FORMS OF INTERNATIONAL BUSINESS

RAJIV BABU CHINTALABY

FORMS OF INTERNATIONAL BUSINESS EXPORTING TURNKEY PROJECTS LICENSING FRANCHISING JOINT VENTURES WHOLLY OWNED

SUBSIDIARIES

EXPORTING Many

manufacturing firms begin their global expansion as exporters and only later switch to another mode for serving a foreign market.

EXPORTINGAdvantage Ability to realize

location and experience curve economies.

Disadvantage High transport

costs. Trade barriers. Problems with

local marketing agents.

TURNKEY PROJECTS Firms that specialize in the

design, construction, and start-up of turnkey plants are common in some industries.

In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel.

TURNKEY PROJECTSAdvantage Ability to earn

returns from process technology skills in countries where FDI is restricted.

Disadvantage Creating efficient

competitors. Lack of long-term

market presence.

LICENSING A Licensing agreement is

an arrangement whereby a licensor grants the rights to intangible property to another entity for a specified period, and in return, the licensor receives a royalty fee from the licensee.

LICENSINGAdvantage Low development

costs and risks.

Disadvantage Lack of control over

technology. Inability to realize location

and experience curve economies.

Inability to engage in global strategic coordination.

FRANCHISING Franchising is similar to licensing,

although franchising tends to involve longer-term commitments than licensing.

The Franchiser will also often assist the franchisee to run the business on an ongoing basis.

It also receives a royalty payment, which amounts to some percentage of the franchisee’s revenues.

FRANCHISINGAdvantage Low development

costs and risks.

Disadvantage Lack of control

over quality. Inability to

engage in global strategic coordination.

JOINT VENTURE A Joint venture

entails establishing a firm that is jointly owned by two or more otherwise independent firms.

JOINT VENTUREAdvantage Access to local

partner’s knowledge.

Sharing development costs and risks.

Politically acceptable.

Disadvantage Lack of control over

technology. Inability to engage in

global strategic coordination.

Inability to realize location and experience economies.

WHOLLY OWNED SUBSIDIARIES In a wholly owned subsidiary, the

firm owns 100 percent of the stock. WOS in a foreign market can be done

two ways. The firm either can set up a new operation in that country, often referred to as a Greenfield venture, or it can acquire an established firm in that host nation and use that firm to promote its products.

WHOLLY OWNED SUBSIDIARIES

Advantage Protection of technology. Ability to engage in

global strategic coordination.

Ability to realize location and experience economies.

Disadvantage High costs and

risks.