INTERNATIONAL BUSINESS ORGANIZATIONS
MULTINATIONAL COMPANIES
A multinational company (MNC) is an organization that does business in several countries. MNCs usually consist of a parent company in a home country and divisions or separate companies in one or more host countries. The country in which the MNC places business activities is called the host country .
MNC Strategies
Multinational corporations can use either a global or multinational strategy. A global strategy uses the same product and marketing strategy worldwide. The same product is sold in essentially the same manner throughout the world. One example with which you are probably familiar is Coca-Cola.
A multinational strategy treats each country market differently. Firms develop products and marketing strategies that adapt to the customs, tastes, and buying habits of a distinct national market. Many restaurant chains employ a multinational strategy when they modify their menus to local tastes.
MNC Benefits
Many benefits are associated with international business. Consumers have a large amount of goods available. Often, these goods are at lower prices than goods made domestically. Career opportunities also expand as a company does business in a variety of countries.
Global business activities may also foster understanding, communication, and respect among people of different nations. Nations that are business partners usually try to maintain friendly relations for economic reasons.
Drawbacks of Multinational Companies
An MNC can become a major economic power in a host country. The workers of the host country may depend on the MNC for jobs. Consumers become dependent upon it for goods and services. The MNC may actually influence or control the political power of the country.
GLOBAL MARKET ENTRY MODES
As companies expand into other countries, several methods are available for their use.
Licensing
Some companies want to produce items in other countries without being actively involved. They may allow a foreign company to use a procedure they own.
Licensing is selling the right to use some intangible property (production process, trademark, or brand name) for a fee or royalty.
The Gerber Company started selling its baby food products in Japan by means of licensing. The use of television characters or sports team emblems on hats, shirts, jackets, notebooks, luggage, and other items also involves a licensing agreement. Licensing has a low financial investment, so the potential financial return is often low. The risk for the company is also low.
Franchising
Another method often used to expand into other countries is the franchise. A franchise is the right to use a company name or business process in a specific way. Organizations enter into contracts with people in other countries to set up a business that looks and runs like the parent company. The company obtaining the franchise will usually adapt a range of business elements. Marketing elements such as food products, packaging, and advertising messages must meet both cultural sensitivities and legal requirements.Both franchising and licensing involve a royalty payment for the right to use a process or company name. Licensing usually involves a manufacturing process. Franchising commonly involves selling a product or service. Franchise agreements are popular with fast-food companies. McDonald's, Burger King, Wendy's, KFC, and Pizza Hut all have used franchising to increase their presence in foreign markets.
A multinational company (MNC) is an organization that does business in several countries. MNCs usually consist of a parent company in a home country and divisions or separate companies in one or more host countries. The country in which the MNC places business activities is called the host country .
MNC Strategies
Multinational corporations can use either a global or multinational strategy. A global strategy uses the same product and marketing strategy worldwide. The same product is sold in essentially the same manner throughout the world. One example with which you are probably familiar is Coca-Cola.
A multinational strategy treats each country market differently. Firms develop products and marketing strategies that adapt to the customs, tastes, and buying habits of a distinct national market. Many restaurant chains employ a multinational strategy when they modify their menus to local tastes.
MNC Benefits
Many benefits are associated with international business. Consumers have a large amount of goods available. Often, these goods are at lower prices than goods made domestically. Career opportunities also expand as a company does business in a variety of countries.
Global business activities may also foster understanding, communication, and respect among people of different nations. Nations that are business partners usually try to maintain friendly relations for economic reasons.
Drawbacks of Multinational Companies
An MNC can become a major economic power in a host country. The workers of the host country may depend on the MNC for jobs. Consumers become dependent upon it for goods and services. The MNC may actually influence or control the political power of the country.
GLOBAL MARKET ENTRY MODES
As companies expand into other countries, several methods are available for their use.
Licensing
Some companies want to produce items in other countries without being actively involved. They may allow a foreign company to use a procedure they own.
Licensing is selling the right to use some intangible property (production process, trademark, or brand name) for a fee or royalty.
The Gerber Company started selling its baby food products in Japan by means of licensing. The use of television characters or sports team emblems on hats, shirts, jackets, notebooks, luggage, and other items also involves a licensing agreement. Licensing has a low financial investment, so the potential financial return is often low. The risk for the company is also low.
