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This is assignment for Introduction to Business course given by Dr. Sachin Jeven at Graphic Era University. It includes: Going, Global, Importer, Exporter, Counter, Trade, Franchising, Foreign, Licensing, Subcontracting, Acquisitions
Typology: Exercises
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Assignment #
Assignment Contents:
GOING GLOBAL Importers and Exporters Counter Trade Contractual Agreements
Franchising
Foreign Licensing Subcontracting International Direct Investment Acquisitions
Joint Ventures
Expending a business in to international markets offers increased Profit potential and marketing opportunities but on the other hand it introduces new complexities to a firm‟s business operation. Before making the decisions to go global a company faces a number of key decisions. Following are the main points; Determining which foreign markets to enter. Analyzing the expenditure required to enter a new market. Deciding on the best way to organize the international operations. These issues vary in importance depending on the level of environment that the company chooses. After the company has completed its research and decided to enter an international market, it can choose one or more of the entrance strategies maintained below; Importing or exporting Entering into contractual agreements like franchising, licensing, and subcontracting deals. Direct investment in the foreign market through acquisition, joint ventures, or establishing an overseas division. While the company‟s risk increases with the level of its involvement, so does its overall control of all aspects of producing and selling its good or service. Companies frequently combine more than one of these strategies in a single country.
Importers: Whenever a company brings in goods from other countries or cities to sell domestically then we term this firm as importer. There are two types of imports i.e. local imports and foreign imports. By local imports we mean that the company is importing the goods from the other cities of the same country on the other hand as indicated by name foreign imports means that the imports are from the other countries. A company imports goods when they feel a very good demand for a specific commodity. Examples: If we want to give the example of importers than our Government itself is an importer. Our governments import heavy machinery, medicine, food commodities etc. Companies like shell imports gasoline (petrol) Some companies imports cosmetics.
Exporters: The companies, which produce goods at home and sell them in international markets, are called Exporters. Like imports exports are also of two types i.e. local and foreign. For exports a company or business assess demand of local products
Example: In 2000, India and Iraq agreed on “oil for wheat and rice” counter trade. In this counter trade Iraq would have to provide oil and India provided wheat and rice in return.
In another instance, Fisher Controls International, a subsidiary of Monsanto, counter purchased ball bearings and chair frames to be sold in Western E Europe in a counter trade opportunity for control valves sold to Romania. From: www.wikipedia.com
The next example we have is of Pepsi and vodka where the rights to sell Russian vodka in the US in exchange for Pepsi (To be sold in Russia). John G. Swanhaus, Jr., vice president, Pepsi Cola Company As president of PepsiCo Wines & Spirits International, a major part of his responsibility was PepsiCo's supply to the U.S. market of Stolichnaya Russian Vodka as part of a counter trade agreement to sell Pepsi products in the Soviet Union. Here a question arises that how this deal worked? The answer is that Pepsi- Cola delivers syrup that is paid for with Stolichnaya Vodka. Pepsi has the marketing rights of all Stolichnaya Vodka in the U.S
From: www.barternews.com
Another example is the counter trade between Saudi Arabia and America. In this deal Saudi Arabia provides gasoline and in turn takes the services of American security system.
Contractual Agreements:
When a company no matter large or small gains some experience in international sales it may decide to enter a contractual agreement with local companies. These agreements can include franchising, foreign licensing and subcontracting.
Franchising:
“ Is contractual agreement in which a wholesaler or retailer (the franchisee) gains the right to sell the franchiser‟s products under that company‟s brand name if it agrees to the related operating requirements. Franchisee can also receive marketing, management, and the business services from the franchiser. ”(Contemporary Business)
Franchising is the practice of using another person's business model. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee. Various tangibles and intangibles such as national or international advertising, training and other support services are commonly made available by the franchisor. Agreements typically last from five to thirty years, with premature cancellations or
terminations of most contracts bearing serious consequences for franchisees. From: www.wikipedia.com
Here a question arises that for which type of businesses the franchising best works? In the following we have some characteristics of some businesses for which the franchising best works.
Businesses with a good track record of profitability. Businesses built around a unique or unusual concept. Businesses with broad geographic appeal. Businesses, which are relatively easy to operate. Businesses, which are relatively inexpensive to operate. Businesses, which are easily duplicated.
Examples: in Pakistan there are many companies, which involve franchising. One of the most common is MC Donald the fast food restaurant another is KFC.
A heavy transport producing company HINO that mainly produces trucks has franchises in Pakistan.
A tractor producing company BELARUS of Russia has franchises in many cities of Pakistan and sells its products here.
Foreign Licensing:
In this type of contractual agreement one firm allows another to produce or sell its products, or use its trade mark, patent, or manufacturing processes in a specific geographical area. In turn the firm gets a royalty or other compensation.
Licensing can be for the sale of the product, assembling of the product, production of the product or both sale and production or sales and assembling.
Examples: The first thing discussed above is the license for sales only. Our well- known cricket star SHAHHID AFRIDI has a sale license of a car producing company Daihatsu. He sells the products (cars) of Daihatsu in Karachi.
The second type of license mentioned above is for the assembling of a product. A very well known cell phone producing company NOKIA has given license to Malaysia and India to assemble the products under the trademark and patents of the company.
The third type we have discussed above is production of the product. An electronic devices producing company SHARP and a local electronic device producing company of china have a contractual agreement in the of licensing and according to
definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of a parent enterprise and a foreign affiliate, which together form an international business or a multinational corporation (MNC). In order to qualify, as FDI the investment must afford the parent enterprise control over its foreign affiliate.
Examples: on of the best example of FDI is the investment of Indian company Acer that produces computers and laptop in Dubai. The company assessed the market of its products and found favorable conditions for the business and the established a production plant in Dubai.
Nestle a foreign company searched the market and demand of its products and then established industry in Pakistan.
Telenor a foreign telecommunication company has directly invested in Pakistan in the field of mobile telecommunication.
Acquisition:
An acquisition allows a company to purchase another existing company in the host country. (Contemporary business)
An acquisition , also known as a takeover or a buyout , is the buying of one company (the „target‟) by another Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover. Another type of acquisition is reverse merger, a deal, which enables a private company to get publicly listed in a short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets.
From: www.wikipedia.com
Examples: A very recent acquisition took place in Pakistan when China‟s company Zong bought the mobile telecommunication company of Paktel.
From: P.T.V news
Another big acquisition took place 7 or 8 months ago when Panasonic an electronic devices production company bought another company named Philips.
From: Weekly Business News
Joint Ventures:
Allows the companies to share risks, costs, profits and management responsibilities with one or more host country companies. (Contemporary business)
A joint venture (often abbreviated JV ) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship. Joint ventures are very much common in the oil and gas industry.
Examples: as mentioned above joint ventures are common in oil and gas industry. American company Shell petroleum is searching the oil deposits in Pakistan as a joint venture with Pakistan state oil (PSO).
As a joint venture Pakistan and China has made fighter plane named JF 17 Thunder in the previous years.
An ongoing joint venture between Pakistan and China is the construction of the road from Pakistan to China name SHAHRE-e-RESHAM.
Following are the references from which the above information is collected.
1. Contemporary business 9th^ edition. 2. Contemporary business 11th^ edition 3. Weakly Business news 4. www.wikipedia.com 5. www.cob.ohio-state.edu 6. www.answers.com 7. www.barternews.com
