14-13. What are the major motives for undertaking FDI for a small firm whose
sales are dwindling in its home market? For a firm that wants to enter a country
with high trade barriers? For a firm with high manufacturing costs in its home
market? For a hotel chain? For a large, diversified firm seeking to enter various
markets worldwide for a variety of reasons?
(LO 14.3; AACSB: Application of knowledge)
■ There are market-seeking motives, which explain why a small firm needs to gain
■ Efficiency seeking motives involve a firm entering a country with high trade
■ Also a part of efficiency seeking motives, a firm with high production costs may seeks
■ A large diversified firm with various reasons for internationalization would expand into
14-14. What factors should management consider when deciding where in the
world to establish a factory? A marketing subsidiary? A regional headquarters?
(LO 14.5; AACSB: Analytical Thinking)
■ The text highlights five groups of factors to consider in selecting FDI locations.
■ They should be cited by the student for all three examples.
■ To establish a factory, emphasis would shift to infrastructural factors and human
■ The marketing subsidiary would focus on infrastructural factors, the quality of
14-15. What steps should the firm take to ensure the success of its international
collaborative ventures?
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(LO 14.5; AACSB: Analytical Thinking)
14-16. What are the risks of international retailing? What can a retailer—such as
a department store or a restaurant—do to maximize its chances of succeeding in
foreign markets?
(LO 14.6; AACSB: Application of knowledge)
■ There are four risks and four guidelines to international retailing:
Challenges of International Retailing
The success of retailing is tightly coupled with retailing experience.
Four barriers may inhibit success:
International Retailing Success Factors
More specifically, success factors for international retailing include:
● APPLY YOUR UNDERSTANDING
14-17. Suppose you get a job at MobileTV, a small manufacturer of TV sets
installed in cars and boats. Business has declined recently, foreign rivals from
emerging markets are increasing competition, and management is worried.
Because MobileTV does all its manufacturing in Canada and the United Kingdom,
it lacks cost advantages, and its prices are relatively high. After studying the
problem, you conclude that MobileTV should move much of its production to
Mexico, but senior management knows little about FDI. Prepare a report to
management detailing the advantages of establishing a production base in
Mexico. Why should the firm be interested in foreign manufacturing?
Recommend which type of FDI MobileTV should use in Mexico. Finally, what
advantages and disadvantages should the venture expect from manufacturing in
Mexico?
(LO 14.3; AACSB: Analytical Thinking)
■ Students should establish the facts. MobileTV is a small manufacturer of specialty
television sets for cars and boats. Although Chinese imports threaten MobileTVs market
■ Students should then refer to the factors in selecting FDI locations, and summarize
the most important factors under the five categories. For example, Mexico is attractive
Emerging Markets as Manufacturing Bases
■ Emerging markets have long served as platforms for manufacturing by global MNEs.
Advantages:
■ The biggest advantage of manufacturing in Mexico is the close proximity to the U.S.,
■ Large reserves of raw materials and natural resources.
■ Mexico – platform for manufacturing cars and consumer electronics
■ Business-friendly environment – regulations in Mexico are streamlined, thus is
■ Investments from abroad benefit emerging markets as they lead to new jobs and
Disadvantages:
Political Instability
■ The absence of reliable government authorities adds to business costs, increases
■ Political instability is associated with corruption and weak legal frameworks that
discourage inward investment and a reliable business environment.
■ The relationship between the U.S. and Mexico may be strained in the wake of the
■ Ease of Doing Business rankings of the World Bank, Mexico received an overall
Weak Intellectual Property Protection
■ Even if they exist, laws that safeguard intellectual property rights may not be
Bureaucracy, Red Tape, and Lack of Transparency
■ Burdensome administrative rules, as well as excessive requirements for licenses,
■ Excessive bureaucracy means lack of transparency, i.e. legal and political systems
■ In Transparency International’s rankings (www.transparency.org), emerging markets
Poor physical infrastructure
■ In emerging markets, basic infrastructure -high-quality roads, drainage systems,
14-18. Suppose you work for Aoki Corporation, a producer of processed foods.
Your boss, Hiroshi Aoki, heard there is a big market for processed foods in
Europe but does not know how to enter or do business there. You recommend
entering Europe through a joint venture with a local European firm. Prepare a
memo to Aoki explaining the objectives and risks of internationalizing through
collaborative ventures. Explain why a collaborative venture might be a better
entry strategy than wholly owned FDI. Keep in mind that processed food is a
culturally sensitive product that entails various complexities in marketing and
distribution. What type of European partner should Aoki seek?