Franchising
Another method often used to expand into other countries is the franchise. A franchise is the right to use a company name or business process in a specific way. Organizations enter into contracts with people in other countries to set up a business that looks and runs like the parent company. The company obtaining the franchise will usually adapt a range of business elements. Marketing elements such as food products, packaging, and advertising messages must meet both cultural sensitivities and legal requirements.Both franchising and licensing involve a royalty payment for the right to use a process or company name. Licensing usually involves a manufacturing process. Franchising commonly involves selling a product or service. Franchise agreements are popular with fast-food companies. McDonald's, Burger King, Wendy's, KFC, and Pizza Hut all have used franchising to increase their presence in foreign markets.
Joint Venture
Business partnerships can provide benefits to all parties involved. One type of global partnership is the joint venture. A joint venture is an agreement between two or more companies to share a business project.
The main benefit of a joint venture is the sharing of raw materials, shipping facilities, management activities, or production facilities. Concerns about this type of partnership include sharing of profits and not as much control because several companies are involved.
This arrangement is very popular for manufacturing. Joint ventures between Japanese and U.S. automobile manufacturers have been common. For example, the Ford Motor Company entered a joint venture with Mazda Motor Corporation. Ford used Mazda-produced parts for several of its cars. Mazda set up assembly plants for Ford vehicles.
Business partnerships can provide benefits to all parties involved. One type of global partnership is the joint venture. A joint venture is an agreement between two or more companies to share a business project.
The main benefit of a joint venture is the sharing of raw materials, shipping facilities, management activities, or production facilities. Concerns about this type of partnership include sharing of profits and not as much control because several companies are involved.
This arrangement is very popular for manufacturing. Joint ventures between Japanese and U.S. automobile manufacturers have been common. For example, the Ford Motor Company entered a joint venture with Mazda Motor Corporation. Ford used Mazda-produced parts for several of its cars. Mazda set up assembly plants for Ford vehicles.
INTERNATIONAL TRADE ORGANIZATIONS
International business activities can be very complex. As a result, several organizations have been created to help companies with global trade activities.
World Trade Organization
The World Trade Organization (WTO) was created in 1995 to promote trade around the world. With more than 150 member countries, WTO settles trade disputes and enforces free-trade agreements between its members. Other goals of WTO include the following.
Before the International Monetary Fund was instituted, a country could often change the value of its legal tender to attract more foreign customers. As other countries lose business, they may impose trade restrictions or lower the value of their currency. As one nation tries to outdo another, a trade war may result. Today, cooperation among IMF nations makes trade wars less likely.
World Bank
The International Bank for Reconstruction and Development is commonly called the World Bank. It was created in 1944 to provide loans for rebuilding after World War II. Today, the bank's key function is to give economic aid to less-developed countries. These funds build communications systems, transportation networks, and energy plants.
The World Bank, with more than 180 member countries, has two main divisions: the International Development Association and the International Finance Corporation. The International Development Association (IDA) makes loans to help developing countries. The International Finance Corporation (IFC) provides capital and technical help to private businesses in nations with limited resources. The IFC promotes joint ventures between foreign companies and local companies to further capital investment in developing nations.
International business activities can be very complex. As a result, several organizations have been created to help companies with global trade activities.
World Trade Organization
The World Trade Organization (WTO) was created in 1995 to promote trade around the world. With more than 150 member countries, WTO settles trade disputes and enforces free-trade agreements between its members. Other goals of WTO include the following.
- Lowering tariffs that discourage free trade
- Eliminating import quotas
- Reducing barriers for banks, insurance companies, and other financial services
- Assisting poor countries with economic growth
Before the International Monetary Fund was instituted, a country could often change the value of its legal tender to attract more foreign customers. As other countries lose business, they may impose trade restrictions or lower the value of their currency. As one nation tries to outdo another, a trade war may result. Today, cooperation among IMF nations makes trade wars less likely.
World Bank
The International Bank for Reconstruction and Development is commonly called the World Bank. It was created in 1944 to provide loans for rebuilding after World War II. Today, the bank's key function is to give economic aid to less-developed countries. These funds build communications systems, transportation networks, and energy plants.
The World Bank, with more than 180 member countries, has two main divisions: the International Development Association and the International Finance Corporation. The International Development Association (IDA) makes loans to help developing countries. The International Finance Corporation (IFC) provides capital and technical help to private businesses in nations with limited resources. The IFC promotes joint ventures between foreign companies and local companies to further capital investment in developing nations.