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CHAPTER- 4An Overview of Licensing; Joint Ventures Technology and

Global Competition; Globalization and Human Resource

Development; Globalization with Social Responsibility;World Economic Growth and the Environment; Country

Evaluation and Selection; International Business

Diplomacy: Negotiating an International Business, Issues

in Asset Protection; Multilateral Settlements; ConsortiumApproaches; External Relations Approach (Elementary

Idea Only).

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Entrant Strategies

How to Enter in Foreign Market???

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Entrant Strategies:

1. Import-Export

2. Fully owned subsidiary

3. Licensing

4. Joint ventures

5. Franchising

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Licensing

Licensing is defined as the process of leasing a

trademarked or copyrighted entity (known as a

property) for use in conjunction with a product, service

or promotion. The property could be a name, likeness,logo, graphic, saying, signature, character or a

combination of several of these elements.

It is usually based on a contractual agreement between two

business entities: the owner or agent of the property, alsoknown as the licensor and the renter of the rights, and

the prospective licensee.

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When to go for Licensing??

When market cannot be served by exports. When exports are expensive.

When trade restriction or foreign exchange

restrictions are high. To protect its technology to being copied in

other countries, so officially licensed somebody

to use it.

When company needs immediate cash flows.

When risk in present market is not

manageable.

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Franchising

Franchise is a local representative of any organization

who markets and conducts the entire marketing activity

under complete guideline and support of franchisor in

the area allotted to the franchisee. It is a kind of

authorization granted to an individual or corporation by afranchisor to sell its goods or services in a defined way.

Franchise means expanding the business in the new

market by transferring trademark and goodwill to

franchisee by charging fees.

The concept of a franchise was originated in USA.

http://www.siliconindia.com/franchiseindia/franchises.html

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Features of Franchise

1. Well established business

2. Needs limited investment

3. Easy entry in new markets4. Business has large establishments

5. Helps in diverting business risks

6. Separates labour and specialisation

7. Business is based on mutual agreement

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Difference b/w Licensing and

Franchising

In franchising, the franchisee and the franchisor are very closelylinked and have better working relationships. The relationship

between a licensee and the parent company is not as tight-knit.

The franchisee gets to retain the rights to the franchisors logo and

trademark. Licensee does not hold the rights to the trademark and

logo of the parent companys brand.

Franchisees are often an extension of the parent company, in that

they represent the parent companys brand and image. Therefore,

they are usually provided assistance from parent company.

Licensees also do not receive the same extent of support and

training as compared to a franchisee

Another key difference is in the fact that licensees do not get to

have territorial rights from the parent company. Which means that

licensing organization gets to sell similar licenses and products in

the same geographical area..

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Exercise

You have been in the restaurant business for thepast five years. You have perfected the systemof running it. You know where to get the bestingredients for your secret recipes. You have arecognized brand name. The business is rather

successful and you are keen to expand to otherareas. You dont have the financial and humanresources to open or manage new restaurantseffectively but want to ensure these new

restaurants look and feel the same as theoriginal.

In your view, what is the best way to expand yourbusiness, licensing or franchising? Why??

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Joint-venture

A joint venture can be described as

participation of two companies in the

ownership, management and control of a

third enterprise designed to benefit both.

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What are the cost and benefit to the

company??

For JV the immediate cost are greater financing

requirement for technology, raw material,

management and mktg. etc. but it broken

down in two (or more) partners.The benefit will primarily be increase in the

sales, entrant in new market, increased

assistance in technology, mktg., mgmt., and

other skills.

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What percentage of the ownership do the company

require??What restrictions does local government

impose?

The ownership of the both partners determined

on the basis of cost and benefit analysis and

on the basis of share in expected return. In

many countries what can be a foreign partner

owned is limited by the law.

The local government may restrict the

companys options in JV. The most significantlimits may be on ownership, requirement to

place, key positions in management etc.

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Types of Joint Venture

1. Equity Based JV

2. Contractual JV

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Critical issues for starting JV

Type of JV

Issue of ownership and control.

Sharing of revenues and liabilities.

Type of Hierarchy (Dual/Single)

Product and market standardized strategies.

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Critical issues in operating JV

Partner commitment and compatibility is a very

critical issue in JV.

Divergent objectives of the partners.

Problem of coordination and control.

Tolerance towards ambiguity.

Lack of information is relationship-specific

routes. Product diversification and innovation.

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Technology & Global Competition

What are the technological capabilities??

Product innovationProcess innovation

Sustainability in innovation

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Technological Learning &

Development

Technological learning is an incremental

process. It is often faces an uncertain

environment where the skills , information,networks and credit needed are not really

available.

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Globalization & Human Resource

Development

Effect of Globalization on Human Resource

Development:

a) Employment Generation

b) Employment Quality

c) Upgrading skills

d) Public Private Partnership Model (P3) for skill

developmente) Industrial Relations advancement.

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Globalization with Social

Responsibility

The concept of social responsibility implies

that firms have some obligations that go

beyond the requirements of the companyresponsibility.

