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Financial Management Outside of the U.S. > Types of International Business
Types of International Business
• Definition and Challenges of a Global Corporation
• Countertrade
• Multinational Firms
• Direct Investment
• Offshoring
• Outsourcing
• Licensing
• Importing
• Joint Ventures
• Contract Manufacturing
• Franchising
• Exporting
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Financial Management Outside of the U.S. > Types of International Business
Definition and Challenges of a Global Corporation
• A multinational corporation (MNC) is present in several countries, which improves
the company's ability to maintain market share and earn higher profits.
• As GDP growth migrates from mature economies, such as the US and EU
member states, to developing economies, such as China and India, it becomes
highly relevant to capture growth in higher growth markets.
• Despite the general opportunities a global market provides, there are significant
challenges in penetrating these markets. These consist of public relations, ethics,
corporate structure, and leadership.
• Combining these challenges with the inherent opportunities a global economy
presents, companies are encouraged to pursue high value opportunities while
GDP Growth Rate by Country
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carefully controlling the risks involved.
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Financial Management Outside of the U.S. > Types of International Business
Countertrade
• Countertrade is the exchange of goods or services for other goods or services.
This system can be typified as simple bartering, switch trading, counter purchase,
buyback, or offset.
• Switch trading: Party A and B are countertrading salt for sugar. Party A may
switch its obligation to pay Party B to a third party, known as the switch trader.
The switch trader gets the sugar from Party B at a discount and sells it for money.
The money is used as Party A's payment to Party B.
• Counter purchase: Party A sells salt to Party B. Party A promises to make a future
purchase of sugar from Party B.
• Buyback: Party A builds a salt processing plant in Country B, providing capital to
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this developing nation. In return, Country B pays Party A with salt from the plant.
• Offset agreement: Party A and Country B enter a contract where Party A agrees
to buy sugar from Country B to manufacture candy. Country B then buys that
candy.
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Financial Management Outside of the U.S. > Types of International Business
Multinational Firms
• Multinational corporations operate in multiple countries.
• MNCs have considerable bargaining power and may negotiate business or trade
policies with success.
• A corporation may choose to locate in a special economic zone, a geographical
region that has economic and other laws that are more free-market-oriented than
a country's typical or national laws.
Ford Motor Corp.
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Financial Management Outside of the U.S. > Types of International Business
Direct Investment
• FDI is the flow of investments from one company to production in a foreign nation,
with the purpose of lowering labor costs and gaining tax incentives.
• FDI can help the economic situations of developing countries, as well as facilitate
progressive internal policy reforms.
• A major contributing factor to increasing FDI flow was internal policy reform
relating to trade openness and participation in international trade agreements and
institutions.
Sao Paulo
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Financial Management Outside of the U.S. > Types of International Business
Offshoring
• Offshoring is the relocation of certain business processes from one country to the
other, resulting in large tax breaks and lower labor costs.
• Offshoring can cause controversy in a company's domestic country since it is
perceived to impact the domestic employment situation negatively.
• Offshoring of a company's services that were previously produced domestically
can be advantageous in lowering operation costs, but has incited some
controversy over the economic implications.
Worldwide Offshoring Business
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Financial Management Outside of the U.S. > Types of International Business
Outsourcing
• Outsourcing is the contracting of business processes to external firms, usually in
developing countries where labor costs are cheaper.
• This practice has increased in prevalence due to better technology and
improvements in the educational standards of the countries to which jobs are
outsourced.
• The opposite of outsourcing is called insourcing, and it is sometimes
accomplished via vertical integration. However, a business can provide a contract
service to another business without necessarily insourcing that business process.
Outsourcing
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Financial Management Outside of the U.S. > Types of International Business
Licensing
• Licensing is a business agreement involving two companies: one gives the other
special permissions, such as using patents or copyrights, in exchange for
payment.
• An international business licensing agreement involves two firms from different
countries, with the licensee receiving the rights or resources to manufacture in the
foreign country.
• Rights or resources may include patents, copyrights, technology, managerial
skills, or other factors necessary to manufacture the good.
• Advantages of expanding internationally using international licensing include: the
ability to reach new markets that may be closed by trade restrictions and the
Batman
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ability to expand without too much risk or capital investment.
