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Submitted by:
Ayesha Kousar

Submitted to:
Sir FaidGul

Reg no:
3290-BBA 24

September 12, 2013

International Business Methods

Firms use several methods to conduct international business. The most common
methods are: International trade, licensing, franchising, joint ventures, acquisitions of
existing operations and establishing new foreign subsidiaries. Each method is
discussed in turn, with emphasis on its risk and return characteristics.

International trade/ Import-Export Business

Trading rather than investing abroad is a relatively conservative approach to
international business that can be used by firms to penetrate markets (by exporting) or
to obtain supplies at a low cost (by importing). The risk is minimal because the firm does
not invest any of its capital abroad. If the firm experiences a decline in its exporting or
importing, it can normally reduce or discontinue this part of its business at a low cost.
Trade conditions for industries
Many large MNCs, including Boeing (US), BP (UK), DaimlerChrysler (Germany), France
Telecom, Nestle (Switzerland), generate more than 3 billion in annual sales from
exporting. None the less, small businesses generally account for a significant proportion
of exports (20% in the US).

Five Major Advantages


A Competitive Edge

Trading your products internationally can give you an advantage over competition. If the
domestic market is already flooded with similar products, then overseas markets may
just be the answer to better profitability. This holds especially true for products that
arent widely available overseas. As the international market for your good gets bigger,
sales increase, giving you an advantage over others in your industry.

Economies of Scale in Production

Companies engaging in international trade experience improved efficiency brought on

by the presence of economies of scale in production. This can bring about significant
trade gains due to the reallocation of resources that can raise productive
efficiency. Simply put, more output can be created at lower costs bringing about major

New Markets

International trade can give you the opportunity to understand the varied market trends
that can affect your business. It is common business saying that 95% of a companys
prospective market is situated out of the country. And it just wont be wise to forego such
a huge potential for business, leads, profits and thus business growth.

So, the function of international trade is to capitalize on profitable opportunities for

owners, which is the single most significant directive for corporations and many other

Insulation from Seasonal Domestic Sales

For business concerns that offer season specific services or products, expanding
operations to overseas is a perfectly viable way of staying busy and making money all
year around. And staying in business all year round is a great way of outmaneuvering
competitors. International trade can introduce a company to whole new foreign markets.

Improved Return on Investments

Spreading your risk in foreign markets and companies means that your organization
wont only be subjected to the tribulations of the U.S economy. This diversification can
shield their businesses from the investment risk of putting all their eggs in one basket.


You have to cleared shipment with customs

Added licensing and other regulations, taxes, etc. import export business
plans must only be formed after understating licensing, taxes and other related
regulations of the country in which you plan to target your audience.

Long-term process exports from some countries or other fruitful import

export business opportunities require a lot of time to be converted therefore a
business must be patient to progressively achieve their desired goals. Also, it
needs huge investment of time for a business to develop strategic partnerships
with the different parties in the channel.

Well you will be amazed to know that Pakistan is far behind top teams in both these
games but top football ( about worlds 80% footballs are manufactured in Pakistan ) and
soccer teams practice and play Pakistani made balls. There are many high quality
sports industries in Sialkot ( The 2nd industrial hub of Pakistan ). All these industries
produce many types of sports items which includes cricket bats, cricket balls, footballs,
soccer balls, hockey, baseball and much more.


Besides a semi industrial state, Pakistan also produce many types of fruits and corps.
Pakistan produce high quality oranges and mangoes and then these fruits are imported
by the countries like USA and UK. Pakistan is the 4th biggest mangoes producer and
11th oranges producer. The type of mangoes which is widely grown in Pakistan is
Chonsa and the most grown type of oranges is Malta and kenoos. These two fruits
are mostly produced in Punjab province of Pakistan.
Pakistan is one of the worlds biggest cutlery producers. Wazirabad is another industrial
city of Pakistan, which is also near Sialkot ( another industrial city mentioned above ). In
Wazirabad mainly cutlery is manufactured, all of the European countries import silver
and steel knives, spoons and forks.

