TABLE OF CONTENTS

Content

Page No.

Disclaimer

Acknowledgement.

Chapters
Abstract
Introduction

4
5

Brief introduction of the research project

Objects of research
Research Methodology
Approach to international business

Importing & Exporting

Tourism in Transportation
Mergers & Acquisition
Franchising
Licensing
Joint Venture
Management Contract

Opinion & Conclusion

24

Bibliography

25

DISCLAIMER

1 |Page

This project report is co-authored by students of 3rd year under the five year BBA.LL.B (H)
Program in MATS Law School, Raipur. The report is purely academic in nature and shall not
be treated as a legal or business advice. The views expressed in this report are personal to
the student and do not reflect the view of law school or any of its staff or personnel. All the
copyrights relating to this work are vested in the authors; the same shall not be exploited
without their express permission.

1) Madhurjya Jyoti Gogoi

2) Hadotsula Narziary

ACKNOWLEDGEMENT

2 |Page

Firstly, we are extremely grateful to Asst. Prof. Vinisha Verma, for granting us the opportunity
to make the project report under the topic of International Business Management.
We feel highly elated to work on this dynamic, highly important project report on that is
APPROACHES TO INTERNATIONAL BUSINESS under which the subject of international
business Management in our five year BBA.LL.B course. So, this topic instantly drew our
attention and attracted us to research on it.
So, we hope we have tried our level best to bring in new ideas and thoughts regarding the
important international business relating topic. Not to forget the deep sense of regard and
gratitude to our faculty adviser, Asst. prof. Vinisha Verma who played the role of a
protagonist. Last but not the least; I thank all the members of the MATS Law School and all
others who have helped us in making this project a success.

ABSTRACT
The objective of this project report is analyzed about the international
business which is the main part of international business management. This
report deals with the approach to the international business. International

3 |Page

business comprises all commercial transactions that take place between two
or more regions, countries and nations beyond their political boundaries. So
there have been more approaches which are effects on the international
business as import & export, transportation in tourism, mergers &
acquisition, franchising, licensing, joint venture, foreign direct investment.

4 |Page

INTRODUCTION
International business comprises all commercial transactions (private and
governmental, sales, investments, logistics, and transportation) that take
place between two or more regions, countries and nations beyond their
political boundaries. Usually, private companies undertake such transactions
for profit; governments undertake them for profit and for political reasons.1 It
refers to all those business activities which involve cross border transactions
of goods, services, resources between two or more nations. Transaction of
economic resources include capital, skills, people etc. for international
production of physical goods and services such as finance, banking,
insurance, construction etc.2
A multinational enterprise (MNE) is a company that has a worldwide
approach to markets and production or one with operations in more than a
country. An MNE is often called multinational corporation (MNC) or
transnational company (TNC). Well known MNCs include fast food companies
such as McDonald's and Yum Brands, vehicle manufacturers such as General
Motors, Ford Motor Company and Toyota, consumer electronics companies
like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell
and BP. Most of the largest corporations operate in multiple national markets.
Objectives of research:
The objectives of research are

To understand the concept of International business

To study about growth in globalization of international business

Approaches to international business

1 Daniels, J., Radebaugh, L., Sullivan, D. (2007). International Business: environment and
operations, 11th edition. Prentice Hall. ISBN 0-13-186942-6
2 Joshi, Rakesh Mohan, (2009) International Business, Oxford University Press, ISBN 0-19568909-7
5 |Page

RESEARCH

METHODOLOGY

I have adopted the mode of doctrinal research where I have refereed to

various books and internet sources to take information about this project
report. So I have taken materials, references and guides from source from
various sites like Google, Wikipedia, Yahoo and the various books which is
relating to the International Business Management.

FACTORS

THAT INFLUENCED THE GROWTH IN GLOBALIZATION OF INTERNATIONAL

BUSINESS

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There has been growth in globalization in recent decades due to (at least)
the following eight factors:

o Technology is expanding, especially in transportation and

communications.
o Governments are removing international business restrictions.
o Institutions provide services to ease the conduct of international
business.
o Consumers want to know about foreign goods and services.
o Competition has become more global.
o Political relationships have improved among some major economic
powers.
o Countries cooperate more on transnational issues.
o Cross-national cooperation and agreements.

