QUESTIONS
14-1. What are the main characteristics of Africa as a market for mobile
telephones?
(LO 14.1; AACSB: Application of knowledge)
■ With a population just over one billion, Africa is the world’s second most populous
■ Recently Africa has been growing economically in part due to increased investment
■ High-value industries: Textiles and Telecommunications
■ African demand for mobile communications is surpassing many advanced economies.
■ The ability of Chinese firms to operate profitably in poor countries is perhaps the main
14-2. What benefits does foreign investment bring to Africa?
(LO 14.1; AACSB: Application of knowledge)
■ Chinese investment in African telecommunications has fostered entrepreneurship and
■ In many ways, telecom infrastructure is the backbone of national economic activity.
■ Infrastructure investments contribute directly to economic development, and indirectly
■ The expansion of cell networks allows Africans, many of whom live in isolated areas,
■ Connecting to the Internet further enhances commercial growth.
14-3. Describe the various ways Huawei has invested in Africa.
(LO 14.4; AACSB: Application of knowledge)
■ Having established a presence in Africa in the 1990s, Huawei has invested more
■ Uganda- Huawei developed a government data center and several large-scale
■ Ghana- Huawei invested more than $100 million to develop telecom facilities.
■ Northern Africa- Huawei entered a joint venture with ZTE Corporation to expand
■ Algeria- Huawei established a mobile network to complement a cell network
■ 2015- Huawei and Global Marine Systems formed a joint venture to develop
● SUGGESTED SOLUTIONS TO CASE QUESTIONS
14-4. In broad terms, what were each of Chrysler’s and Daimler’s motives for
entering the merger? Evaluate the extent to which each firm accomplished these
motives.
(LO 14.3; AACSB: Application of knowledge)
Goals of DaimlerChrysler
■ Goals of DaimlerChrysler were to grow globally and take advantage of scale
economies resulting from combining operations for R&D, sourcing, distribution, and
sales.
■ Management expected cost savings of $3 billion annually.
Daimler’s goals in the merger were to:
● Broaden its market base. Until the merger, Daimler competed mainly for 20% of the
world market, never reaching the remaining 80%.
● Reach more middle-class buyers, beyond those historically targeted by Mercedes.
Chrysler’s goals in the merger were to:
● Overcome the challenges of excess capacity and overproduction by consolidating
operations with a strong partner.
Evaluate the extent to which each firm accomplished these motives.
■ The absence of synergies, failed cultural integration (at both national and firm levels),
product lines could not be integrated, distribution channels were not shared, the
14-5. Explain how the DaimlerChrysler merger enhanced economies of scale and
scope in the respective firms. How successful was the venture in attaining such
economies?
(LO 14.3; AACSB: Analytical Thinking)
■ Economies of scale is an efficiency measure- where increased volume results
in lower per unit costs.
■ The two firms’ product lines and marketing approaches proved difficult to integrate.
■ Both firms were reluctant to use the other’s distribution channels.
■ Mercedes could not be produced on Chrysler production lines, and Chrysler minivans
■ Economies of scope is an efficiency measure- through shared resources; an
idle resource in one business is used in another business resulting in lower
overall costs.
How successful was the venture in attaining such economies?
14-6. What advantages did Chrysler and Daimler each seek from their merger?
What disadvantages did these firms bring to the venture? Elaborate.
(LO 14.3; AACSB: Analytical Thinking)
Advantages of the Merger
■ The primary reasons for the merger- global automotive production had outstripped
demand for cars, global competition had intensified, and automakers were scrambling to
survive.
■ Top management at Daimler believed the solution was to expand its product offerings
Disadvantages of the Merger
■ From the beginning, problems in the merger were real and visible.
1. Merger of equals
2. Venture identity
■ German dominance fostered an atmosphere of mistrust and resentment.
■ Early enthusiasts were disappointed by the loss of Chrysler’s identity.
■ The “merger of equals” tagline, intended to foster goodwill, was a facade.
■ Managers throughout Chrysler resented the venture’s false premise.
