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 Relatively low financial exposure Permit gradual market entry Acquire knowledge about local market Avoid restrictions on foreign investment Disadvantages Vulnerability to tariffs and NTBs Logistical complexities Potential conflicts with distributors

Global Sourcing Importing Outsourcing 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. ◦ 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. 8

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. 9

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.) 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 well- known 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 (2- 5% gross sales) 3.Agree on the rights, privileges, and constraints 4.Specify the duration of the agreement (5-7 years)

What is licensed? Trademarks Copyrights Know-how Patents

Franchising

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