STARTING INTERNATIONAL OPERATIONS

INTERNATIONAL BUSINESS OPERATION

International Business Operation

● International business operation or activity refers to the exchange of goods,

services, investments, or production across different countries. It involves
strategies like exporting, importing, partnerships, or establishing branches
overseas to expand a company’s market. These activities help businesses grow
globally and adapt to diverse economic and cultural environments.

Various Entry Strategies Used by Firms to Initiate International Business Activity

Market Entry Methods:

1. Exporting

● Exporting is the direct sale of goods and / or services in another country. It is

possibly the best-known method of entering a foreign market, as well as the
lowest risk.

2. Licensing

● Licensing allows another company in your target country to use your property.
The property in question is normally intangible techniques or patents.

3. Franchising

● Franchising is somewhat similar to licensing in that intellectual property rights are

sold to a franchisee.

4. Joint Venture

● A joint venture consists of two companies establishing a jointly-owned business.

One of the owners will be a local business (local to the foreign market). The two
companies would then provide the new business with a management team and
share control of the joint venture.

5. Foreign direct investment

● Foreign direct investment (FDI) is when you directly invest in facilities in a

foreign market. It requires a lot of capital to cover costs such as premises,
technology and staff.

6. Wholly owned subsidiary

 ● A wholly owned subsidiary (WOS) is somewhat similar to foreign direct
investment in that money goes into a foreign company but instead of money being
invested into another company, with a WOS the foreign business is bought
outright.

7. Piggybacking

● Piggybacking involves two non-competing companies working together to cross-

sell the other's products or services in their home country.

What are Market Entry Strategies?

● Market entry strategies are methods companies use to plan, distribute and deliver
goods to international markets.

To select an effective strategy, companies align their budgets with their product
considerations, which often improves their chances of increasing revenue. The three
primary factors that affect a company's choice of international market entry strategy are:

Marketing: Companies consider which countries contain their target market and how
they would market their product to this segment.

Sourcing: Companies choose whether to produce the products, buy them or work with a
manufacturer overseas.

Control: Companies decide whether to enter the market independently or partner with
other businesses when presenting their products to international markets.

10 MARKET ENTRY STRATEGIES FOR INTERNATIONAL MARKETS

Why are Market Entry Strategies Important?

Market entry strategies are important because selling a product in an international market
requires precise planning and maintenance processes.

10 Market Entry Strategies for International Markets

Here are 10 market entry strategies you can use to sell your product
internationally:

1. Exporting

● Exporting involves marketing the products you produce in the countries in which
you intend to sell them.
2. Piggybacking

● This market entry strategy involves asking other businesses whether you can add
your product to their overseas inventory. If your company and an international
company agree to this arrangement, both parties share the profit for each sale.

3. Countertrade

● Countertrade is a common form of indirect international marketing.

Countertrading functions as a barter system in which companies trade each other's
goods instead of offering their products for purchase.

4. Licensing

● Licensing occurs when one company transfers the right to use or sell a product to
another company.

5. Joint Ventures

● A joint venture is a business arrangement where two or more parties combine

their resources and expertise to work on a specific project or business goal,
sharing the risks, profits, and control.

6. Company ownership

● Owning a company established in your international market gives your

organization credibility as a local business, which can help boost sales.

7. Franchising

● A franchise is a chain retail company in which an individual or group buyer pays

for the right to manage company branches on the company's behalf.

8. Outsourcing

● Outsourcing involves hiring another company to manage certain aspects of

business operations for your company.

9. Greenfield investments

● Greenfield investments are complex market entry strategies that some companies
choose to use. These investments involve buying the land and resources to build a
facility internationally and hiring a staff to run it.

10. Turnkey projects

 ● Turnkey projects apply specifically to companies that plan, develop and construct
new buildings for their clients. The term "turnkey" refers to the idea that the client
can simply turn a key in a lock and enter a fully operational facility.

Indirect Exporting and Importing

There are two ways a firm can export or import:

Direct Exporting/Importing: In Direct Exporting/Importing, a firm directly deals with

the customer/supplier of the foreign country and performs all the formalities, including
shipment and financing of goods and services.

Indirect Exporting/Importing: In Indirect Exporting/Importing, a firm deal with the

customer/supplier with the help of middlemen.

ADVANTAGES AND DISADVANTAGES OF IMPORTING AND EXPORTING

Advantages of Importing and Exporting:

1. Easiest and Simplest

● Exporting and Importing is the easiest way to enter into the international market
as compared to any other modes of entry. Here, there is no need to set up and
manage any business unit abroad, which makes the process easier.

