Part A

1. By using appropriate examples, explain various modes of entry into international business.
Companies desiring to enter the foreign market have to select the mode of entry into the foreign country based on all relevant factors like the size of business, influence of environmental factors, attractiveness of the foreign market, market potential costs and benefits and risk factor. Different modes of entry to foreign markets include: I. Exporting Indirect Exports Direct Exports Intra-corporate Transfers II. Licensing International Licensing III. Franchising International Franchising IV. Special Modes Contract Manufacturing Management Contracts Turnkey Projects V. Foreign Direct Investment Without Alliances Green Field Strategy VI. Foreign Direct Investment With Alliances Mergers and Acquisitions Joint Ventures.

I.

Exporting
Exporting is the process of selling of goods and services produced in one country to other countries. It is the simplest and widely used mode of entering foreign markets. The advantages of exporting include:
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Need for limited finance Less Risk Motivation for exporting

Forms of exporting include: indirect exporting, direct exporting and intra corporate transfers. Indirect Exporting Indirect exporting is exporting the products either in their original form or in the modified form to foreign country through another domestic company. Example: Various publishers in India including Himalaya Publishing House sell their products, i.e. books to various exporters in India, which in turn export these books to various foreign countries. Direct Exporting Direct exporting is selling the products in a foreign country directly through its distribution arrangements or through a host countrys company. Example: Baskin Robbins initially exported its ice-cream to Russia in 1990 and later opened 74 outlets with Russian partners. Intra-corporate Transfers Intra-corporate transfers are selling of products by a company to its affiliated company in host country (another country). Example: Selling of products by Hindustan Unilever Ltd to Unilever in the USA. This transaction is treated as exports in India and imports in the USA. II.

Licensing

International Licensing In this mode of entry, 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. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign country is called licensee. The process of licensing is as shown below: Licensor
Leases the Right to use the Intellectual Property

Licensor
Receives Royalty Money

Uses the Intellectual Property to Produce Products for Sale in his Country

Pays Royalty to the Licensor for Using Intellectual Property

Licensee

Licensee

Example: Ranbaxy Laboratories Ltd. Indias largest pharmaceutical company, it has an exclusive licensing agreement with K S Biomedix Ltd, a UK-based bio-pharmaceutical company for marketing TransMID, a novel bio-pharmaceutical product for treatement of brain cancer.

III.

Franchising

International Franchising Franchising is a form of licensing. The franchisor can exercise more control over the franchised compared to that in licensing. 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. The franchisor provides the following services to the franchisee:
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Trade Marks Operating Systems Product reputations Continuous support system like advertising, employee training, reservation services, quality assurance programmers etc.

Example: Fast food companies like McDonalds, Dominos, Pizza Hut, KFC have franchised restaurants worldwide.

IV.

Special Modes

Contract Manufacturing Some companies outsource their part of or entire production and concentrate on marketing operations. This practice is called the contract manufacturing or outsourcing. Example: Nike has contracted with a number of factories in south-east Asia to produce its athletic foot ware and it concentrates on marketing. Management Contracts A management contract is an agreement between two companies, whereby one company provides managerial assistance, technical expertise and specialized services to the second company of the agreement for a certain agreed period in return for monetary compensation. Example: Delta, Air France and KLM often provide technical and managerial assistance to the small airline companies owned by the Governments.

Turnkey Projects A 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. Example: A project on construction of a sugar factory was proposed by Indonesian government which was implemented by the Japanese company. The Japanese company agreed to handle all the activities including: development of the fields for growing sugarcane, development of seedlings, construction of sugar factory, roads, communication, power, water etc.

V.

Foreign Direct Investment without Alliances

Green Field Strategy The term Greenfield refers to starting with a virgin green site and then building on it. Thus, Greenfield strategy is starting of the operations of a company from scratch in a foreign market. Example: This strategy is followed by Mercedes-Benz in locating automobile assembly plant in Alabama.

VI.

Foreign Direct Investment with Alliances

Mergers and Acquisition Domestic companies enter international business through mergers and acquisition. A domestic company selects a foreign company and merges itself with the foreign company in order to enter international business. Alternatively, the domestic company purchases the foreign company and acquires its ownership and control. Example: Coca-Cola entered Indian market by acquiring the Parle and its bottling units. Joint Ventures Two or more firms join together to create a new business entity that is legally separate and distinct from its parents. Joint ventures are established as corporations and owned by the funding partners in the predetermined proportions. Example: Max India Ltd entered into a joint venture with New York Life insurance to enter Indian market and provide insurance service to the people. Today, this venture is known as Max New York Life Insurance.

