to overcome its liability of foreignness.

To Gain Location-Specific Assets

Cultural, political, competitive, and economic differences among countries create barriers for firms operating abroad. Those ill-equipped to handle the differences may seek help through collaboration with local firms. When Walmart first entered the Japanese market on its own, it gave up after having disappointing sales. It has since returned with a Japanese partner, Seiyu, which is more familiar with Japanese tastes and rules for opening new stores.39 In fact, most foreign companies in Japan need to collaborate with Japanese firms that can help in securing distribution and a competent workforce—two assets that are difficult for MNEs to gain on their own there. Collaborations may also facilitate companies' learning about markets they enter. However, there is some danger that they assume wrongly that they can apply this learning effectively when entering subsequent countries—even those that appear to be similar to their previous entries.40

The major strains on the arrangements are due to five factors:

Relative importance to partners Divergent objectives Control problems Comparative contributions and appropriations Differences in culture

When Trade Restrictions Hinder Imports

Despite worldwide reduction in overall import barriers, there are still many import restrictions. As a result, companies may find that they must produce in a foreign country if they are to sell there. This has been the case with many auto companies, which manufacture, or at least assemble, in India because it charges a high duty on fully built imported cars. Managers must view import barriers along with other factors, such as the market size of the country imposing the barriers and the scale of production technology. For example, import trade restrictions have been highly influential in enticing automobile producers to locate in Brazil's large market. Similar restrictions by Central American countries have been ineffective because of their small markets. However, Central American import barriers on products requiring lower amounts of capital investment for production, such as pharmaceuticals, have successfully enticed direct investment because these industries can be efficient with smaller-scale technologies and markets. Regional or bilateral trade agreements may also attract direct investment because they create expanded markets that may justify scale economies.

Self-handling may reduce costs for the following four reasons:

Different operating units within the same company are likely to share a common corporate culture, which expedites communications. Executives have concluded that a lack of trust, common terminology, and knowledge are major obstacles to successful collaboration.14 The company can use its own managers, who understand and are committed to carrying out its objectives. When GE acquired a controlling interest in the Hungarian company Tungsram, it was able to expedite control and changes because it put GE managers in key positions.15 The company can avoid protracted negotiations with another company on such matters as partner responsibilities and how each will be compensated for contributions. Negotiations for establishing a collaboration may go on for years, with no guarantee that an agreement will be reached.16 The company can avoid possible enforcement problems. Such companies as L'Occitane and Burberry's have had to fight licensed manufacturers from selling production overruns to non-prestige distributors, which cheapens their brand image.17

Prior Company Expansion

Each time a company adds products or businesses that it wishes to internationalize, it must decide on an operating form. If it already has operations (especially wholly owned ones) in a foreign country, some of the advantages of collaboration are no longer as important. It knows how to operate within that country and may have excess plant or human resource capacity it can use for new production or sales. However, much depends on the compatibility between existing foreign operations and the new ones the company is planning abroad. The less similarity between them, the more that collaboration may be advantageous.

Learning and Its Applications

Evidence suggests that companies' collaborative performance improves with experience. However, improvement is most associated with similar types of collaborations, such as applying what a firm has learned from JV operations in one country to JVs in another country.88 With experience, companies learn to choose partners better and to improve synergies with them. Thus, as a company's number of collaborations grows, it should work toward developing competency in managing the portfolio of arrangements so that it applies what it learns in one situation to others.89 Nevertheless, companies should take into consideration that effective alliance management has been undergoing significant changes, thus they may not necessarily replicate their past successes.90

When Country of Origin Becomes an Issue

Exporting to countries where consumers prefer to buy goods from certain countries (perhaps preferring domestic products because of nationalism) is difficult.8 These consumers may push for country-of-origin labels, such as those for many Australian- and U.S.-made products.9 Consumers may also believe goods from certain countries are superior, like German cars and Italian fashion.10 They may also fear that service and replacement parts for imported products will be more difficult to obtain. Finally, companies using just-in-time manufacturing systems favor nearby suppliers who can deliver quickly and reliably. In any of these cases, companies may find advantages in placing production where their output will best be accepted.