THE INTERNATIONAL BUSINESS

STANDARDS FOCUSES ON THE FOLLOWING :

o Raising awareness of the interrelatedness of one country's political

policies and economic practices on another;
o Learning to improve international business relations through
appropriate communication strategies;
o Understanding the global business environmentthat is, the
interconnected-ness of cultural, political, legal, economic, and ethical
systems;
o Exploring basic concepts underlying international finance,
management, marketing , and trade relations; and
o Identifying forms of business ownership and international business
opportunities.

APPROACH

TO INTERNATIONAL

BUSINESS
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In truth, we have become part of a global village and have a global economy
where no organization is insulted from the effects foreign markets and
competition. Indeed, more and more firm are reshaping themselves for
international competition and discovering new ways to exploit markets in
every corner of the world. Failure to take a global perspective in one of the
biggest mistakes managers can make. Thus we start laying the foundation
for our discussion by introducing and describing the basic of international
business.

An international business is one that is based primarily in a single country

but acquires some meaningful share of its resources or revenues (or both)
from other countries. Sears fits this description. Most of its stores are in the
United States. For example, and the retailer earns around 90 percent of its
revenues from its U. S. operation with the remaining 10 percent coming
sears stores in Canada. At the same time however, many of the products it
sells, such as tools and clothing are made abroad from any perspective. Then
it is clear that we live in a truly global economy. Virtually all business today
must be concerned with the competitive situations they face in lands for
from home and with how companies from distant lands are competing in
their homelands.
APPROACHES TO INTERNATIONAL BUSINESS
1.
2.
3.
4.
5.
6.
7.

ARE DISCUSSED BELOW:

Import & Export

Transportation in Tourism
Mergers & Acquisition
Franchising
Licensing
Joint Venture
Foreign Direct Investment

IMPORTING & EXPORTING:

Import: An import is a good brought into a jurisdiction, especially across a
national border, from an external source. The party bringing in the good is
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called an importer.34An import in the receiving country is an export from the

sending country. Importation and exportation are the defining financial
transactions of international trade.

In international trade, the importation and exportation of goods are limited

by import quotas and mandates from the customs authority. The importing
and exporting jurisdictions may impose a tariff (tax) on the goods. In
addition, the importation and exportation of goods are subject to trade
agreements between the importing and exporting jurisdictions.
"Imports" consist of transactions in goods and services (sales, barter, gifts or
grants) from non-residents to residents.5 The exact definition of imports in
national accounts includes and excludes specific "borderline" cases.6 A
general delimitation of imports in national accounts is given below:

An import of a good occurs when there is a change of ownership from a

non-resident to a resident; this does not necessarily imply that the good
in question physically crosses the frontier. However, in specific cases
national accounts impute changes of ownership even though in legal
terms no change of ownership takes place (e.g. cross border financial
leasing, cross border deliveries between affiliates of the same
enterprise, goods crossing the border for significant processing to order
or repair). Also smuggled goods must be included in the import
measurement.

Imports of services consist of all services rendered by non-residents to

residents. In national accounts any direct purchases by residents outside
the economic territory of a country are recorded as imports of services;
therefore all expenditure by tourists in the economic territory of another

3 Joshi, Rakesh Mohan, (2009) International Business, Oxford University Press, New Delhi
and New York ISBN 0-19-568909-7
4 Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle
River: Pearson Prentice Hall. p. 552. ISBN 0-13-063085-3.
5 Lequiller, F; Blades, D.: Understanding National Accounts, Paris: OECD 2006, pp. 139-143
6 for example, see Eurostat: European System of Accounts - ESA 1995, 3.128-3.146,
Office for Official Publications of the European Communities, Luxembourg, 1996
9 |Page

country are considered as part of the imports of services. Also

international flows of illegal services must be included.
Basic trade statistics often differ in terms of definition and coverage from the
requirements in the national accounts:

Data on international trade in goods are mostly obtained through

declarations to custom services. If a country applies the general trade
system, all goods entering the country are recorded as imports. If the
special trade system (e.g. extra-EU trade statistics) is applied goods
which are received into customs warehouses are not recorded in external
trade statistics unless they subsequently go into free circulation of the
importing country.

