Becoming Global

Question 1

How does an entity become global?

Answer 1

• Importing and exporting
• Foreign licensing
• Foreign Franchising
• Foreign Joint Ventures
• Foreign Subsidiary

Question 2

What are advantages of exporting?

Answer 2

Increase domestic sales and output- achieve economics of scale domestically

Avoids cost of establishing foreign production capability

Provides experiences in International business at low risk

Question 3

What are advantages of importing?

Answer 3

Obtaining goods not otherwise available

Obtain goods at a lower cost

Obtain goods of better quality

Question 4

What are disadvantages and advantages of importing and exporting?

Answer 4

Possible high cost of transportation

- Especially for low-value-to-weight ratio

Question 5

What is foreign licensing?

Answer 5

Granting a foreign entity the right to:

• Patent
• Trademark
• Formula
• Etc

Licensee make royalty payments to the licensor

Question 6

What are the advantages/disadvantage to foreign licensing?

Answer 6

ADVANTAGE:
- increase revenue for royalty

Avoid trade barrier concerns

Avoid cost and risks of opening a foreign operation

DISADVANTAGE:

• Misuse patents, technology processes, and other proprietary information
• Licensor may not be able to control licensee sufficiently to assure standards are met

Question 7

What is foreign franchising?

Answer 7

Special form of licensing in which the franchisor mandates strict operating procedures

• Used primarily in foreign retail and service markets
• Frequently on-going assistance

ADVANTAGE:

• increased revenue from royalties
• Avoid cost of opening a foreign facility

DISADVANTAGE:

• Misuse proprietary information
• May not meet your standards

Question 8

What is a foreign joint venture? What are advantages and disadvantages?

Answer 8

An entity establish in a foreign location and jointly owned by two ore more otherwise unrelated parties

• One of the owners is located in the foreign country

Advantage:

• Host country co-owner has knowledge of the local environment
• Cost and risk are shared with one or more venture partners
• Foreign local residence from government, labor, and other business may be less because of the local stakeholder

DISADVANTAGE:

• May misuse partners patents, tech
• Home country co-owner does not have absolute control l

Question 9

What is a foreign subsidiary? What are the advantage and disadvantages?

Answer 9

Entity acquires or establish a foreign subsidiary- a controlled, but legally separate entity.

ADVANTAGE:

• Quick entry into the foreign market.
• Known level of operating results and historical information
• May block preempt competitors from entering the market

DISADVANTAGE:

• Possible lack of understanding of the acquired values, culture, and operating processes
• Pre-exisiting corporate culture to integrate with the parent
• Synegies or other benefits may not materialize.

Question 10

What are the risks of establishing a foreign subsidiary?

Answer 10

Also called a green field venture (breaking new ground)

ADVANTAGE:

• Foreign sub can be built from the ground up, develop the culture, operating style, and procedures
• Parent able to transfer organization competition, skills, etc

DISADVANTAGE:

• TIME CONSUMING
• Most costly than acquisition
• Greater risk associated with unknown revenues, cost, and other operating effects