BSB119 Lecture Notes - Lecture 2: Intellectual Property, Franchising, Business Process
Week 2 Global Business Lecture Notes
Going International: Methods and Rationale
Firm Internationalisation
• Internationalisation is defined as:
o the process of increasing involvement in international operations
(Welch & Luostarinen, 1988: 36)
• This definition takes into account both outward and inward expansion
o the process of adapting firms operations (strategy, structure,
resource, etc.) to international environments (Calof and Beamish, 1995:
116)
o This definition incorporates de-investment or de-internationalisation
• External vs. Internal Approaches
o External (arms-length) approach
▪ Firm does business overseas without investing in owned assets and
own human resources in target market
▪ E.g. domestically produced goods are exported to foreign markets
through local independent agents or retailers
o Internal approach (foreign direct investment – FDI)
▪ Firm invests directly in assets and resources in target market
▪ E.g. setting up a factory in the foreign market to produce goods
• Modes of Entry: Exporting
o Exporting defined:
▪ Sale of products produced in one country to residents of another
country
o May refer to:
▪ Indirect exporting: selling to a foreign market through a domestic
(home country) organisation
▪ Direct exporting: selling to a foreign market either through the firms
own dependent unit or through a foreign (host country)
organisation
▪ Intra-corporate transfer: sales made by a business to an affiliated
firm located in the host country
• Importance of Exporting
o For the Country
▪ Important element in stimulating the economy
▪ Achieve growth with export lead development
▪ Achieve a positive trade balance on goods & services
▪ Creates jobs and promotes innovation
o For the Firm
▪ Opportunities for growth
▪ Additional profits
▪ Market development
▪ Simplest and most flexible method to enter foreign markets
• Modes of Entry: Licensing and Franchising
o Licensing and franchising agreements refer to the granting of intellectual
property rights (IPR) from one party to another for a specified period in
exchange for a royalty fee
find more resources at oneclass.com
find more resources at oneclass.com
o IPR may include: brand name, business process or format, patented design
and trademark, etc.
o Licensing: Licensor allows licensee to use its technology or design for
manufacturing
▪ Eg. Xerox licensed its xerographic knowhow to Fuji
o Franchising: Franchisor allows franchisee to adopt its entire business process
or format
▪ Eg. McDonalds franchises operating globally
• Modes of Entry: Licensing and Franchising
o Advantages
▪ Low risk and low commitment of resources
▪ Quick cash flow, quick market access
▪ Governments are less concerned
▪ Less cultural/local obstacles to ownership
o Disadvantages
▪ Limited control over licensee/franchisee operations
▪ Licensee/franchisee may become competitors in the future (or could
exploit the licensor/franchisor)
• Modes of Entry:
o Turnkey Project
▪ A firm (contractor) sets up an operating plant for a foreign client and
hands over key when plant is fully operational
• Common in industries such as chemical, petroleum refining,
pharmaceutical, etc where production technologies are
expensive and complex
▪ Strategic Alliance
• A cooperative agreement between potential or actual
competitors
o Eg. Short-term collaboration on research, new product
development, etc
• Modes of Entry: FDI
o International Joint Venture
▪ The establishment of a firm that is jointly owned by two or more
independent firms
• One (or more) firms is (are) non-resident in the host market
• Ownership % may vary from majority foreign owned, to 50%-
50% owned, to minority owned by the foreign firm
▪ Reasons for IJV include:
• Quicker market access
• Government regulatory requirements
• Risk/cost sharing
• Access partners knowledge and resources
▪ Potential problems in IJV:
• Limited or restricted control
• Disagreements and relationship difficulties
• Loss of flexibility and confidentiality
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Indirect exporting: selling to a foreign market through a domestic (home country) organisation: direct exporting: selling to a foreign market either through the firm(cid:1685)s own dependent unit or through a foreign (host country) organisation. Intra-corporate transfer: sales made by a business to an affiliated firm located in the host country. Ipr may include: brand name, business process or format, patented design and trademark, etc: licensing: licensor allows licensee to use its technology or design for manufacturing, eg. Xerox licensed its xerographic knowhow to fuji: franchising: franchisor allows franchisee to adopt its entire business process or format, eg. Short-term collaboration on research, new product development, etc: modes of entry: fdi. International joint venture: the establishment of a firm that is jointly owned by two or more independent firms. One (or more) firms is (are) non-resident in the host market. Ownership % may vary from majority foreign owned, to 50%-
