Name of the Course: International Business

Course Code: BBA 6.3

STUDY MATERIAL

Module No. 1: Introduction to International Business

Introduction- Meaning and definition of international business, need and importance of
international business, stages of internationalization, tariffs and non-tariff barriers to
international business.
Mode of entry into international business - exporting (direct and indirect), licensing and franchising,
contract manufacturing, turnkey projects, management contracts, wholly owned manufacturing facility,
Assembly operations, Joint Ventures, Third country location, Mergers and Acquisition, Strategic
alliance, Counter Trade; Foreign investments.
Introduction to International Business
International business involves transactions and exchanges of goods, services, or resources between
individuals, organizations, or governments in different countries. It encompasses various activities,
including international trade, investment, finance, marketing, and management. Companies engage in
international business to expand their customer base, increase revenue, access new markets, acquire
resources, or gain a competitive advantage.
Various factors shape international business, including government policies, cultural differences,
economic conditions, legal systems, and technological advancements. To succeed in international
business, companies must navigate these complex and dynamic factors and adapt their strategies to
meet the needs of diverse markets and stakeholders.
International business refers to commercial activities that go beyond the geographical limits of a
country.
Therefore, it includes not only the international movement of goods and services but also the capital,
personnel, technology, and intellectual property such as patents, trademarks, technical knowledge, and
copyrights.
It is a business that takes place outside the border, that is, between two countries. This includes the
international movement of goods and services, capital, personnel, technology, and intellectual property
rights such as patents, trademarks, and know-how. It refers to the purchase and sale of goods and
services that exceed the geographical limits of the country.
Importance of International Business
1. Earn foreign exchange: International business exports its goods and services all over the world.
This helps to earn valuable foreign exchange. This foreign exchange is used to pay for imports. Foreign
exchange helps to make the business more profitable and to strengthen the economy of its country.
2. Optimum utilization of resources: International business makes optimum utilization of
resources. This is because it produces goods on a very large scale for the international market.
International business utilizes resources from all over the world. It uses the finance and
technology of rich countries and the raw materials and labour of the poor countries.

3. Achieve its objectives: International business achieves its objectives easily and quickly. The
main objective of an international business objective of an international business is to earn high
profits. This objective is achieved easily. This it because it uses the best technology. It has the best
employees and managers. It produces high-quality goods. It sells these goods all over the
world.

4. To spread business risks: International business spreads its business risk. This is because it
does business all over the world. So, a loss in one country can be balanced by a profit in another
country. The surplus goods in one country can be exported to another country. The surplus
resources can also be transferred to other countries. All this helps to minimize the business risks.

5. Improve organization’s efficiency: International business has very high organization

efficiency. This is because without efficiency, they will not be able to face the competition in the
international market. So, they use all the modern management techniques to improve their
efficiency. They hire the most qualified and experienced employees and managers. These people
are trained regularly. They are highly motivated with very high salaries and other benefits such
as international transfers, promotions, etc. All this results in high organizational efficiency, i.e.
low costs and high returns.

6. Get benefits from Government: International business brings a lot of foreign exchange for the
country. Therefore, it gets many benefits, facilities and concessions from the government. It gets many
financial and tax benefits from the government.

7. Expand and diversify: International business can expand and diversify its activities. This is
because it earns very high profits. It also gets financial help from the government.

8. Increase competitive capacity: International business produces high-quality goods at low cost. It
spends a lot of money on advertising all over the world. It uses superior technology,
management techniques, marketing techniques, etc. All this makes it more competitive. So, it can
fight competition from foreign companies.

Stages in Internalization

Stage 1: Domestic Operations - First Stages of Internationalization: Most international companies

have their origin as domestic companies. The orientation of a domestic company essentially is
ethnocentric. A purely domestic company operates domestically because it never considers the
alternative of going international. The growing stage-one company, when it reaches growth limits in its
primary market, diversifies into new markets, and product technologies instead of focusing on
penetrating international markets. However, if factors like domestic market constraints, foreign market
prospects, increasing competition, etc. make the company reorient its strategies to tap foreign market
potential, it would be moving to the next stage in the evolution. A domestic company may extend its
products to foreign markets by exporting, licensing, and franchising.
The company, however, is primarily domestic and the orientation essentially is ethnocentric. In many
instances, at the beginning exporting is indirect. The company may develop a more
serious attitude towards foreign business and move to the next stage of development, i.e., international
company.