(LO 14.2; LO 14.3; AACSB: Analytical Thinking)
■ Two foreign entry strategies that are typically considered to be on the “risky” end of
■ Foreign direct investment is an internationalization strategy in which the firm
establishes a physical presence abroad through ownership of productive assets such as
■ Equity joint ventures occur when two or more partners pool assets to create a
■ Firms may be motivated to use a collaborative venture for the same reasons that firms
■ Collaboration helps firms, particularly SMEs, overcome high risk and high cost of
■ In this case, processed food is a culturally sensitive product that entails various
complexities in marketing and distribution. Local expertise would be critical in navigating
the nuances of the local markets, and as such the expertise of a local partner would be
■ Collaborative ventures require much due diligence, strong negotiation skills, high
levels of commitment by management, competence in managing cultural differences,
14-19. Ethical Dilemma:
Censorship standards vary worldwide. What is acceptable in some countries,
such as nudity on television, criticizing authority, or revealing government
secrets that affect national security, is unacceptable in others. Google is an
Internet service multinational that used FDI to establish operations in China.
Google enjoyed growing market success for several years. Eventually, however,
Chinese government officials blocked Google from the market because Google
refused to censor links to websites on sensitive topics such as independence for
Taiwan and criticism of the Chinese government. Government censorship
requirements eventually forced Google to withdraw from mainland China, a move
that ceded market share to Chinese competitors and hurt Google’s profits.
Suppose you are an international manager at Google. Should Google have exited
China, or should it reestablish its presence there and comply with Chinese
censorship rules? Using the ethical framework in Chapter 4, analyze the
arguments for and against Google’s withdrawal from China. What can Google do
to address the problem effectively?
(LO 14.2; LO 14.3; LO 14.5; AACSB: Reflective thinking)
Ethical Framework
1. Identify the problem
2. Examine the facts
3. Create alternatives
Evaluate each proposed action to assess its consistency with accepted ethical
standards, using the approaches described earlier:
■ Utilitarian—which action results in the most good and least harm?
■ Rights—which action respects the rights of everyone involved?
■ Fairness—which action treats people most fairly?
■ Common good—which action contributes most to the overall quality
of life of the people affected?
■ Virtue—which action embodies the character strengths you value?
4. Implement course of action
5. Evaluate results
■ When cultures collide, both similarities and differences are underscored. Such
differences can be either positive or negative. In this case, Google is experiencing the
■ China has in excess of 500 million Internet users, and as the world’s leading search
engine, business logic would dictate Google’s entry into the mass Chinese market.
■ The global marketplace exacerbates moral compromises as cultural differences and
■ The analogy of cheap labor in poor countries to Google’s experience in China may
■ Google is facing a similar moral risk, in that it’s unclear if their presence in China will
be productive and better the lives of Chinese stakeholders or not. As this issue centers
Using the Ethical Framework in Chapter 4, analyze the arguments for and against
Google’s withdrawal from China.
A FRAMEWORK FOR MAKING ETHICAL DECISIONS
1. Identify the problem
■ Managers must learn to recognize and manage ethical problems – proactively
anticipate, confront and scan for ethical challenges.
This Dilemma:
Should Google re-enter the Chinese market given the censorship demands from the
government?
2. Examine the facts
■ Managers must systematically explore the ethical aspects of each decision the firm
This Dilemma:
Due Diligence would have revealed the censorship requirement prior to entry into
the Chinese market. Now the dilemma is reconciling competing stakeholder
demands- government authorities demanding censorship, stockholders
demanding increases in shareholder wealth, and American constitutional
ideologists demanding that a U.S. firm operate with American values intact.
3. Create alternatives
■ Consistent with the pyramid of ethical behavior, actions should be legal, i.e. it should
not violate host or home country laws or conflict with international treaties. Any
This Dilemma:
Google in China vs. Google not in China
Utilitarian – which action results in the most good and least harm?
◘ Google in China– Most good for capital market stakeholders- increase profits; most
good for Chinese society
◘ Google not in China – Most good for Chinese Search Engine competitors; U.S.
Rights – which action respects the rights of everyone involved?
Common Good – which action contributes most to the overall quality of life of
the people affected?
