Question

List and discuss (compare and contrast) the various methods by which a firm may engage in international business . Your response should include some of the advantages and disadvantages of each of the various options.

Answer 1

Soln. Various methods by which a firm may engage in international business are listed below -

1. Through export and import in international market - A firm can export the manufactured goods in international market or may import the the materials from international market for various purposes.

Advantage - Risk is minimum as no capital at risk is involved.

Disadvantage - Have to follow different regulations of the country in which trade is being performed.

2. Licensing - Through licensing, a firm provides access of its technology, patents, etc. to other countries and charge amount in return.

Advantage - There is no other expense involved as in form of transportation, which is a major cost in export.

Disadvantage - Quality assurance of the technologies usage in other countries is at risk.

3. Establishing new subsidiaries in foreign market - A firm can trade in international market by establishing a a firm's branch in foreign market.

Advantage - Market and growth expansion

Disadvantage - High capital investment, different rules and regulations constraints  

4. Joint Ventures - A firm can also penetrate the international market by joining the foreign firm of same line of business.

Advantage - Less establishment and other operational costs involved.

Disadvantage - Have to abide by the processes of the foreign firms. Decisions cannot be taken independently.