Ferdous Mahmud Shaon, Student ID: 12164052 1 | P age

TABLE OF CONTENTS

CHAPTER ONE - INTRODUCTION
1.1 BACKGROUND 2
1.2 OBJECTIVES 2
CHAPTER TWO - THEORETICAL ASPECTS
2.1 INTERNATIONAL TRADE EXPORT & IMPORT 3
2.2 LICENSING 4
2.3 FRANCHISING 4
2.4 JOINT VENTURES 5
2.5 ACQUISITIONS 5
2.6 FOREIGN SUBSIDIARIES 5
2.7 FDI IN INTERNATIONAL BUSINESS 6
CHAPTER THREE BANGLADESH PERSEPECTIVE
3.1 INTERNATIONAL BUSINESS MODES USED IN BANGLADESH 7
CHAPTER FOUR - CONCLUDING REMARKS
4.1 CONCLUDING REMARKS 11

REFERENCES 12


Ferdous Mahmud Shaon, Student ID: 12164052 2 | P age

CHAPTER 1 - INTRODUCTION
BACKGROUND
If we spend a day looking around us, the importance of international business will become very
obvious. We don't have to look far to see this. For example, if we have a mobile phone or MP3
player, then we can quickly find out at where they were made. What about the computer that
was used to prepare this article, or the printer that was used for printing? When we eat, how
much of the food we consume was actually produced in Bangladesh? In short, our lives and living
standards are heavily influenced by the amount of international business and trades, we conduct
with the rest of the world.
Due to remarkable initiatives in regard of financial and trade liberalization over the last three
decades, there has been remarkable increase in the volume of international business and trades.
In Bangladesh, the policy of trade liberalization & free market economy in the 1980s has created
both challenges and opportunities for our economy. Bangladesh continues to suffer from a low-
growth, high-poverty syndrome. However, Bangladesh has a large labor force willing to work for
low wages resulting in a very competitive position for labor intensive manufacturing exports. It
has a large number of entrepreneurial businessmen who are able to develop and run small and
medium scale enterprises. With amicable and mutually beneficial regional cooperation,
Bangladesh can be an ideal location for huge foreign direct investments, which can serve as a
huge market for goods and services in the South Asia. However, the population density of
Bangladesh is high and availability of land is limited, which results in a continuing pressure a food
supply. For that reason government have to import foods from other countries to fulfill its
internal demand. Bangladesh import rate is more than its export rate which constraining the
domestic development efforts.
In todays global economy, what is the best way for a company to go global, go beyond its
domestic market? What is the safest way? What is the most profitable way? What is the most
practical way? These are some of the questions every company has to answer when it makes
globalization as its goal. These are also the issues that every company has to tackle when it puts
its strategy to enter a new foreign market.
OBJECTIVES
To discuss theoretical aspects of the modes of international business
To learn how companies gradually progress through an internationalization process
To discuss the modes of international business used in Bangladesh
Ferdous Mahmud Shaon, Student ID: 12164052 3 | P age

CHAPTER 2 THEORETICAL ASPECTS

Companies use several methods to conduct international business. Among them the followings
are the most widely used all over the world:
International trade Export & Import
Licensing
Franchising
Joint ventures
Acquisitions
Foreign subsidiaries
Foreign market entry modes differ in degree of risk they present, the control and commitment
of resources they require and the return on investment they promise. Each method is discussed
in turn, with emphasis on its risk and return characteristics.

INTERNATIONAL TRADE EXPORT & IMPORT
The first and the most common strategy to be an international company is: import and export of
goods, materials and services. Imports consist of transactions in goods and services from non-
residents to residents. Imported goods or services are provided to domestic consumers by
foreign producers. On the other hand, export means the sale abroad of an item produced, stored
or processed in the supplying firms home country. It is a convenient method to increase the sales.
There are two types of exporting: direct and indirect. Indirect export means that products are
carried abroad by other agents and the firm doesnt have special activity connected with
international market, because the sale abroad is treated like the domestic one. For these reasons
it is difficult to say that it is an internationalization strategy. In the case of direct exporting, the
firm becomes directly involved in marketing its products in foreign markets.
Trading (import & Export) rather than investing abroad is a relatively conservative approach to
international business that can be used by firms to penetrate markets (by exporting) or to obtain
supplies at a low cost (by importing). The risk is minimal because the firm does not invest any of
its capital abroad. If the firm experiences a decline in its exporting or importing, it can normally
reduce or discontinue this part of its business at a low cost.
Ferdous Mahmud Shaon, Student ID: 12164052 4 | P age

As an entry method, international trading has several advantages. Comparing to other methods,
trading is fairly simple and with low costs/investments and risks. Consequently, it is usually the
first entry method used by organizations in order to obtain knowledge of the foreign market. On
the other hand, the disadvantages of international trading include high transport costs, trade
barriers, tariffs, and problems with local agents. In addition, traders have lower control of
distribution and local agents, face the risk of exchange rate fluctuations, and are subject to
custom duties and taxes in the importing counties.