Stage 2: International companies

Second Stages of Internationalization: International company is normally the second stage in the
development of a company towards the transitional corporation. The orientation of the company is
basically ethnocentric and the marketing strategy is an extension.
the marketing mix developed for the home market is extended into foreign markets. International
companies normally rely on international business.
examples Indian firms export nuts spices textiles, Jute and Rice all around the world. Domestic firms
being ethnocentric start its internationalization by initially involving in just exporting goods to the
foreign countries which has high demand.

Stage 3: Multinational Operations - Third Stages of Internationalization: When the orientation

shifts from ethnocentric to polycentric, the international company becomes multinational. In other
words, when a company decides to respond to market differences, it evolves into a stage three
multinational that pursues a multi-domestic strategy.
The focus of the stage three company is multinational that pursues a multinational or, in strategic terms,
multi-domestic. The marketing strategy of the multidimensional company is adaptation. In
multinational companies, each foreign subsidiary is managed as if it were an independent city-state.
In this stage a firm becomes a full-fledged multinational corporation (MNC) with multiple production
facilities established across the several locations in the world. An international firm demands a greater
degree of decentralization in decision making though important decision in this system is always taken
at corporate head quarter. These firms operate worldwide and the orientation of the firm shifts form
ethnocentric to polycentric. A multinational firm decides to respond to market differences vis a vis
social, cultural and legal requirement and evolve as a stage three MNC which pursuits a multi domestic
strategy. In 113 MNCs each foreign subsidiary is managed as an independent entity. The
Internationalization Process subsidiaries are a part of regional structure in which every country has its
own organization and reports to world headquarters.

Stage 4: Global Companies: The global company will have either a global marketing strategy or a
global sourcing strategy but not both. It will either focus on global markets and source from the home
or a single country to supply these markets, or it will focus on the domestic market and source from
the world to supply its domestic channel. However, according to the interpretation of some others, all
strategies for product development, product marketing, etc. will be global in respect of the global
corporation.

Stage 5: Transnational companies: The transitional corporation is much more than a company with
sales, investments, and operations in many countries. This company, which is increasingly dominating
markets and industries around the world, is an integrated world enterprise that links global resources
with global markets at a profit
Firms which achieve global efficiency and local responsiveness are called as transnational firms. These
firms are highly decentralized in terms of decision making. Every transnational business unit has
freedom to take its decision with very minimal control from corporate headquarters. However, there is
no pure transnational firm and these firms satisfy the characteristics of the global corporation.

Tariff and Non – Tariff barriers to International Business

Tariff Barriers
Tariffs are direct taxes on imported goods. When a country imposes tariffs, it makes imported products
more expensive. This makes domestic products relatively cheaper and more competitive. Tariffs are
taxes. They are fees that a country places on imported goods or services.
When a business from Country A sells a product to Country B, Country B might make the business
pay a tariff, or tax, on the product. This makes the product more expensive in Country B.
Types of Tariff Barriers

Specific Tariffs
A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff can vary
according to the type of goods imported. For example, a country could levy a $15 tariff on each pair of
shoes imported, but levy a $300 tariff on each computer imported.
The determination of the value of the traded goods may be difficult as there are several variants of price
such as demand price, supply price, market price, contract price, invoice price, fob, (free on board)
price, c.i.f (cost, insurance, freight) price etc. The resort to specific duties enables the government to
keep out of complexities of prices.
However, the specific duties cannot be levied on high valued goods such as diamonds, jewellery,
watches, T.V. sets, motor cars, works of arts like paintings etc.

Ad Valorem Tariffs
Ad Valorem’ is the Latin word that means ‘on the value.’ When the duty is levied as a fixed percentage
of the value of the traded commodity, it is called as valorem tariff. Such duties are levied on the products
the value of which is disproportionately higher compared to their physical characteristics such as weight
or measurement.
These duties are more equitable as the costly goods, generally consumed by the rich, bear greater burden
of duty, while the cheaper goods bought by the poor, bear lesser burden of tariff. For instance, if the
import of watches is subject to 70 percent ad valorem tariff, a watch valued at Rs. 1000 will be subject
to a duty of Rs. 700 and a watch valued at Rs. 1200 will be subject to a tariff amounting to Rs. 840. The
ad valorem duties have an additional advantage that the international comparison of tariffs, in their
case, can be easily made.