A special case is the intra-EU trade statistics. Since goods move freely
between the member states of the EU without customs controls, statistics
on trade in goods between the member states must be obtained through
surveys. To reduce the statistical burden on the respondents small scale
traders are excluded from the reporting obligation.

Statistical recording of trade in services is based on declarations by

banks to their central banks or by surveys of the main operators. In a
globalized economy where services can be rendered via electronic means
(e.g. internet) the related international flows of services are difficult to
identify.

Basic statistics on international trade normally do not record smuggled

goods or international flows of illegal services. A small fraction of the
smuggled goods and illegal services may nevertheless be included in
official trade statistics through dummy shipments or dummy declarations
that serve to conceal the illegal nature of the activities.

There are two basic types of import:

1. Industrial and consumer goods
2. Intermediate goods and services
Companies import goods and services to supply to the domestic market at a
cheaper price and better quality than competing goods manufactured in the
domestic market. Companies import products that are not available in the
local market.
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There are three broad types of importers:

1. Looking for any product around the world to import and sell.
2. Looking for foreign sourcing to get their products at the cheapest price.
3. Using foreign sourcing as part of their global supply chain.

Export: The term export means shipping the goods and services out of the
port of a country. The seller of such goods and services is referred to as an
"exporter" who is based in the country of export whereas the overseas based
buyer is referred to as an "importer". In International Trade, "exports" refers
to selling goods and services produced in the home country to other
markets.7

Export of commercial quantities of goods normally requires involvement of

the customs authorities in both the country of export and the country of
import. The advent of small trades over the internet such as through Amazon
and eBay have largely bypassed the involvement of Customs in many
countries because of the low individual values of these trades. Nonetheless,
these small exports are still subject to legal restrictions applied by the
country of export. An export's counterpart is an import.
"Foreign demand for goods produced by home country" In national accounts
"exports" consist of transactions in goods and services (sales, barter, gifts or
grants) from residents to non-residents.8 The exact definition of exports
includes and excludes specific "borderline" cases.9A general delimitation of
exports in national accounts is given below:

o An export of a good occurs when there is a change of ownership from a

resident to a non-resident; this does not necessarily imply that the
good in question physically crosses the frontier. However, in specific
7 Joshi, Rakesh Mohan, (2005) International Marketing, Oxford University Press, New Delhi
and New York ISBN 0-19-567123-6
8 Lequiller, F; Blades, D.: Understanding National Accounts, Paris: OECD 2006, pp. 139-143
9 for example, see Eurostat: European System of Accounts - ESA 1995, 3.128-3.146,
Office for Official Publications of the European Communities, Luxembourg, 1996
11 | P a g e

cases national accounts impute changes of ownership even though in

legal terms no change of ownership takes place (e.g. cross border
financial leasing, cross border deliveries between affiliates of the same
enterprise, goods crossing the border for significant processing to
order or repair). Also smuggled goods must be included in the export
measurement.
o Export of services consists of all services rendered by residents to nonresidents. In national accounts any direct purchases by non-residents
in the economic territory of a country are recorded as exports of
services; therefore all expenditure by foreign tourists in the economic
territory of a country is considered as part of the exports of services of
that country. Also international flows of illegal services must be
included.
National accountants often need to make adjustments to the basic trade
data in order to comply with national accounts concepts; the concepts for
basic trade statistics often differ in terms of definition and coverage from the
requirements in the national accounts:

