Modes of international Trade

1. Modes of
International
trade

2. INTRODUCTION
○When an organization has made a decision to enter
an overseas market, there are a variety of options open
to it.
○These options vary with cost, risk & the degree of
control which can be exercised over them.
○One of the most important strategic decisions in
international business is the mode of entering the
foreign market.

3. MARKET ENTRY STRATEGIES
• EXPORTING
• FRANCHISING
•LICENSING
• JOINT VENTURING
•COUNTERTRADE
•TURNKEY CONTRACTS
• CONTRACT MANUFACTURING
• MERGERS & ACQUISITIONS
• THIRD COUNTRY LOCATION

4. Exporting
●Exporting is the most traditional and well established
form of operating in foreign markets.
●Exporting can be defined as the marketing of goods
produced in one country into another.
●Whilst no direct manufacturing is required in an overseas
country, significant investments in marketing are required.
● The tendency may be not to obtain as much detailed
marketing information as compared to manufacturing in
marketing country.

5. ○ Exporting methods include direct or indirect export.
○ In direct exporting the organization may use an agent,
distributor, or overseas subsidiary, or act via a
Government agency.
○ Indirect methods offer :
* Contracts - in the operating market or worldwide
* Commission states give high motivation (not
necessarily loyalty)
* Manufacturer/exporter needs little expertise
* Credit acceptance takes burden from manufacturer.

6. advantages of exporting
○ Manufacturing is home based thus, it is less risky than
overseas based
○ Gives an opportunity to "learn" overseas markets
before investing in bricks and mortar
○ Reduces the potential risks of operating overseas.

7. disadvantages of exporting
The disadvantage is mainly that one can be at the "mercy"
of overseas agents and so the lack of control has to be
weighed against the advantages.

8. FRANCHISING
○ Players : Franchisor & Franchisee.
○ In terms of distribution, the franchisor is a supplier who
allows an operator, or a franchisee, to use the
supplier's trademark and distribute the supplier's
goods.
○ In return, the operator pays the supplier a fee.
○ Thirty three countries, including the United States, and
Australia, have laws that regulate franchising.
○ Franchising is the practice of using another firm's
successful business model.

9. ○ 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.

10. examples

11. advantages of franchising
○ Freedom of Employment
○ Proven products & Services
○ Proven Trade Mark
○ Reduced Risk of Failure

12. LICENSING
Licensing is defined as "the method of foreign operation
whereby a firm in one country agrees to permit a company
in another country to use the manufacturing, processing,
trademark, know-how or some other skill provided by the
licensor".

13. ○Licensing involves little expense and involvement.
○The only cost is signing the agreement and policing its
implementation.
○It is quite similar to the "franchise" operation.
○Coca Cola is an excellent example of licensing.

14. Advantages of Licensing.
○ Good way to start in foreign operations and open the
door to low risk manufacturing relationships
○ Linkage of parent and receiving partner interests
means both get most out of marketing effort
○ Capital not tied up in foreign operation and
○ Options to buy into partner exist or provision to take
royalties in stock

15. Disadvantages of Licensing.
○ Limited form of participation - to length of agreement,
specific product, process or trademark.
○ Potential returns from marketing and manufacturing
may be lost.
○ Partner develops know-how and so license is short.
○ Licensees become competitors - overcome by having
cross technology transfer deals and
○ Requires considerable fact finding, planning,
investigation and interpretation.

16. JOINT VENTURES
○ Joint ventures can be defined as
"an enterprise in which two or more investors
share ownership and control over property rights and
operation."
○ It is a very common strategy of entering the foreign
market.

17. ○ Any form of association which implies collaboration for
more than a transitory period is a joint venture.
○ A joint venture may be brought about by a foreign
investor showing an interest in local company,
○ A local firm acquiring an interest in an existing foreign
firm or
○ By both the foreign and local entrepreneurs jointly
forming a new enterprise.

18. Advantages of joint
venture
○ Sharing of RISK.
○ Joint financial strength.
○ May be only means of entry in some countries.

19. Disadvantages of joint venture
○ Partners do not have full control of management.
○ May be impossible to recover capital if need be.
○ Partners may have different views on expected
benefits.

20. examples

21. COUNTER TRADE
• Largest indirect method of exporting is countertrade.
• Countertrade means exchanging goods or services which are
paid for, in whole or part, with other goods or services, rather
than with money.
• A monetary valuation can however be used in counter trade for
accounting purposes.

22. ○ Countertrade also occurs when countries lack sufficient hard
currency, or when other types of market trade are impossible.
○ In 2000, India and Iraq agreed on an "oil for wheat and rice" barter
deal.
Countertrade is a system of international trading that helps
governments reduce imbalances in trade between them and other
countries. It involves the direct or indirect exchange of goods for
other goods instead of currency.

23. TURNKEY CONTRACTS
• An agreement under which a contractor completes a project,
then hands it over in fully operational form to the client, which
needs to do nothing but ""turn a key"", here the constructor builds
an item to the buyer's exact specifications, or when an
incomplete product is sold with the assumption that the buyer
would complete it.

24. • Many turnkey contracts involve government/public sector as
buyer.
• A turnkey contractor may subcontract different phases/parts of
the project.
The advantage of a turnkey project is that a single contractor
oversees all aspects of construction from beginning to end.

25. CONTRACT
MANUFACTURING
• Contract manufacturing is the outsourcing of part of the
manufacturing process of a product to a third-party. A company
may outsource the manufacture of certain components for the
product or outsource the assembly of the product.

26. • Why would a company opt for
contract manufacturing?

27. Advantage-
○ Manufacturers can save significant money on labor,
materials and other expenses related to production.

28. Disadvantages
○ Contract manufacturing does have disadvantages for
the company, the foreign employees, and the
company's domestic economy. Since 2001, the United
States has outsourced millions of manufacturing jobs,
which has resulted in a great deal of job displacement
for many Americans, who may never find a
replacement job with similar wages and benefits.
○ the company outsourcing the work does give up some
control of the manufacture of its products.

29. THIRD COUNTRY LOCATION
• This is sometimes used as an entry strategy.
• When there is no commercial transaction between 2 nations
because of political reasons,
• or when direct transactions between 2 nations are difficult &
• if one nation wants to enter other nation,
• then the nation will have to operate from the third country base.
• It may be helpful to take advantage of the friendly trade
relations between the third party & the foreign market
concerned.

30. Advantages
• Increasing the market power.
• Acquisition of Technology.
• Optimum utilization of Resources.
• Minimization of Risks.
• Tax Benefits

31. MERGERS & ACQUISITIONS
• This strategy is also known as an expansion strategy.
• M&As have been imp & powerful driver of globalization.
• Between 1980 – 2000 the value of cross border grew at an
average annual rate of 40%.
• A large no. of foreign firms have entered India through
acquisition.
• Example: Automobiles, Pharmacy, banking, telecom etc.

32. ○ The value of global mergers and acquisitions deals
reached 3.23 trillion U.S. dollars in 2014. In that year, the
United States proved to be the largest M&A market
worldwide.
○ As far as the industry sectors are concerned, the
highest value of M&A deals that was signed in the
technology, media & telecommunications sector.

33. Thank you
Presented by :
Pooja Tayal
Aditi Ray