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      benefits
that a company gets by manufacturing goods or
rendering services in the host country by itself rather
than through contract arrangements with the
companies in the host country.

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         the transaction


costs are low, and the local companies in the host
country can produce efficiently without jeopardizing
(endanger) its interest, the company can enter the
foreign markets through contract manufacturing,
franchising or licensing.

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wowever, the software companies prefer licensing and


franchising mode as they have to respond quickly to
the market needs. For example, 2
  


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selects a company in the host country to distribute, the
company can enter international market with no or
less financial resources.- Reliance digital Ȃ a 
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!   if the company chooses to
distribute on its own, it needs to invest
financial resources, but this amount would
be quite less compared to that would be
necessary under other modes.




 mxporting involves less risk as the
company understands the culture, customer and the
market of the host country gradually. The company
can enter the host country on a full-scale, if the
product is accepted by the host countryǯs market.

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Úroactive (taking the initiative) motivations are


opportunities available in the host country.

Reactive motivations are those efforts taken by the


company to export the product to a foreign country
due to the decline in demand for its product in the
home country.

  


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    $   an export
management company (m ), an export trading
company (mT) or an export agent

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‘ business arrangement in which one company gives


another company permission to manufacture its
product for a specified payment.
 

      


p  
    the domestic manufacturer
leases the right to use its intellectual property, i.e.,
technology, work methods, patents, copy rights, brand
names, trademarks etc. to a manufacturer in a foreign
country for a fee.

:     


    

Alicensorǯ 
     
   
Ǯlicenseeǯ.

"    popular method    
 

          



  less costly.

The domestic company need not invest any capital as it


has already developed intellectual property. ! 

        


     

:        prefer this mode 


  

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     international licensing is
unique and has to be decided separately.

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specifying the agreementǯs boundaries,

determining the royalty,

determining rights,

privileges and constraints,

defining dispute resolution methods,

specifying the duration of the contract.



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—   


   



   

     
     

      
    

Ú
  granted license to w
 of
Netherlands with exclusive rights of producing and
selling Úepsi-ola in Netherlands. Under this
agreement the boundaries are: (i) weineken should not
export Úepsi-ola to any other country,

(ii) Úepsi supplies concentrated ola syrup and


weineken adds carbonated water to produce beverage

(iii) Úepsi can grant license to other companies in


Netherlands to produce other products of Úepsi like
Úotato chips.

   — 

      



    
 amount of royalty.

p  
     the licensor expects high
rate of royalty   licensee would be unwilling to
pay much royalty.

:     negotiate for a fair royalty


for both the sides  
      
  

    
  
 

 


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privilege and constraints.

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"V#
reduces quality in order to reduce price, boost up sales
and profits, the image of the Japanese licensor would
be damaged.

!        licensee may under-
report the volume of the sales in order to reduce the
royalty payment to the licensor.

    agreement clearly and


specifically indicates the rights, privileges etc.,  
  

  
  
      


÷
      

The licensee and licensor should clearly mention the
mechanism to settle the disputes are bound to crop up.
      
    
     

       

   ÷ 

         



     àicensing cannot be a short-term
strategy. wence, the duration of the licensing should
not be of the short-term. p 
 
    
     

V  $
 demanded on a 100-year licensing
agreement with V%$
 



    — 




Franchising is a form of licensing. The franchisor can


exercise more control over the franchised compared to
that in licensing.

International franchising is growing at a fast rate.

Under franchising, an independent organization called


the franchisee operates the business under the name of
another company called the franchisor.

Under this agreement the franchisee pays a fee to the


franchisor.

     
      
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Trade marks

Operating systems

Úroduct reputations

ontinuous support systems like advertising, employee


training, reservation services, quality assurance
programs.


 

÷
 — 


          


  2$ was successful in the US‘ due to
the popular menu and fast and efficient services.

       2$   
 
    

The franchisor may have the experience in franchising


in the home country before going for international
franchising.

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Franchisee has to pay a fixed amount and royalty


based on the sales to the franchisor.

Franchisee should agree to adhere to follow the


franchisorǯs requirements like appearance, financial
reporting, operating procedures, customer service etc.

Franchisor helps the franchisee in establishing the


manufacturing facilities, services facilities, provides
expertise, advertising, corporate image etc.

'        some degree of
flexibility in order to meet the local tastes and
preferences. 2$ restaurants in Germany sell
beer also and 2$  restaurants in France sell
wine also.

Franchising is more popular in the US‘. Fast food


companies like 2$ $
 &Ú
''w
() have franchised restaurants worldwide.

wotels like wilton and arriott, rental cars like wertz
and ‘vis also have international franchisees.

wotels like wilton and arriott, rental cars like wertz


and ‘vis also have international franchisees.
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ontract manufacturing

Business process outsourcing

anagement contract

Turnkey projects
 
   


Some companies outsource their part of or entire


production and concentrate on marketing operations.
This practice is called the contract manufacturing or
outsourcing.