1. Virtue – which action embodies the character strengths that you value?
◘ Google in China – Economic goals dictate actions- no character strength
4. Implement course of action
■ Implement your decision.
5. Evaluate results
■Then evaluate it to see how effective it was. How did it turn out? If you had it to do
again, would you do anything differently?
This Dilemma: Students may discuss the above-mentioned points and the ones
below in addition to those generated by the students themselves.
● Google’s presence in America has improved they way Americans get information by
Argenna 40 44 86 83 27 38 31 35
Performance Index
Inward Outward
Case Update: Ask students to research what Google’s decision was and why.
● GlobalEDGE™ INTERNET EXERCISES http://globaledge.msu.edu
14-20. Suppose your company wants to establish a factory in Latin America to
make and sell products in the region. It has narrowed the pool of candidate
countries to Argentina, Brazil, and Chile. Your task is to write a report that
compares the FDI environments of these countries. One approach is to obtain the
country fact sheet for each nation from UNCTAD (www.unctad.org), a United
Nations agency that gathers FDI data. You can access this data either through
globalEDGE™ or the UNCTAD site. By examining the fact sheets, answer each of
the following questions individually for Argentina, Brazil, and Chile:
A. What nations are the major trading partners of each country in the region?
(This indicates the size and stability of existing trading relationships with key
partners.)
B. Which companies are the leading firms now doing FDI in each country? (This
helps identify key competitors.)
C. What is each country’s rating on the FDI Performance Index? (This rating
indicates the performance that typical firms have experienced when investing in
each country.)
D. What is the level of merger and acquisition activity in each country? (This
shows the maturity of each country for acquisition-based FDI.) Elaborate and
justify your findings.
A. What nations are the major trading partners of each country in the region?
(This indicates the size and stability of existing trading relationships with key
partners.)
B. Which companies are the leading firms now doing FDI in each country? (This
helps identify key competitors.)
C. What is each country’s rating on the FDI Performance Index? (This rating
indicates the performance that typical firms have experienced when investing in
each country.)
D. What is the level of merger and acquisition activity in each country? (This
shows the maturity of each country for acquisition-based FDI.) Elaborate and
justify your findings.
14-21. Suppose your firm wants to identify prospective countries for direct
investment. Your boss has requested a report on the attractiveness of alternative
locations based on their potential FDI return. A colleague mentions a tool called
the FDI Confidence Index. Consult this resource and write a report in which you
identify the top FDI destinations as well as the criteria used to construct the
index. The Confidence Index is published by the consulting firm A. T. Kearney,
based on an annual survey of CEOs at the world’s top MNEs. Access the index by
entering “FDI Confidence Index” at globalEDGE™ or directly at www.atkearney.com.
Download the PDF file to do your research.
■ The Confidence Index is based on surveys given to senior executives of the 1,000
largest corporations globally. Corporations were selected based on annual revenues
14-22. Assume you own a company that manufactures medical products in the
biotechnology industry. You want to establish a foreign plant to manufacture your
products and are seeking countries with a high concentration of knowledge
workers. Thus, you decide to collect information about the knowledge economy
abroad. The World Bank highlights the state of the knowledge economy in
various countries. The data are accessible by visiting the World Bank site
(www.worldbank.org) and entering the keywords “Knowledge Economy Index” in
the search engine. You will be able to find several articles and retrieve
information about these countries. Visit the site and prepare a report on the
knowledge economy for each of the following: Singapore, South Korea, and
Spain.
(LO 14.1; LO 14.5; AACSB: Analytical Thinking)
■ The site links to The World Bank Group and The World Bank Fund, which provide
useful information at their “Development Data & Statistics page”. The information
provided to address the question is as follows:
■ Tertiary school enrollment and literacy rate give an indication of how well educated the
■ In most advanced economies and emerging markets, knowledge workers are
■ Based on these results, South Korea appears to be the best country to locate the
■ Meanwhile, the number of telephone users is about equivalent across the three
CAREER TOOLBOX EXERCISE
SELECTING A SITE FOR A MANUFACTURING PLANT
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Go to Mymanagementlab.com for Auto-graded writing questions as well as the
following Assisted-graded writing questions:
14-23. Governments often provide incentives to encourage foreign firms to
invest within their national borders. Why do governments encourage inward
FDI?
14-24. Explain what steps a firm should take to launch a collaborative venture
with a foreign partner successfully.
14-25. MyManagementLab Only– comprehensive writing assignment for this
chapter.
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