Anti-dumping provisions
The term “dumping” is used here to describe the way that foreign producers can “dump” their products
onto the home market at much lower prices than what domestic producers offer. There are two possible
reasons why a foreign producer may choose to dump their products into another economy. First, it
may just be the case that the goods can be produced at a significantly lower cost abroad due to lower
input costs such as labour or raw materials compared to the home market. In such a case, the foreign
company is still able to realize profits despite advertising lower prices than domestic producers.

Secondly, dumping can be a deliberate predatory move carried out by large multinationals to gain
market share. Such large organizations are able to bear taking losses in the short-term due to their larger
cash reserves and greater liquidity, compared to smaller players. The goal is to force competitors to shut
down by driving the market price below what domestic producers can bear. Following the demise of
home producers, the foreign entity will be able to adopt monopoly pricing and see its profits rise.

Compound duty
A combination of both a specific rate of duty and an ad valorem rate of duty. Whereas specific duties
are based on factors such as weight or quantity, ad valorem duties are based on the value of the goods.
A compound tariff is a combination of an ad valorem and specific tariffs. It imposes a tax on imported
goods based on the number of imported goods and their value. To determine if the tariff imposed is a
compound tariff, the tariff imposed will have both a price per quantity and a percentage.
The compound tariff is a combination of specific and ad valorem tariff. The structure of compound
tariff includes specific duty on each unit of the commodity plus a percentage of ad valorem duty. The
compound tariffs not only impart a greater elasticity to revenues but also assure a more effective
protection to the home industries.

Sliding scale duty

The import duties which vary with the prices of commodities are called sliding scale duties. Historically,
these duties are confined to agricultural products, as their prices frequently vary, mostly due to natural
factors. These are also called as seasonal duties. The import duties which vary with the prices of the
commodities are termed as sliding scale duties. These may either be on specific or ad valorem basis. In
practice, these are generally on a specific basis.

Revenue Tariff
The tariff, which is imposed primarily for generating more revenues for the government is called as the
revenue tariff. In advanced countries, the introduction and diversification of direct taxes has reduced
the importance of tariff as a source of government revenues. But in the less developed countries, there
is still much reliance of the governments on this source of revenue.
Generally pure revenue tariff is not possible. The imposition of tariff, even for the purpose of securing
revenues, does have protective effect when it leads to switch of demand by the domestic consumers
from the imported to home- produced goods.

Protective Tariff:
The tariff may be imposed by the government to protect the home industries from the cut-throat
competition from the foreign produced goods. The higher the tariff, greater may be the protective
effect of tariff. A perfect protective tariff is likely to prohibit completely the import from abroad.
In practice, the perfect protective tariff may not exist. If the domestic demand for import remains
strong, there can be the possibility of smuggling imported goods. In addition, such a tariff will not yield
any revenue to the government. A high rate of protective tariff can make the domestic producers more
lethargic and inefficient and unable to face foreign competition even in the long run.

Countervailing Duties
Countervailing Duties (CVDs) are tariffs levied on imported goods to offset subsidies made to
producers of these goods in the exporting country. CVDs are meant to level the playing field between
domestic producers of a product and foreign producers of the same product who can afford to sell it
at a lower price because of the subsidy they receive from their government.
CVDs are special measures meant to neutralize the negative effects that subsidies of the production of
a good in one country have on that same industry in another country, in which the production of that
good is not subsidized.
If left unchecked, such subsidized imports can have a severe effect on the domestic industry, forcing
factory closures and causing huge job losses. As export subsidies are considered to be an unfair trade
practice, the World Trade Organization (WTO)–which deals with the global rules of trade between
nations–has detailed procedures in place to establish the circumstances under which countervailing
duties can be imposed by an importing nation.

