Participants In International Business

Focal Firm:

It is one of the three participants in International Business. It is the initiator of International Business transaction , including MNEs and SMEs.

Before enter to the Globalization Market, you have to adopt some strategy.

These marketing strategies of focal firm are :

Ø MNEs and MNCs

Ø SME

Ø Contractual:

ü Franchising

ü Licensing

Ø Turn-Key

ü BOT (Build Own Transfer)

Ø International Collaboration

ü Joint Venture

ü Non-Equity Venture

Ø MNEs or MNCs as Focal Firm: A Multinational Enterprise (MNE) or A Multinational Corporation (MNC) is a large organization with a network of production plants, regional headquarters, and country subsidiaries in many countries.

Examples: Sony, Tata, Nokia, Coke, PEPSI, HSBC, Mc Donald, etc

Ø SME as a Focal Firm:

ü In the United States, when small business is defined by the number of employees, it often refers to those with fewer than 100 employees, while medium-sized business often refers to those with fewer than 500 employees.

ü In the EU, SMEs comprise approximately 99% of all firms and employ between them about 65 million people.

ü In India, the Micro and Small Enterprises (MSEs) sector plays a major role in the overall industrial economy of the country. It is estimated that in terms of value, the sector accounts for about 39% of the manufacturing output and around 33% of the total export of the countryAs per available statistics, this sector employs an estimated 31 million persons spread over 12.8 million enterprises and the labour intensity in the MSE sector is estimated to be almost 4 times higher than the large enterprises.

ü SMEs can be more flexible and quicker to respond to international opportunities.

ü As limited resources often prevent them from engaging in FDI, SMEs internationalize via exporting, joint ventures, and contractual arrangements.

Ø Contractual:

v Franchising:

ü Focal firm grants the right to the foreign partner to use an entire business system in exchange for fees and royalties.

ü Examples of international franchises that have been successful in India include food and beverages giants such as Subway, Mc Donald’s and Kentucky Fried Chicken among others. Indian companies that have benefited from franchising include names such as Barista, MRF, NIIT and Apollo hospitals among others

ü In China, Subway is the third-largest U.S. fast-food chain.

v Licensor:

ü Focal firm grants the right to the foreign partner to use certain intellectual property in exchange for royalties.

ü Anheuser-Busch signed a licensing agreement with Japanese beer brewer Kirin in which Kirin produces and distributes Budweiser in Japan.

ü Mega Bloks (Canadian toymaker) signed an agreement with Disney that gives the SME the right to manufacture toys that feature Disney characters like Winnie the Pooh, Power Rangers.

Ø Turnkey: Provide engineering, design, and architectural services in the construction of airports, hospitals, oil refineries, and other types of infrastructure.

E.g., Delhi Metro Rail Ltd, Three Gorges Dam in China.

v Build-Own-Transfer: venture- an increasingly popular type of turnkey contract in the developing economies where contractors acquire an ownership in the facility for a period of time until it is turned over to the client.

E.g., In the case of BOTs, the contracter will build the road, operate it for a period of time (usually for 5 to 10 years) during which the contracter hopes to get some return on his investment, b4 handing it to the public. Like linking Bandra-Worli bridge of Mumbai.

Ø International Collaboration:

ü Arrangement in which partners pool their resources and share the cost and risks of the new venture.

ü Through an International Collaboration, a focal firm can exploit partner’s complementary technologies and expertise, avoid trade barriers, connect with customers abroad, and configure value chains more effectively.

ü A middle ground strategy between exporting and FDI.

ü There are two type of International Collaboration

· Joint Venture

· Non-Equity Venture

v Joint Venture: One firm creates and jointly owns a new legal entity together with another firm

ü Advantages: share costs and risks; gain access to needed resources; gain economies of scale; pursue long-term strategic goals

ü E.g Fuji-Xerox, LG-Philips, Sony-Ericsson

v Non-Equity Venture: Firm collaborates with foreign partners on a project with a relatively narrow scope and a well-defined timetable, without creating a new legal entity. Often used to share the cost and risks of knowledge-intensive R&D projects

e.g Student exchange program

Distribution Channel Intermediary:

o Specialize in physical distribution and marketing service; connect the focal firm with the end user in the foreign market.

o Assist the focal firm by providing logistics services such as warehousing and customer support

o Based either in the home country or the foreign market

v Intermediaries based in foreign market:

ü Distributor:

o Takes title to the exporter’s goods and performs marketing functions such as sales, promotion, and after sales service

o Serves as an extension of the firm in the foreign market, performing many downstream marketing functions

ü Agent/Broker:

o Does not take title to the goods. Works on a commission basis

ü Manufacturers Representative

o Works under contract to the exporter to represent and sell its goods. Acts as a contracted salesperson in a designated territory

v Intermediaries based in home market:

ü Trading Company:

o Based in the home country, a trading company is an intermediary that engages in imports and exports of a variety of products

o Large trading companies in Japan are known as the sogo shosha

o E.g : Mitsubishi

o The sogo shosha historically handled about half of Japanese external trade

ü Export Management Company (EMC)

o Acts as an export agent on behalf of the focal firm. Based in home country

o An EMC finds export customers, negotiates terms of sale, and arranges for international shipping, typically for smaller exporters

o Most specialize in specific industries and geographic areas

v Online Intermediaries

o Examples include Amazon, Dell, eBay, and Alibaba – English-language portal based in China that specializes in business-to-business exchanges

o Traditional retailers such as Wal-Mart and Tesco have also set up online presence

o One negative aspect is the ease with which unscrupulous marketers prey on unsuspecting customers with fake products (e.g., fake pharmaceuticals)

Facilitators in IB

q Facilitators assist the focal firm with specialized services required in cross-border transactions

q Facilitators include: Banks, international trade lawyers, freight forwarders, customs brokers, consultants, ad agencies, and market researchers

E.g

o Logistics service provider

o Custom Brokers

o Commercial Banks

o International Trade Lawyers

o Insurance Companies

o International Business Consultants

…..THANK YOU…..