International Business

International business is essentially all forms of commercials transactions that take between 2 more regions, countries or nations beyond their political boundary. In my previous post I talked about globalization, well international business is a direct effect from globalization.

There are a couple of reasons why people tend to bring their businesses overseas. Essentially each reason boils down to creating more revenue or profit for the company.

The 1^st reason would be to expand your consumer base so that you grow as a company and become better recognized all over the globe. In other words, expanding your company! This will only work if you can fully comprehend the market you wish to enter as misunderstanding your new market could have dire effects. An example would be Mattel, a free standing Barbie store was built in Shanghai and it had 900 display cases, a spa and a cocktail bar, and other various attractions. That’s quite a commitment in a market where Barbie is relatively unfamiliar and doesn’t have the audience base to guarantee a return on the investment. The 36,000-square-foot, six-story Barbie store was open only two years before Mattel decided to close up shop.

The next reason businesses go overseas would be to lower their cost of production. There are an uncountable number of examples on how outsourcing has made production costs drop for various companies. For example, we look at Apple, majority, if not all, of their products are made and assembled in China. However, the company has come under fire as news has leaked that their production practices are not ethical. As a result we see a strange phenomenon, where instead of outsourcing, companies like Apple are starting to insource back to their home country, in this case America. This is probably done to improve their public image in my opinion.

There are a number of ways a business can choose to go international.

1.     Outsource

This does not refer to the manufacturing process but could also be the management level being outsourced.

2.     Importing and Exporting

This essentially just requires a company to send goods from 1 point to another. The company’s location is also not important in this case. For example my dad’s company. He exports cameras from Dubai to Russia but his company is based in Singapore.

3.     Franchising

A franchise provides an established product or service that may already enjoy widespread brand-name recognition. This gives the franchisee the benefits of a pre-sold customer base that would ordinarily take years to establish. Popular examples of franchises would be McDonalds, Subway and Starbucks.

4.     Joint Venture

A joint venture is a strategic alliance where two or more parties, usually businesses, form a partnership to share markets, intellectual property, assets, knowledge, and, of course, profits. A joint venture differs from a merger in the sense that there is no transfer of ownership in the deal. An example could be Sony-Ericsson, a Japanese and Swedish telecommunications company respectively, to make mobile phones.

5.     Licensing

The final way I will talk about is Licensing, do not that there are other ways as well. Licensing lets you instantly tap the existing production, distribution and marketing systems that other companies may have spent decades building. In return, you get a percentage of the revenue from products or services sold under your license. Licensing fees typically amount to a small percentage of the sales price but can add up quickly. For example, about 90% of the $160 million a year in sales at Calvin Klein Inc. comes from licensing the designer's name to makers of underwear, jeans and perfume. The only merchandise the New York-based company makes itself, in fact, is its women's apparel line. 

Finally, to evaluate whether the company should expand overseas and where, we can use our old friend, the PESTLE tool.

Political

Is the government stable?

Economical

Is the business environment of the country conducive for your company?

Social

What is the socio-cultural aspect of the people in a targeted country.

Technological

Is the country able to provide the essential technological infrastructure to support your business?

Legal

Is there legitimate trade agreement with this other country? What about the trade union?

Environmental

Are there natural resources in the country?

I hope through my blog post, I have shown the reasons as well as the way and how to set up an International Business.

Material Links:

1. http://en.wikipedia.org/wiki/International_business

2. http://www.internationalbusinessguide.org/10-successful-american-businesses-that-have-failed-overseas/

3. http://www.forbes.com/sites/connieguglielmo/2012/12/08/apple-loop-tim-cook-talks-mac-in-the-usa-the-steve-jobs-patent-kutcher-in-jobs-costume/

4. http://ecommerce.hostip.info/pages/825/Outsourcing-OUTSOURCING-EXAMPLES.html

5. http://www.franchise.org//franchiseesecondary.aspx?id=52630

6. http://wiki.answers.com/Q/Examples_of_joint_ventures?#slide=12

7. http://www.entrepreneur.com/encyclopedia/licensing