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TYPES OF INTERNATIONAL BUSINESS

1

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.

Importingis the purchasing abroad,

either directly from target suppliers or

indirectly through sales agents anddistributors.

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EXPORTINGExportingis the selling abroad, either

directly to target customers or indirectly

by retaining foreign sales agents anddistributors.

People who engage in this type of

international trade are called importersor exporters.

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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 toother countries.

Ex., Japan, due to its manufacturing

efficiencies, has a comparative advantage in

automobiles.

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2.LICENSING

Licensingis an arrangement

whereby a firm (the licensor) grants a

foreign firm (the licensee) the right touse

intangible properties such as a patent,

logo, formula, process, etc.

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The licensee pays a royalty orpercent of the profits to the licensor.

Licensing allows a business to go

global relatively rapidly and simply.

Advantage:

Avoid shipping costs and Delays,

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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 licenseFranchise India Holdings for its

merchandise.

It is also a convenient way for acompany to spread its products abroad

with minimal risk.

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3 FRANCHISING

Franchisingis a form of licensingThe parent company (franchisor) offers

some combination of trademark,

equipment, materials, managerialguidelines, consulting advice, and

cooperative advertising

to the investor (franchisee) for a feeand/or percentage of revenues

(royalties).

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

international arrangement.

Franchising may take place completely

within one country.

It is a convenient way for to introduce

products abroad with minimal risk.

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FRANCHISING & LICENSING

.

Licensing, and Franchising allows a business

to go global, relatively rapid and simple

It requires a greater

commitment, financially

by both parties.

Involves only a lesser

financial commitment

McDonalds franchise.

Ex. Hotel chains such

as Hilton.

GE has Signed a

Licensing Agreement

for Oil and GasCompressors with

BHEL

Allows some adaptation

to local tastes.

Adaptation is not

possible

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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 directinvestment,

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.

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5 JOINT VENTURES AND STRATEGIC ALLIANCES

Joint ventures and strategic alliances

are somewhat different from FDI

They can be excellent, strategic ways topenetrate different global markets

around the world

Limits the exposure at the entry phase.

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STRATEGIC ALLIANCE Its an agreement between potential or actual

competitors to achieve common objectives.

Its built on trust and so the arrangementshould 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 anAl italia flight carrying

a Delta flight number.

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MANAGEMENT CONTRACT

Operational control of an enterpriseisvested 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,accountin marketin services and

http://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Licensing_(strategic_alliance)http://en.wikipedia.org/wiki/Licensing_(strategic_alliance)http://en.wikipedia.org/wiki/Business