• Disadvantages include the risk of an incompetent foreign partner firm and lower
income compared to other modes of international expansion.
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Financial Management Outside of the U.S. > Types of International Business
Importing
• A country specializes in the export of goods for which it has a comparative
advantage and imports those for which it has a comparative disadvantage. By
doing so, the country can increase its welfare.
• Comparative advantage describes the ability of a country to produce one specific
good more efficiently than other goods.
• A country enhances its welfare by importing a broader range of higher-quality
goods and services at lower cost than it could produce domestically.
Singapore
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Financial Management Outside of the U.S. > Types of International Business
Joint Ventures
• Joint business ventures involve two parties contributing their own equity and
resources to develop a new project. The enterprise, revenues, expenses and
assets are shared by the involved parties.
• Since money is involved in a joint venture, it is necessary to have a strategic plan
in place.
• As the cost of starting new projects is generally high, a joint venture allows both
parties to share the burden of the project as well as the resulting profits.
Joint Venture
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Financial Management Outside of the U.S. > Types of International Business
Contract Manufacturing
• A hiring firm may enter a contract with a contract manufacturer (CM) to produce
components or final products on behalf of the hiring firm for some agreed-upon
price.
• There are many benefits to contract manufacturing, and companies are finding
many reasons why they should be outsourcing their production to other
companies.
• Production outside of the company does come with many risks attached.
Companies must first identify their core competencies before deciding about
contract manufacture.
Contract Manufacture
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Financial Management Outside of the U.S. > Types of International Business
Franchising
• Essentially, and in terms of distribution, the franchiser is a supplier who allows an
operator, or a franchisee, to use the supplier's trademark and distribute the
supplier's goods. In return, the operator pays the supplier a fee.
• Thirty three countries, including the United States, China, and Australia, have
laws that explicitly regulate franchising, with the majority of all other countries
having laws which have a direct or indirect impact on franchising.
• Franchise agreements carry no guarantees or warranties, and the franchisee has
little or no recourse to legal intervention in the event of a dispute.
Subway Franchise - Russia
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Financial Management Outside of the U.S. > Types of International Business
Exporting
• This term export is derived from the conceptual meaning as to ship the goods and
services out of the port of a country.
• In national accounts "exports" consist of transactions in goods and services
(sales, barter, gifts or grants) from residents to non-residents.
• Statistics on international trade do not record smuggled goods or flows of illegal
services. A small fraction of the smuggled goods and illegal services may
nevertheless be included in official trade statistics through dummy shipments that
serve to conceal the illegal nature of the activities.
Oil Exports 2006
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Appendix
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Financial Management Outside of the U.S.
Key terms
• barter The exchange of goods or services without involving money.
• captive held prisoner; not free; confined
• comparative advantage The concept that a certain good can be produced more efficiently than others due to a number of
factors, including productive skills, climate, natural resource availability, and so forth.
• Contract manufacturing Business model in which a firm hires a contract manufacturer to produce components or final products
based on the hiring firm's design.
• Contract manufacturing a business model where a firm hires another firm to produce components or products
• counter purchase Sale of goods and services to one company in another country by a company that promises to make a future
purchase of a specific product from the same company in that country.
• economies of scale The characteristics of a production process in which an increase in the scale of the firm causes a decrease
in the long run average cost of each unit.
• economies of scope Lowering average cost for a firm in producing two or more products through the common and recurrent
use of proprietary know-how or an indivisible physical asset.
• export to sell (goods) to a foreign country
• exporting the sale of capital, goods, and services across international borders or territories
• exporting the act of selling to a foreign country
• Foreign direct investment investment directly into production in a country by a company located in another country, either by
buying a company in the target country or by expanding operations of an existing business in that country.
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Financial Management Outside of the U.S.
• franchise The authorization granted by a company to sell or distribute its goods or services in a certain area.
• franchisee A holder of a franchise; a person who is granted a franchise.
• franchiser A franchisor, a company which or person who grants franchises.
• franchising the establishment, granting, or use of a franchise
• import To bring (something) in from a foreign country, especially for sale or trade.
• import To bring (something) in from a foreign country, especially for sale or trade.
• insourcing The obtaining of goods or services using domestic resources or employees as opposed to foreign.