Short Notes:
9. Doing business with China:
A growing number of Indian companies are setting up shop in China through a process of trial and error. They are, no doubt, walking down a path that their counterparts in the developed world have trodden before, except that the Chinese competition has got much tougher in the meanwhile. There is no one size fits all solution. In some sectors, Indian and Chinese companies can be global partners, in others Indian companies must provide reassurance with a local presence. There are four thrust areas in Indias market development strategy for China. Where information technology is concerned, India needs to persuade large and internationally aspiring Chinese companies of the value of working with India. The Chinese must get to appreciate that global corporations elsewhere are leveraging Indian IT for low-cost design and target contenting, value chain optimization, capital efficiency and product development efficiency. If India and China come together and set up their own IT companies, they will prove to be global players. The second area of development is pharmaceutical. Today, a pharmaceutical company does not encourage production in China, particularly when the approval process itself is seen as loaded against them. India, however, could well be a significant partner in the context of demands generated by Chinas new health reforms. A greater import of Indian pharmaceuticals would be an important sign of Chinas intent in this field. The Indian engineering industry is also exploring opportunities in China more aggressively. A fourth area of focus is agriculture and food products, where our negotiations are hastening more slowly than we would like. Doing business together involves addressing each others concerns. That is not yet happening adequately. As a result, many segments of the Indian business community find it hard to approach China with an open mind.

Part B
16. Name and Explain in Collaborative Strategy A. Various problems with examples B. Problems in managing collaborations A. Various problems in Collaborative Strategy:
Collaborative arrangements have many advantages; still some companies avoid them because of the problems that arise that lead the partners to renegotiate their relationships. The major strains on collaborative arrangement are due to five factors:
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Collaborations importance to partners

In this case, the problem arises as the partners view the joint ventures importance differently. One partner may give more management attention to the collaborative arrangement than the other does. If things go wrong, the active partner blames the less active partner for its lack of attention, and the less active partner blames the more active partner for making poor decisions. Example: In the joint venture between a large company and a small company of China, the entire operations are managed by this small company as they have adequate manpower. Thus, it is more important for a small company as it needs to grow than the large company.
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Differing Objectives

Although companies enter into collaboration because they have complementary capabilities, their objectives may evolve differently over time. Example: One partner may want to reinvest earnings for growth and the other may want to receive dividends. A partner may wish to sell or buy from the venture, and the other partner may disagree with the prices.
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Control Problems

In this case, the partners disagree on control issues or fail to provide sufficient direction. In some cases when the control is ceded to one of the partners, both may be held responsible for the problems or when no single company has control on collaboration, the operation may lack direction. Example: In KFCs joint venture in China, the financial reporting to Chinese authorities was the Chinese partners responsibility. However, China held both partners liable for tax evasion as a result of underreporting income.

Partners contribution and appropriations

One partner capability of contributing technology, capital, or some other asset may diminish compared to its partners capability over time. The weak link may cause a drag on the collaborative arrangement, resulting in dissention between the partners. Example: In P&Gs joint venture with Phuong Dong Soap & Detergent in Vietnam, P&G wanted to expand, but Phuong had neither the funds to expand nor the willingness to allow P&G to gain a larger ownership.
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Differences in culture

Companies differ by nationality in how they evaluate the success of their operations. In addition to the national culture, differences in corporate cultures may also create problems within joint ventures. Example: U.S companies tend to evaluate performance on the basis of profit, market share, and specific financial benefits. European companies rely more on a balance between profitability and achieving social objectives.

B. Problems in managing collaborations

Despite of certain problems between the parties who have collaborated; if they are able to meet their strategic objectives they should design the strategies to manage collaboration and overcome the problem. There are certain issues that arise while handling the collaboration they are specified as follows:
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Capital Structure

The capital structure is an essential element of a business venture. Therefore, the issues relating to capital structure should be clearly defined in the joint venture agreement, so as to avoid any dispute between the parties concerning return on invested capital, management, control and administration of the enterprise.
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Management, Control and Administration

Devising an appropriate governance structure for a joint venture is of critical importance to the success, growth and development of that company. The problems may arise if the parties effectively assume control over operations of the enterprise, even though the nominal authority rests with the board of directors and managers of the company.
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Issue of further capital

Problem may arise in maintaining the proportion of the capital contributed by the parties to the joint venture. These issues should be strictly regulated by the board of directors and not by majority decision.

Operational Issues

Other operational issues like borrowing of monies, expansion and diversification of business of joint venture, investment by the joint venture in the purchase of shares of other companies etc. may impact the interest of parties. These are some of the issues which need to be properly and adequately dealt with by the parties to manage the collaboration.