Non – Tariff Barriers

A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff. Nontariff
barriers include quotas, embargoes, sanctions, and levies. As part of their political or economic strategy,
some countries frequently use nontariff barriers to restrict the amount of trade they conduct with other
countries A non-tariff barrier is any measure, other than a customs tariff, that acts as a barrier to
international trade.
Non-tariff barriers are restrictions other than tariffs imposed on trade by administrative authorities to
raise the difficulty of transporting goods. Such prohibitions are introduced when nations aim to reduce
the frequency of exports and imports. With the imposition of these barriers, trade becomes difficult,
and the purpose is achieved. Non-tariff barriers have an impact on the flow of goods into and out of a
country. Some countries use them to protect the domestic economy. While others use them as a political
economy strategy to counter similar practices by partner countries.
A non-tariff barrier is any measure, other than a customs tariff, that acts as a barrier to international
trade. These include: regulations: Any rules which dictate how a product can be manufactured, handled,
or advertised. A non-tariff barrier (NTB) refers to any restriction or obstacle to trade that is not in the
form of a tariff or customs duty. While tariffs are taxes imposed on imported goods, non-tariff barriers
encompass a wide range of measures that can hinder international trade. NTBs can take various forms,
including regulations, licensing requirements, quotas, technical barriers, standards, subsidies, and other
government policies.
Quotas
Countries often issue quotas for importing and exporting both goods and services. With quotas,
countries agree on specified limits for products and services allowed for importation to a country. In
most cases, there are no restrictions on importing these goods and services until a country reaches its
quota, which it can set for a specific timeframe. Additionally, quotas are often used in international
trade licensing agreements.
Types –
a. Tariff Quota - Tariff quotas may be distinguished from import quotas. A tariff quota permits the
import of a certain quantity of a commodity duty-free or at a lower duty rate, while quantities
exceeding the quota are subject to a higher duty rate.
b. Unilateral Quota -The total import quantity is fixed without prior consultations with exporting
countries.
c. Multi -lateral – In this total import quantity is fixed by group of countries coming together.

Product Standard
Product standards are specifications and criteria for product characteristics. They are designed to ensure
safety, compatibility, and consistency. A product that has met a standard has usually passed tests that
demonstrate it complies with certain safety and quality requirements. It also means that it's compatible
with existing products and infrastructure.

Domestic Content requirement

Domestic content requirements (DCRs) are trade regulations that governments use to promote
domestic production and employment. DCRs mandate that a certain percentage of a product's value
be sourced locally.
DCRs are a policy tool that governments use to encourage local industries to grow and reduce
dependence on imports. For example, in the context of solar power production, DCRs mandate that a
certain percentage of solar equipment used in the production process must be domestically produced.
DCRs can also be used to ensure that a government's renewable energy policy produces tangible local
economic benefits.

Embargo
An embargo is a total ban on transactions with individual countries. It may aim to limit imports of
dangerous goods such as dangerous drugs and endangered species.
More often, embargoes are political and economic measures. Countries with strong economic and
political powers such as the United States, often apply them to suppress and isolate other countries.
For example, the United States imposes an embargo and prohibits selling aircraft and spare parts to
Iranian airlines.

Mode of entry into International Business

Entering a new market is always a risky business, with a big potential of failure. To research the options
of entry strategy can help in determine which strategy to use. The major question that the company
face in today’s cosmic economy is what is the most suitable and appropriate way for a company to go
global, go beyond its border and enter unpractised territories on foreign sand. The companies are very
sceptical regarding the profitability and safety of the decision. When a company is going global, these
are the various areas that needs to be addressed. These are also the issues that every company has to
tackle when it puts its strategy to enter a new market.
1. Exporting and Importing
Exporting and Importing is a very common mode to enter into international business. Selling goods
and services to a company in a foreign country is referred to as Exporting. For instance, Gulab sold
sweets to a store in Canada. Purchasing goods from a foreign company is known as Importing. For
instance, the purchase of dolls from a Chinese company by an Indian dolls dealer. Exports and imports
are the typical way through which businesses begin their activities overseas before moving on to other
kinds of international trade. Important Ways to Export and Import
i) Direct Importing/ Exporting: The company handles all of the necessary paperwork for the
shipment and financing of goods and services and deals directly with foreign suppliers or purchasers.

ii) Indirect Importing/ Exporting: The company uses a middleman to handle all the paperwork and
negotiate with foreign suppliers or customers. The firm’s involvement is limited.