o Data on international trade in goods are mostly obtained through

declarations to custom services. If a country applies the general trade
system, all goods entering or leaving the country are recorded. If the
special trade system (e.g. extra-EU trade statistics) is applied goods
which are received into customs warehouses are not recorded in
external trade statistics unless they subsequently go into free
circulation in the country of receipt.
o A special case is the intra-EU trade statistics. Since goods move freely
between the member states of the EU without customs controls,
statistics on trade in goods between the member states must be
obtained through surveys. To reduce the statistical burden on the
respondents small scale traders are excluded from the reporting
obligation.
o Statistical recording of trade in services is based on declarations by
banks to their central banks or by surveys of the main operators. In a
globalized economy where services can be rendered via electronic
means (e.g. internet) the related international flows of services are
difficult to identify.
o Basic statistics on international trade normally do not record smuggled
goods or international flows of illegal services. A small fraction of the
12 | P a g e

smuggled goods and illegal services may nevertheless be included in

official trade statistics through dummy shipments or dummy
declarations that serve to conceal the illegal nature of the activities.

TOURISM

IN

TRANSPORTATION:

Tourism sector is one of the main important sectors of the economy. Many
countries take advantage of covering the budget deficit with the help of
profits coming from tourism. That is why tourism sometimes is called a
factory without chimney. But tourism has its own unique features that
differentiate this sector from the others. Like in the other service industries,
in tourism the customers, that is, the tourists come to the destination where
the tourism services are provided.
As the matter of fact it is difficult to think of tourism sector without
transportation. Transportation is the main mean to carry passengers, that is,
the tourists to the actual site where tourism services are performed.
Air Transportation
One of the most important transportation modes in tourism is air travel. Air
travel has made significant changes in peoples minds concerning time and
distance. In order to meet the demand which increases every day, the airline
companies spend billions of dollars and apply new technological innovations.
Having matchless role in long distances the air travel industry develops very
rapidly.
Automobile Transportation
In short distances automobile transportation comes forward in regard to
other modes of transportation. The automobile transportation makes it easy
to see local culture and nations. It presents great flexibility in contrast to
other modes of transportation. The importance of this mode in tourism is
also very important. When compared with the prices in air transportation,
this mode of transportation is frequently used by tourists because of low
prices. But the main factor affecting this choice is time and distance
Railway Transportation
The other mode that affects tourism is railway transportation. This type of
transportation is considered the oldest one. In 19th century the railways
were frequently used. Currently in many countries the railways are used for
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transportation of loads. The reason for this is tourist choice of air or

automobile transportation. But there exists such railroads that have been
included to touristic packages. For the example, we can give Orient Express
railways. But nowadays application of technology and technological
innovation gave birth to fast trains which compete with air and automobile
transportation modes. In order to take advantage of fast trains many
countries rebuild their existing railroad systems completely. In Azerbaijan
new railway is being built which will take passengers from Baku and to Kars
passing through Tbilisi. This will play an important role in development of
tourism in future. Currently, France, China, Japan, Singapore, Turkye are
using fast trains.
Like in bus companies, in railway transportation the tickets are also sold
online which make it easy for passengers not leaving their home, buy tickets
and book places in train beforehand. This makes the railways work 24 hours
in a day.

MERGERS &

ACQUISITION:

Mergers and acquisitions are both aspects of corporate strategy, corporate

finance and management dealing with the buying, selling, dividing and
combining of different companies and similar entities that can help an
enterprise grow rapidly in its sector or location of origin, or a new field or
new location, without creating a subsidiary, other child entity or using a joint
venture. Mergers and acquisitions activity can be defined as a type of
restructuring in that they result in some entity reorganization with the aim to
provide growth or positive value. Consolidation of an industry or sector
occurs when widespread M&A activity concentrates the resources of many
small companies into a few larger ones, such as occurred with the
automotive industry between 1910 and 1940.

