Professional Documents
Culture Documents
CONTENTS
REFERENCES 12
CHAPTER 1 -
INTRODUCTION
BACKGROU
ND
If we spend a day looking around us, the importance of international
business will become very obvious. We don't have to look far to see this. For
example, if we have a mobile phone or MP3 player, then we can quickly find
out at where they were made. What about the computer that was used to
prepare this article, or the printer that was used for printing? When we eat,
how much of the food we consume was actually produced in Bangladesh? In
short, our lives and living standards are heavily influenced by the amount of
international business and trades, we conduct with the rest of the world.
In todays global economy, what is the best way for a company to go global,
go beyond its domestic market? What is the safest way? What is the most
profitable way? What is the most practical way? These are some of the
questions every company has to answer when it makes globalization as its
goal. These are also the issues that every company has to tackle when it
puts its strategy to enter a new foreign market.
OBJECTIVES
To discuss theoretical aspects of the modes of international business
To learn how companies gradually progress through an
internationalization process
To discuss the modes of international business used in Bangladesh
Foreign market entry modes differ in degree of risk they present, the control
and commitment of resources they require and the return on investment
they promise. Each method is discussed in turn, with emphasis on its risk
and return characteristics.
LICENSING
Licensing is a common method of international market entry for companies
with a distinctive and legally protected asset, which is a key differentiating
element in their marketing offer. It involves a contractual arrangement
whereby a company licenses the rights to certain technological know- how,
design, patents, trademarks and intellectual property to a foreign company
in return for royalties or other kinds of payment. For example, Bangladesh
Electrical Industries (BEIL) a subsidiary of Transcom group limited, is a
producer of televisions and radios in Bangladesh and is the official licensee
of PHILIPS Electronics N.V. Holland.
Here the manufacturer in the domestic country is called licensor and the
manufacturer in the foreign country is called licensee. The cost of entering
market through this mode is less expensive. The domestic company can
choose any international location and enjoy the advantages without incurring
any obligations and responsibilities of ownership, managerial, investment etc.
FRANCHISING
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, KFC, McDonald's, Pizza
Hut and Nandoos are franchisors who sell franchises that are owned and
managed by local residents in many foreign countries including Bangladesh.
The recent relaxation of barriers in foreign countries throughout Eastern
Europe and South America has resulted in numerous franchising
arrangements.
ACQUISITIONS
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.
Bangladesh government has moved to reduce the number of items on its list
of banned imports and has eliminated the need for import licenses. However,
some products are still banned from importation, including certain maps,
obscene materials, socially or religiously offensive items, all types of wastes,
and substandard or rejected goods, as well as all imports from Israel. Despite
some recent reductions, tariffs in Bangladesh remain high, averaging over
50%. At the recommendation of the World Bank, Bangladesh has placed a
100% tariff ceiling on most goods, with the intention of bringing the ceiling
down to 60%. A value-added tax (VAT) of 10 to 20 percent and additional
fees, typically adding up to 15 percent of the cost and freight value, are also
applied to imports.
Every year Bangladesh has to Import different types of food & row material
to fulfill its internal demand. The Imported commodities of Bangladesh are
Machinery and equipment, Chemicals, Iron and steel, Textiles, Foodstuffs,
Petroleum products, Cement etc. About 50% of the imports are from the
category consumer and intermediate Goods, of which about 80% are
intermediate goods (30% petroleum). Consumer goods represent no more
than 20% of total imports, partly reflecting a protected consumer domestic
market. Capital goods represented one third of imports in FY 2011. While the
share of machinery has declined over time, the share of iron and steel and
other capital goods has increased in recent years. Even as exports have
risen significantly, imports have been rising even faster, resulting in a
chronic and widening trade deficit that has been offset by strong remittance
inflows from Bangladeshi overseas workers.
Bangladesh depends on Asia for much of its imports. In FY 2010-11, Asias
share in its total goods imports was 64.4%, including China (17.6%), India
(13.6%), Singapore and Japan (nearly 4% each), and other Asian countries
(24%). Imports from the EU and North America combined accounted for only
14.7% of the total value of imports.
