Articles Extracted from
Encyclopedia of Management
THE EMERGENCE OF THE GLOBAL
In the 1980s, the world's leading industrialized nations began an era of cooperation in which they capitalized on the benefits of working together to improve their individual economies. They continued to seekindividual comparative advantages, i.e., a nation's ability to produce some products more cheaply or better than others, but within the confines of international cooperation. In the 1990s these trends continued, and in many cases accelerated. Countries negotiated trade pacts such as the North American Free Trade Agreement (NAFTA), and the General Agreement on Tariffs and Trade (GATT), or formed economiccommunities such as the European Union. These pacts and communities created new marketing opportunities in the respective markets by decreasing trade duties and other barriers to cross-border commerce. They opened the door through which companies of all sizes and in various aspects of business entered the international market. The United States benefited extensively from the expanded global economicactivity.
U.S. trade figures from the 1990s illustrate the rapid expansion of cross-border business. In 1992, the United States exported $448 billion worth of goods and services, while importing more than $532 billion worth from other countries. By 1998, exports had more than doubled (in current dollars) to approximately $930 billion, and imports approached $1.1 trillion. Adjusting forinflation, the value of exports grew over the seven-year period by 78 percent, and the value of imports rose by 77 percent.
INTERNATIONAL BUSINESS MODELS
Prospective international managers must first realize there is no single way to enter a foreign market. Businesses must choose the model appropriate to their level of resources, market potential, and experience operating in the international sphere.The various categories of international business models include export/import businesses, independent agents, licensing and franchising agreements, direct investment in established foreign companies, joint ventures, and multinational corporations (MNC). The differences among these options are sometimes subtle in nature.
For instance, an export firm is one that sellsits domestically made products to a very small number of countries. In contrast, import firms import foreign-made goods into the country for domestic use. Often, export and import firms are operated by a small group of people who have close ties with the countries in which they do business. Some such firms may begin as export or import specialists, but eventually expand their operations toproduction of goods overseas. IBM and Coca-Cola Co. exemplify companies that have used that approach.
INDEPENDENT AGENTS, LICENSES, AND FRANCHISES.
Independent agents are businesspeople who contract with foreign residents or businesses to represent the exporting firm's product in another country. Closely related are firms with licensing agreements, in which domestic firms grant foreign individualsor companies the right to manufacture and/or market the ex-porter's product in that country in return for royalties on sales. Another variation is a franchising arrangement, in which the parent company grants a franchise upon payment of a franchise fee by a local business operator, who then agrees to follow a prescribed methodology and marketing plan using the company's name. The local franchiseemay have to pay royalties or annual franchise fees, but otherwise remains independent of the franchisor. In each of these models, assuming the partner in the target market is competent, the risks to the originating company are usually low, as it is not setting up operations of its own in the foreign country, but rather relying on independent businesses or individuals that are already there....