Question

What are the levels of international involvement?

Answer 1

There are mainly four forms of international involvement in business which are stated as below:-

Exporting:- Exporting is the common first step in international expansion. It has the advantages of facilitating the realization of experience curve economics and of avoiding the costs of setting up manufacturing operations in another country. Disadvantages include high transport costs and trade barriers and problems with local marketing agents. The latter can be overcome if the firm sets up an exclusively owned marketing subsidiary in the host country. An example would be if a customer orders from Bongo and wants the package shipped to Japan. The buyer would purchase the product on the website which originates in the United States. The buyer would have to spend extra on shipping and taxes due to the package going out of country.

Licensing or franchising:- Franchising is a specialized form of licensing. The franchisor grants an independent Franchisee the use of essential intangible property and operationally assists the business on a continuing basis. A franchise’s success depends on product standardization, effective cost control, and high brand recognition. A master franchise can be set up with the right to open outlets or develop sub-franchises on its own. An example of a franchise is a buyer purchasing a restaurant, like Taco Bell, and starting their own chain of Mexican restaurants. The main advantage of licensing is that the licensee bears the costs and risks of opening a foreign market. A licensor grants a licensee rights to intangible property to use in a specified area for a specified period in exchange for a fee. Disadvantages center on problems of quality control of distant franchisees. Examples of licenses include a company using the design of Minnie Mouse on their products. Another example would be a clothing manufacturer licensing its designs and brand in a certain country to a local company.

Strategic Alliances:- Strategic alliances are cooperative agreements between actual or potential competitors. The advantages of alliances are that they facilitate entry into foreign markets and enable partners to share the fixed costs and risks associated with new products and processes. They also can facilitate the transfer of complementary skills between companies, and can help firms establish technical standards. The disadvantage of a strategic alliance is that the firm risks giving away technological know-how and market access to its alliance partner in return for very little. An example is when Starbucks partnered with Barnes and Nobles bookstores in 1993 to provide in-house coffee shops, benefiting both retailers.

Direct Investment:- This can be accomplished by following two strategies, One is greenfield venture or to acquire thee existing organization . The first option has the advantage of greater flexibility and control     but it has the longer gestation period. Thus many organizations go for the second option. However the second organization has the limitations of adapting to prevailing culture in the organization but it provides well established market and infrastructure with smaller gestation period.

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