Aside from awareness of and adjustment to the pitfalls we have discussed, the following considerations help assure success when choosing among and managing operating forms

Fitting modes to country differences Finding and evaluating partners Negotiating agreements: The question of secrecy Controlling through contracts and trust Evaluating continually Adjusting the internal organization

Operational Modifications

Franchising success generally depends as well on product and service standardization, high identification through promotion, and effective cost controls. The latter two are pretty straightforward, but transferring the home country's product and service, especially for food franchising, is often difficult, first, because of local supplies. McDonald's, for instance, had to build a plant to make hamburger buns in the United Kingdom, while in Thailand it had to help farmers develop potato production.58 Second, foreign country taste preferences may differ from those in the home country—even within regions of large countries. In China, for example, Yum! Brands offers regionally different food in its KFC and Pizza Hut outlets.59 However, the more adjustments made for the host consumers' different tastes, the less a franchisor has to offer a potential franchisee.

Franchisors face a dilemma:

Inadequacy of local supplies may hamper global product uniformity. The more global standardization, the less acceptance in the foreign country. The more adjustment to the foreign country, the less the franchisor is needed.

Differences in Country Cultures

Managers and companies are affected by their national cultures, and collaborative arrangements bring them directly together. For instance, preferences may vary in the method, timing, and frequency with which they report on performance and whether they evaluate primarily on the operations' effect on shareholders or on stakeholders in general.74 These differences may mean that one partner is satisfied while the other is not. Such a clash led to the dissolution of a joint venture between Danone and its Chinese government-owned partner because the latter put employment maximization ahead of efficiencies and profits.75 Trust is another factor. There are national differences that influence interactions with foreign partners. In fact, some companies don't like to collaborate with those of very different cultures.76 Nevertheless, JVs from culturally distant countries can thrive when partners learn to deal with each other's differences.77

To Gain Knowledge

Many companies pursue collaborative arrangements to learn about a partner's technology, operating methods, or home market so as to improve their competitiveness.37 Sometimes each partner can learn from the other, a motive driving joint ventures between U.S. and European winemakers—such as the Opus One Winery owned by Constellation Brands' Robert Mondavi from the United States and Baron Philippe de Rothschild from France.38

Protecting Assets

Many countries provide little protection for intellectual property rights such as trademarks, patents, and copyrights unless authorities are prodded consistently. To prevent pirating of these proprietary assets, companies sometimes collaborate with local companies, which can more effectively monitor the local market and deal with authorities. In addition, some countries provide protection only if the internationally registered asset is exploited locally within a specified period. If not, then whatever entity first does so gains the right to it. In some cases, local citizens, known as trademark squatters, register rights to the not-yet-exploited trademarks, then negotiate sales to the original owners when they do try to enter the market. One Russian company registered over 300 foreign trademarks, including Starbucks's trademark. Foreign companies then have to pay to regain their rights or go through lengthy and expensive court proceedings.43 Or they enter under a different name. Burger King sells under the Hungry Jack brand in Australia for this reason.44

Acquisition

One reason for a company to invest abroad via acquisition is to obtain some vital resource that may otherwise be slow or difficult to secure.22 Let's say a company acquires knowledgeable personnel that it cannot easily hire at a good price on its own23—or perhaps it could hire them, but lacks experience in managing them effectively. For instance, many Russian companies with good scientific inventions and innovative products have recently expanded internationally to acquire management with experience in transforming innovation to successful product sales.24 Acquisitions allow a company to get not only labor and management, but also an existing organization with experience in coordinating functions such as product development and the subsequent marketing of the developed products. In addition, a company may gain goodwill, brand identification, and access to distribution. Recently, much Chinese investment in the United States has been by acquisition, seemingly because of Chinese companies' desire to secure well-known brand names that will help them sell.25 There are also financial considerations. First, a company depending substantially on local financing rather than on transferring capital may find local capital suppliers more willing to put money into a known ongoing operation than to invest in a new facility owned by a less familiar foreign enterprise. Second, a company may be able to buy facilities, particularly those of a poorly performing operation, for less than the cost of new operations. For example, Brazil's José Batista Sobrinho (JBS), the world's largest meat company, bought U.S. companies Swift and Pilgrim's Pride at opportunistically low prices because they were in financial trouble.26 Third, if a market does not justify added capacity, acquisition enables a firm to avoid the risk of depressed prices through overcapacity. Finally, by buying a company, an investor avoids start-up inefficiencies and gets an immediate cash flow rather than tying up funds during construction.

