Chapter 6- Cross Borders

The process of a multinational company expanding into a foreign market by starting a new subsidiary from scratch.

The process of a multinational company entering a foreign market by acquiring an existing company in that market.

The process of a multinational company selling a part of its business or assets in a foreign market.

A partnership between two or more companies to share resources and enter a foreign market together.

A group of companies that come together to share resources and achieve a common goal in a foreign market.

A wholly owned subsidiary that operates independently in a foreign market.

A company that combines different ownership structures, like joint ventures and wholly owned subsidiaries, to operate in a foreign market.

The process of a multinational company entering and evolving in a foreign market gradually, starting with export and eventually establishing local production.

The choice between greenfield investment and acquisition depends on factors like the firm's resources, market characteristics and the level of risk involved.

Companies with new technologies may prefer greenfield investment to minimize uncertainty associated with acquiring a suitable company with compatible technology.

Companies entering competitive markets with established leaders may prefer acquisitions to quickly gain market share and position themselves against rivals.

Firms entering rapidly growing markets might choose acquisitions to accelerate entry and capitalize on growth opportunities.

Acquisitions might be suitable for mature or declining markets where organic growth is limited, allowing firms to leverage existing assets and infrastructure.

Large, established multinationals may be better equipped to handle the complexities of greenfield investment than smaller companies, allowing for greater control over the new operation.

A market where no single company holds enough power to influence the direction of the industry. It consists of many smaller companies competing with each other and larger enterprises.

Acquisitions were less common in developing countries due to complexities like negotiating with family owners and navigating sensitive political situations.

A hostile takeover bid is when an acquiring company attempts to take over a target despite its management's or board of directors' opposition.

Unilever, a multinational company, used acquisitions to build its international ice cream business by acquiring smaller, family-owned companies across Europe, the U.S., Australia, and other regions.

The phenomenon of the hostile takeover bid helped facilitate the use of acquisition strategies from the mid-1950s onwards. This involved taking over a target company against the wishes of its management.

In Brazil, Unilever acquired Companhia Gessy Industrial, its main competitor, in 1960. The merger created Gessy Lever, a dominant player in the soap and detergents market.

Unilever used acquisitions to grow its business in several countries. This growth strategy involved acquiring small, family-owned businesses, often navigating complex political situations, and even sometimes using hostile takeover bids.

The process of a multinational company merging its acquired foreign firm with its own systems and structures.

The process of a multinational company keeping the acquired foreign firm separate from its own systems and structures.

The systematic process of acquiring a company and assimilating it into the acquiring multinational's operations, systems, and culture.

Joint ventures are agreements between two or more companies to share resources and risks in order to enter a new market.

Joint ventures are commonly used in markets with high political risk and capital demands.

Joint ventures can be formed to address geopolitical concerns, such as preventing foreign control of strategic resources.

A joint venture was formed in 1934 to control the oil resources of Kuwait, involving British and American companies.

Cartels are agreements between competing companies to coordinate pricing, production, and market share, often to gain an advantage over competitors.

The process of one company buying another company, often involving a takeover bid where the acquiring company offers to buy all outstanding shares of the target company at a premium price.

A type of acquisition where the acquiring company is from a different country than the target company.

The risks that arise from the process of acquiring a company, such as the seller having more information than the buyer.

The challenges encountered after acquiring a company, such as integrating different company cultures, managing personnel, and dealing with legal differences.

The potential for value creation from acquisitions to be mainly captured by the shareholders of the company being acquired, rather than the acquiring company. Often occurs when the acquired company is undervalued or has been mismanaged.

The challenges posed by different corporate cultures and management styles in cross-border acquisitions, stemming from differences in national management systems. This can affect communication, decision making, and overall integration.

Managers of acquired companies may have different priorities and goals compared to the acquiring company's managers, leading to conflicts and potential value destruction.

Acquisitions of US firms by foreign companies often come with heightened risks related to cultural differences, legal environments, and talent retention. This can lead to higher acquisition cost and potential value destruction.

Companies collaborated to share risks, as seen when Standard Oil of California and Texaco jointly explored oil in Saudi Arabia in 1936.

Businesses faced with a shortage of capital often sought collaborative arrangements to enter or expand in foreign markets.

IG Farben, a German chemical company, used equity stakes and limited full ownership in US companies to re-establish its position after World War I, using technological advantage as leverage.

Licensing allowed firms to enter foreign markets with minimal financial and managerial commitment, as seen with Océ van der Grinten's expansion using licensing agreements with European, American, and Asian firms.

Licensing agreements provided Océ, a Dutch family firm, with income and expanded their export market for specialty chemicals used in copying paper. This strategy proved successful until the 1960s when Océ, now a public company, started establishing its own factories.

Managers from Océ made regular visits to their licensees, gathering knowledge of foreign markets.

The transition from licensing to direct investment reflects the growth of Océ.

Growing in size and becoming a public company, Océ shifted from licensing agreements to establishing its own factories in the 1960s.