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The Strategy of Using Foreign Investors and Licensees: A Philippine Perspective

edited from mildred meneses
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Mjane Elcano

on 8 December 2013

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Transcript of The Strategy of Using Foreign Investors and Licensees: A Philippine Perspective

Milena Flament
Company Goals
Access to the patent rights or manufacturing rights
Access to the patent rights or manufacturing rights
The Strategy of Using Foreign Investors and Licensees:

A Philippine Perspective


“To a certain extent, the firms in the developing countries should think in terms of exploiting countries”
POTENTIAL BENEFITS THAT CAN BE DERIVED FROM COOPERATION WITH A FOREIGN FIRM
Trademark
Technical service agreement
Management contract
Access to foreign marketing channels
Additional capital investment
Protection from nationalization
Invest in a foreign joint venture
patent right - the right granted by a patent; especially the exclusive right to an invention
The Philippine company may want access to the patent rights or manufacturing rights for certain types of product.
Trademark
The local company may know that certain brand of a foreign product is selling very well in the local market.
trademark is a recognizable sign, design or expression which identifies products or services of a particular source from those of others
Additional capital investment
When a Philippine firm is planning to expand or diversify, additional capital is required.
A joint-venture arrangement of such nature may provide easier access to local financial institutions.
Protection from nationalization
When the political climate for private investment deteriorates – as when the government shifts to a more socialistic stance - a joint venture with a foreign firm will often provide protection from nationalization.
Invest in a foreign joint venture
Finally, it should be noted that Philippine firms can benefit from joint venture and licensing agreements with firms in Asian and African countries which are less industrialized
POTENTIAL PROBLEMS THAT CAN BE DERIVED FROM COOPERATION WITH A FOREIGN FIRM
I. The use of Strategy
a. Company Goals
b. Potential Problems

POINT OF VIEW
OF THE
GOVERNMENT
Political
Effects
Balance
of
Payments Effects
Philippine Government
Local firm and foreign firm

Government goals and strategies
Economic Development Effects
THE USE OF STRATEGY

• Developing countries should instead find ways of how they could take advantage of the foreign company.
• The Philippine firm could engage in a partnership agreement with a foreign firm.
• Therefore, it is not really exploitation of the foreign firm. All parties to the agreements, the foreign firm, the Philippine firm, and the government must have a sense of gain.
From the point of view of the Philippine firm, the role of strategy then is to select the scheme which will, over the long term give it the largest net gain while still giving the government and the foreign partner room to feel that their minimum goals, at least, have been achieved.
In the case of the foreign investors and licensees, it will, perhaps be necessary for the managers to review the various strategies and their benefits available and to choose new goals which they may not otherwise have considered.
Types of Strategies
a. Strategy for type of partner
b. Ownership strategies
c. Control strategies
d. Manufacturing strategies
e. Marketing strategies
When the foreign partner has no equity- where there is only a licensing agreement on patent rights..
a loss in the degree of control by the Philippine owners.
A joint venture with the foreign partner having the majority ownership can result in loss of managerial, as well as equity control.
It is sufficient to note that the Philippine owners need not agree to a loss of control unless they feel that it is to their best interest.
Point of view of Foreign company
General concerns
One of it’s major goals must then be a reasonable return on its investment. The rate of return that it will want on invested capital is related to its view of the risk involved- and its view of the risk will differ from that of the Philippine firm.
Specific goals
One goal of the foreign company may be to undertake local manufacturing so as to penetrate local markets.
Another goal may be to set up a manufacturing base on the Philippines



To obtain extra income

To spread research and development costs

To retain established markets and reach new ones

To pave the way for future investment

To safe guard against infringement of patents in the Philippines

To possibly acquire reciprocal benefits in technical know-how from the Philippine partner.
The factors in favor of licensing are that It permits the company:
On the other hand, many foreign companies are against licensing because:

They have a tradition or a policy of 100% or majority equity investment.

They fear that they are helping to establish a competitor and that they will lose the market entirely once the license expires

They fear loss of goodwill if the license does not maintain quality standards

They may feel that they have the organization and resources for a direct investmen
A. Strategy for type of partner
1. Product Range
A company that has diversified range of productsOR
A company which is highly specialized in the product
2. Size
A company which is large, has considerable financial, managerial, and technical resources
OR
One which is small but would be much more responsive to its relationship to its Philippine firm
3. Extent of international operation
A partner with no other international interest would be more responsive, but it will have less sophistication in dealing with a foreign firm. Also, a large multinational firm 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
-may have either positive or negative political overtones
-could be important for foreign exchange reasons-can greatly affect access to specific foreign marketing channels
B. OWNERSHIP STRATEGIES
1. a joint venture with majority ownership by the Philippine firm
2. a joint venture with a 50-50 split on stock ownership
3. a joint venture 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
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
C. CONTROL STRATEGIES
Functions:
* Hiring
* Firing
* New Investment
* Research and Development
* Pricing
* Production Level
* Quantity Control
* Marketing
* Exports
* Suppliers
* Maximum divorce of ownership from control
the owners and those who control the firm (managers) are different groups with different objectives.
* Joint venture where one party owns majority of the stock
* A foreign partner who may—in all other respects – be the best available prospect will not invest in a joint venture unless he has voting stock.
* A solution may be for the foreign partner to receive 40% of the shares, 30% for the local partner and 30% to be sold to a large number of small shareholders who would not exercise their voting rights.
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