• joint venture A cooperative partnership between two individuals or businesses in which profits and risks are shared.
• license the legal terms under which a person is allowed to use a product
• Licensing A business arrangement in which one company gives another company permission to manufacture its product for a
specified payment.
• Multinational corporation A corporation or enterprise that operates in multiple countries.
• offshoring The location of a business in another country for tax purposes.
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Financial Management Outside of the U.S.
• offshoring The location of a business in another country for tax purposes.
• outsourcing The transfer of a business function to an external service provider.
• outsourcing The transfer of a business function to an external service provider.
• outsourcing the transfer of a business function to an external service provider
• Switch trading Practice in which one company sells to another its obligation to make a purchase in a given country.
• value-chain The series of operations necessary for a business to operate.
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Financial Management Outside of the U.S.
Singapore
The Port of Singapore is one of the busiest in the world because Singapore must import most of its foodstuffs and consumer goods.
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Financial Management Outside of the U.S.
Sao Paulo
Sao Paulo, Brazil, home to a growing middle class and significant direct investments.
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Creative Commons. "fundraising campaign - Creative Commons." CC BY-SA http://creativecommons.org/tag/fundraising-campaign/page/3 View on Boundless.com
Financial Management Outside of the U.S.
Subway Franchise - Russia
There are over 22,000 Subway restaurant franchises worldwide.
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Financial Management Outside of the U.S.
GDP Growth Rate by Country
This map highlights (via dark green) where the strongest growth opportunities currently are (as of 2010).
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Financial Management Outside of the U.S.
Ford Motor Corp.
Ford is a MNC with operations throughout the world.
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Financial Management Outside of the U.S.
Outsourcing
Outsourcing is the process of contracting an existing business process which an organization previously performed internally to an independent
organization, where the process is purchased as a service.
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Financial Management Outside of the U.S.
Worldwide Offshoring Business
Worldwide Offshoring Business
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Financial Management Outside of the U.S.
Batman
The Batman character has been licensed to many companies, such as Lego.
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Financial Management Outside of the U.S.
Contract Manufacture
Manufacture of Ness Corporation in Seven Hills, Australia
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Financial Management Outside of the U.S.
Joint Venture
Sony Ericsson is a joint venture between Swedish telecom corporation Ericsson and Japanese electronics manufacturer Sony to develop cellular
devices.
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Financial Management Outside of the U.S.
Oil Exports 2006
Barrels of oil exported per day in 2006.
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Financial Management Outside of the U.S.
Expanding the value chain to efficiently capture value in global
markets, particularly in regards to sourcing, is a central
component of which global challenge?
A) Leadership
B) Ethics
C) Organizational structure
D) Public relations
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Financial Management Outside of the U.S.
Expanding the value chain to efficiently capture value in global
markets, particularly in regards to sourcing, is a central
component of which global challenge?
A) Leadership
B) Ethics
C) Organizational structure
D) Public relations
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Financial Management Outside of the U.S.
One of the most underestimated challenges encountered by
companies when entering a new global region is recognition. For
example, Best Buy failed in China as a direct result of not
localizing their brand and product offerings. This is a failure of:
A) Ethics
B) Leadership
C) Public relations
D) Organizational Structure
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Financial Management Outside of the U.S.
One of the most underestimated challenges encountered by
companies when entering a new global region is recognition. For
example, Best Buy failed in China as a direct result of not
localizing their brand and product offerings. This is a failure of:
A) Ethics
B) Leadership
C) Public relations
D) Organizational Structure
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Financial Management Outside of the U.S.
Suppose Apple builds a plant in Taiwan and and agrees to take
30% of the plant's output as partial payment for the contract. This
is called:
A) Offset
B) Buyback
C) Counter purchase
D) Switch trading
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Financial Management Outside of the U.S.
Suppose Apple builds a plant in Taiwan and and agrees to take
30% of the plant's output as partial payment for the contract. This
is called:
A) Offset
B) Buyback
C) Counter purchase
D) Switch trading
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Financial Management Outside of the U.S.
The one reason MNC can be harmful for the host country is:
A) They obtain strong negotiating power with local government
B) They pay less than local labor rates
C) They often avoid taxes
D) They raise unemployment levels
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Financial Management Outside of the U.S.
