1. Identify the various opportunities presented by international business.
The fact that nations exchange billions of dollars in goods and services each year demonstrates that international trade makes good economic sense. For an American company wishing to expand beyond national borders, there are a variety of ways it can get involved in international business. Let’s take a closer look at the more popular ones.
Importing and Exporting
The United States exports billions of dollars of soybeans to China annually.
© 2010 Jupiterimages Corporation
ImportingPractice of buying products overseas and reselling them in one’s own country. (buying products overseas and reselling them in one’s own country) and exportingPractice of selling domestic products to foreign customers. (selling domestic products to foreign customers) are the oldest and most prevalent forms of international trade. For many companies, importing is the primary link to the global market. American food and beverage wholesalers, for instance, import the bottled water Evian from its source in the French Alps for resale in U.S. supermarkets.Fine Waters Media, “Bottled Water of France,” http://www.finewaters.com/Bottled_Water/France/Evian.asp (accessed May 25, 2006). Other companies get into the global arena by identifying an international market for their products and become exporters. The Chinese, for instance, are increasingly fond of fast foods cooked in soybean oil. Because they also have an increasing appetite for meat, they need high-protein soybeans to raise livestock.H. Frederick Gale, “China’s Growing Affluence: How Food Markets Are Responding” (U.S. Department of Agriculture, June 2003), http://www.ers.usda.gov/Amberwaves/June03/Features/ChinasGrowingAffluence.htm (accessed May 25, 2006). As a result, American farmers now export over $1 billion worth of soybeans to China every year.
Licensing and Franchising
A company that wants to get into an international market quickly while taking only limited financial and legal risks might consider licensing agreements with foreign companies. An international licensing agreementAgreement that allows a foreign company to sell a domestic company’s products or use its intellectual property in exchange for royalty fees. allows a foreign company (the licensee) to sell the products of a producer (the licensor) or to use its intellectual property (such as patents, trademarks, copyrights) in exchange for royalty fees. Here’s how it works: You own a company in the United States that sells coffee-flavored popcorn. You’re sure that your product would be a big hit in Japan, but you don’t have the resources to set up a factory or sales office in that country. You can’t make the popcorn here and ship it to Japan because it would get stale. So you enter into a licensing agreement with a Japanese company that allows your licensee to manufacture coffee-flavored popcorn using your special process and to sell it in Japan under your brand name. In exchange, the Japanese licensee would pay you a royalty fee.
Another popular way to expand overseas is to sell franchises. Under an international franchiseAgreement in which a domestic company (franchiser) gives a foreign company (franchisee) the right to use its brand and sell its products. agreement, a company (the franchiser) grants a foreign company (the franchisee) the right to use its brand name and to sell its products or services. The franchisee is responsible for all operations but agrees to operate according to a business model established by the franchiser. In turn, the franchiser usually provides advertising, training, and new-product assistance. Franchising is a natural form of global expansion for companies that operate domestically according to a franchise model, including restaurant chains, such as McDonald’s and Kentucky Fried Chicken, and hotel chains, such as Holiday Inn and Best Western.