2. Less Investment

● Less investment is required in the case of exporting/importing as it is not

mandatory for the enterprise to set up a business unit in the country they are
dealing with.

3. Less Risky

● If there is no investment or very less investment required in exporting/importing

in the foreign country the firm is free from many risks involved in foreign
investment.

4. Availability of Resources

● As the resources are unevenly scattered around the globe, it is very important for
every country to export/import goods around the globe, as no nation can be 100%
self-sufficient.

5. Better Control
 ● Exporting/Importing can provide better control over the trade, as there is very less
involvement in the foreign country. Everything is controlled by the home country
and there is no need to set up a unit in the foreign country.

Disadvantages of Importing and Exporting

1. Extra Cost: Since goods are to be sent to different nations, there is some extra cost,
incurred in packaging and transportation of goods, which is a major limitation.

2. Regulations: Different countries have different policies for foreign trade, and
sometimes it becomes difficult for a company to comply with the rules and regulations of
each country they are dealing with.

3. Domestic Competition: The companies involved in exporting/importing have to face

severe competition in the domestic country due to the presence of domestic sellers.

4. Country's Reputation on Stake: Goods that are exported to different countries are
subject to quality standards. If any goods that are of low quality are exported to any other
country, the reputation of the home country becomes questionable.

5. Documentation: Exporting/Importing requires obtaining licenses and documentation

for foreign trade from every country in which can become frustrating at times.

6. Multitasking: Managing business across different countries involves a lot of

multitasking, which can be hectic for a company.

Indirect Import

● A situation in which a company buys products from someone in another country

using an intermediary (= a person or organization that arranges business
agreements)

Indirect Exporting

● It is the process of selling products to an intermediary, who will then sell your
products directly to customers or importing wholesalers

Export Management

An example of an intermediary is an Export Management Company (EMC).

Good EMCs will function as an extension of your sales and service presence.

EMCs will carry out every aspect of the exporting process:

● Identifying international markets for your product or service

● Locating overseas customers
 ● Arranging and maintaining relationships with agents and distributors
● Handling the preparation and negotiation of all logistics from communication and
documentation, to actual shipping
● Setting up proper distribution channels for your business

ADVANTAGES OF INDIRECT EXPORTING & DISADVANTAGES OF

INDIRECT EXPORTING

Advantages of Indirect Exporting

● Low risk involved with getting started

● Export process is relatively hands-off
● Increased focus on domestic business while others take care of international
markets
● Depending on which type of intermediary you go with, you may not have to
concern yourself with shipment and other logistics

Disadvantages of Indirect Exporting

● Higher overhead costs, which means less profit for you

● You are not fully in control of your foreign sales
● Lack of direct contact with your customers overseas, which means you may have
to do additional research on tailoring offerings to their market
● Intermediary could be selling a very similar product, which might include directly
competitive products

Advantages to Licensing Disadvantages to Licensing

You will not need to incur the costs of You will likely lose control over your
producing, promoting, packaging, or product, including promotion, packaging,
selling your product. and selling.

The licensee already has knowledge and

You will only receive a portion of the
know-how as it pertains to breaking into
profits from the sale of your product, as
an already established market, so there is
outlined in your agreement.
no risk to you.

Depending on the terms of your If your product does not sell well, you will
agreement, your royalty payments can not receive royalty payments; or, it may
 take a while until you receive a payment,
last a very long time.
depending on your agreement

Type of
License Definition Example
Agreement

The licensee gains the right to use your Tangible products or ideas
Patent License patented intellectual property (IP) for a created by a company or
fee (royalty). independent entrepreneur

The licensee gains rights to utilize your Design, artwork, fictional

Trademark
trademark in connection with specific characters for use on other
License
goods and services. products

Copyright Educational resources and

The licensee gains rights to use material
Material materials; branding or
developed or created by a licensor.
License logos

The Licensee is required to disclose use Formulas, patterns,

of trade secret information that is information or processes,
Trade Secrets deemed secret and has commercial etc., as well as designs,
value over other businesses or prototypes, programs
organizations. and/or codes

Computer programs and

The licensee is granted permission to the code therein (the code,
Technology or use the licensor’s technology or as stipulated by the
Software software programs, and will often also licensor, may or may not
License receive related services (training, be altered, as specified by
maintenance, and support). the owner of the
technology)

Conclusion
 Starting international operations allows businesses to access new markets and
grow their customer base. It requires adapting to different regulations, cultures, and
economic conditions, making careful planning essential. Despite the challenges,
successful expansion can lead to increased revenue and a stronger global presence.