LICENSING
Licensing is a common method of international market entry for companies with a distinctive and
legally protected asset, which is a key differentiating element in their marketing offer. It involves
a contractual arrangement whereby a company licenses the rights to certain technological know-
how, design, patents, trademarks and intellectual property to a foreign company in return for
royalties or other kinds of payment. For example, Bangladesh Electrical Industries (BEIL) a
subsidiary of Transcom group limited, is a producer of televisions and radios in Bangladesh and
is the official licensee of PHILIPS Electronics N.V. Holland.
Here the manufacturer in the domestic country is called licensor and the manufacturer in the
foreign country is called licensee. The cost of entering market through this mode is less expensive.
The domestic company can choose any international location and enjoy the advantages without
incurring any obligations and responsibilities of ownership, managerial, investment etc.

FRANCHISING
Under a franchising agreement the franchisor provides a specialized sales or service strategy,
support assistance, and possibly an initial investment in the franchise in exchange for periodic
fees. For example, KFC, McDonald's, Pizza Hut and Nandoos are franchisors who sell franchises
that are owned and managed by local residents in many foreign countries including Bangladesh.
The recent relaxation of barriers in foreign countries throughout Eastern Europe and South
America has resulted in numerous franchising arrangements.
Franchising is the same as licensing in that the franchiser allows the franchisee to use the
trademark or brand or reputation. It different from licensing because, franchisers provide
ongoing support to the franchisees including management training, business advice and
advertising. Also franchisers have more control over the sales of its products.
Ferdous Mahmud Shaon, Student ID: 12164052 5 | P age

JOINT VENTURES
Joint venture is a mutual agreement of two or more partners across globe to collectively own the
company to produce goods and services. It is a venture that is owned and operated by two or
more firms. Many firms penetrate foreign markets by engaging in a joint venture with firms that
reside in those markets. In China it is currently a requirement that one of the partners of a joint
venture has to be a government owned company. Most joint ventures allow two firms to apply
their respective comparative advantages in a given project. For example, General Mills, Inc.,
joined in a venture with Nestle SA, so that the cereals produced by General Mills could be sold
through the overseas sales distribution network established by Nestle.

ACQUISITIONS
Firms frequently acquire other firms in foreign countries as a means of penetrating foreign
markets. Acquisitions allow firms to have full control over their foreign businesses and to quickly
obtain a large portion of foreign market share.
An acquisition of an existing corporation is a quick way to grow. An MNC that grows in this way
also partly protects itself from adverse actions from the host government of the acquired
company. The MNC has control of a usually well-established firm with good connections to its
government. The risk is that too much has been paid for the acquisition, also that there are
unforeseen problems with the acquired company. It has to be remembered that the sellers of
the company have a thorough knowledge of the business and the price at which they are selling
is presumably higher than their estimate. The acquiring company is therefore to a certain extent
outguessing the local owners - a risky proposition.
Some firms engage in partial international acquisitions in order to obtain a stake in foreign
operations. This requires a smaller investment than full international acquisitions and therefore
exposes the firm to less risk. On the other hand, the firm will not have complete control over
foreign operations that are only partially acquired.

FOREIGN SUBSIDIARIES
Firms can also penetrate foreign markets by establishing new operations in foreign countries to
produce and sell their products. Like a foreign acquisition, this method requires a large
investment. Establishing new subsidiaries may be preferred to foreign acquisitions because the
Ferdous Mahmud Shaon, Student ID: 12164052 6 | P age

operations can be tailored exactly to the firm's needs. Development will be slower, however, in
that the firm will not reap any rewards from the investment until the subsidiary is built and a
customer base established.

