How Firms Engage in International

Business?
Firms engage in international business through various modes.
• International trade
• Licensing
• Franchising
• Joint venture
• Acquisitions of existing operations
• Establishing new foreign subsidiaries
• Exporting
• Counter trade
• Piggy Backing
• Foreign direct investment
• Turnkey projects
• Green field investment
International trade

 International trade refers to the exchange of goods and services across national
borders. These goods may include Commodities and services include Personal and
commercial data.
 Example:
 Samsung exports smart phones from South Korea.
 International trade

 Advantages:  Disadvantages/Risk:
➢ Expands global markets
➢ High Tariffs
➢ Enhances economies of scale
➢ regulatory restrictions
➢ political risks,
➢ Currency fluctuations
 Licensing

 Licensing allows a foreign company to produce and sell a firm’s product in

exchange for royalties or a fee. The licensor provides intellectual property (IP),
such as patents, trademarks, or technology. A license is granted by a party (licensor)
to another party (licensee) as an element of an agreement between those parties.
 Example:
 Coca-Cola licenses its brand/recipes to bottlers globally.
 Licensing

 Advantage:  Disadvantage/risk:
➢ Revenue generation
➢ Quality control challenges
➢ market expansion without direct
production ➢ IP misuse
➢ reliance on royalties
Franchising

 Franchising is a business model where a person or company (the franchisor) sells the
rights to use their brand, products, or services to another person or company (the
franchisee).
 Example:
 McDonald's franchising globally.
 Types of franchising

 Franchising generally falls into two types:

✓ Business Format Franchising
✓ Traditional (Product Distribution) Franchising.
❑ In Business Format Franchising, the franchisor provides a complete business
model, including branding, operational systems, and training.
❑ Traditional Franchising is centered around the distribution of a specific product
rather than an entire business format.
 Franchising

 Advantages:  Disadvantages/Risk:
➢ Rapid expansion
➢ Loss of control over
➢ brand recognition
franchise operations
➢ franchisor support.
➢ Consistency challenges
➢ potential conflicts.
 Joint Ventures

 Collaboration between companies to form a new entity or undertake a project.

 Example:
 Sony Ericsson joint venture for mobile phones.
 Joint ventures

 Advantages:  Disadvantages/Risk:
➢ Shared costs
➢ Partner conflicts
➢ resources
➢ reduced control
➢ expertise
➢ IP exposure
Acquisition

 Buying another company’s operations/assets for growth.

 Example:
 Microsoft acquired LinkedIn in 2016
 Acquisition

 Advantages:  Disadvantages/Risk:
➢ Enhances Economies of scale
➢ High initial investment
➢ quick market entry
➢ resistance to change
➢ diversification
➢ integration challenges
 Establishing New Foreign Subsidiary

 Establishing a new, controlled entity in another country. Establishing a foreign

subsidiary is when a parent company sets up a separate legal entity in another
country. The subsidiary operates independently but is under the parent company's
control.
 Example:
 Toyota Motor Europe in Belgium.
 Establishing New Foreign Subsidiary

 Advantages:  Disadvantages/Risk:
➢ Tax benefits
➢ High setup costs
➢ market exploration
➢ Compliance challenges
➢ resource sharing
➢ lengthy time to market
 Exporting

 Selling domestically manufactured products/services abroad.

Exports can be cars, clothes, pencils, heavy machinery, software or banking services.
 Example:
 Pfizer exports vaccines globally.
Forms of Exporting

 Intra company transfer

 Direct exporting
 Indirect exporting
❑ Intra company transfer Where a company reassign an employee to work in a different
physical office space, which may be in another country.
❑ Direct exporting means that the firm works with foreign customers or markets with the
opportunity to develop a relationship.
❑ Indirect exporting where the firm participates in international business through an
intermediary and does not deal with foreign customers or market.
 Piggy backing:
 Piggybacking in international business refers to a strategy where a smaller
company partners with a larger, established company to gain access to international
markets.
 Example:
 Small tech firms using Amazon’s platform.
 Advantages:
 Low cost
 fast entry and leveraging partner’s resources.
 Disadvantages/Risk:
 Limited control
 profit sharing, and potential brand overshadowing.
Counter trade

 Counter trade is a type of international trade where goods and services are exchanged
directly between two parties without using cash or traditional payment methods as the
primary medium.
 Example:
 Pepsi exchanged cola for Soviet vodka in the USSR.
Forms of counter trade:

 Counter trade can take various forms, including:

 Barter: A direct exchange of goods or services without involving money.
 Counter purchase: One party agrees to purchase goods from the other party in
exchange for selling their own products.
 Buyback: A seller supplies equipment or technology to a buyer and agrees to be repaid
with the output generated from the equipment or technology.
 Offset: A seller agrees to offset part of the cost by purchasing goods or services from
the buyer’s country.
 FDI (Foreign Direct Investment)

 Foreign Direct Investment (FDI) refers to an investment made by a company or

individual in one country into business operations or assets in another country. FDI
typically involves a long-term commitment and significant influence over the
operations of the foreign business.
 Example:
 Tesla’s Shanghai Gigafactory.
 FDI (Foreign direct investment)

 Advantages:  Disadvantages/Risk:
➢ Job creation,
➢ Political/economic
➢ access to new markets, and tech
transfer.
instability and dependency
risks.
Turnkey Projects

 A turnkey project is a project that is built and delivered to the customer ready to use. In
a turnkey project, a contractor is responsible for the entire project, from start to finish,
including design, construction, and commissioning. Turnkey projects are used in many
industries, including energy, chemicals, terminals, and logistics.
 Example:
 Construction of the Burj Khalifa.
 Turnkey Projects

 Advantages:  Disadvantages/Risk:
➢ Comprehensive solutions
➢ Limited flexibility
➢ reduced client risk
➢ single contractor
➢ fixed timelines.
dependency
➢ Lower customization.
 Greenfield Investment

 Greenfield investment is a type of foreign direct investment (FDI) where a

company establishes new operations in a foreign country from scratch. This
involves building infrastructure, hiring staff, and sometimes setting up supply
chains.
 Example:
 Tesla’s factory in Shanghai.
 Greenfield Investment

➢ Advantages: ➢ Disadvantages:/Risk:
 Full operational control
 High costs
 brand building
 regulatory hurdles
 job creation.
 political risks.