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Case: Grupo Industrial Alfa
 • Mexican-based Grupo Industrial Alfa

 • Family Enterprise

 • In 1973, the Mexican government sought to
   counter foreign control of companies by
   enacting laws that provided fore restrictions on
   foreign equity in new ventures and on the
   expansion of existing investments having large
   foreign ownership.

 • Alfa established numerous Mexican companies
   in which it owned a majority interest, with a
   foreign partner holding a minority interest.

 • Restrictions on foreign ownership in Mexico
   have largely been lifted
I - Introduction

 • International Business may be conducted in
   various ways.

 • Companies frequently handle much of their
   international operations through collaborative
   forms that lessen their control.

 • The truly experienced MNE with a fully global
   orientation usually uses most of the operational
   forms available, selecting them according to
   specific   product     or  foreign    operating
II - Motives for Collaborative
 • Companies establish collaborative arrangements
   for domestic operations, and their motives carry
   over to their international operations as well.

 • Keep    in   mind     that   each   organization
   participating in a collaborative agreement has
   its own primary objective for operating
   internationally and its own motive for
   collaborating    rather    than   handling   the
   operations independently.
A - Motives for Collaborative
 Arrangements: General
Spread and Reduce Costs: sometimes it is
cheaper to get another company to handle work,

    a) At small volume

    b) When the other company has excess capacity

Specialize in Competencies: licensing can yield a
return on a product that does not fit the
company’s strategic priority based on its best
Avoid Competition: sometimes markets are not
large enough to justify entry of as many
companies as would like to tap that market.
Thus, various companies may band together so
as not to compete.

Secure Vertical and Horizontal Linkages: there
are potential cost savings and supply assurances
from vertical integration, however companies
may lack the competence or resources necessary
to won and manage the full value-chain of

Gain knowledge: the motive for many companies’
entries into collaborative arrangements is to
learn so that their own competencies will
broaden or deepen, thus making them more
competitive in the future.
 B - Motives for Collaborative
  Arrangements: International
Gain Location- Specific Assets: cultural, political
competitive, and economic differences among
countries create barriers for companies that
want to operate abroad.

Overcome Legal Constraints: A company may be
constrained in its choice of operating form
regardless of its preferences. Collaboration can
also be a means of protecting an asset.
To prevent pirating of these proprietary assets,
companies sometimes have made collaborative
agreements with local companies, which then
monitor to ensure that no one else uses the asset
Diversify   Geographically:   not only product
diversification but also geographic diversification
among countries can aid a company in smoothing
its sales and profits.

Minimize exposure in risky environments:
political and monetary risk.
 III - Types of Collaborative
    • The forms of foreign operations differ in terms
      of both the amount of resources a company
      commits to foreign operations and the
      proportion of the resources located at home
      rather than abroad.

Control: the more a company deals externally,
the more likely it is to lose control over decisions
that may affect its global optimization.

Prior expansion of the Company: when a
company already has operations in place within a
foreign country, some of the advantages of
contracting with another company to handle
production or sales are no longer as prevalent.
                 A - Licensing
     • Under a licensing agreement, a company grants
       rights to intangible property to another
       company for a specified period, and in exchange
       the licensee pays a royalty to the licensor.

Intangible property: patents, designs, formulas,
copyrights, trademarks, franchises, procedures.
Major Motives: desire for faster start-up, lower
costs, or access to additional resources.
Payments: front-end payment to cover transfer
costs and then follow with another set of fees
based on actual or projected usage

Period, regional coverage, product          quality
requirements, market restrictions.
               B - Franchising
    • Franchising is a specialized form of licensing in
      which the franchisor not only sells an
      independent franchise the use of a trademark
      that is an essential asset for the franchisee’s
      business, but also more than nominally assists
      on a continuing basis in the operation of

Franchisors face a dilemma:
    a) the more standardization, the less acceptance in the
        foreign country

    b) the more adjustment to the foreign country the less
        the franchisor is needed.
 C - Management Contracts
• One of the most important assets a company
  may have at its disposal is management talent.
  The    transmission     of   management   skills
  internationally has depended largely on foreign
  investments that deploy expatriate managers
  and specialists to foreign countries.
    D - Turnkey Operations
• Turnkey projects involve a contract for
  construction of operating facilities that are
  transferred for a fee to the owner when they are
  ready to commence operations.

• Companies performing turnkey operations are
  frequently industrial-equipment manufacturers
  that supply some of their own equipment for the

• The customer for a turnkey operation is very
  often a governmental agency.
            E - Joint-Ventures
    • A type ownership sharing very popular among
      international companies is the joint-venture, in
      which a company is owned by more than one

Equity Alliances
   F - Problems of Collaborative

      a) Choosing a Partner the three Cs

Compatibility: many MNCs talk of alliances in
terms of “marriage

    (alliance track record, strategy, corporate culture,
   management practices and organization, manufacturing)
                 b) Capability
What is their market strength?
What is the state of their technology?
Is the company a leader?

               c) Commitment