FDI IN INTERNATIONAL BUSINESS
The modes of increasing international business extend from the relatively simple approach of
international trade to the more complex approach of acquiring foreign firms or establishing new
subsidiaries. Any mode of increasing international business, that requires a direct investment in
foreign operations, normally is referred to as a Foreign Direct Investment (FDI). International
trade and licensing usually are not considered to be FDI because they do not involve direct
investment in foreign operations. Franchising and joint ventures tend to require some
investment in foreign operations, but to a limited degree. Foreign acquisitions and the
establishment of new foreign subsidiaries require substantial investment in foreign operations
and represent the largest portion of FDI. Many MNCs use a combination of methods to increase
international business. Motorola and IBM, for example, have substantial direct foreign
investment, but also derive some of their foreign revenue from various licensing agreements,
which require less FDI to generate revenue.

Ferdous Mahmud Shaon, Student ID: 12164052 7 | P age

CHAPTER 3 - BANGLADESH PERSPECTIVES

International trade is very important for the economic development of Bangladesh. The country's
import needs are large and the imperative to increase exports is immediate. In order to finance
those imports and also to reduce the countrys dependence on foreign aid grants, the
government, since liberation, has been trying to enhance foreign exchange earnings through
planned and increased exports. The significance of foreign trade to the economy is manifest in a
number of facts and figures. In 1991-92, foreign trade's contribution to government revenue was
around 37%; export-oriented industries' contribution to industrial value-addition was around
56%; export industries' share of employment in the manufacturing sector was about 60%, and
the growth of export earnings was 16.09%. During the last decade export earnings at current
dollar prices increased by 14%per annum.
The performance of Bangladeshs export sector in recent years is quite impressive especially in
the 1990s when we compare it with that of world and SAARC countries. The average annual
growth rate of Bangladesh export (11.91%) is higher than those of the world (9.48%) and SAARC
countries (10.69%) during 1990-2003. Because of the lower export performance in the 1980s,
annual average growth rate of this sector during 1980-2003 is not as impressive compared to
other Asian countries and the world, though this sector shows competitiveness compared to
other SAARC countries. Over the period of 1980-2003 Bangladeshs exports as a percentage of
the worlds exports remain around 0.11%to 0.12%with the exception of 1984, when it was 0.14%,
and 1990-1994, when the ratio was around 0.09%. Bangladeshs exports as a percentage of
SAARC countries exports show slightly increased trend especially in 2000 and 2001.

For these two years Bangladeshs exports are 11% and 12% of the SAARC countries exports
respectively. Bangladeshs share of SAARC countrys exports was the lowest, 7.72%, in 1983.
Ferdous Mahmud Shaon, Student ID: 12164052 8 | P age

Bangladeshs exports share in the Asian developing countries, however, shows a decreasing trend
in the 1990s compared to the1980s though the ratio is slightly higher in 1998 and 1999 compared
to immediate earlier years. The ratio dropped to 0.59%in 2003 from 1.46%in 1980 though it was
0.75%in 2001.
According to the Export Promotion Bureau, Ministry of Commerce, Bangladesh the Product and
Region wise exports on FY 2009-10 are as below:
PRODUCT Export% REGION Export%
WOVEN GARMENTS 37.11% EUROPE 52.30%
KNITWEAR 40.01% USA 33.30%
FROZEN FOOD 2.73% ASIA 8.80%
JUTE GOODS 4.86% MIDDLE EAST 2.50%
LEATHER 1.40% AFRICA 0.60%
AGRICULTURAL PRODUCT 1.50% OCENIA 0.30%
ENGG. PRODUCT 1.92% EAST EUROPE 0.30%
FOOTWEAR 1.26% OTHERS 1.80%
OTHERS 9.21%

Bangladesh government has moved to reduce the number of items on its list of banned imports
and has eliminated the need for import licenses. However, some products are still banned from
importation, including certain maps, obscene materials, socially or religiously offensive items, all
types of wastes, and substandard or rejected goods, as well as all imports from Israel. Despite
some recent reductions, tariffs in Bangladesh remain high, averaging over 50%. At the
recommendation of the World Bank, Bangladesh has placed a 100%tariff ceiling on most goods,
with the intention of bringing the ceiling down to 60%. A value-added tax (VAT) of 10 to 20
percent and additional fees, typically adding up to 15 percent of the cost and freight value, are
also applied to imports.
Every year Bangladesh has to Import different types of food & row material to fulfill its internal
demand. The Imported commodities of Bangladesh are Machinery and equipment, Chemicals,
Iron and steel, Textiles, Foodstuffs, Petroleum products, Cement etc. About 50% of the imports
are from the category consumer and intermediate Goods, of which about 80% are intermediate
goods (30%petroleum). Consumer goods represent no more than 20%of total imports, partly
reflecting a protected consumer domestic market. Capital goods represented one third of
imports in FY 2011. While the share of machinery has declined over time, the share of iron and
steel and other capital goods has increased in recent years. Even as exports have risen
significantly, imports have been rising even faster, resulting in a chronic and widening trade
deficit that has been offset by strong remittance inflows from Bangladeshi overseas workers.
Ferdous Mahmud Shaon, Student ID: 12164052 9 | P age