To Minimize Risk Exposure

One way to lessen a company's international political and economic risk is to minimize its assets located abroad, which may be possible through collaboration. Further, if the company's foreign assets are spread among countries, there is less chance that they will all encounter political adversity or economic downturns at the same time. Local partners may also be effective at thwarting governmental takeover of assets. Further, partnerships with other foreign companies, especially from different countries, may inhibit host governments' takeovers because each can elicit support from its home government.

Finding and Evaluating Potential Partners

Partner pairing should depend on mutual assessment of each other's resources, motivation, and compatibility.

Relative Importance

Partners may give uneven management attention to a collaborative arrangement. If things go wrong, the more active partner blames the less active partner for its lack of attention, while the latter blames the former for making poor decisions. Difference in attention may be due to disparity in the partners' sizes. For example, a smaller partner may take more interest in the venture because it is using a larger portion of its resources therein.

To Overcome Governmental Constraints

Recall that in centrally planned economies (e.g., China and Cuba) Meliá cannot own its hotels, so it must collaborate with local organizations. In addition, virtually all countries limit foreign ownership in some sectors. India, for example, sets maximum foreign percentage ownership in an array of industries. Government procurement policies also sometimes lead to collaboration because they favor bids that include national companies. Taiwan does this with purchases by the state enterprise monopoly, Taiwan Power (Tai Power).42

Divergent Objectives

Partners' initial complementary objectives may evolve differently as a result of competitive forces and product dynamics. Thus, a partner may no longer perceive collaboration to be in its best interest. For instance, IBM partnered with Toshiba, but later it shifted its product line. At that point, it required a type of monitor with which Toshiba lacked expertise.69 Further, one partner may want to reinvest earnings for growth while the other wants to receive dividends. Or one partner may want to expand the product line and sales territory while the other may see this as competition with its wholly owned operations (a point of disagreement between BP and its Russian partner, TNK.)70 If one partner wants to sell or buy from the venture, the other may disagree with the price.

Comparative Contributions and Appropriations

Partners' relative capabilities may change, thus one partner may no longer contribute as much as the other or as much as was expected initially. In addition, one partner may suspect that the other is taking more from the operation than it is (particularly knowledge-based assets or key JV personnel). To counteract this appropriability, the suspicious firm may withhold information, eventually weakening the operation. In fact, there are many examples of companies "going it alone" after they no longer needed their partners—particularly if the purpose of the collaboration was to gain knowledge.

The U.S. Internal Revenue Service classifies intangible property into five categories:

Patents, inventions, formulas, processes, designs, patterns Copyrights for literary, musical, or artistic compositions Trademarks, trade names, brand names Franchises, licenses, contracts Methods, programs, procedures, systems

"Who's in charge?" plagues collaboration despite all parties being held responsible.

Questions of Control

Sharing assets with another company may generate confusion over control. Such confusion is rife with gray areas and may cause anxiety among employees. In a proposed JV between Merrill Lynch and UFJ, a Japanese senior manager queried, "Who is going to be in charge—a Japanese, an American, or both?"71 Moreover, when companies license their logos and trademarks for use on products they do not make, they may lack the ability to discern and control quality. Pierre Cardin's licensing of its label for hundreds of products—from clothing to clocks to toilets—led to some poor-quality goods that hurt the image of the high-quality ones.72 In collaborative arrangements, even though control is ceded to one of the partners, both may be held responsible for problems. In a joint venture to make baby formula between the Israeli company Remedia and the German firm Humana Milchunion, Humana Milchunion's removal of Vitamin B1 from the formula concentrate led to the deaths of three infants.73 Remedia was jointly responsible even though it had not been notified of the removal.

