Video 
- Collaborative Relationships Explained
 youtube.com/watch?v=Dy_3tvCrXao

Now, we will take a closer look at the various types of arrangements that can be created to allow a company to be international. Almost all of the ways that a company does business overseas involves some collaboration. Experience has shown that it is less expensive and more productive to have some degree of co-operation with companies and government in the host country.

The purpose of this section is to introduce the student to the nature of the relationships in which companies engage, to achieve their corporate objectives. The following points will be discussed in the lecture

Why companies enter foreign

• sell more product
• make more profits (understand profit is slightly different than sales)
• test market
• protect domestic market (follow customers)
• attack competitor in their home country (Kodak selling camera film in Japan)
• guarantee supply of materials
• acquire technology
• diversify to reduce vulnerability
• management ego for expansion - reputation for having overseas offices

• Indirect Exporting 
• Co-op or Piggyback Exporting 
• Direct Exporting 
• Licensing
• Licensing Technology
• Franchising
• Contract Manufacturing
• Management Contracts
• Turnkey Operations
• Joint Venture
• Co-op Joint Venture
• Equity Joint Venture
• Alliances
• Strategic Alliances
• Equity Alliances
• Wholly Owned Subsidiaries 
• Acquisitions
• Greenfield Operations
• Consortiums

The majority of the "Ways to get involved in Intl Business" involve co-operation and collaboration in our increasingly competitive and "globalized" world.

Below,  we have a closer look at the situations that involve collaborative arrangements
 

Indirect Exporting 

• a recent case in the aircraft industry - Canada to China - 2001/2002

CBC reported "The U.S. State Department is investigating how aircraft engines made near Montreal ended up in attack helicopters in China. The maker, Pratt and Whitney Canada, says it did nothing illegal. It delivered 10 engines to Bejing in 2001 and 2002 on condition they be used only in civilian aircraft. "

military analyst Richard Fisher explains that "the Z-10 attack helicopters is just one major military program, amongst hundreds, that China is pursuing in order to prepare for a possible war against Taiwan".

CBC says "Under U.S. arms trafficking laws, Washington must give its approval for U.S. products and technology to be used for military purposes in a third country."
see more details under the heading  witiger.com/internationalbusiness/CanadaUSrelations.htm

Collaborative
Relationships
 

Licensing

• common for branded clothing products
• risks include production overuns by the licensee which would be sold on the black market which would erode the value of your brand
• often done when the license holder fears high risk associated with local manufacturing and prefers to simply take the money from selling licenses

• a recent case in the automotive industry - Japan to Canada - Oct 2002
• Japan's Mazda is transferring technology to DDM Plastics of Tilsonburg, Ontario, to enable it to manufacture front end module carriers for the Mazda 6. Mazda started using module carrier technology in Japan earlier this year [2002] as it reduces the time and cost of automobile production. DDM Plastics is a subsidiary of Daikyo and Mitsui and Co. of Japan. 
• a recent case in the petroleum industry - Canada to Japan - Oct 2002
• Nova Chemicals Licenses Technology to Japan's Kubota 
• Calgary-based Nova Chemicals Corporation and Kubota Corporation of Japan announced that they reached an agreement under which Nova Chemicals will license its new ANK400 anti-coking technology to Kubota. The Japanese company will manufacture and globally market the product to ethylene facilities for gas feedstock cracking applications. ANK400 is a new anti-coking furnace tube product that increases on-stream time for ethylene furnaces..

• common in the convenience food and beverage products industry
• also used in industrial services" such as franchised "Real Estate" offices
• a good way to spread your brand without taking the risk of buying real estate and setting up foreign operations.

Collaborative
Relationships
 

• common in the clothing, telecom, computer and auto parts industries
• a good way to keep your investment in capital and labour to a minimum
• allows for flexibility when you need to temporarily increase output
• risk to the
• contractor
• you may be continually squeezed to produce at a cheaper and cheaper price if the contractee is facing competition when they sell the product in a tough market
• contractee
• there are risks when the contract manufacturer does not produce to a quality level which meets the customer expectations, or when their are flaws in the production which could cause danger to users of the final assembled product..

Collaborative
Relationships
 

• based on the premise that success in business is due to successful people
• often used for highly specialized skills such as managing an oil refinery, or a computer hardware manufacturing facility

• contracts for construction of another company's facilities
• called "turnkey" because all the person has to do is arrive, and turn the key in the door and everything is ready to go
• sometimes the contract is just for real estate, erecting the building, and installing the machinery - other times it also includes hiring the local personnel as well.

