Hi guys, welcome back to Global Business Environment Course Two. We are going to finish up module four, this is part four of module four, in which we've been talking all about entering foreign markets. How to do so, how to organize yourself, and what's the appropriate mode of entry. We haven't looked at the most involved. Or the most committed types of entry into foreign markets. We see here on the end joint ventures and direct investments. I'm going to talk about both of these in this part, of the module. A joint venture, is when two companies partner together, to enter into a foreign market. They often create a separate legal entity in doing so, so Samsung and Intel might open a research and develop lab in Ireland so it's a, it's a third country from the, the headquarter countries of the two companies. And they create some laboratory for investigation and research, and they call it Research Labs Inc. And so that's usually what a joint venture is. I, I'm not in love with the use of the word joint venture there, because there are other forms of a partnering that our broader where our third entity isn't created but it's very common for companies entering new markets to go in with a partner. Some countries require legally for foreign entrant into the market to have a partner. Sometimes they require, 51% of the ownership to be, with the local partner. India for example, has historically had very strict rules on foreign investment and required such partners. Other companies find that, partnering allows them to reduce some of the risks, reduce some of the costs, involved in that entry. Reduce some of the learning that's involved because the partner will have a lot of that knowledge and experience. It also can reduce the profit potential of course because you've gotta share the profits with the partner. And so joint venture really often is a type of direct investment. Direct investment, when we talk about that, we're usually, indicating that a company headquartered in one country has control, direct control of assets. And we say direct means at least 10% ownership stake, in assets in a foreign market. And so, a company might enter that market by buy another company. It might through a acquisition, it might have a partner joint venture, it might own had 100% itself assuming the the regulations of the country allows for that. And there are these other types of partnerships and so clearly going in to a country as in 100% owned, we say wholly owned subsidiary, is the most risky proposition for companies, but it's the one that also offers the most control. And the most profit potential. A company entering in 100% wholly owned no partner and owning direct control of assets is taking a big risk and we'll spend a lot of time doing research. We'll probably hire local ex local managers and also bring in some expatriates but they must have a lot of confidence, to do that. A, again, Coca Cola probably did not do that when it made its first entry into a foreign market. It probably did not open a 100% owned entity in another country. What types of companies in today's world do that buy or build businesses that they own and control completely. Here's an example we see it's a picture of a plant, a manufacturing plant owned by Ford. And, this plant really could be anywhere in the world, because Ford has a lot of, manufacturing or assembly plants and other subsidiaries all over the world. Why is it that Ford, chooses to build it's own plants and operate them this way? Why doesn't Ford develop a partnership with a third party manufacturing plant, outsource in effect the manufacture of its vehicles abroad. Well, the answer generally is that Ford would like to have a certain level of control. And there probably aren't partners who are willing to make the large investment required into something spose, so specialized like a car assembly plant. is, this usually these plants cost sometimes into the billions of dollars, and they're very specific use plants. Usually it can only make certain types of vehicles, and they are specific to the brand, and so it just doesn't work and that investment, again, is huge. Compare that to companies that simply outsource the assembly or manufacture to a partner. They don't build the plants, they let partners such as Foxconn own and operate the real estate, the equipment, hire the workers. Obviously a company doing such a I don't, creating such an arrangement, loses some of the control that you might see in other forms of entry. The direct investment offers this incredible level of control. Control of the product quality, control of the workers, control of every decision that might be involved. And so for some companies in some industries, it makes the most sense. Many of you may end up working for a company that has such investments. And you will probably see firsthand and observe. the, the benefits and the cost of making a direct investment. An acquisition we haven't mentioned is a very common way for companies to get into foreign markets, especially companies that are involved in selling products. For example, this is the way that Walmart. Entered into the Mexican market the retail market in Mexico. It bought another retail company's operations. It, it actually first formed a partnership and then decided to buy buy out the percentage owned by the Mexican company and now Walmart is a completely has a completely wholly own 100% own subsidiary. And so these modes are somewhat flexible, and offer ways to, to go down new paths. But it, some companies you may be involved in depending on where you work in the future in mergers in acquisitions where your company. Either buys or is bought by in part by a foreign company. Sometimes a competitor sometimes a, a partner. And so there are all forms of modes of entry, where equity stake or ownership stake is involved. I hope that we've just begun to interest you in this topic. There is a lot more we could have discussed, about modes of entry but it's very important for you to understand that especially if you're considering in some way your own entrepreneurial venture into a foreign market. If you have an idea for a business that might even be born global. Trying to understand how you're going to enter the foreign market without taking all the risks that you might need to but protecting your profit potential is very, very important. One of the most important decisions that companies make when they enter foreign markets. So this is module four. Thank you much for your participation. We'll see you back in module 5.