Questions of Control

International Motives for Collaborative Arrangements

Reasons include gaining location-specific assets, overcoming legal constraints, diversifying geographically, and minimizing risk exposure.

Differences in Company Cultures

Similar company cultures aid companies' ability to communicate and transfer knowledge to each other, whereas collaborations can experience problems when these cultures differ.78 For example, the joint venture between Japan's ANA and Malaysia's AirAsia broke up as the former wished to emphasize its culture of "meticulous service," whereas the latter had a culture of cutting costs.79 One partner may be accustomed to internal managerial promotions while the other opens its searches to outsiders. One may use a participatory management style and the other an authoritarian style. One may be entrepreneurial, the other risk-averse. This is why many companies delay JV collaboration until they have had long-term positive experiences with each other, such as through distributorship or licensing arrangements which involve lower levels of commitment. In fact, there is evidence that a gradual increase in commitment, such as developing an alliance with a company before acquiring it, is a means of improving performance.80 Of course, as with marriage, a good prior relationship between two companies does not guarantee a good match in a joint venture

Payment Considerations

The amount and type of payment for licensing arrangements vary, as each contract is negotiated on its own merits. For instance, the value to the licensee will be greater if potential sales are high. Potential sales depend, in turn, on such factors as the size of the sales territory and the longevity of the asset's market value.

When Transportation Costs Too Much

The cost of transportation added to production costs makes some products and services impractical to export. Generally, the more distant the market, the higher the transportation costs; the higher those are relative to production costs, the harder it is for companies to develop viable export markets. For instance, the international transportation cost for a soft drink is a high percentage of the manufacturing cost, so a sales price that includes both would be so high due to exporting that soft-drink companies would sell very little of the product. However, products such as watches have low transportation costs relative to production costs, so watch manufacturers lose few sales through exporting. The result is that companies such as Universal Genève and Seiko export watches from Switzerland and Japan, respectively, into the markets where they sell them.

For a company wishing to pursue a geographic diversification strategy, collaborative arrangements offer a faster initial means of entering multiple markets because other companies contribute resources. Arrangements will be less appealing for companies that have ample resources for such extension.

To Diversify Geographically

Examples of the many combinations of JV partnerships include:

Two companies from the same country joining together in a foreign market (e.g., NEC and Mitsubishi [Japan] in the United Kingdom) A foreign company joining with a local company (e.g., Barrick [Canada] and Zijin Mining Group in China) Companies from two or more countries establishing a joint venture in a third country (e.g., Mercedes-Benz [Germany] and Nissan [Japan] in Mexico) A private company and a local government forming a joint venture, or mixed venture (e.g., Mitsubishi [Japan] with the government-owned Exportadora de Sal in Mexico) A private company joining a government-owned company in a third country (e.g., BP Amoco [private British-U.S.] and Eni [government-owned Italian] in Egypt)

To Secure Vertical and Horizontal Links

Vertical integration provides potential cost savings and supply assurances. However, companies may lack competences or resources necessary to own and manage the full value chain of activities, thus they ally themselves closely with other companies to handle their gaps. Horizontal links may provide economies of scope in distribution, such as by offering a full line of products, thereby increasing the sales per fixed cost of customer visits. For example, in many parts of the world Avon representatives market such products as books and crayons in addition to the company's cosmetics fare. An example of gains from both vertical and horizontal links involves a group of small and medium-sized Argentine furniture manufacturers. By allying horizontally, they pool resources to gain manufacturing efficiencies. In turn, their vertical alliance enables them to deal more effectively to sell abroad and to gain supplies.3

Leasing

We saw in our opening case that Meliá operates extensively by leasing hotels. This mode is much like an acquisition, but one that forgoes the need to invest. While common in the hospitality industry, it is not common in others. Although companies in other industries might lease certain assets abroad—computers, vehicles, buildings—such arrangements are quite different from leasing an entire operating facility.