Collaborative
Relationships
 

• Co-operative Joint Ventures
• quite common with large sized companies seeking positions in emerging markets
• the relationship does not include financial sharing of ownership in a 3rd entity 

Example of a Japanese company and a Chinese company forming a JV for the purpose of developing a Linux based OS (operating system) for Asian markets, that will challenge the dominance of Microsoft The JV is between  China's Red Flag Software Co. and  Japan's Miracle Linux Corp. (Miracle is owned 58% by U.S. based Oracle Corp.) - the new system will be called Asianux see www.asianux.com In June 2004, asianux.com announced that South Korea was also getting involved

Collaborative
Relationships
 

• Equity Joint Ventures
• the partners share ownership of a jointly held subsidiary
• often used when it is expected that by holding a subsidiary, the partners can achieve a profit beyond what they could have done seperately

Example of an equity joint venture is the JV that Canadian mining company Placer Dome has with Newmont Mining - the result will help lower operating costs at their Nevada gold-mining operations. The name of the subsidiary is  Placer Dome Turquoise Ridge Inc. Placer Dome owns 75%  and Newmont owns 25% The project expects to mine 300,000 ounces per year of gold - with gold over $300 an ounce, this deal is worth $90 million annually

Collaborative
Relationships
 

• Strategic Alliances - a relationship not involving ownership
• usually involving two or more companies that have resources and access to markets which could not be obtained by the alliance members on their own
• also done when the size of the project is beyond the scope of even large companies
• Equity Alliances - a relationship when the partners take joint ownership of a subsidiary
• a relationship in which one or more of the partners takes an ownership position in the other company
this was very common among Japanese companies in the 1980's in order to secure strong motive for making the relationship succeed

Collaborative
Relationships
 

• Some texts describe consortiums as simply a term for 3 or more in a joint venture. This is definition is slightly incorrect. A consortium is usually an arrangement where companies come together for a project - usually without taking ownership or sharing ownership in any subsidiary entity
• consortiums are sometimes done by competitor companies for 
• research on a very expensive situation ; eg. the DVD consortium
• construction of a large scale engineering project
• or because by combining forces they have enough capital to do something a single company might not be able to do
• example involving a Japanese and Canadian company in high tech - Oct 2002
• Mitsubishi Electric Corporation has joined the G.729 Consortium, supported by the privately owned Canadian Sipro Lab Telecom Corporation, which works to protect intellectual property rights and promote standardization of technologies. The G.729 Consortium provides the telecommunications industry with a low bit rate speech coding solution within the field of digital audio compression. Mitsubishi joins major players, France Telecom, Universite de  Sherbrooke, and Nippon Telegraph and Telephone Corporation, in incorporating G.729 into its electrical and electronic equipment. 
• it is about digital audio compression for transmission and storage

Collaborative
Relationships
 

Jessica emailed Prof. Richardson and said "..While studying for the test, I Google'd some examples of a consortium and I came across the Open Interconnect Consortium (OIC) ( openinterconnect.org )between Intel, Dell, Samsung and others. They are basically trying to connect all devices, such as computers, toasters, sensors, cars, to the Internet, which will let people to control the objects and let the objects communicate between each other. Could you imagine starting your oven at a touch of a button from your car? Not sure if this is the
best idea or not, but if successful, there are trillions of dollars to be made worldwide, which would only make the competition between large transnational companies more intense."
the article Jessica referred to is
 http://www.itworldcanada.com/article/dell-intel-samsung-other-form-iot-consortium/95359 

WTGR replies."I think this is an interesting concept, but the premise of "Connectivity across multiple operating systems" may go against some of the monopoly situations that some hardware and software companies have been trying to leverage - so some of the super big companies might not co-operate"

Collaborative
Relationships
 

Bhavana emailed Prof. Richardson and said "..i found an interesting article on the internet today about constoriums and Toys R Us. I know we were talking about them in class yesterday so I thought you might want to read the article and/or add it to your website as and example of a consortium."

Toys R Us has 681 toy stores in the United States, and 601 overseas
 

While this story did not explain the reason why this consortium bought Toys 'R' Us, there are a number of plausible guesses - they may be speculating on the chance they can sell the inventory at mark-down prices and make a tiny profit, they might want to split the company up into several divisions and sell them off to competitors in the toy business, or maybe some analyst has calculated that the real estate owned by the 681 stores could be valuable sold off to developers.
WTGR.

One of Latin America's largest companies

• steel manufacturer
• brewing beer
• banking and finance
• electronic consumer products (TV sets)
• mining and oil exploration
• automotive parts
• motorcycles (JV with Yamaha)
• synthetic fibers ( JV with Dupont)
• agricultural machinery (bought out Massey-Ferguson)

Alfa also has a relationship with a U.S. rug mfg.
from Shaw's website
 http://www.shawinc.com/International/terza.htm

"In addition to its U.S. operations, Shaw Industries maintains a  manufacturing presence in Mexico.  In June 1994, in conjunction with Grupo Industrial Alfa, S.A.de C.V., Shaw Industries established a joint  venture for the manufacture and marketing of carpets, rugs, and related products in Mexico, known as Tenedora Terza, S.A.de  C.V."

So, sometimes Alfa makes an alliance for its strategic purposes, and sometimes, as in the case of Shaw, it ends up in an alliance because it is sought out by a company looking for a strong local partner. The relationship not only benefited Alfa, but also turned Shaw into the largest carpet maker in the world.
WTGR