Page 101 - Business Principles and Management

Unit 1

4.2 Forms of International Business

Goals Terms
• Distinguish between the different • exporting • subsidiaries
forms through which international • importing • tariffs
business is conducted. • international • dumping
• Describe the policies, rules, and licensing • quota
laws that governments use to • joint ventures • nontariff barriers
affect international trade and • wholly owned
investment. • embargo
subsidiary • sanctions
• strategic alliances • exchange rate
• multinational firm • culture
• home country • low-context culture
• host country • high-context culture
• parent firm

Forms of International Business

International business takes place in many forms. Usually, when a firm decides
to enter into international business, it starts by selling its products or services
to buyers in another country. This is known as exporting. For example, Boeing
makes airplanes in the United States and sells some of them to Qantas, an
Australian airline. Importing refers to buying goods or services made in a
foreign country. When Americans buy Darjeeling tea, they are buying goods
imported from India. Exporting and importing are usually the simplest forms
of international business. Both can be done with limited resources and relatively
risk free.
International business also takes place through licensing. International licensing
occurs when one company allows a company in another country to make and sell
products according to certain specifications. Thus, when an American pharmaceu-
tical company allows a German firm to make and sell in Germany a medicine the
American company has invented, this is licensing. The American company receives
a royalty from the German company for any medicines the latter sells. Licensing
and its related concept, franchising, are relatively more costly and risky methods of
expanding abroad, compared to exporting.
Firms may set up businesses in foreign countries by forming joint ventures
with other companies. In joint ventures, two or more firms share the costs of
doing business and also share the profits. When the firm sets up a business
abroad on its own without any partners, it is known as a wholly owned sub-
sidiary. These are more expensive to set up and also more risky should the busi-
ness fail.

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