TYPES OF INTERNATIONAL BUSINESS

Export-import trade Foreign direct investment

Licensing

Franchising Management contracts

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1. IMPORTING AND EXPORTING

I

& E are often the simplest way a business may go global. Importing is the purchasing abroad, either directly from target suppliers or indirectly through sales agents and distributors.

EXPORTING
Exporting

is the selling abroad, either directly to target customers or indirectly by retaining foreign sales agents and distributors. People who engage in this type of international trade are called importers or exporters.

ADVANTAGE

Absolute advantage: when a country can produce something more cheaply than any other country. Ex., Saudi Arabia, due to its natural resources, has an absolute advantage in oil. Comparative advantage: when a country can make certain items more cheaply or better than other items relative to other countries. Ex., Japan, due to its manufacturing efficiencies, has a comparative advantage in automobiles.

2. LICENSING

Licensing

is an arrangement whereby a firm (the licensor) grants a foreign firm (the licensee) the right to use intangible properties such as a patent, logo, formula, process, etc.

 The

licensee pays a royalty or percent of the profits to the licensor. Licensing allows a business to go global relatively rapidly and simply. Advantage : Avoid shipping costs and Delays,

 Ex.

: Instead of shipping a soft drink overseas , a company may license a foreign bottler who produces the soft drink locally using the licensed formula. Pepsico has planned to license Franchise India Holdings for its merchandise. It is also a convenient way for a company to spread its products abroad with minimal risk.

3. FRANCHISING
Franchising

is a form of licensing The parent company (franchisor) offers some combination of trademark, equipment, materials, managerial guidelines, consulting advice, and cooperative advertising to the investor (franchisee) for a fee and/or percentage of revenues (royalties).

FRANCHISING ... Franchising also does not have to be an international arrangement.

Franchising

may take place completely within one country.

is a convenient way for to introduce products abroad with minimal risk.

It

FRANCHISING

&

LICENSING

Licensing, and Franchising allows a business . to go global, relatively rapid and simple It requires a greater commitment, financially by both parties. McDonalds franchise. Ex. Hotel chains such as Hilton. Involves only a lesser financial commitment

GE has Signed a Licensing Agreement for Oil and Gas Compressors with BHEL Allows some adaptation Adaptation is not to local tastes. possible

FDI . . . . This is a major decision for an organization FDI costs and risks of direct investment are greater than with franchising or licensing. Governments usually welcome foreign direct investment, but are also often concerned about this type of investment for several reasons. Due to their size, MNCs may influence the host countrys economic and political systems.

5. JOINT VENTURES AND STRATEGIC ALLIANCES

Joint

ventures and strategic alliances are somewhat different from FDI They can be excellent, strategic ways to penetrate different global markets around the world Limits the exposure at the entry phase.

JOINT VENTURE
A

JV is an organization created by two or more companies or a company and a foreign govt. Each party contributes assets, owns the entity to some degree, and shares risk A JV allows a company to partner with a firm from another country. Ex.Ford Motor Company (U.S.) entered into a JV with the Mazda Company (Japan)

STRATEGIC ALLIANCE

Its an agreement between potential or actual competitors to achieve common objectives. Its built on trust and so the arrangement should be undertaken with care. An Ex. You may purchase a ticket in the U.S. on Delta airlines for a flight to Italy and find yourself actually on an Al italia flight carrying a Delta flight number.

MANAGEMENT CONTRACT
Operational control of an enterprise is vested by contract in a separate enterprise It performs the necessary managerial functions in return for a fee. Management contracts involve not just selling a method of doing things (as with licensing) But involve actually doing them. It can involves functions, such as technical operation, management of personnel, accounting, marketing services and