Nike has contracted with a number of factories in


south-east ‘sia to produce its athletic foot ware and it
concentrates on marketing.

Bata also concentrated with a number of cobblers in
India to produce its foot ware and concentrate on
marketing.

ega Toys Ȃ a àos ‘ngeles based company contracts


with hinese plants to produce toys and ega toys
concentrated on arketing.
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6  ( B

(  
 (       ajor
corporations in the US and murope are outsourcing
their back office operations to India to save costs. m.g.
employee payroll is maintained in India for their
employees worldwide.

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information technology (IT), management and
business operations, the approach is about turning
over functions such as payroll, accounting, billing or
even real estate management to a third party.

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‘vailability of highly qualified skill pool and faster
adoption of well-defined business processes leads to
higher productivity gains without compromising on
quality.

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!           


 its ability to free corporate executives from some of
their day-to-day process management responsibilities
and enable them to concentrate on strategic issues.


  executives spend 80% of their time
managing details, and only 20% on strategy.   
     
   
  


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Scope: ‘ booming IT industry, with IT strengths


recognized all over the world.

àanguage: The largest mnglish-speaking population


after the US‘.

anpower: ‘ vast workforce of educated, mnglish


speaking, tech-savvy personnel, cost -effective
manpower, Technical support ( more than 100,000
engineers are graduating each year).

Government policy: The government of India has
recognized the potential of IT-enabled services and has
taken positive steps by providing numerous incentives.

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‘ management contract is an agreement between two
companies, whereby one company provide managerial
assistance, technical expertise and specialized services
to the second company of the agreement for a certain
agreed period in return for monetary compensation
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‘ turnkey project is a contract under which a firm


agrees to fully design, construct and equip a
manufacturing/business/service facility and turn the
project over to the purchaser when it is ready for
operation for remuneration.

p      *  


 nuclear power
plants, airports, oil refinery, national highways,
railway lines etc. :      

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    to turnkey projects is Build,
Operate and Transfer (B-O-T).    

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   Government of Gabon and the
electricity supply board international of Ireland and
ampaginc Generale des maux of France agreed to
establish electric supply system and water system in
Gabon and operate for twenty five years and then
transfer the ownership of these projects to government
of Gabon.

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Some companies, enter the foreign markets through


exporting, licensing, franchising etc., get the
knowledge and awareness of the foreign markets,
culture of the country, customersǯ preferences, political
situation of the country etc., 
   
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(  &>  >  


  

In contrast some other companies enter the foreign
market through ownership and control of assets in
host countries.

ompanies which enter the international markets


through foreign direct investment (FDI), invest their
money, establish manufacturing and marketing
facilities through ownership and control.

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It has subsidiaries to achieve strategic synergies.

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The mode of FDI without alliances is Greenfield


strategy.

  — 
 

The term Greenfield refers to starting with a new green


site and then building on it.   Greenfield strategy
is starting of the operations of a company from scratch
in a foreign market.

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which have the advantage of raw materials, human
resources, natural resources and climatic conditions in
producing particular goods can produce the products
at low cost and also of high quality.

ustomers in various countries can buy more products


with the same amount of money. p      
enhance the living standards of the people through
enhanced purchasing power and by consuming high
quality products.

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and economic welfare (    ^ ^ 

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people of the trading countries.

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6p%>&)!>G@ International business widens the
market and increases the market size.  
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mostly depends on the demand for air travel of the
customers from countries other than France.  
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   Ns shift from the country,
experiencing a recession to the country experiencing
Ǯboomǯ conditions. Thus, international business firms
can escape from the recessionary conditions.

>%= % >paGa@

Both commercial and political risks are reduced for the


companies engaged in international business due to
spread in different countries.

ultinationals which were operating in USSR were


affected only partly due to their safer operations in
other countries. ( 
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ultinational companies due to the wider and larger


markets produce larger quantities, which provide the
benefit of large-scale economies like reduced cost of
production, availability of expertise, quality etc.

p!" =! % )!>Ga@

International business provides the chance of exploring


and exploiting the potential markets which are
untapped so far. These markets provide the
opportunity of selling the product at a higher price
than in domestic markets. ' $^ ( 
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International business firms provide the opportunities
to the domestic companies. These opportunities
include technology, management expertise, market
intelligence, product developments etc. ' $^
+^    ^   =a ^ 
  
^^    =a ^   This is more
evident in the case of developing countries like India,
‘frican countries and ‘sian countries.

a the Ns pose challenges to the domestic
business initially. Domestic firms develop themselves
to meet these challenges. Thus, the opportunities and
challenges help the domestic companies to develop.
Foreign Universities helped II s, IITs and Indian
Universities to enhance their curricula.

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extent of commitment of the organization to the


international business 


nature of its international orientation(adjusting to a


situation),

the size of international business and expansion plans,

the number and consistency of product lines,


characteristics of foreign markets, etc.

           
influenced by the relative sizes of the domestic and
foreign markets of their relative importance.

  
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   International sales often
accounted for the bulk of their turnover, rather than a
small proportion was the case in the 1960s for many
US Ns.