Licensing involves selling copyrights, patents, trademarks, or trade names or legal
rights in exchange for fees known as royalties. Thus a company is selling the right to
produce their goods. For example, PepsiCola licenses Heineken to make and sell
Pepsi-Cola in the Netherlands. Oil companies need a licence from the host government
to drill for oil. Eli Lilly & Co. (US) has a licensing agreement to produce drugs for
Hungary and other countries. Licensing allows firms to use their technology in foreign
markets without a major investment in foreign countries and without the transportation
costs that result from exporting. A major disadvantage of licensing is that it is difficult for
the firm providing the technology to ensure quality control in the foreign production

Advantages and Disadvantages of Licensing


Licensing mode carries low investment on the part of the licensor

Licensing mode carries low financial risk to the licensor

Licensor can investigate the foreign market without much effort on his part.

Licensing gets the benefits with less investment on research and development.

License escapes himself from the risk of product failure


Licensing agreements reduce the market opportunities for both licensor

and licensee.

Both the parties have the responsibilities to maintain the product quality
and promoting the product. Therefore one party can affect the other
through their improper acts.

Costly and tedious litigation may crop up

and hurt both the parties and the market

There is scope for misunderstanding between the parties despite the

effectiveness of the agreement.

There is a problem of leakage of the trade secrets of the licensor

The licensee may sell the product outside the agreed territory and after
the expiry of the contract.

Licensing of Telecom Services by Pakistan Telecommunication Authority
In line with global trends, the promulgation of the Pakistan Telecommunication
Reorganization Act 1996 laid the foundations of reforms in the telecommunication
sector. The establishment of the Pakistan Telecommunication Authority (PTA) under the
Telecom Act was a further step forward in the direction of separating policy, regulations
and operations. This arrangement facilitated private sector investments in mobile and
value added services whereas in basic telephony services the Pakistan
Telecommunication Company (PTCL) a public sector owned company was granted
exclusivity for a period of seven years under the Act. Under the prevailing
circumstances the said arrangement assisted growth in all segments of the
telecommunication market in the country.
Rapid development of Information and Communication Technology (ICT) infrastructure
is a prerequisite for making progress in every segment of the economy. Modernization
and development of telecom infrastructure has been correlated to increased economic
activity as enunciated in various studies/surveys carried out by independent observer
groups, analysts and international institutions.
PTA continuously analyzes the global regulatory environment and modifies its
regulations and licensing mechanism to accommodate new telecom services in
Pakistan. In view of the liberal approach adopted by PTA substantial reduction was
made in royalty fee, CPP regime was introduced for cellular mobile industry and type
approval procedure were simplified.

Currently Pakistan telecommunication industry is passing through a crucial phase of

deregulating basic telephone services. The exclusivity of PTCL for provision of basic
telephony has already ended with the pronouncement of the Telecom Deregulation
Policy (TDP) on 13th July, 2003. This new telecom policy has been envisaged with a
vision for a smooth transition from regulated telecom sector to deregulated scenario by
introducing competition in both local and long distance telecommunication
services. PTA being the regulator has the responsibility of implementing the telecom
deregulation policy.

Under a franchising agreement the franchisor provides a specialized sales or service
strategy, support assistance, and possibly an initial investment in the franchise in
exchange for periodic fees. For example, McDonald's, Pizza Hut, Subway sandwiches,
Blockbuster video, and Dairy Queen are franchisors who sell franchises that are owned
and managed by local residents in many foreign countries. Like licensing, franchising
allows firms to penetrate foreign markets without a major investment in foreign
countries. The recent relaxation of barriers in foreign countries throughout Eastern
Europe and South America has resulted in numerous franchising arrangements.

Advantages and Disadvantages of Franchising


Franchisor can enter global markets with low investment and low risks.
Franchisor can get the information regarding the markets, culture, customers and
environment of the host country.
Franchisor learns more lessons from the experiences of the franchisees, which
he could not experience from the home countrys market.
Franchisee can early start a business with low risk as he selects an established
and proven product and operating system.
Franchise gets the benefit of R & D with low cost.
Franchise escapes from the risk of product failure


International franchising may be more complicated than domestic marketing.

It is difficult to control the international franchisee.
Franchising agents reduce the market opportunities for both the franchisor and
Both the parties have the responsibilities to maintain product quality and product
There is a problem of leakage of trade secrets.