2. Contract Manufacturing
According to Contract Manufacturing, every well-known company in a nation accepts responsibility
for promoting the goods and services created by a business in another nation. Here, the company is
specialised in the manufacturing process but lacks marketing skills, whereas the other company, due to
its established reputation, is capable of selling those items and services. Offering these items and
services is not the primary business of these organisations, but they do it for the benefit of their name
and reputation, as well as to provide high-quality products at a low cost to their customers.
Contract manufacturing is a type of international business, in which a firm enters into a contract with
another firm in a foreign country to manufacture certain components or goods as per its specifications.
Multinational firms, like Maybelline, Loreal, Levis, and others use contract manufacturing to have their
products or component parts produced in developing nations. Contract manufacturing is also known
as international outsourcing. These types of entry modes consist of several similar, but get different
contractual arrangements between the firms form the domestic market and the company that licenses
the intangible assets in the foreign market. This includes licensing, franchising, technical agreements,
service contracts, management contracts, construction/turnkey contracts, co- production contracts and
other. The goal is to enhance the long-run competitiveness for the partners in the alliance and it is built
on the belief that each party has something unique to contribute to the partnership.

3. Licensing
When a corporation from one country (the Licensor) grants a license to a company from another
country (the Licensee) to use its brand, patent, trademark, technology, copyright, marketing skills; etc.,
to assist the other firm sell its products, this contractual agreement is referred to as Licensing. The
licensor corporation receives returns in proportion to sales. Returns may take the form of royalties or
fees. In other nations, the government determines how the returns are fixed. This cannot exceed 5%
of revenues in several developing nations.
For instance, Pepsi and Fanta are made and distributed globally by local bottlers in other nations under
the licensing system.
The company that provides such authorisation is known as the Licensor while the other company in a
different country that receives these rights is known as the Licensee. The mutual sharing of knowledge,
technology, and/or patents between the companies is called Cross-licensing.
Licensing offers businesses many advantages, such as rapid entry into foreign markets and virtually no
capital requirements to establish manufacturing operations abroad. Returns are usually realised more
quickly than for manufacturing ventures. The other major advantage of licensing is that, despite the
low level of local involvement required of the international licensor, the business is essentially local and
is in the shape of the local business that holds the license. As a result, import barriers such as regulation
or tariffs do not apply. On the other hand, the disadvantages of licensing are that control over use of
assets may be lost over manufacturing and marketing. The licensee usually has to obtain approval from
the international vendor for product design and specification. This is because the licensee is not a
representative of the international vendor and, compared to a distributor or franchisee, is much more
of an independent business that licenses only one specific and closely defined aspect of the marketing
offer.

4. Franchising
The franchise is the unique right or freedom that a producer grants to a certain person or group of
people to establish the same business at a specific location. The producers use this contemporary
business model to market their products in far-off locations. In general, producers who have a good
reputation use this system. Individuals are motivated by their goodwill and try this mode of business in
order to earn profit.
Franchising is a contractual agreement that involves the grant of rights by one party to another for use
of technology, trademark, and patents in return for the agreed payment for a certain period of time.
The business that gives the rights (i.e., the parent company) is referred to as the Franchisor, and the
business that purchases the rights is referred to as the Franchisee.
Franchising is one of the entry modes that has been widely used as a rapid method of international
expansion. This is similar to licensing, although franchising tends to involve long terms commitments
than licensing. It is a more sophisticated form of licensing in which the franchiser not only sells
intangible property to the franchisee but also insists that the franchisee agree to concede to rules and
regulations of how it does business. While licensing is employed primarily by manufacturing firms,
franchising is done by service firms. Similar to that of licensing, the franchiser typically receives a royalty
payment, which amounts to some percentage of franchisee’s revenues.

5. Joint Ventures
A joint venture is formed when two or more businesses decide to work together for a common goal
and mutual benefit. These two commercial entities could be private, public, or foreign-owned. Joint
ventures are those types of businesses that are established in international trade where both domestic
and foreign entrepreneurs are partners in ownership and management. The trade is carried out in
collaboration with the importing nation’s firm. For instance, the Joint venture of the Indian company
Maruti with the Japanese Company Suzuki.
A joint venture means establishing a firm that is jointly owned by two or ore otherwise independent
firms. This is a popular mode of entry. The term Joint Venture applies to those strategic alliances where
there is equity participation from both the foreign entrant and the local collaborator. The equity
participation can be of different ratios, ranging from a minority stake, equal stake to a controlling stake
or a more predominant majority stake.
The advantages attached to this mode of entry are reduction in the capital risk because the costs are
being shared, benefit of the firm from local partner’s knowledge of the host country’s competitive
conditions, culture, language, political systems and business. In many countries political conditions
dictate this entry to be the only feasible mode of entry.

