Strategy of Using Foreign Investors and Liscensees Essay Example For Students

Strategy of Using Foreign Investors and Liscensees Essay The Strategy of using Foreign Investors and Licensees: a Philippine Perspective †¢ In a certain objectives, use foreign companies †¢ Cooperation with a foreign company can provide a shortcut-attainment of certain goals at a lower cost and in much less time Certain risk or potential problem in cooperation with a foreign firm 1. Government’s approval be obtained 2. Satisfaction of the goals of the foreign company †¢ The Philippine firm must examine the alternative strategies and choose what is the optimum from its point of view Evaluation of Foreign Investing In Philippine setting Pre-Independence days Post-independence days At Present There are a foreign firmexport Foreign Firms number of joint ventures its products through considered or managing agenciesalocal agent Manufacturing its products in the Phils. through partnership with a former importing agent Company Goals o Benefits a Philippine company could get 1. Philippine company may want access to the patent rights or manufacturing rights for a certain type of product a. A product might be manufactured in a number of different countries by several firms each having its own patents. . Easiest arrangement concerned isthrough cash purchase of the rights to manufacture c. Certain brand of a foreign product is selling very well in the local market-trademark †¢ An arrangement must be reached with specific foreign company owner o They will not want their trademark used unless it has assurance that their quality standards can be maintained o They will insist more on a liscense agreement or equity participat ion with accompanying rights to inspect, as well as concurrent royalty payments †¢ Patent- Trademark- 2. Philippinecompany may wish to start manufacturing a new product where technical assistance is required a. Technical services agreement accompany a liscense to manufacture i. Provisions of Technical Services Agreement 1. Help in the design of the plant 2. Provide training for he company’s skilled workers, technicians, engineers and managers 3. Help in product redesign 4. Help in technical advertising 5. Provide full-time or part-time production engineers to help maintain quality and productivity 3. Philippine company feels that it needs to improve its management systems -sometimes the most efficient way of obtaining modern management know-how is to have management contract with a foreign manufacturing company Foreign company turn-key 1. Contract to design and build a plant 2. Train the necessary people 3. Supply some key technicians and managers 4. Maintain full responsibility for the operating the plant until it has reached and sustained the designed and desired capacity †¢ Foreign partner has no equity participation but charged with the full responsibility for total management of Philippine firm o Authority to hire and fire people o Sign contracts †¢ The contract may asssign only for a certain aspect of management. (production management, marketing management etc. ) †¢ Management contract may have no connection with the construction of a new plant it may simply be in connection with a manufacturing liscense agreement Ex. Philippine firms-manufacture consumer products-actively exporting them o In US and European markets where goods have rapidly changing styles/designs, cooperation with a foreign company helps in obtaining advice on trends in styles plus assistance in marketing 4. Access to foreign marketing channels can be one of the most important factors in a firm’s profit potential, as well as in the Philippine’s overall economic development -foreign multi-national firms are to manufacture in a number of countries to: diversify risk to seek new sources of production that offer cost or other advantages Key question:What type of arrangement between the multinational and the Philippine firm? Key variables:degree of equity participation by the foreign firm Quantity of exports which cn be promised 5. Easier access to local financial institutions a. A joint venture agreement may facilitate borrowing foreign international institution b. When a Philippine firm is planning to expand or divers ify (where additional capital is required) usually securing equity participation from the foreign firm may be the very key 6. Provide protection from nationalization o A government will usually hesitate to nationalize foreign assets because of potential repurcussions from the international financial community o A partnership with an interntional institution, ssuch as the international finance corporation(theindustrial investment subsidiary of the World bank ) is probably the best security because nationalization of such a company would jeopardize relations (the Worldbank) 7. Aesthetic Response to Only Justice Can Stop a Curs EssayAll parties to the agrreements must have a sense if net gain. From the point of view of the philipppine firm the role of strategy then isto selectt the scheme which will, over the long term give itthe largest net gain while still giving the governmentand the foreign partnerr room tofeel that their minimum goals, at least, have been achieved. It is necesssary for managers to review the various strategies available to choose new goals which they may not otherwise have considered Types of strategies a. Strategy for type of partner 1. Product range Is it preferable to choose a company thathas a diversified range of products, or one which is highlyspecialized in the product in question? 2. Size o Should one choose as a partner a company which is large, has considrable financial, managerial, and technical resources, orone which is small but would be more respnsive to its relationship with the local firm? 3. Extent of international o peration o A partner with no otherinternational interestsould be more responsive, but it will have less sophistictin in dealing with a foreign firm. Also a large multinationalfirm would have an extensive international marketing network, making it easier for the products of the philippine company to be made available to foreign markets 4. Nationality o There has been an increase in collaboration between both private and public firmsin the developing countries with east-european enterprises, nearly all of which are in the form of technical collaboration agreements b. Ownership strategies Variations: 1. A joint venture majority ownership by the philippine firm 2. A joint venture with a 50-50 split on stock ownership 3. A joint veture with minority philippine ownership 4. License agreements or management contracts with no foreign equity participation 5. A joint venture agreement with initial minority philippine ownership but with a provision that a certain percentage of the stock be sold to the philippie firmby the foreign artner each yearr, until the philippine firm acquires a certain majority percentage 6. A joint venture with a foreign company and the international finance corporation 7. A joint venture with a foreign company and local development bank etc 8. Permitting the foreign partner to buy into the existing philippine firm, or,of establishing a new company to undertake the new type of production c. Control strategies o Control has a wide number f degrees of divisibility nd distribution, between paartners, as well as vis-a-vis the government. It depends upon the type of deision, thenature of the decision making process,and upon prior agreements on rights and responsibilities o Control may cover the following functions: i. Hiring, firing ii. New investment iii. Research and development iv. Pricing v. Dividends vi. Production level ii. Quality control viii. Marketing ix. Exports x. suppliers o maximum divorce of ownership from control (ex. Philippine firm hold 100% of the shares but enter into ong-tem mangement contract with a foreign company to which it gives full powers of management control) D. manufacturing strategies o Refers to the mix of: what portion will be manufactured by the firmin question andwhat would besubcontracted for manufacturing by other philippie firms o The core strategy lies in the philippine firm’s decision-made prior to entry into negotiations with foreign artnerr-on what combination is optimum for it. E. marketing strategies o Interelation between domestic versus export sales o Collaboration with a foreign partner cannot, like war, be a negative-sum game. All parties to the agreement, including the government, must feel that they are net gainers o The role of the strategy is to optimize the achievement of one’s goals whlepermitting the others to satisfy their minimum need â€Å"To a certain extent, the firms in the developing countries should think in terms of exploiting countries. †