The distinction between a "merger" and an "acquisition" has become

increasingly blurred in various respects (particularly in terms of the ultimate
economic outcome), although it has not completely disappeared in all
situations. From a legal point of view, a merger is a legal consolidation of two
companies into one entity, whereas an acquisition occurs when one company
takes over another and completely establishes itself as the new owner (in
which case the target company still exists as an independent legal entity
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controlled by the acquirer). Either structure can result in the economic and
financial consolidation of the two entities. In practice, a deal that is an
acquisition for legal purposes may be euphemistically called a "merger of
equals" if both CEOs agree that joining together is in the best interest of both
of their companies, while when the deal is unfriendly (that is, when the
target company does not want to be purchased) it is almost always regarded
as an "acquisition".
An acquisition or takeover is the purchase of one business or company by
another company or other business entity. Such purchase may be of 100%,
or nearly 100%, of the assets or ownership equity of the acquired entity.
Consolidation occurs when two companies combine together to form a new
enterprise altogether, and neither of the previous companies remains
independently. Acquisitions are divided into "private" and "public"
acquisitions, depending on whether the acquiree or merging company (also
termed a target) is or is not listed on a public stock market. An additional
dimension or categorization consists of whether an acquisition is friendly or
hostile.

Achieving acquisition success has proven to be very difficult, while various

studies have shown that 50% of acquisitions were unsuccessful.10 The
acquisition process is very complex, with many dimensions influencing its
outcome.11 "Serial acquirers" appear to be more successful with M&A than
companies who only make an acquisition occasionally (see Douma &
Schreuder, 2013, chapter 13). The new forms of buy out created since the
crisis are based on serial type acquisitions known as an ECO Buyout which is
a co-community ownership buy out and the new generation buy outs of the
MIBO (Management Involved or Management & Institution Buy Out) and
MEIBO (Management & Employee Involved Buy Out).
Whether a purchase is perceived as being a "friendly" one or a "hostile"
depends significantly on how the proposed acquisition is communicated to
and perceived by the target company's board of directors, employees and
shareholders. It is normal for M&A deal communications to take place in a socalled "confidentiality bubble" wherein the flow of information is restricted
10 Investment banking explained pp. 223-224
11 Mergers and acquisitions explained". Retrieved 2009-06-30.
15 | P a g e

pursuant to confidentiality agreements.12In the case of a friendly transaction,

the companies cooperate in negotiations; in the case of a hostile deal, the
board and/or management of the target is unwilling to be bought or the
target's board has no prior knowledge of the offer. Hostile acquisitions can,
and often do, ultimately become "friendly", as the acquiror secures
endorsement of the transaction from the board of the acquiree company.
This usually requires an improvement in the terms of the offer and/or through
negotiation.

"Acquisition" usually refers to a purchase of a smaller firm by a larger one.

Sometimes, however, a smaller firm will acquire management control of a
larger and/or longer-established company and retain the name of the latter
for the post-acquisition combined entity. This is known as a reverse takeover.
Another type of acquisition is the reverse merger, a form of transaction that
enables a private company to be publicly listed in a relatively short time
frame. A reverse merger occurs when a privately held company (often one
that has strong prospects and is eager to raise financing) buys a publicly
listed shell company, usually one with no business and limited assets.13

FRANCHISING
Franchising is the practice of selling the right to use a firm's successful
business model. The word "franchise" is of Anglo-French derivationfrom
franc, meaning freeand is used both as a noun and as a (transitive) verb.
[1] For the franchisor, the franchise is an alternative to building "chain
stores" to distribute goods that avoids the investments and liability of a
chain. The franchisor's success depends on the success of the franchisees.
The franchisee is said to have a greater incentive than a direct employee
because he or she has a direct stake in the business.

Essentially, and in terms of distribution, the franchisor is a supplier who

allows an operator, or a franchisee, to use the supplier's trademark and
12 Harwood, 2005
13 Reverse Merger in the glossary of mergers-acquisitions.org
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distribute the supplier's goods. In return, the operator pays the supplier a
fee.14

Thirty three countriesincluding the United States and Australiahave laws

that explicitly regulate franchising, with the majority of all other countries
having laws which have a direct or indirect impact on franchising. 15
Mid-sized franchises like restaurants, gasoline stations and trucking stations
involve substantial investment and require all the attention of a
businessperson. There are also large franchises like hotels, spas and
hospitals, which are discussed further under technological alliances.

Three important payments are made to a franchisor:

(a) A royalty for the trademark,
(b) Reimbursement for the training and advisory services given to the
franchisee, and
(c) A percentage of the individual business unit's sales.
These three fees may be combined in a single 'management' fee. A fee for
"disclosure" is separate and is always a "front-end fee".