■ Daimler’s domination filtered down through rank and file, creating a gloomy
■ 2007- following nine disappointing years, Daimler sold Chrysler to Cerberus Capital
■ 2009- Chrysler filed for bankruptcy and took out billions in government loans to
■ 2012- skillful restructuring had revived Chrysler, regaining its status as one of the
■ 2014- The Italian automaker Fiat began buying shares of Chrysler and achieved
14-7. The chapter identifies a collection of questions that managers should
address before forming international collaborative ventures. In terms of potential
risks in collaboration, what issues did top management at DaimlerChrysler fail to
adequately understand? Elaborate.
(LO 14.5; AACSB: Analytical Thinking)
■ Due Diligence in researching the following success factors in collaborative
ventures:
◘ Cognizant of cultural differences
◘ Pursue common goals
In terms of potential risks in collaboration, what issues did top management at
DaimlerChrysler fail to adequately understand?
All of them!
Over time, numerous issues arose:
1. Merger of equals
■ From the beginning, Daimler sent mixed signals about equality of the merger.
■ While insisting the two partners were equal, Daimler positioned itself as Chrysler’s
superior.
2. Venture identity
■ The German and the U.S. organizations had distinct histories and personalities.
■ Confusion arose about the identity of the new firm- would it be American, German, or
global? Would it be headquartered in Germany or the United States? Should the name
3. Culture clash
■ Daimler was a relatively hierarchical, conservative organization, with centralized
decision making.
■ Chrysler was a flatter organization, with diffused authority and Midwest U.S.
egalitarian values.
4. Integration problems
■ The two firms’ product lines and marketing approaches proved difficult to integrate.
■ Mercedes could not be produced on Chrysler production lines, and Chrysler minivans
5. Absence of synergies
■ Once seen as an asset, the lack of overlap between Chrysler and Daimler product
lines proved problematic.
6. Growth ambitions
■ Top management envisioned becoming the world’s biggest automaker.
14-8. Suggest a systematic process that Daimler could have followed to increase
the likelihood of merger success. Provide examples on how Daimler might have
made such a process succeed.
(LO 14.5; AACSB: Analytical Thinking)
■ As the authors state, nearly half of all collaborative ventures fail in the first five years
■ International ventures are particularly challenging because complex business issues
■ A merger between an American and German company is particularly complex and
may suffer an even higher failure rate than those between firms from countries at
different stages of development. Managers of other firms can be aware of several
success factors in collaborative ventures:
Awareness of cultural differences.
■ One might argue that a marriage counselor would have talked them out of the merger
■ The biggest problem was Daimler’s dominance in everything, and the resulting
integration problems, from conflicting management styles to serving German cuisine at
■ Check with your students to see what they think. Break them into groups, assigning
V. END OF CHAPTER QUESTIONS
● TEST YOUR COMPREHENSION
14-9. What are the various types of FDI? Distinguish between acquisition and
greenfield.
(LO 14.1; AACSB: Application of knowledge)
SHORT ANSWER
■ There are two types: Greenfield ventures, when a company builds new
manufacturing facilities from scratch, and mergers and acquisitions, when a company
purchases an existing company and its assets.
■ Type and level of ownership is one distinguishing variable between WOFEs (wholly
owned foreign entities) and collaborative FDI. Wholly-owned subsidiaries means the
firm assumes 100% ownership of the business and has complete control over its
■ Integration is a third variable. Vertical FDI means the firm invests in forward and/or
DETAILED ANSWER
THE AUTHORS CLASSIFY FDI ACTIVITIES AS FOLLOWS:
■ Form of FDI- greenfield versus mergers and acquisitions.
■ Nature of ownership- wholly owned versus joint venture.
■ Level of integration- horizontal versus vertical.
