Modes of International business in IFM

Amit Kumar Giri PGDM-III(SEM) R.N.:-MO8013
Date:- 12-11-2009

International Business
 

In simple, IB means carrying of business activities beyond national boundary. Business Activities includes international trade of goods and services.

There are mainly three modes of International Business:Modes of I.B.

International Trade

Contractual Entry mode

Foreign Investment

1.International Trade:International trade is the exchange of capital,goods,and services across the international borders or territories. It is further divided into two parts: Export

 

Direct Indirect


2. Contractual Entry Mode

Contractual entry does not involve any financial investment. So it is also known as technical collaboration. Some of its different forms are:   

Franchising Licensing Management contracts Turn-Key Projects


Franchising is the practice of using another person's business model. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee.


When a firm lacks capital and detailed knowledge about a foreign market, it allows its technology, patent, trade mark and other proprietary advantages to be used for a fee by a licensee or technology importing firm.

Management contracts

Management contracts are often formed where there is a lack of local skills to run a project. Management capabilities are transferred abroad in case of management contracts.

Turn Key Projects

A turn-key or a turn-key projects are those where a firm constructs the plant in a foreign location and hands over the key to the foreign partner for operation.

3. Foreign Investment
  

It is further divided into two parts:Foreign direct investment Foreign portfolio investment

Foreign Portfolio Investment

FPI occurs when firms diversify their investment in international securities and often operate on the stock exchange in a foreign country with the sole objective of higher return.

Foreign Direct Investment

Foreign direct investment (FDI) is very much concerned with the operation and ownership of host country firm.
1. 2. 3.

Greenfield investment Mergers and acquisitions Brownfield investment

Green-field Investment

It can be made through opening of branch in a host country or through making investment in the equity capital of the host-country firm. It is also known as financial collaboration.

Mergers & Acquisition

Merger is defined as the combination of two or more companies into a single company where one survives and others lose their corporate existence. An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile.

Brown Field Investment

It is the combination of green field investment and M&A. It exists when a company first goes for an international M&A and then makes huge investment for replacing plant & machinery in the target company.

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