A franchise usually lasts for a fixed time period (broken down into shorter
periods, which each require renewal), and serves a specific territory or
geographical area surrounding its location. One franchisee may manage
several such locations. Agreements typically last from five to thirty years,
with premature cancellations or terminations of most contracts bearing
serious consequences for franchisees. A franchise is merely a temporary
business investment involving renting or leasing an opportunity, not the
purchase of a business for the purpose of ownership. It is classified as a

14 Gurnick, David (2011). Distribution Law of the United States. U.S.: Juris Publishing. p. 35.
ISBN 978-1-57823-277-2.
15 "International Franchise and Distribution". DLA Piper. 2012. Retrieved 2012-02-02.
17 | P a g e

wasting asset due to the finite term of the license. Franchise fees are on
average 6.7% with an additional average marketing fee of 2% 16

A franchise can be exclusive, non-exclusive or 'sole and exclusive'. Although

franchisor revenues and profit may be listed in a franchise disclosure
document (FDD), no laws require an estimate of franchisee profitability,
which depends on how intensively the franchisee 'works' the franchise.
Therefore, franchisor fees are typically based on 'gross revenue from sales'
and not on profits realized. See remuneration.

Various tangibles and intangibles such as national or international

advertising, training and other support services are commonly made
available by the franchisor. Franchise brokers help franchisors find
appropriate franchisees.17 There are also main 'master franchisors' who
obtain the rights to sub-franchise in a territory. According to the International
Franchise Association approximately 4% of all businesses in the United
States are franchisee-worked.

It should be recognized[citation needed] that franchising is one of the only

means available to access venture investment capital without the need to
give up control of the operation of the chain and build a distribution system
for servicing it. After the brand and formula are carefully designed and
properly executed, franchisors are able to sell franchises and expand rapidly
across countries and continents using the capital and resources of their
franchisees while reducing their own risk.

It's important to know that there is risk for the people that are buying the
franchises, too. There are a lot of myths surrounding the success and failure
rates of franchise businesses. One of the more popular myths states that
16 The Profile of Franchising Report Series III - Royalty and Advertising Fees". International
Franchise Association. 2006.
17 "The Economic Impact of Franchised Businesses In the United States". Price Waterhouse
Coopers. 2012. Retrieved 2012-02-02.
18 | P a g e

franchise businesses have lower risk than independent business startups.18

Another one suggests that it's almost impossible to fail. Both are untrue,19
and it's important for today's franchise-seekers to be aware of that fact.

Franchisor rules imposed by the franchising authority are usually very strict
in the US and most other countries need to study them carefully to protect
small or start-up franchisee in their own countries. Besides the trademark,
there are proprietary service marks which may be copyrighted and
corresponding regulations.

LICENSING
Licensing is the process of leasing a legally protected (that is, trademarked
or copyrighted) entity a name, likeness, logo, trademark, graphic design,
slogan, signature, character, or a combination of several of these elements.
The entity, known as the property or intellectual property, is then used in
conjunction with a product. Many major companies and the media consider
licensing a significant marketing tool.

Licensing is a marketing and brand extension tool that is widely used by

everyone from major corporations to the smallest of small business.
Entertainment, sports and fashion are the areas of licensing that are most
readily apparent to consumers, but the business reaches into the worlds of
corporate brands, art, publishing, colleges and universities and non-profit
groups, to name a few.

Licensing can extend a corporate brand into new categories, areas of a store,
or into new stores overall. Licensing is a way to move a brand into new
18 Patterns of Internationalization for Developing Country Enterprises (Alliances and Joint
Ventures) United Nations Industrial Development Organization, Vienna, 2008, ISBN 978-92-1106443-8, pp 65
19 "The Profile of Franchising Report Series III - Royalty and Advertising Fees". International
Franchise Association. 2006.
19 | P a g e

businesses without making a major investment in new manufacturing

processes, machinery or facilities. In a well-run licensing program, the
property owner maintains control over the brand image and how it's
portrayed (via the approvals process and other contractual strictures), but
eventually reaps the benefit in additional revenue (royalties), but also in
exposure in new channels or store aisles.