McDonalds Corporation
At the time of publication, this international quick-service restaurant company has over
75 percent of its worldwide restaurants independently owned. Business owners can
purchase a new or existing restaurant. An initial down payment is required, and the rest
of the cost can be financed for up to seven years. During the terms of the franchise
agreement, ongoing fees include rent and service fees. Some of the qualities the
company is looking for in a franchisee are business experience, an acceptable credit
history, willingness to complete the company's comprehensive training program and
sufficient liquid assets to invest in the business.
Merry Maids
Merry Maids is a residential cleaning business opportunity. The company was founded
in 1979 and, at the time of publication, has over 900 cleaning franchises in the United
States and Canada. Franchise owners benefit from ongoing corporate support through
regional meetings, seminars and conferences, an annual convention and newsletters.
Training involves an eight-day program, followed by interaction with a franchise
development team and assistance from an established franchise owner. The initial
franchise fee includes the equipment, supplies and Merry Maids products. The company
also provides business owners with a customized web site.
H&R Block
This tax preparation company began offering franchise opportunities in 1955. The
company helps franchise owners keep up with the changing economy and increased tax
regulations. Some of the support offered to franchisees includes tax software, the ability
to prepare taxes online and a tax preparer training program for employees. The
company also offers on-the-ground training and support, as well as a dedicated
management support team to help franchisees grow their businesses. The company
does have financing options for business owners who wish to purchase an existing

Joint ventures
A joint venture is a venture that is owned and operated by two or more firms. Many
firms penetrate foreign markets by engaging in a joint venture with firms that reside in
those markets. In China it is currently a requirement that one of the partners of a joint
venture be a government owned company. Most joint ventures allow two firms to apply
their respective comparative advantages in a given project. For example, General Mills,
Inc., joined in a venture with Nestle SA, so that the cereals produced by General Mills

could be sold through the overseas sales distribution network established by Nestle.
Xerox Corp. and Fuji Co. (of Japan) engaged in a joint venture that allowed Xerox Corp.
to penetrate the Japanese market and allowed Fuji to enter the photocopying business.
Joint ventures between automobile manufacturers are numerous, as each manufacturer
can offer its technological advantages. General Motors has ongoing joint ventures with
automobile manufacturers in several different countries, including Hungary and the
former Soviet states.


Provide companies with the opportunity to gain new capacity and

Allow companies to enter related businesses or new geographic

markets or gain new technological knowledge

access to greater resources, including specialised staff and technology
sharing of risks with a venture partner
Joint ventures can be flexible. For example, a joint venture can have a
limited life span and only cover part of what you do, thus limiting both
your commitment and the business' exposure.

In the era of divestiture and consolidation, JVs offer a creative way for
companies to exit from non-core businesses.

Companies can gradually separate a business from the rest of the

organisation, and eventually, sell it to the other parent company.
Roughly 80% of all joint ventures end in a sale by one partner to the


It takes time and effort to build the right relationship and partnering with

another business can be challenging. Problems are likely to arise if:

The objectives of the venture are not 100 per cent clear and

communicated to everyone involved.

There is an imbalance in levels of expertise, investment or assets

brought into the venture by the different partners.

Different cultures and management styles result in poor integration and

The partners don't provide enough leadership and support in the early

Success in a joint venture depends on thorough research and analysis
of the objectives.

Pakistan Maroc Phosphore S.A, (PMP) Morocco
Phosphoric Acid, being the main raw material for DAP production is being
imported from Morocco. To ensure the continuous supply of this strategic raw
material to run our DAP plant at Karachi, Office Cherifien des Phosphates
(OCP), Morocco, the biggest industrial group of Kingdom of Morocco and the
Fauji Group( Fauji Foundation, FFC and FFBL) entered into a joint venture for
its uninterrupted supply. The company, named as Pakistan Maroc Phosphore
S.A(PMP) costing 2030 million Moroccan Dirhams( US$ 250 million) was
formed at Morocco. The project has successfully been completed in record
time and within the budget. Commercial production and shipment to FFBL
started in April 2008 and May 2008 respectively. Plant is designed to produce
375,000 MT per year of Phos acid thus meeting the total requirement of DAP
plant of FFBL. Surplus acid shall be sold in the international market.
The Project is one of its kinds with strategic significance of involving two of
the largest business groups of two brotherly Muslim nations i.e, Fauji Group of
Pakistan and OCP Group of Morocco. Its formal inauguration was performed
by His Majesty the King of Morocco in October 2008. Dignitaries from
Pakistan also attended the ceremony.
Significant benefits associated with this project are:

Production of 375,000 metric tons of phosphoric acid per

annum will not only ensure un-interrupted supply of raw
material, catering the entire post-BMR demand of DAP
requirement of FFBL, but would also be a source of profit in
the form of selling out the surplus production. This, in turn will
enhance FFBL earnings in the form of dividends.