To Avoid or Counter Competition

When markets are too small to accommodate many competitors, companies may band together so as not to compete. Companies may also combine resources to combat competitors (e.g., Sony and Samsung combined resources to move faster in the development of LCD technology).33 Or they may simply collude to raise everyone's profits. For example, Canpotex, a group of Canadian companies accounting for more than a quarter of the world's potash market, joined together so as not to compete on export sales.34 Only a few countries take substantial actions against the collusion of competitors.35

Companies may find more advantages to locate production in foreign countries than export to them. The advantages occur under six conditions:

When production abroad is cheaper than at home When transportation costs are too high for moving goods or services internationally When companies lack domestic capacity When products and services need to be altered substantially to gain sufficient consumer demand abroad When governments inhibit the import of foreign products When buyers prefer products originating from a particular country

Although contracts cannot cover everything, their provisions should at least address the following issues:

Will the agreement be terminated if the parties don't adhere to the directives? What methods will be used to test for quality? What geographic limitations should be placed on an asset's use? Which company will manage which parts of the operation outlined in the agreement? What will be each company's future commitments? How will each company buy from, sell to, or otherwise use assets that result from the collaborative arrangement? How will revenues be divided?

Sometimes it's cheaper to get another company to handle work, especially

at small volume, when the other company has excess capacity.

The evolution to a different operating mode may

be the result of experience, create organizational tensions.

When collaborating with another company, managers must

continue to monitor performance, assess whether to change the form of operations, develop competency in managing a portfolio of collaborations.

For industries in which technological changes are frequent and affect many products, companies in various countries often exchange technology or other intangible property rather than compete with each other on every product in every market—an arrangement known as

cross-licensing

Licensing agreements may be

exclusive or nonexclusive, used for patents, copyrights, trademarks, and other intangible property.

The advantages of acquiring an existing operation include

gaining vital resources that are otherwise hard to develop, making financing easier at times, adding no further capacity to the market, avoiding start-up problems.

Companies may choose greenfield expansion if

host governments discourage acquisitions, it is easier to finance, available acquisitions are performing poorly, personnel in acquiring and acquired firms may not work well together.

Internalization

is control through self-handling of operations.

Generally, the more ownership a company has, the greater its control over decisions. However, if equity shares are widely held, a company may be able to effectively control with even a minority interest. Nevertheless, governments often protect minority owners so that majority owners do not act against their interests; thus, companies may opt for 100 percent ownership if they want control. There are four primary explanations for companies to make a wholly owned FDI: _________________________

market failure, internalization theory, appropriability theory, and freedom to pursue global objectives.

Turnkey operations generally differ from other IB collaborations because they

may be so large, depend on top-level governmental contacts, are often in very remote areas.

Turnkey operations are

most commonly performed by industrial-equipment, construction, and consulting companies, often performed for a governmental agency.

Consumers sometimes prefer goods produced in certain countries because of

nationalism, a belief that these products are better, a fear that foreign-made goods may not be delivered on time.

resource-based view

of the firm holds that each company has a unique combination of competencies.

Legal factors may

prohibit certain operating forms, such as wholly owned foreign facilities, favor locally owned firms.

Product alterations for foreign markets

require additional investment, may lead to foreign production of the products.

In technology agreements,

sellers do not want to give information before assuring an agreement can be reached, buyers want to evaluate information before committing to an agreement, the contract terms may be considered proprietary.

Trade-offs and Limitations

that operating modes for foreign operations differ in the amount of resources a company commits and the proportion of the resources it locates abroad. In this respect, keep in mind that there are trade-offs. A decision, let's say, to take no ownership abroad, such as by licensing another company to handle foreign production, may reduce exposure to political risk. However, learning about that environment will be slow, delaying (perhaps permanently) the ability to reap the full profits from producing and selling the product abroad. Furthermore, a company may be limited in entering a market with its preferred operating mode. Governmental actions and potential partners have a great deal to say. However, if a company has a desired, unique, difficult-to-duplicate resource, it is in a much better position to choose its preferred operating form and to increase its compensation therein.

appropriability theory

the idea of denying rivals access to resources

Excess home-country capacity

usually leads to exporting rather than direct investment, may lead to competitive exports because of declining unit costs.

transactions cost theory

which holds that companies should seek the lower cost between self-handling of operations and contracting another party to do so for them.


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