Entry Strategies and Organizational Structure

1. Entry Strategies and OrganizationalStructure • How an MNC develops and implements entry strategies and ownership structures. • The major types of organizational structures used in managing international operations. • The advantages and disadvantages of each type of organizational structure, including the conditions that make one preferable to others.

2. North America Western Europe Japan Australia and New Zealand 0 20 40 60 80 100 DEVELOPED MARKETS % OF RESPONDENTS

3. 0 20 40 60 80 100 EMERGING MARKETS % OF RESPONDENTS

4. Wholly Owned Subsidiary • An overseas operation that is totally owned and controlled by an MNC. • MNC’s desire for total control and belief that managerial efficiency is better without outside partners. • Today many multinationals choose a merger, alliance, or joint venture rather than a fully owned subsidiary. Why?

5. Mergers and Acquisitions • The cross-border purchase or exchange of equity involving two or more companies. • The strategic plan of merged companies often calls for each to contribute a series ofstrengths toward making the firm a highly competitive operation. R/N yes. D/C no. • Purchase and pooling of interest accounting

6. Alliances and Joint ventures • Alliance • Any type of cooperative relationship among different firms. • International joint venture (IJV) • An agreement under which two or more partners from different countries own or control a business • Non equity venture • Equity joint venture • Advantages • Improvement of efficiency • Access to knowledge • Political factors • Collusion or restriction in competition

7. Licensing • An agreement that allows one party to use an industrial property right in exchange for payment to the other party • By licensing to a firm already there, the licensee may avoid entry costs • Licensor usually may be a small firm that lacks financial and managerial resources • Companies that spend a relatively large share of their revenues on research and development (R&D) are likely to be licensors • Companies that spend very little on R&D are more likely to be licensees

8. Franchising • Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee • Widely used in the fast-food and hotel/motel industries • With minor adjustments for the local market, it can result in a highly profitable international business

9. Import and Export • Often the only available choices for small and new firms wanting to go international • Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment • Exporting and importing can provide easy access to overseas markets • Strategy usually is transitional in nature

10. Basic Organizational Structures • Initial division structures • Subsidiary • Common for finance-related businesses or other operations that require an onsite presence from the start • Export arrangement • Common among manufacturing firms, especially those with technologically advanced products • On-site manufacturing operations • In response to local governments when sales increase • Need to reduce transportation costs

11. Production Marketing Finance Human Resources China Japan Germany Australia Vietnam Basic Organizational Structures Chief Executive Office Home-office departments V.P. International Operations Overseas subsidiaries Use of Subsidiaries during the Early Stage of Internationalization

12. Problem 1, Bond Pricing • Notes and Bonds payable • Notes are at Face value, and may be sold after underwriting. • Bonds mature at face value, and are traded and valued inversely with interest rate fluctuations.

13. Problem 2, Cost of Equity Capital Example: 1. US Beta IBM = 1.0 which is the average B risk level, meaning = to the market. 2. Expected rate of return = 12%. 6% for the risk, then extra volatility (B). 3. U.S. Treasury bill = 6%. CAPM = 6% + (12% - 6%)(1.0) = 12%. Real world = 6% + 6% = 12%.

14. Problem 3, Weighted Average Cost of Capital • Weighted Average Cost of Capital – after tax borrowing cost and the cost of equity capital.

15. Problem 4, Mergers and Acquisitions • EBITDA X 3 • Cash flow from operations X 3 – 5 • DCF of future cash flows (NPV) • Purchase companies by assetsor earnings. • Stock buy • Publicly traded stock, higher multiples • Wall Street Road Shows, White Knight vs. Venture Capital • Real world valuations

16. Problem 5, Goodwill • Goodwill = Purchase Price – Fair Market Value of Net Assets

17. Problem 6, Project Expansion – Capital Budgeting • NPV - the PV of future cash flows minus the purchase price • IRR - is a rate of return used to measure the profitability of an investment • Payback - period of time required for the return on an investment to repay the sum of the original investment.

18. Problem 7, Entry Strategies • Mergers • Acquisitions • Alliances • Joint ventures • Licensing • Franchising • Import • Export

19. M&A and Valuations • How to buy…asset or earnings • Goodwill • NPV, IRR, EVA, Payback

20. Renault/Nissan I. Introduction: • Introduce Renault. Interesting history. 1. History from startup until alliance. 2. Their cars and market. 3. Fundamentals (summary) of their financial condition. • Introduce Nissan 1. History from startup until alliance. 2. Their cars and market 3. Summary of their financial condition. Page 1.

21. Renault/Nissan • II. The Alliance: - Page 1, Introduce RNBV - Page 1, Renaults infusion of capital - Page 1,2,3,4 The deal and history of the Alliance - Page 4,17 Synergies, what did each bring to the table? - Page 4,5 CCT’s, summary of these - Page 6, Six major project areas - Page 9 Kaizen - Page 10 Difference in French and Japanese - Page 13,14, a little on the culture, like a marriage

22. Renault/Nissan • III. Financial: - Renault - Key ratios in trends, charts are fine, to include, share price, current ratio, debt to net worth, gross profit %, net profit %, EPS, revenue, and net income. Bring current in Euros. - Nissan - As above, and comparisons. Bring current in Yen.

23. Renault/Nissan • IV. Summary: - Did the Alliance work? Financial support. - Current niche of each manufacture - Where do they combined rank? - Strategy – what is their future?