MODES of International Business
Activities
Exporting (importing)
 Global sourcing (out-s, in-s, offshore)
 Contract manufacturing
 Licensing and Franchising (mgmt. contract)
 Foreign Direct Investment (FDI)
 Strategic Alliances (Joint Venture)
 Portfolio Investment

Exporting
Advantages
Disadvantages
Relatively low financial exposure
 Permit gradual market entry
 Acquire knowledge about local
market
 Avoid restrictions on foreign
investment
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Vulnerability to tariffs and NTBs
Logistical complexities
Potential conflicts with
distributors
Global Sourcing
Importing
 Outsourcing
 Contract Manufacturing

Contract Manufacturing
Hiring firm approaches Contract
Manufacturer with Design or Formula
 Type of outsourcing
 Bidding Process
 $ 233 billion business
 Wistron, HTC

Countertrade
Payments are made in kind rather than cash.
The focal firm is engaged simultaneously in
exporting and importing.
 Also known as “two-way” or “reciprocal” trade
 Used when conventional means of payment are
difficult, costly, or nonexistent.

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◦ Hard currency unavailable
◦ Developing country doesn’t have expertise to sell in
foreign markets
6
Examples of Countertrade Transactions
Caterpillar received caskets from Columbian customers
and wine from Algerian customers in return for selling
them earthmoving equipment.
 Goodyear traded tires for minerals, textiles, and
agricultural products.
 Coca-Cola sourced tomato paste from Turkey, oranges
from Egypt, and beer from Poland in order to
contribute to national exports in the countries it
conducts business,.
 Control Data Corporation accepted Christmas cards
from the Russians in a countertrade deal.
 Pepsi-Cola acquired the rights to distribute Hungarian
motion pictures in the West in a countertrade
transaction.
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Types of Countertrade
Barter refers to the direct exchange of goods
without any money. Or a mixture of goods and
cash is a compensation deal.
 Back-to-back transaction, offset agreements,
or counterpurchase involves two distinct
contracts, contingent on each other.
 Buy-back agreement, the seller agrees to
supply technology or equipment to construct a
facility and receives payment in the form of
goods produced by the facility.
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Licensing and Franchising
Contractual Agreements
Licensing is an arrangement in which the
owner of intellectual property (IP) grants
another firm the right to use that
property for a specified period of time in
exchange for royalties or other
compensation.
 Franchising is an arrangement in which
the firm allows another the right to use
an entire business system in exchange for
fees, royalties or other forms of
compensation.

Types of Intellectual Property
A patent provides an inventor with the right to prevent
others from using, selling or importing an invention for a
fixed period – typically, up to 20 years. It is granted to any
firm or individual that invents or discovers any new and
useful process, machine, manufactured product, or any new
and useful improvement.
 A trademark is a distinctive design, symbol, logo, word, or
series of words placed on a product label. It identifies a
product or service as coming from a common source. E.g.,
British Petroleum’s ‘BP’ acronym, McDonald's golden arches,
and Nike’s swoosh symbol.
 A copyright protects original works of authorship, giving the
creator the exclusive right to reproduce the work, display
and perform it publicly, and to authorize others to do these
activities. Copyrights cover works from music, art, literature,
films, and computer software.

Types of Intellectual Property (cont.)
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An industrial design refers to the appearance or features
of a product. The design is intended to improve the
aesthetics and usability of a product in order to increase
its production efficiency, performance, or marketability.
The thin Apple iPod with the company logo is a wellknown industrial design.
A trade secret is confidential know-how or information
that has commercial value. Trade secrets include
information such as production methods, business plans,
and customer lists. For example, the formula to produce
Coca-Cola is a trade secret.
A collective mark is a logo belonging to an association or
group whose members have given firms the right to use
the mark to identify the origin of a product or service. E.g.,
ILGWU is a collective mark for the members of
International Ladies Garment Workers Union.
International Licensing Process
Basic Issues
1. Set the boundaries of
the agreement
2. Establish
compensation rates (25% gross sales)
3. Agree on the rights,
privileges, and
constraints
4. Specify the duration of
the agreement (5-7
What is licensed?
Trademarks
 Copyrights
 Know-how
 Patents

Franchising
Info on Franchises
www.franchisedirect.com/top100glo
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