Licensing gives a licensee certain rights or resources to manufacture and/or

market a certain product in a host country.

KEY POINTS
o Licensing is a business agreement involving two companies: one gives
the other special permissions, such as using patents or copyrights, in
exchange for payment.
o An international business licensing agreement involves two firms from
different countries, with the licensee receiving the rights or resources
to manufacture in the foreign country.
o Rights or resources may include patents, copyrights, technology,
managerial skills, or other factors necessary to manufacture the good.
o Advantages of expanding internationally using international licensing
include: the ability to reach new markets that may be closed by trade
restrictions and the ability to expand without too much risk or capital
investment.
o Disadvantages include the risk of an incompetent foreign partner firm
and lower income compared to other modes of international expansion.

EXAMPLES
Suppose Company A, a manufacturer and seller of Baubles, was based in the
US and wanted to expand to the Chinese market with an international
business license. They can enter the agreement with a Chinese firm, allowing
them to use their product patent and giving other resources, in return for a
payment. The Chinese firm can then manufacture and sell Baubles in China.

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JOINT VENTURE
A joint venture (JV) is a business agreement in which the parties agree to
develop, for a finite time, a new entity and new assets by contributing equity.
They exercise control over the enterprise and consequently share revenues,
expenses and assets. There are other types of companies such as JV limited
by guarantee, joint ventures limited by guarantee with partners holding
shares.
A joint venture takes place when two parties come together to take on one
project. In a joint venture, both parties are equally invested in the project in
terms of money, time, and effort to build on the original concept. While joint
ventures are generally small projects, major corporations also use this
method in order to diversify. A joint venture can ensure the success of
smaller projects for those that are just starting in the business world or for
established corporations. Since the cost of starting new projects is generally
high, a joint venture allows both parties to share the burden of the project, as
well as the resulting profits.

Since money is involved in a joint venture, it is necessary to have a strategic

plan in place. In short, both parties must be committed to focusing on the
future of the partnership, rather than just the immediate returns. Ultimately,
short term and long term successes are both important. In order to achieve
this success, honesty, integrity, and communication within the joint venture
are necessary.
Company incorporation
A JV can be brought about in the following major ways:
o Foreign investor buying an interest in a local company
o Local firm acquiring an interest in an existing foreign firm
o Both the foreign and local entrepreneurs jointly forming a new
enterprise
o Together with public capital and/or bank debt
Some of the issues in a shareholders' agreement are:

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o Valuation of intellectual rights, say, the valuations of the IPR of one

partner and,say, the real estate of the other
o the control of the Company either by the number of Directors or its
"funding"
o The number of directors and the rights of the founders to their appoint
Directors which shows as to whether a shareholder dominates or
shares equality.
o management decisions - whether the board manages or a founder
o transferability of shares - assignment rights of the founders to other
members of the company
o dividend policy - percentage of profits to be declared when there is
profit
o winding up - the conditions, notice to members
o confidentiality of know-how and founders' agreement and penalties for
disclosure
o first right of refusal - purchase rights and counter-bid by a founder.
FOREIGN DIRECT INVESTMENT:
Foreign direct investment (FDI) is a direct investment into production or
business in a country by an individual or company of another country, either
by buying a company in the target country or by expanding operations of an
existing business in that country. Foreign direct investment is in contrast to
portfolio investment which is a passive investment in the securities of
another country such as stocks and bonds.
Broadly, foreign direct investment includes "mergers and acquisitions,
building new facilities, reinvesting profits earned from overseas operations
and intra company loans".20In a narrow sense, foreign direct investment
refers just to building new facilities. The numerical FDI figures based on
varied definitions are not easily comparable.

