Four different modes of business offer a company entry into foreign markets: (a) exporting, (b) contractual agreement, (c) joint venture, and (d) manufacturing.
Exporting A company may minimize the risk of dealing internationally by exporting domestically manufactured products either by minimal response to inquiries or by systematic development of demand in foreign markets. Exporting requires minimal
Contractual Agreements capital and is easy to initiate. Exporting is also a good way to gain international experience. A major part of overseas involvement among large U.S. firms is through export trade.
There are several types of contractual agreements:
• Patent licensing agreements—These agreements are based on either a fixed-fee or a royalty basis and include managerial training.
• Turnkey operations—These operations are based on a fixed-fee or cost-plus arrangement and include plant construction, personnel training, and initial production runs.
• Coproduction agreements—These agreements are most common in socialist countries, where plants are built and then paid for with part of the output.
• Management contracts—Currently widely used in the Middle East, these contracts require that a multinational corporation provide key personnel to operate a foreign enterprise for a fee until local people acquire the ability to manage the business independently. For example, Whittaker Corp. of Los Angeles operates government-owned hospitals in several cities in Saudi Arabia.
• Licensing—Licensing works as a viable alternative in some contractual agreement situations where risk of expropriation and resistance to foreign investments create uncertainty. Licensing encompasses a variety of contractual agreements whereby a multinational marketer makes available intangible assets—such as patents, trade secrets, know-how, trademarks, and company name—to foreign companies in return for royalties or other forms of payment. Transfer of these assets usually is accompanied by technical services to ensure proper use. Licensing, however, has some advantages and disadvantages as summarized below.
Advantages of Licensing
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