This is the first ever foreign investment by the Fauji Group.

Apart from its imminent contribution towards economic growth
of Pakistan, it has added to the prestige of the Country. May
also prove a gateway for others to invest in the international


Long-term raw material supply guaranteed in an extremely

turbulent international market.

Acquisitions of existing operations

Firms frequently acquire other firms in foreign countries as a means of penetrating
foreign markets. Acquisitions allow firms to have full control over their foreign
businesses and to quickly obtain a large portion of foreign market share.
An acquisition of an existing corporation is a quick way to grow. An MNC that grows in
this way also partly protects itself from adverse actions from the host government of the
acquired company. The MNC has control of a usually well-established firm with good
connections to its government. The risk is that too much has been paid for the
acquisition, also that there are unforeseen problems with the acquired company. It has
to be remembered that the sellers of the company have a thorough knowledge of the
business and the price at which they are selling is presumably higher than their
estimate. The acquiring company is therefore to a certain extent outguessing the local
owners - a risky proposition.
Some firms engage in partial international acquisitions in order to obtain a stake in
foreign operations. This requires a smaller investment than full international acquisitions
and therefore exposes the firm to less risk. On the other hand, the firm will not have
complete control over foreign operations that are only partially acquired.


Speed: It provides ability to speedily acquire resources and competencies not

held in house. It allows entry into new products and new markets. Risks and
costs of new product development decrease.

Market power: It builds market presence. Market share increases. Competition

decrease. Excessive competition can be avoided by shut down of capacity.
Diversification is aggrieved. Synergistic benefits are gained.
Overcome entry barrier: It overcomes market entry barrier
by acquiring an existing organization. The risk of competitive reaction decrease.
Financial gain: Organization with low share value or low price earnings ratio can
be acquired to take short term gains through assets stripping.
Resources and competencies: Acquisition of resources and competencies
not available in house can be a motive for merger and acquisition.
Stakeholder expectations: Stakeholder may expect growth through acquisitions.


Integration problems: The activities of new and old organizations may be difficult
to integrate. Cultural fit can be problematic. Employees may resist it.
High cost: The acquirer may pay high cost, especially in cases of hostile takeover
bids. Value may not be added for the acquirer.
Financial consequences: The returns from acquisitions may not be attractive.
Executed cost saving may not materialize.
Unrelated diversification: This may create problem of managing resources and
Too much focus: Too much managerial focus on acquisitions can be detrimental
to internal development

Faysal Bank Intent to Takeover CitiBank Pakistan
Faysal Bank joins in an already heated and interesting race to acquire
CitiBank Pakistans consumer asset portfolio. In a notice sent to Karachi Stock
Exchange Faysal Bank informed that State Bank of Pakistan has granted them
approval to conduct due diligence of CitiBank consumer portfolio in Pakistan.
The acquisition temperature heats up in banking industry after international banks
decided to scale down their operations globally. HSBC Pakistan and CitiBank already
offered themselves for sale with rumors that Standard Chartered is also considering to
exit from Pakistan.
All of these operations on sale are extremely profitable and local and few international
banks are eyeing this opportunity. Before Faysal Bank Alfalah and Habib Bank

showed their interest to acquire CitiBank Pakistan with rumors that Isbank, a Turkish
bank, might join the race.
It would be interesting to note that Faysal Bank has been in news for all the wrong
reasons for past few weeks. EconomyAge was first to report that there has been some
kind of an internal rift and the bonuses awarded to employees from Faysal Bank
wasnt much appreciated. This unrest news came immediately after it was reported
that SECP issued prohibitory order against the bank and accuse them of manipulating
share prices in stock trading.
Previously, in a dramatic situation last year, Faysal Bank acquired Royal Bank of
Scotlands operations in Pakistan despite being the second highest bidder after MCB
Bank failed to get regulatory approval