Form of FDI
Greenfield Investment versus Mergers and Acquisitions
■ Greenfield investment- direct investment to build a new manufacturing, marketing, or
■ Greenfield implies, the investing firm typically buys an empty plot of land and builds a
◘ Example- Ford– when it established its large factory in Rayong, Thailand, to
■ Acquisition- Purchase of an existing company or facility- FDI acquisition provides an
◘ Examples-
●Home Depot entered Mexico; it acquired the stores and assets of an
● Lenovo – Chinese personal computer manufacturer – acquired IBM’s PC
■ Merger- A special type of acquisition in which two firms join to form a new, larger firm,
■ Advantages– Mergers can generate many positive outcomes, including inter-partner
■ Challenges– Cross-border mergers confront many challenges due to national
■ Examples- The largest international M&As (Mergers & Acquisitions) include:
●Anheuser-Busch InBev (U.S.) acquisition of SABMiller (UK) in the beer industry.
●Kraft Foods (U.S.) merger with Cadbury (United Kingdom).
●Suntory’s (Japan) purchase of Beam (U.S.) in the liquor industry.
●Telefonica’s (Spain) purchase of Brasilcel (Brazil).
Acquisition vs. Greenfield Venture
■ Multinational enterprises may favor acquisition over greenfield FDI because by
■ Acquisition provides an immediate stream of revenue and accelerates the MNEs
■ Host-country governments often pressure MNEs to undertake greenfield FDI because
■ Many governments offer incentives to encourage greenfield investments, which may
The Nature of Ownership in FDI
Wholly Owned versus Joint Venture
■ Ownership is a function of commitment, control and risk- these choices dictate
■ Wholly owned direct investment- A foreign direct investment in which the investor
◘ Numerous global car companies established fully owned manufacturing plants
■ Exhibit 14.5 maps the location of Toyota’s U.S. plants and the year of establishment.
■ Equity participation- Acquisition of partial ownership in an existing firm
■ Equity joint venture- A type of partnership in which a separate firm is created
■ Joint ventures- involves sharing ownership with one or more partner firms. The focal
◘ Minority ownership provides little control over the operation
Joint Venture Advantages
■ Complexity– attractive entry strategy because many foreign markets are complex
■ Collaboration– with a local partner enhances the foreign entrant’s ability to navigate
■ Collaborative ventures– benefit small and medium-sized enterprises by providing
◘ Example- Shanghai-based Tri Star International acquired a majority stake in
■ Joint ventures may also be the only way that a company can expand into a country as
◘ Examples-
●Mexico’s government requires foreign MNEs to form joint ventures with
●Until recently, the Chinese government prohibited foreign firms from
Level of Integration
Vertical versus Horizontal Integration
■ Vertical integration- An arrangement whereby the firm owns, or seeks to own,
multiple stages of a value chain for producing, selling, and delivering a product or
service.
◘ Forward vertical integration- the firm develops the capacity to sell its outputs
◘ Backward vertical integration- the firm acquires the capacity to provide
◘ Firms can undertake both backward and forward vertical integration
◘ Example– Honda owns both suppliers of car parts and dealerships that sell
and distribute cars
■ Horizontal integration- an arrangement whereby the firm owns, or seeks to own, the
■ Horizontal integration – the firm invests in its own industry to expand its capacity and
■ A firm may acquire another firm engaged in an identical value-chain activity to achieve
economies of scale, expand its product line, increase its profitability, or eliminate
a competitor.
◘ Example- Microsoft– in addition to producing operating systems, word
14-10. What are the major motivations for undertaking FDI?
Visit MyManagementLab for suggested answers.
(LO 14.3; AACSB: Application of knowledge)
14-11. Delineate the types of firms involved in FDI. Are there any types of
companies that can internationalize only by FDI? Elaborate.
(LO 14.2; AACSB: Application of knowledge)
■ Firms of all types engage in FDI: Large MNEs with significant international
14-12. Identify the different types of collaborative ventures. What type of venture
is best for entering a culturally distant market such as Malaysia or Uzbekistan?
For the next generation of products in its industry? For undertaking a short-term
project, such as building infrastructure (e.g., highway, dam) abroad?
(LO 14.5; AACSB: Analytical Thinking)
■ The three types are equity joint ventures, project-based nonequity ventures, and
■ For the Malaysia or Uzbekistan case, it is hard to say without more information, but an
■ For developing the next generation of products, either a project-based nonequity
■ For the highway or dam venture, a project-based, nonequity venture may be preferred
b for suggested answers