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 the different stages of the evolution(gradual
development) of a domestic firm into a transnational
one.     
  

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 @ geographic dispersion of corporate resources



corresponding changes in organizational
development. . (× × × .%2  
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Under this arrangement, as the name indicates, the


export organization is built into the regular domestic
system.

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  initial development to do export business.

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    Under this arrangement, many of the
activities connected with international business are
carried out by domestic departments

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Further, the personnel of the domestic departments
may not have sufficient knowledge or experience to
deal with matters connected with the overseas market.

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!   relatively large volume of export business


may be handled by a built-in form of organization, 
   when the overseas business substantially
increases, becomes unsatisfactory.

‘ separate export department may, therefore, be


established to take effective care of all the activities
connected with the export business.

'  ^  which wants to expand its
international business    


separate export department more useful than the built-
in arrangement.

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^ , the separate export
department is essentially self sufficient; and it is well
equipped to handle all the activities connected with the
export business.

p   therefore, at the mercy of domestic


departments.

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functions,

territory,

product or

a combination of these.


   any such orientation of the internal
organizational structure of the department will depend
primarily upon how the marketing task varies.

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the clash between the international and domestic sides


of the firm,

regarding the time to be spent by domestic marketing


personnel on overseas business matters.

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located at the most suitable place, which may not be
the headquarters of the company.
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divorce international marketing
activities from domestic operations because of certain
advantages associated with it.

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The subsidiary company purchases products from the


parent company and markets them abroad.

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p   independent than a department 

 more flexible and adaptable to change
situations.

p   easily develop export marketing facilities


and expertise and organize international marketing
tasks more effectively.

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Some companies establish subsidiary companies with
the main objective of developing export markets and
doing export business in a big way.

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   role is not
confined (restrict)to sales alone tend to establish an
international division to manage the international
business.

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            âwowever,
creating an international division may generate
internal problems.

oordinating activities may prove difficult because


domestic activities are organized on a product line
basis, while international side is organized on an area
basis, i.e., non-domestic.

         
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Global product structure

The product division structure is popular with large


conglomerates with multiple, unrelated business.

Under this structure different subsidiaries pertaining


(relate) to different products within the same foreign
country report to the head of different product groups
at the headquarters.

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   structure enhances coordination
between different areas for any one product line.

Global geographic structure

Under the global geographic divisional structure, the


market is divided geographically. ' $^ 
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    the
geographic division structure is appropriate for Ns
with narrow product lines.

Naturally, this pattern tends to improve coordination


of all product lines within each zone   


         ^
  

Global functional structure

=
       

       ^
   
   
^     ^   


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Global ustomer structure

If the global customer groups are so diverse requiring


distinctive approaches, the organizational structure
may be based on the diversity of the customer groups.

  


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      ^

    ^
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Global matrix structure

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directing

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Nǯs prefer to maximize their short term profits even
at the cost of the health of the host country customers,
natural resources and environment of the host
country.

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   variations
between strategies/plans and operations, absence of
perfect co-ordination between the headquarters and
subsidiaries,    ^ 
 
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The ontrol function includes planning, formulating
strategies, implementing, evaluating and correcting
the performance in order to ensure that the
organization achieves its objectives.

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Diversity: Diversity in different aspects like culture,
market structure, product, labor cost, currency, etc.,
makes the control in international business more
difficult.

Uncontrollable: Various stakeholders of the


international business in the host country like
government, supplies of inputs, politicians and market
intermediaries are uncontrollable.

Degree of certainty: It would be very difficult for the
Ns to evaluate and predict the political and cultural
environment and the market reactions to the
strategies, close to reality.

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Information regarding environment factors, plans,
objectives, strategies, goals etc., should flow freely
from the subsidiary to the headquarters and vice-versa.

In addition, information regarding input variables,


sources, prices, quality should flow from the
environment to the company.

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mvery company has certain common values, traditions,


customs and practices.

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:  Ns encourage a common corporate culture


in all its subsidiaries and headquarters promoting
closer contact among managers of different
subsidiaries in various countries.

        
   
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Building teams with managers from different subsidiaries.

Develop multi-thinking and analyzing skills of the


corporate staff.

Introduce job rotation for the staff between the


corporation/subsidiaries.

Develop proximity and closeness among corporate and


subsidiary staff.

Develop liaison (communication or cooperation) among


staff of the subsidiaries of the same country in product
development and other combined actions.

Úlacing the foreign personnel on boards and top


management teams.

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information systems play a vital role in controlling
process.  ^ 
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for planning and controlling the operations of the
subsidiaries.     
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oca cola and nestle shared the ownership in a joint


venture for the production and sales of canned coffee and
tea drinks.

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Subsidiary companies which are not 100 percent owned


by the parent company are legally separate from its
parent company.

àegal authorities in each country normally limit the


legal liability to the assets of the subsidiary company.

If an N establishes a branch in a foreign country


instead of subsidiary, the claims of legal suits would be
settled by the N at the headquarters.

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