How to enter International Business?
The
different types of international business/trade are as follows.
a. Indirect
exporting
The
best way to conduct international trade is by exporting goods from one country
to another. This can be occasional
exporting where the company exports from time to time on its own initiative in
response to orders from abroad. Active
exporting takes place when the company makes a commitment to export a portion
of its goods to foreign countries. In
either cases, the company produces all of its goods in home country.
In
indirect exporting there is a middlemen to export goods from one country to
another. These middlemen are of four
types.
1. Domestic – based export merchant:
This
middlemen buys the products and sells them abroad on his own will.
2.
Domestic – based Export Agent:
This
include trading companies. These agents
are paid a commission for doing international trade.
3. Co – operative Organisations:
A
Co – operative organisation carries on exporting activities on the behalf of
several producers and is partly under their administrative control. The producers of primary products like
fruits, nuts adopt this method of international trading.
4. Export Management company:
This
middleman agree to manage the company’s export activities for a fee.
Advantage of indirect exporting:
a.
First,
it involves less investment. The firm
does not have to develop an export department, or overseas sales force etc.
b.
Second,
less risk involved. The middleman takes the entire responsibility of doing
business internationally.
Direct Export
In
this type of international trading, there are no middlemen. The company handle
their own export activities. The company can carry direct export in many ways.
1. Domestic based export-department or division
The
export sales manager who is in-charge for export department carries on the
actual selling in their method of export.
2. Subsidiary
or Overseas Sales branch
A
company may starts its own subsidiary or overseas sales branch in a foreign
country. It also serve as customer service centre.
3. Traveling
Export sales representative
The
company may send home based sales representative abroad to find business.
4. Foreign
based distributors or Agents
The
company can hire foreign-based distributors or agents to sell goods of the
company. The company may give exclusive rights for the distributors to sell the
goods on the behalf of the company.
Licensing:
This
is another way of doing international business/ marketing. The licensor
licenses a foreign company to use a manufacturing process, trademark, patent,
trade secret, or other item of value for a fee or Royalty.
The
licensor in this way gains an entry into the foreign market. The licensee on
the other hand gains production expertise without having to start from the
scratch in international business. Coca-cola carries out international
marketing by licensing bottlers around the world. They give these bottlers with
the syrup, and give them training needed to produce, distribute and sell the
product.
Disadvantage of Licensing:
The licensor has less control over
the licensee.
Another
way of doing international business is by management contract.
Management Contract:
A
company can sell a management contract to manage a foreign hotel, airport and
hospital for a fee. In this case, the firm is exporting a service instead of a
product.
Contract Manufacturing:
Another
entry method is contract manufacturing where the firm engages local
manufacturers to produce the product.
Joint Ventures:
Foreign
investors may join with local investors to create a joint venture in which they
share ownership and control.
Joint
ownership has certain drawbacks. One partner might want to reinvest earnings
for growth but the other partner might want to withdraw these earnings. They
may disagree over re-investment of profit in business.
Direct Investment:
The
ultimate form of foreign involvement is direct ownership of foreign-based
assembly or manufacturing facilities.
By
doing so the company could secure cost economies in the form of cheap labour,
raw materials, foreign-government investment incentives, freight savings and so
on. The firm will also creates a good will of the company in the minds of
people of the local country as it gives more employment. The firms deeper relationships with the host
government, customers, local suppliers and distributors enabling it to adapt
its products better to the local environment. By this way the firm holds a
total control over its foreign investment and its various decisions.