6. Wholly Owned Subsidiary

When a foreign company establishes a business unit or acquires a full stake in any domestic company,
then they are called a Wholly-owned Subsidiary. Wholly owned subsidiaries are set by a foreign
company to enjoy full control over their overseas operations. A wholly-owned subsidiary in a foreign
country may be established in two ways:
Setting up of wholly-owned new firm in the foreign land, also called Green Field Venture.
Acquiring an established firm in a foreign country and using that firm to do business in a foreign
country.
Many organizations prefer to establish their presence in foreign markets with 100% ownership through
wholly owned subsidiaries. Under this method, organizations obtain greater control over operations
and higher profits since there is no ownership split agreement. However, such entry method requires
large investments and faces higher risks, especially in the political, legal and economical arenas.

7.Management Contracts
A company essentially rents out its knowledge or know-how to a government or business in the form
of individuals who enter the foreign setting and manage the business under management contracts and
do contract manufacturing. This strategy of entering international markets is frequently used with a new
facility after a company has been seized by the national government or when a business is experiencing
difficulties. The international management contract gives the company the right to control the day-to-
day operations in a firm located in a foreign market. Often this contract does not give them the right
to take decisions on new capital investment, policy changes, assume long-term debt or alter ownership
arrangement. When a manufacturer wants to enter a management contract, they seldom do so isolated
from other arrangements.
8. Turnkey Projects
In a turnkey project the contractor agrees to handle every detail of the project for a foreign client
including the training of operational personnel. At the completion of the contract, the foreign client is
handed the key to a plant that is ready for full operation. It is very common in the chemical,
pharmaceutical and petroleum refining industries. That is mainly used in industries which uses
expensive production technologies.
The advantages of this mode of entry are earning great returns from the asset. The strategy is particularly
useful where FDI is limited by host-government regulations. A turnkey project is less risky than FDI.
Three main limitations are attached to this course of entry. Firstly, the firm enters into turnkey deals
with no long-term interest in the foreign country. This could be a limitation if the firm subsequently
proves to be a success. Secondly, a firm entering in this way heedlessly creates competitors. And lastly,
if the firm’s process technology is a source of competitive advantage, then selling this technology
through a turnkey project is also selling competitive advantage to potential or actual competitors.

9.Assembly Operations

Assembling is a compromise between exporting and foreign manufacturing. The firm produces
domestically all or most of the components or ingredients of its product and ships them to foreign
markets to be put together as a finished product. An assembly operation is a variation of the subsidiary.
A foreign production plan might be set up simply to assemble components manufactured in the
domestic market or elsewhere. ... Some parts of the products may be produced in various countries
(multisource) to gain each country´s comparative advantage.
Assembly operation allows company to be price competitive against cheap import and allows company
product to enter many markets with tariffs and quotas considerations. Large firms and multinational
enterprises aiming to increase their global capacities which usually comes along with the attempt to
reduce production costs.
Example Notable examples of foreign assembly are the automobile and farm equipment industries. In
similar fashion, Coca-Cola ships its syrup to foreign markets where local bottle plants add the water
and the container. Majority of Apple's iPhones are assembled in its Shenzhen, China, location, although
Foxconn maintains factories in countries across the world, including Thailand, Malaysia, the Czech
Republic, South Korea, Singapore, and the Philippines. While the parent company is in Cupertino,
California, United State.

10.Thrid country location

A third country location is a country that is not a party to an agreement between two other countries. It
can also refer to a country that is not one of two specific countries being referred to, such as in trade
relations. A third country location can be used as an entry strategy when there are no commercial
transactions between two nations. For example, India and Pakistan have previously imported and
exported through Arab countries. A third-country national staffing strategy involves hiring someone
from a country other than the home or host country to work overseas. This strategy can have
advantages such as overcoming language barriers and visa issues.
When there are no commercial transactions between two countries due to various reasons, firm which
wants to enter into the market of anothernation, will have to operate from a third country base. For
instance, Taiwan’s entry into China through bases in Hong Kong.