The one reason MNC can be harmful for the host country is:
A) They obtain strong negotiating power with local government
B) They pay less than local labor rates
C) They often avoid taxes
D) They raise unemployment levels
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Financial Management Outside of the U.S.
A company might put money in FDI because:
A) Tax advantage
B) All of these answers
C) Cheap labor
D) High return
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Financial Management Outside of the U.S.
A company might put money in FDI because:
A) Tax advantage
B) All of these answers
C) Cheap labor
D) High return
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Financial Management Outside of the U.S.
Assume you own an American office supplies company. Which
part of your business process would most likely be relocated to
another country?
A) Manufacturing
B) Management
C) Sales
D) Marketing
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Financial Management Outside of the U.S.
Assume you own an American office supplies company. Which
part of your business process would most likely be relocated to
another country?
A) Manufacturing
B) Management
C) Sales
D) Marketing
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Financial Management Outside of the U.S.
One of the downsides of outsourcing for a company is that it:
A) Raises costs
B) Raises taxes
C) Raises energy costs
D) Reduces confidentiality
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Financial Management Outside of the U.S.
One of the downsides of outsourcing for a company is that it:
A) Raises costs
B) Raises taxes
C) Raises energy costs
D) Reduces confidentiality
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Financial Management Outside of the U.S.
Which of the following is NOT an advantage of international
licensing?
A) Reach ingnew markets
B) Complete control over manufacturing
C) Retaining established markets
D) Obtaining extra income
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Financial Management Outside of the U.S.
Which of the following is NOT an advantage of international
licensing?
A) Reach ingnew markets
B) Complete control over manufacturing
C) Retaining established markets
D) Obtaining extra income
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Financial Management Outside of the U.S.
Which of the following allows a foreign company to sell a
company’s products or use its intellectual property in exchange for
royalty fees?
A) Strategic alliance
B) Joint venture
C) Licensing agreement
D) Offshoring
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Financial Management Outside of the U.S.
Which of the following allows a foreign company to sell a
company’s products or use its intellectual property in exchange for
royalty fees?
A) Strategic alliance
B) Joint venture
C) Licensing agreement
D) Offshoring
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Financial Management Outside of the U.S.
How does a country improve its welfare through imports?
A) Importing high quality goods at a lower cost
B) Importing low quality goods at a lower cost
C) Importing low quality goods at a higher cost
D) Importing high quality goods at a higher cost
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Financial Management Outside of the U.S.
How does a country improve its welfare through imports?
A) Importing high quality goods at a lower cost
B) Importing low quality goods at a lower cost
C) Importing low quality goods at a higher cost
D) Importing high quality goods at a higher cost
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Financial Management Outside of the U.S.
Each country will specialize in making the good that it can make
most efficiently, relative to the other country. This description best
defines which of the following?
A) Global advantage
B) Absolute advantage
C) Comparative advantage
D) Fiscal advantage
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Financial Management Outside of the U.S.
Each country will specialize in making the good that it can make
most efficiently, relative to the other country. This description best
defines which of the following?
A) Global advantage
B) Absolute advantage
C) Comparative advantage
D) Fiscal advantage
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Financial Management Outside of the U.S.
In order to be a successful joint venture, both parties must be
equally invested in a project in terms of:
A) Money
B) Time
C) All of these answers
D) Effort
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Financial Management Outside of the U.S.
In order to be a successful joint venture, both parties must be
equally invested in a project in terms of:
A) Money
B) Time
C) All of these answers
D) Effort
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Financial Management Outside of the U.S.
Which of the following is NOT a benefit of contract
manufacturing?
A) Saving money on capital costs
B) Taking advantage of the CM's skills
C) Potential for economies of s
D) Complete control of production
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Financial Management Outside of the U.S.
Which of the following is NOT a benefit of contract
manufacturing?
A) Saving money on capital costs
B) Taking advantage of the CM's skills
C) Potential for economies of s
D) Complete control of production
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Financial Management Outside of the U.S.
Which of the following stipulations is NOT a part of the typical
franchise relationship?
A) The franchiser is protected from lawsuits from the franchisee
B) Contracts are renewable at the option of the franchisee
C) There are no warranties
D) The franchiser secures protection for the trademark
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Financial Management Outside of the U.S.
