Mgt 104 – International Business & Trade

MODULE # 5

Assessing Capabilities and Potential

Introduction:

Trade opportunity is the scope of nation to

increase its trade. Basically it is a trade
gap of a country with its trade partners.
So, the potential trade gap means how
far below the actual trade value is from
the predicted trade value. This potential
trade gap suggests that there is a scope
to increase the export of climate friendly
goods (CFG) with trading partners.
Identifying Trade Opportunities
Ways to be involved in an
International Business
1. Importing & Exporting- the
oldest and most prevalent forms
of international trade.
Importing – buying products
overseas and reselling them in
one’s own country.
Exporting – selling domestic products
to foreign customers.

2. Licensing & Franchising

Licensing - a business
arrangement in which one company
gives another company permission
to manufacture its product for a
specified payment.
License: The legal terms under which
a person is allowed to use a product.

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.
Rights or resources may include
patents, copyrights, technology,
managerial skills, or other factors
necessary to manufacture the good.

Licensing gives a licensee certain

rights or resources to manufacture
and/or market a certain product in a
host country.
 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.
Disadvantages include the risk of
an incompetent foreign partner firm
and lower income compared to other
modes of international expansion.
 Trademark -a word, symbol, or phrase used to identify a
particular company’s product and differentiate it from other
companies’ products.

A trademark, trade mark, or trade-mark is a distinctive sign

or indicator used by an individual, business organization, or
other legal entity to identify for consumers that the products or
services on or with which the trademark appears originate from a
unique source, designated for a specific market.

It also distinguishes its products or services from those of

other entities.
FRANCHISING :
Franchising is the practice of licensing
another firm’s business model as an
operator.

Essentially, and in terms of distribution,

the franchiser 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.
 Terms:
 Franchisee: A holder of a franchise; a person
who is granted a franchise.
 Franchising: The establishment, granting, or
use of a franchise.
 Franchise: The authorization granted by a
company to sell or distribute its goods or
services in a certain area.
 Franchiser: A franchisor, a company which or
person who grants franchises.
 Franchise agreement - a legal, binding
contract that authorizes a company to sell or
distribute another’s goods and services in a
certain area.
 Franchising is the practice of using another
firm’s successful business model. For the
franchiser, the franchise is an alternative to
building “chain stores” to distribute goods that
avoids the investments and liability of a chain.
The franchiser’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.

Example: Subway Franchise – Russia There are

over 22,000 Subway restaurant franchises
worldwide.
.
3. Contract Manufacturing and
Outsourcing

In contract manufacturing, a
hiring firm makes an agreement with
the contract manufacturer to produce
and ship the hiring firm’s goods.
BENEFITS:
 Cost Savings
 Mutual Benefit to Contract Site
 Advanced Skills
 Quality
 Focus
 Economies of Scale: Contract Manufacturers have
multiple customers that they produce for. Because
they are servicing multiple customers, they can offer
reduced costs in acquiring raw materials by
benefiting from economies of scale. The more units
there are in one shipment, the less expensive the
price per unit will be.
4. Strategic Alliances and Joint
Ventures

Strategic Alliance is an agreement

between two companies (or a
company and a nation) to pool
resources in order to achieve business
goals that benefit both partners.
Purpose:
1. Enhancing marketing efforts
2. Building sales and market share
3. Improving products
4. Reducing production and
distribution costs, and
5. Sharing technology

Joint venture is a business

agreement in which parties agree to
develop a new entity and new assets by
contributing equity. They exercise control
over the enterprise and consequently
share revenues, expenses and assets.
5.Foreign Direct Investment & Subsidiaries

Foreign Direct Investment refers to the

formal establishment of business operations on foreign
soil – the building of factories, sales offices, and
distribution networks to serve local markets in a
nation other than the company’s home country. Ex.
Starbuck’s expansion

Foreign Subsidiary – an independent company

owned by a foreign firm . This approach to going
international not only gives the parent company full
access to local markets but exempts it from any laws
or regulations that may hamper the activities of
foreign firms.
6.Multinational Corporations
A company that operates in
many countries. Multinational company
adopt the approach encapsulated in the
motto” Think globally, Act globally”.
They often adjust their operations,
products, marketing and distribution to
mesh with the environments of the
countries in which they operate.
Analyzing Domestic Capabilities:

MNE and sometimes also called

multinational corporation (MNC), just
multinational or international corporation, is
an enterprise producing goods or delivering
services in more than one country.
Area of Consideration in Product/Service
Strategy

1. Global Sourcing for raw materials.

2. Production System is a group of
related activities designed to create
value. In the generation of goods
and services, the system incudes
location, layout, and material
handling.
3. International Logistics – is the
designing and managing of a system
to control the flow of materials and
products throughout the firm. This
includes the inflow of material
movement through the production
process, and outflow to the
wholesale/retail firm or final
consumer..
4. Packaging – is important in ensuring
that a product is shipped in a safe
container and arrives undamaged.

5. Storage – Goods that are being shipped

internationally have to be stored before
being moved to their final destinations.
Assignment:

 What are the top 10 imports of the

Philippines? Explain.

 What are the top 10 exports of the

Philippines? Explain.
Chona M. Halili