Total export earnings during the last four fiscal years increased by 2.79 times
to approximately 79 billion US dollar with an average of 20 billion dollar per
year. Import payments also witnessed strong growth during the last four
years. As compared to the previous four years, total import payments in the
latest four years increased by about three-folds to 115.35 billion US dollar
with a yearly average of 28.84 billion US dollar. This may have been due to
the global economic slowdown and poor infrastructure development
particularly in the energy sector. Bangladesh has a long history of
maintaining a negative trade balance, importing more goods than it exports.
Foreign Direct Investment (FDI) has played a key role in the economic
development of Bangladesh for the last 15 years. Bangladesh offers a most
liberal FDI regime in South Asia, with no prior approval requirements or limits
on equity participation and repatriation of profits and income in most sectors.
Bangladesh recorded a rise in foreign direct investment (FDI) last year,
bucking a global downturn in cross-border investments. Actual FDI inflows
rose 13.75 percent to $1.29 billion in 2012, the highest ever in the history of
Bangladesh. Major foreign investors in Bangladesh include Telenor of Norway,
Singtel of Singapore, Orascom of Egypt, YKK of Japan and Samsung of Korea.
Foreign remittance is one of the driving forces in the growth of the economy
of Bangladesh. In FY 2010-11, there is a large share of remittance that is USD
11,650 million while the trade deficit is USD 7,328 million, service deficit USD
2,398 million and income deficit USD 1,354 million. Current account surplus
in FY 2010-11 is only USD 995 million, which is 73.28 per cent less than that
of FY 2009-10 while current account surplus was USD 3,724 million. In fiscal
year 2010-11, the growth rate of merchandise export and import is 41.74
and 41.84 respectively and at the same time trade deficit has increased at
the rate of 42.20%.
Bangladesh does not have any established law about franchising. Besides,
there is no separate governing body that regulates these sorts of businesses.
So, here the franchisees have to bind with each and every term and
conditions set by the franchisor. On the mirror view the franchisor may faces
a lot of risks while they permit for franchising here. Often different
companies are seemed to contract for everything but violets some major
principles set by the franchisor. Sometimes they sacrifices quality, size of the
product to earn higher return. Sometimes franchises cares very little about
the franchisors reputation. But reputation or brand is one of the most
important assets for the franchisors. Currently in Bangladesh, international
chain food shops like: KFC, Pizza Hut and Nandoos are franchised by
Transcom Foods Limited.
Bangladesh economic growth over the last half decade is more than 6% and
it is one of the emerging economies in South Asia. The real export growth is
more than 9%, which is higher than all other south Asian countries except
India (WTI 2008). Bangladesh launched comprehensive trade reforms in the
early 1990s that included substantial reduction of tariffs, removal of
quantitative restrictions, and moves from multiple to a unified exchange rate
and from a fixed to freely floating exchange rate system to increase its
export performance. The garments export industry is allowed duty free
import of raw materials. The maximum tariff rate has declined from a high of
300% in the late 1990s to just 25% in 2007 (WTI 2008). The country has
liberalized its banking and telecommunication sectors. As a result, export
growth has been satisfactory in the last few decades. The major portion of
export income comes from RMG sector but major portion of raw materials for
RMG sector are imported goods. So there is no positive effect in BOP. To
increase export growth even more, the export oriented industries should be
diversified and variety should also come. Besides exports, Bangladesh also
earns good amount of foreign currency by the means of franchising and joint
ventures. FDI and remittance are playing a vital role in the economic growth
of Bangladesh. Bangladesh has a great potential for international business
activities and foreign investment due to its cheap labor cost and natural
resources. Different supportive conditions like stable political situation, no
corruption, good quality infrastructure, skilled labor force and developments
of other areas can attract foreign investors to invest more in Bangladesh,
which will eventually act as a driving force for our economic and social
development.