Which of the following stipulations is NOT a part of the typical
franchise relationship?
A) The franchiser is protected from lawsuits from the franchisee
B) Contracts are renewable at the option of the franchisee
C) There are no warranties
D) The franchiser secures protection for the trademark
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Financial Management Outside of the U.S.
In national accounts, an export of a good in most cases is best
defined as:
A) When there is a change of ownership from a non-resident to a resident
B) When a good crosses the border
C) When there is a change of ownership from a resident to a nonresident
D) None of these answers
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Financial Management Outside of the U.S.
In national accounts, an export of a good in most cases is best
defined as:
A) When there is a change of ownership from a non-resident to a resident
B) When a good crosses the border
C) When there is a change of ownership from a resident to a nonresident
D) None of these answers
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Financial Management Outside of the U.S.
Attribution
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• Wikipedia. "Counter trade." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Counter_trade
• Wikipedia. "counter purchase." CC BY-SA 3.0 http://en.wikipedia.org/wiki/counter%20purchase
• Wikipedia. "Switch trading." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Switch%20trading
• Wiktionary. "barter." CC BY-SA 3.0 http://en.wiktionary.org/wiki/barter
• U.S. Embassy. "Home | IIP Digital | U.S. Department of State." Public domain http://www.america.gov/st/businessenglish/2008/January/20080109170950AKllennoCcM0.563183.html
• Wikipedia. "Import." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Import
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• Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//business/definition/comparative-advantage
• Wikipedia. "Export." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Export
• Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//marketing/definition/exporting
• Wiktionary. "import." CC BY-SA 3.0 http://en.wiktionary.org/wiki/import
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• Wikipedia. "Joint venture." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Joint_venture
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Financial Management Outside of the U.S.
• Wikipedia. "Joint venture." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Joint_venture
• Wiktionary. "joint venture." CC BY-SA 3.0 http://en.wiktionary.org/wiki/joint+venture
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• Wikipedia. "Outsourcing." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Outsourcing
• Wikipedia. "Outsourcing." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Outsourcing
• Wiktionary. "insourcing." CC BY-SA 3.0 http://en.wiktionary.org/wiki/insourcing
• Wiktionary. "offshoring." CC BY-SA 3.0 http://en.wiktionary.org/wiki/offshoring
• Wiktionary. "outsourcing." CC BY-SA 3.0 http://en.wiktionary.org/wiki/outsourcing
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• Wiktionary. "captive." CC BY-SA 3.0 http://en.wiktionary.org/wiki/captive
• Wiktionary. "outsourcing." CC BY-SA 3.0 http://en.wiktionary.org/wiki/outsourcing
• Wiktionary. "offshoring." CC BY-SA 3.0 http://en.wiktionary.org/wiki/offshoring
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Financial Management Outside of the U.S.
• Wikipedia. "Multinational corporation." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Multinational_corporation
• Foreign Policy in Focus. "Multinationals Use International Tribunals to Overpower Nation-States - FPIF." CC BY 3.0
http://www.fpif.org/blog/multinationals_use_international_tribunals_to_overpower_nation-states
• Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//business/definition/multinational-corporation
• Wikipedia. "International business company." CC BY-SA 3.0 http://en.wikipedia.org/wiki/International_business_company
• Wiktionary. "license." CC BY-SA 3.0 http://en.wiktionary.org/wiki/license#English
• Wikipedia. "Licensing." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Licensing
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http://www.entrepreneur.com/encyclopedia/term/82376.html
• Wikipedia. "International business company." CC BY-SA 3.0 http://en.wikipedia.org/wiki/International_business_company
• Wikipedia. "Franchising." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Franchising
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http://www.entrepreneur.com/encyclopedia/term/82376.html
• Wiktionary. "franchising." CC BY-SA 3.0 http://en.wiktionary.org/wiki/franchising
• Wiktionary. "franchiser." CC BY-SA 3.0 http://en.wiktionary.org/wiki/franchiser
• Wiktionary. "franchisee." CC BY-SA 3.0 http://en.wiktionary.org/wiki/franchisee
• Wiktionary. "franchise." CC BY-SA 3.0 http://en.wiktionary.org/wiki/franchise
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