FDI is defined as the net inflows of investment (inflow minus outflow) to

acquire a lasting management interest (10 percent or more of voting stock)
in an enterprise operating in an economy other than that of the investor. 21FDI
20 "China Edges Out U.S. as Top Foreign-Investment Draw Amid World Decline". Wall Street
Journal. 2012-10-23.
21 "Foreign direct investment, net inflows (BoP, current US$) | Data | Table".
Data.worldbank.org. Retrieved 2012-11-17.
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is the sum of equity capital, other long-term capital, and short-term capital
as shown the balance of payments. FDI usually involves participation in
management, joint-venture, transfer of technology and expertise. There are
two types of FDI: inward and outward, resulting in a net FDI inflow (positive
or negative) and "stock of foreign direct investment", which is the cumulative
number for a given period. Direct investment excludes investment through
purchase of shares.22FDI is one example of international factor movements.
Types:
1. Horizontal FDI arises when a firm duplicates its home country-based
activities at the same value chain stage in a host country through
FDI.23
2. Platform FDI Foreign direct investment from a source country into a
destination country for the purpose of exporting to a third country.
3. Vertical FDI takes place when a firm through FDI moves upstream or
downstream in different value chains i.e., when firms perform valueadding activities stage by stage in a vertical fashion in a host country. 24
METHODS
The foreign direct investor may acquire voting power of an enterprise in an
economy through any of the following methods:

1.
2.
3.
4.

by incorporating a wholly owned subsidiary or company anywhere

by acquiring shares in an associated enterprise
through a merger or an acquisition of an unrelated enterprise
participating in an equity joint venture with another investor or
enterprise25

22 "CIA - The World Factbook". Cia.gov. Retrieved 2012-11-17.

23 "What is Foreign Direct Investment, Horizontal and Vertical Knowledge Base".
Guidewhois.com. Retrieved 2012-11-17.
24 Slaughter and May (2012). "Legal regimes governing Foreign Direct Investment (FDI) in
host countries".
25 Healthmetrics.
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MANAGEMENT CONTRACT
A management contract is an arrangement under which operational control
of an enterprise is vested by contract in a separate enterprise which
performs the necessary managerial functions in return for a fee.
Management contracts involve not just selling a method of doing things (as
with franchising or licensing) but involve actually doing them. A management
contract can involve a wide range of functions, such as technical operation of
a production facility, management of personnel, accounting, marketing
services and training.

In Asia, many hotels operate under management contract arrangements, as

they can more easily obtain economies of scale, a global reservation
systems, brand recognition etc. It is not unusual for contracts to be signed
for 25 years, and having a fee as high as 3.5% of total revenues and 6-10%
of gross operating profit. The Marriott International Corporation operates
solely on management contracts.

Management contracts have been used to a wide extent in the airline

industry, and when foreign government action restricts other entry methods.
Management contracts are often formed where there is a lack of local skills
to run a project. It is an alternative to foreign direct investment as it does not
involve as high risk and can yield higher returns for the company. The first
recorded management contract was initiated by Qantas and Duncan Upton in
1978.26

OPINION & CONCLUSION

26 http://www.iaccm.com
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APPROACHES

TO INTERNATIONAL BUSINESS ARE NECESSARY BECAUSE

o Most companies are either international or compete with

international companies.
o Modes of operation may differ from those used domestically.
o The best way of conducting business may differ by country.
o An understanding helps us make better career decisions.
o An understanding helps us decide what governmental policies to
support.

BIBLIOGRAPHY
WEBSITES REFFERRED
a.
b.
c.
d.
e.

www.scribd.com
http://www.docstoc.com
http://www.gbv.de/dms/zbw/55573465X.pdf
http://www.thebhc.org/publications/BEHprint/v022n1/p0042-p0053.pdf
http://www.hks.harvard.edu/m-rcbg/CSRI/publications/report_5_edelman_survey.pdf

BOOKS REFFERRED
a. Twelfth Edition, INTERNATIONAL BUSINESS, Environments and Operations, Authors
John D. Daniels, University of Miami, Lee H. Radebaugh, Brigham Young University,
Daniel P. Sullivan, University of Delaware
b. Global Business Management, A cross cultural perspective, Abel Adekola and Bruno
S. Sergi
c. International Business Strategy, Management, and the New Realities, Authors S.
Tamer Cavusgil, Michigan State University, Gary Knight, Florida State University, John
R. Riesenberger, Executive in Residence, CIBER Michigan State University

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