11. Strategic Alliances

Strategic alliance is when the mutual coordination of strategic planning and management that enable
two or more organisations to align their long-term goals to the benefit of each organisation and
generally the organisations remain independent. Strategic alliances are cooperative relationships on
different levels in the organisation. Licensing, joint ventures, research and development partnerships
are just few of the alliances possible when exploring new markets. In other words, strategic alliances
can be described as a partnership between businesses with the purpose of achieving common goals
while minimizing risk, maximizing leverage and benefiting from those facets of their operations that
complement each other’s. A strategic alliance might be entered into for a one-off activity, or it might
focus on just one part of a business, or its objective might be new products jointly developed for a
particular market.
Generally, each company involved in the strategic alliance will benefit by working together. The
arrangement they enter into may not be as formal as a joint venture agreement. Alliances are usually
accomplished with a written contract, often with agreed termination points, and do not result in the
creation of an independent business organisation. The objective of a strategic alliance is to gain
a competitive advantage to a company’s strategic position. Strategic alliances have increased a great
deal since globalization became an opportunity for companies.

12. Merges and Acquisitions

A merger occurs when two separate entities combine forces to create a new, joint organization.
Meanwhile, an acquisition refers to the takeover of one entity by another. Mergers and acquisitions may
be completed to expand a company's reach or gain market share in an attempt to create shareholder
value.
International mergers and acquisitions (M&A) refer to the strategic practice of companies coming
together or acquiring other companies on a global scale to expand rapidly and increase their market
share, margins, and global domination. M&A can be seen as a means for companies to achieve growth,
geographic diversification, industry consolidation, and access to natural resources and lower labour
costs in foreign markets. It is a common mode of market entry or expansion, comprising a significant
portion of global transactions and foreign direct investment. However, the success of cross-border
M&A depends on factors such as cultural combination during the post-acquisition integration process,
cultural due diligence, cross-cultural communication, connection, and control. Companies engaging in
cross-border M&A aim to achieve international sustainable development, but they must carefully plan
and select suitable targets, and effectively manage the merged entities for long-term success.

13. Counter Trade

Countertrade is a reciprocal form of international trade in which goods or services are exchanged for
other goods or services rather than for hard currency. This type of international trade is more common
in developing countries with limited foreign exchange or credit facilities. Countertrade is a form of
international trade where goods or services are exchanged for other goods or services instead of hard
currency. It's a way for governments to reduce trade imbalances between them and other
countries. Countertrade is more common in developing countries with limited foreign exchange or
credit facilities. It's also an efficient way for firms to trade in environments with government
interventions and limited business practices.
Countertrade is an example of a bilateral agreement or side deal common in international trade, and its
importance is ever increasing. It often involves entities from both developed and developing or
undeveloped countries. The provisions of the agreement will be mutually appealing to the parties. The
deal requires the exporter to purchase products from the partner or importer in an amount proportional
to the value of his sale to the importer.The important element of the deal is reciprocity, and it can be
fully or partially devoid of cash settlements. It usually involves the flow of domestic products or
technologies from one country to another where they are high in demand due to their scarcity. It can
be a spot transaction or involve long-term contracts. Import and export in this framework will manifest
efficiency gains.

14.Foreign Investments
Foreign investment refers to the investment in domestic companies and assets of another country by a
foreign investor. Large multinational corporations will seek new opportunities for economic growth by
opening branches and expanding their investments in other countries. Foreign investment
involves capital flows from one country to another, granting the foreign investors extensive ownership
stakes in domestic companies and assets. Foreign investment denotes that foreigners have an active
role in management as a part of their investment or an equity stake large enough to enable the foreign
investor to influence business strategy. A modern trend leans toward globalization, where multinational
firms have investments in a variety of countries.
Foreign investment refers to investment from another country. Since it comes from cross-border, more
rules and regulations are required. It is beneficial for developing countries because it helps build
infrastructure, create employment, share knowledge, and increase purchasing power. At the same time,
it is also required in a developed nation for business expansion.
In globalization, foreign investment policy plays a vital role in business expansion. It helps the foreign
investor to gain advantage of the cheap labour, raw material or geographical facilities to expand the
business. But on the other hand, it harms small and domestic businesses because they have insufficient
funds to compete against giant corporations. It also encourages steady movement of cash flows within
nations. However, there is also the risk of foreign investment enterprise taking control of the business
operations of the domestic company. If the stake is very high, the foreign company will be able to
influence the day-to-day working of the domestic company.