Department of Business studies
Management of International Business
Government of Tropicalia
Table of contents:
2. Foreign Market Entry Modes and their consequences for the negotiations during FINS
3. (Inter-)Organizational Learning and Knowledge Transfer supported by a government
4. Trust and opportunism in strategic alliances
* Trust and opportunism during the FINS
During the ”Foreign Investment Negotiation Simulation” (FINS) we have met a lot of interesting and important issues a company has to concern about by acting in an international environment. As we represented the government of Tropicalia we were obviously in a somehow particular position. We had to follow the goals of a government, which can differ quite a lot from the goals of private companies: Rather than financial goals as the main issue (even though this obviously also is of certain importance), we had to deal with tasks like creating labour, technology transfer and free-trade agreements. Nevertheless we also had to consider the position of the companies and thereby we were compelled to deal with their main issues. Before starting negotiation talks with a company we had to guess what will be their strategies so that we could develop our own strategies to get the best possible outcome.
In our paper we are going to discuss one of their key-issues and how it affected our negotiation-strategy: foreign market entry modes. We furthermore will discuss opportunism and the development of trust during the FINS and our strategy of promoting knowledge transfer from to multinational companies (MNCs) to the Tropicalian companies.
In the appendix the reader can furthermore find a protocol of our negotiation activities during the FINS.
2. Foreign Market Entry Modes and their consequences for the negotiations during FINS:
According to our experiences during the FINS-simulation we would like to discuss the different proper possibilities for internationalisation strategies: First of all companies have to decide whether their internationalisation strategy should rest on the employment of capital or not. The decision depends on whether the company has enough financial resources to invest in foreign markets and how important control mechanisms are. At the same time the likely outcome of the different ways to organize internationalisation are expected to be different.
One way for foreign market entries are Merger&Acquisitions, Joint Ventures and the establishment of an own subsidiary in a foreign market. These market entry modes are based on the employment of capital. In general the advantages of these foreign entry modes are the high level of control and higher earning speculations than in entry modes without employment of capital. Naturally these advantages are higher in M&A projects than in Joint Ventures. Joint Ventures could also raise problems about leading the company and defining/changing the strategy. Joint Ventures as a foreign entry mode require much more management capacity and causes higher transaction costs than the two other foreign entry modes with capital employment (Schierenbeck, 2001).
The other suggested way to enter foreign markets are entry modes without any capital employment like entering into a cooperation in the country or selling products by just exporting them into this country. Like already mentioned before, the likely outcome is rather lower than in M&A’s, own subsidiaries or Joint Ventures. (see figures 1 and 2)
Another important issue for the chosen way of how companies enter into a market are political circumstances like stability, general conditions and property rights. Naturally companies are trying to avoid higher investments in countries with political and social uncertainty. It’s always a trade-off decision between the risk of an investment in fast-growing countries compared to the prospects such an investment offers.
This fact (or maybe this claim) has been proved by the behaviour of the negotiation teams from Megatronics, Tanaka and Eurodata.
During the FINS-simulation the different multinational companies (Megatronics and E.T.) pursuit different strategies: While Megatronics was trying to avoid any cooperations with local companies (that also means no employment of capital) agreed E.T. to invest (relative high employment of capital) into Joint Ventures with local firms if the governments give them some safeguards to reduce risks and if it pr...