Flowchart

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World Economic Growth & The

Environment

Environmental Strategies of MNCs:

I. Work for the benefits of environment with due

regards to domestic laws.

II. A parent firm can establish uniform

environmental standards across the country.

III. Same approach is used for the stakeholders

such as- Suppliers, distributors.

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Country evaluation and

selectionFirms lack sufficient resources to pursue all

opportunities, they must: determine the order of country entry

establish the resource allocation across countries

find specific geographic locations to produce ormarket their products

take a Portfolio approach

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What factors should consider to evaluate a

country?

Return (opportunity) Issuesmarket size [sales potential]

ease and compatibility of operation

costs and resource availability

Risk Issues Political Risk

Competitive risk

Monetary risk

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International Business

Diplomacy

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It is the art and practice of

conducting negotiations between representatives of

groups or states.It is the conduct ofinternational relations through the

intercession of professional diplomats with regard to

issues of peace-making, trade, war, economics, culture,

environment, and human rights. International treaties are

usually negotiated by diplomats prior to endorsement bynational politicians.

In an informal or social sense, diplomacy is the

employment of tact to gain strategic advantage or to find

mutually acceptable solutions to a common challenge,one set of tools being the phrasing of statements in a non-

confrontational, or polite manner.

http://en.wikipedia.org/wiki/Negotiationhttp://en.wikipedia.org/wiki/International_relationshttp://en.wikipedia.org/wiki/Warhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Culturehttp://en.wikipedia.org/wiki/Environmental_policyhttp://en.wikipedia.org/wiki/Human_rightshttp://en.wikipedia.org/wiki/Treatyhttp://en.wikipedia.org/wiki/Politicianhttp://en.wikipedia.org/wiki/Strategyhttp://en.wikipedia.org/wiki/Strategyhttp://en.wikipedia.org/wiki/Politicianhttp://en.wikipedia.org/wiki/Treatyhttp://en.wikipedia.org/wiki/Human_rightshttp://en.wikipedia.org/wiki/Environmental_policyhttp://en.wikipedia.org/wiki/Culturehttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Warhttp://en.wikipedia.org/wiki/International_relationshttp://en.wikipedia.org/wiki/Negotiation

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Negotiating

Every wish or need may cause a negotiation.

Once people exchange their ideas to adjust

their relation, or they exchange views to reachagreements, they are negotiating

Gerafd I Niernberg, The Art of Negotiating

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Negotiation is a discussion intended to produce an agreement; a treaty

with another respecting sale or purchase; a transaction of business

between nations; the mutual interaction of governments by diplomatic

agents, in making treaties, smoothing differences, etc.Negotiation is a viable way of resolving a conflict when the following

conditions hold true:

1) There are two or more parties

2) There is a conflict of interest between two or more parties;

3) The parties negotiate because they think they can use some form of

influence to get a better deal than simply take what the other side will

voluntarily give them or let them have. Negotiation is largely a voluntary

process.

4) The parties, at least for the moment, prefer to search for agreement

rather than to fight openly, have one side capitulate, permanently break off

contact, or take their dispute to a higher authority to resolve it. Negotiationoccurs when there is no fixed or established set of rules, procedures, or

system for resolving the conflict, or when the parties prefer to work

outside of the system to invent their own solution to the conflict;

5) Finally, in negotiate, we expect give and take. We expect that both

sides will modify or give in somewhat on their opening statements,

requests, or demands.

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External Relation Approach

Diplomacy

Negotiation

Intellectual Property Rights

Conflicts Resolution

International labor laws

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Issues in Assets Protection

1) Trade Related Intellectual Property Rights

(TRIPS):

Intellectual Property Rights are copyrights, patent,

trademark etc. Under TRIPS, owner of patentget asset registered for a particular period of

time. Any person who wants to use that patent

can use it by paying the royalty to the owner of

the patent.

Only those properties can be patented which are

new, involve research and can be put to

industrial use. But plants cannot be patented.

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Under TRIPS life of the patent has been

fixed as follow:

General Patent

Copyrights

Trade Mark

Industrial Designs

Medicines

20 years

50 years

7 years10 years

10 years

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Case:

Historically, in the developed economies, key drivers for theadoption of good corporate governance have been the

following: the search for investment capital, the desire to list

on major global stock exchanges, the need to gain access to

technology, and the desire to build solid supply chains. In

todays global economy, corporate governance is becoming

increasingly recognized as a key factor affecting businesses

success in emerging markets as well. Opportunities and

competitive threats created by the global economy make

instituting good corporate governance practices key todeveloping a strategy for the company to prosper. Improving

corporate governance allows companies to attract greater

investment at lower cost, strengthens corporate strategy and

its implementation, clarifies accountability, enhance

shareholders

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Contd.

protection, and helps to attract and retain quality

employees. This is true not only for large publicly-listed

multinationals but for other types of companies as well.

For controlling shareholders, corporate governance

clarifies roles and improves accountability, enhancessenior executives professionalization, and increases

company value. Crucially, for society as a whole,

corporate governance minimizes the occurrence of

corruption, reduces the risk of devastating systemiccrises, and improves productivity.

Comment on the situation.