International Business Chapter 6

The process of a multinational company gradually establishing itself in a foreign market, often beginning with exporting and evolving to local production and investment.

A multinational's organizational form where it directly owns and controls a subsidiary in a foreign country.

Cooperation arrangements between companies from different countries, involving shared resources and expertise but without ownership.

A way for a multinational to enter a foreign market by licensing its intellectual property to local companies for a fee.

A method where a multinational grants a local company the rights to use its business model, branding, and operations in a foreign market.

Long-term agreements between companies to collaborate on specific projects or activities, such as joint research or manufacturing agreements.

Factors that influence the choices of international business models, including the nature of the company, the industry, the target location, and the time period.

The triggers that cause a multinational to change its mode of operation, such as trade barriers or changing market conditions.

A company can enter a foreign market by building a new subsidiary from scratch. This involves establishing operations, infrastructure, and hiring staff.

A company can enter a foreign market by acquiring an existing company. This allows immediate access to assets, market share, and existing customer base.

Companies entering a new market with innovative technologies often prefer greenfield investments to reduce risk and uncertainty.

Companies entering oligopolistic markets, with few competitors, often choose acquisitions to rapidly catch up to existing leaders.

Acquisitions might be preferable in rapidly growing markets as they provide a faster entry.

Acquisitions are also often considered suitable for entering static or declining markets.

Large and established multinationals might be more willing to undertake greenfield investments to minimize uncertainty.

The choice between greenfield investment and acquisition depends on the company's resources, market conditions, and strategic objectives.

A market where no single company holds significant power to influence it. It's characterized by many small to medium-sized businesses competing with each other and larger enterprises.

The process of a company acquiring ownership of another company to gain access to its assets, resources, and market share. A common strategy for a multinational seeking to expand or consolidate its position in a foreign market.

A hostile takeover bid is an attempt by a company to acquire another company against the wishes of its board of directors.

Acquisitions can be an important strategy for expanding into developing markets. However, they often involve complex negotiations and political considerations, especially when dealing with family-owned businesses.

The period after World War II saw a surge in the use of acquisitions by US manufacturing firms as a way to expand globally. Often, these acquisitions were aimed at consolidating fragmented industries.

Unilever, a multinational company, strategically used acquisitions to build its global ice cream business, starting from a small presence in Germany and Britain.

Unilever used acquisitions in a variety of countries, including Europe, the United States, Australia, and others, to establish a strong international presence in the ice cream market.

Through acquisitions, Unilever became a dominant player in the European ice cream market, owning a significant percentage of the market share by the 1980s.

The act of one company buying another company, where the acquiring company does not have the permission of the company it is buying.

Acquisitions are risky because the seller often has more information than the buyer and managing the acquired company can be difficult.

Acquisitions can be risky because managers of the acquiring company may prioritize their goals over shareholder value.

Cross-border acquisitions are particularly risky because of differences in cultural practices, legal systems, and accounting standards.

Foreign firms often overpay for US companies or acquire companies with poor performance.

Foreign firms face difficulties keeping key managers after acquiring a US company because of the high job mobility in the US.

Foreign firms struggle to integrate companies with drastically different corporate cultures and management practices.

Managers of the acquired and acquiring companies may speak different languages, making communication and integration challenging.

The process of integrating an acquired firm's systems, structures, and practices into the parent company's model, aiming to leverage the acquired firm's strengths while maintaining corporate unity.

A situation where an acquired company loses its unique characteristics – such as local knowledge or connections – after being fully absorbed into the parent company, potentially undermining the reason for the acquisition.

The combination of financial strain and the desire to share risk among partners, making joint ventures a popular strategy during times of economic challenges.

The practice of merging resources and expertise to create new ventures, often used in politically unstable regions or industries with high capital investments.

A joint venture formed in 1934, involving Gulf Oil and Anglo-Persian, to prevent a single US company from controlling the oil fields in Kuwait, showcasing the role of political concerns in establishing partnerships.

The pace of ‘Unileverization’ is characterized by a trend towards faster integration of acquired companies, signifying a shift towards more efficient and rapid absorption of new businesses.

The outcome of the ‘Unileverization’ process, which involves consolidating resources, divesting non-core assets, and streamlining operations, ultimately impacting the original workforce of an acquired company.

Joint ventures often arise in specific industries where collaboration is beneficial due to high capital requirements, complex technologies, or sharing of complementary expertise.

In this arrangement, several companies join forces to share resources, knowledge, and risks in a joint venture. One example is the collaboration between Standard Oil of California and Texaco in 1936 to explore oil in Saudi Arabia.

Following World War I, IG Farben, a German firm, strategically used its technological advantage to gain a foothold in the US chemical market. Instead of large investments, IG Farben took minority stakes in American companies, regaining market presence without large capital expenditure.

Licensing is a way for firms to gain access to foreign markets without significant capital investment. Océ van der Grinten, a Dutch company, used licensing to expand globally by granting other companies the right to use their copying paper production technology.

Océ's licensing strategy included regular visits to the licensees, allowing them to understand the foreign markets while generating income from the sale of specialty chemicals. This strategy helped the firm grow until the 1960s, when it transitioned to establishing its own factories in foreign markets.

Capital limitations often pushed businesses to collaborate, as exemplified by IG Farben's strategy after World War I. This approach allowed companies to share resources and risks, while also providing access to new markets and technologies.

The strategy employed by IG Farben, where they acquired smaller stakes in various US companies instead of full ownership, allowed them to regain market position without the need for significant capital investment. This approach enabled them to re-establish their presence and build a strong foothold in the American market.

Licensing agreements, like those used by Océ van der Grinten, offer a way for firms to enter foreign markets with minimal risk. This strategy allows companies to test the market, gain local knowledge, and generate income, providing valuable insights for their future expansion.

The decision to move from licensing to establishing own factories, like Océ did, is a strategic shift driven by factors like increasing size, company maturity, control ambitions, and the desire to expand operations directly.