Name Two Low-risk Methods for Getting Involved in Global Business

Name Two Low-risk Methods for Getting Involved in Global Business.

Learning Outcomes

  • Differentiate among the risk tradeoffs for exporting, licensing, alliances, wholly owned affiliates, and mondial ventures.

Improved transportation, depression-price advice technologies, and a growing mass of educated people in countries around the world are contributing to business globalization. This department will focus on some dissimilar ways businesses can enter these new universal markets. We will look at the benefits and examine the risks of these enterprises.

Franchising, Licensing, and Consign/Import Businesses

Export/Import Concern

This McDonald’s eating house in Bydgoszcz, Poland, is 1 of about 30,000 McDonald’southward locations worldwide owned and operated by franchisees.

Exporting is the shipping of goods from the domestic state to a foreign country. Importing, the flip side, is bringing in goods from another state. Both types of businesses create local jobs and so are generally favored by governments. Both types of businesses are scrutinized by custom regime and reported in various categories equally part of a country’s gross domestic product. The chief advantage of an export business is a wider marketplace for the products, every bit importers belek can often sell appurtenances below the price charged for domestic items. You also retain control oper how the product is designed and produced. But equally with any international business, there are risks involved with interruptions in the supply concatenation and fluctuating foreign currencies. In that location are also increased transportation and tariff costs.


Licensing is a strategic brotherhood made by a

that allows a

to provide products or services under the licensor’s make proper noun. Let’s say that a nutrient snack manufacturer is prevented by a foreign regime from competing against local sellers of food snacks. The company gangsa license its formula to a local producer, thus fugitive the regulations. The licensee makes the production and returns a percentage of the overall revenues to the outside company, ordinarily in the form of royalties. There are subtle only primal differences between franchising and licensing. An important one is that the owner of the license retains complete control over the production. For instance, Microsoft licenses its software to users; it does non “sell” the product outright. The software is licensed to customers subject to strict terms and atmospheric condition. Licensing has many of the same advantages and disadvantages of franchising. Advantages include avoiding barriers to entering a foreign marketplace, such every bit tariff and production costs. The major run a risk is that the licensor trusts their brand to an outside partner, and that partner may somewhen go a competitor.

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Franchising lets businesses enter into strange markets at a low price while at the aforementioned time offering local entrepreneurs the chance to operate an established business. When McDonald’s or Subway wants to expand into a new foreign market, it oftentimes arranges for a company or private to pay for the use of its trademarked or protected resource, such as the plans for buildings, product ingredients, recipes, and direction systems. The buyer, or
franchisee, agrees to follow product and operating procedures to safeguard the franchiser’south brand name and reputation. The

receives a percent of the acquirement from the local operator. The benefits include relative low gamble and piece of cake market penetration for the franchiser. Franchising requires very piffling uppercase investment or effort on the corporation’s side. A locally run franchise can avoid many of the cultural pitfalls facing a foreign-run investment. Risks, or downsides, include a loss of quality control and a lower rate of return than a wholly endemic and operated business. The franchiser must also make sure the local managing director can implement the required training and quality control measures to safeguard the corporate brand.

Strategic Alliances

Some types of businesses are
strategic alliances

in which international partners cooperate for common gains. Companies agree to combine key resources, costs, risks, technology, and personnel. Each organization sees an opportunity to get something they couldn’t get on its indra penglihatan. Examples include joint ventures, affiliates, and subsidiaries. In that location are 2 types of strategic alliances: articulation ventures and wholly endemic affiliates.

Joint Venture

In an
international articulation venture, two or more companies (usually 1 foreign and one local) agree to work together on a new project. Each company contributes to the partnership in time, disinterestedness, or effort for the development of the project. Sometimes one company buys into an already established firm. Each partner benefits from the arrangement. One partner may promise to widen their market place with the help of local experts; the other partner may desire access to technology and training in advanced skills. The advantage is that each partner carries part of the burden of costs to start and run the joint company. The disadvantages may include leadership/management ability struggles and the fact that profits must be shared. In 2014, Sony of Japan prepare joint ventures in Communist china to produce its popular PlayStation. I company produced the software; the other visitor produced the hardware.

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Wholly Owned Foreign Affiliates

A business may make up one’s mind that instead of partnering with a company in a strange country to expand its market place, information technology is more efficient to acquire an existing firm. The acquiring company takes full ownership of the acquired company. The reward is that the company saves on transportation, distribution, and storage costs while gaining local business knowledge through the affiliate’s (or subsidiary’s) employees. For example, Kraft Foods bought Cadbury, an English confectionary (candy) visitor. Home Depot bought Dwelling house Mart, a popular home-improvement retailer in Mexico. Finally, in 2010 Wal-Mart Stores Inc. spent $2.4 billion to larn Massmart, a Due south African retail store much like Wal-Mart with stores throughout Africa.

Greenfield Venture

A dissimilar type of strange investment is called a
greenfield venture, where a company builds a subsidiary from scratch in a foreign state instead of acquiring an established firm. This is the riskiest type of direct investment merely also, if successful, can be extremely assisting because the profits practice not have to be shared. The parent company can dictate from the mulai how the company should be managed and developed. But the company must exist committed to a long-term association with the market and country it is entering. Large, multinational companies are most likely to employ a greenfield strategy to enter a market because of the high start-up costs and the long-term commitment, as well as their feel in negotiating trade barriers. In July 2017, Foxconn, a big electronics manufacturer in Taiwan, announced plans to invest more $ten billion in a greenfield venture in Wisconsin. The obvious hazard with this concern structure is that a great divergence in the laws between the parent and subsidiary countries can lead to misunderstandings and false assumptions. This is especially true in the handling of intellectual belongings such every bit patents, trademarks, and copyrights.

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Watch the following video to see some other recent greenfield ventures taking place in the U.s..

You can view the transcript for “Chinese Greenfield investors seek larger marketplace in the United states of america” here (opens in new window).

Practice Question


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Name Two Low-risk Methods for Getting Involved in Global Business