Bangladesh depends on Asia for much of its imports. In FY 2010-11, Asias share in its total goods
imports was 64.4%, including China (17.6%), India (13.6%), Singapore and Japan (nearly 4%each),
and other Asian countries (24%). Imports from the EU and North America combined accounted
for only 14.7%of the total value of imports.
Total export earnings during the last four fiscal years increased by 2.79 times to approximately
79 billion US dollar with an average of 20 billion dollar per year. Import payments also witnessed
strong growth during the last four years. As compared to the previous four years, total import
payments in the latest four years increased by about three-folds to 115.35 billion US dollar with
a yearly average of 28.84 billion US dollar. This may have been due to the global economic
slowdown and poor infrastructure development particularly in the energy sector. Bangladesh
has a long history of maintaining a negative trade balance, importing more goods than it exports.
Year Import (Billion US $ ) Export (Billion US $ )
2006-07 17.16 12.18
2007-08 20.37 14.11
2008-09 21.44 15.57
2009-10 33.66 16.2
2010-11 35.52 22.92
2011-12 34.81 24.3
Source: Foreign Exchange Policy Department, Bangladesh Bank, CCI&E and EPB
Foreign Direct Investment (FDI) has played a key role in the economic development of Bangladesh
for the last 15 years. Bangladesh offers a most liberal FDI regime in South Asia, with no prior
approval requirements or limits on equity participation and repatriation of profits and income in
most sectors. Bangladesh recorded a rise in foreign direct investment (FDI) last year, bucking a
global downturn in cross-border investments. Actual FDI inflows rose 13.75 percent to $1.29
billion in 2012, the highest ever in the history of Bangladesh. Major foreign investors in
Bangladesh include Telenor of Norway, Singtel of Singapore, Orascom of Egypt, YKK of Japan and
Samsung of Korea.
Foreign remittance is one of the driving forces in the growth of the economy of Bangladesh. In
FY 2010-11, there is a large share of remittance that is USD 11,650 million while the trade deficit
is USD 7,328 million, service deficit USD 2,398 million and income deficit USD 1,354 million.
Current account surplus in FY 2010-11 is only USD 995 million, which is 73.28 per cent less than
that of FY 2009-10 while current account surplus was USD 3,724 million. In fiscal year 2010-11,
the growth rate of merchandise export and import is 41.74 and 41.84 respectively and at the
same time trade deficit has increased at the rate of 42.20%.
Ferdous Mahmud Shaon, Student ID: 12164052 10 | P age


Bangladesh does not have any established law about franchising. Besides, there is no separate
governing body that regulates these sorts of businesses. So, here the franchisees have to bind
with each and every term and conditions set by the franchisor. On the mirror view the franchisor
may faces a lot of risks while they permit for franchising here. Often different companies are
seemed to contract for everything but violets some major principles set by the franchisor.
Sometimes they sacrifices quality, size of the product to earn higher return. Sometimes
franchises cares very little about the franchisors reputation. But reputation or brand is one of
the most important assets for the franchisors. Currently in Bangladesh, international chain food
shops like: KFC, Pizza Hut and Nandoos are franchised by Transcom Foods Limited.
There are some popular joint venture companies in Bangladesh. TM International (Bangladesh)
Limited, a joint venture company of Telekom Malaysia Berhad and A.K. Khan & Co. Limited was
established in 1997 under the brand name 'Aktel'. Grameenphone, the largest mobile phone
operator Bangladesh, is also a joint venture enterprise between Telenor and Grameen Telecom
Corporation. Telenor, Norway, currently owns 55.8% shares of Grameenphone, Grameen
Telecom owns 34.2%and the remaining 10%is publicly held.
The past decades boom in international business and trade particularly in the apparel sector is
very significant to Bangladesh's economic growth, but the recent GDP growth has not led to
significant improvements in the living standards of most people and the social factors are still
challenging. Despite impressive economic growth and some reforms over the two decades
Bangladeshs business environment is still challenging. The key issues are: poor quality
infrastructure particularly road networks and electricity supply, non-diversified economy, high
levels of corruption, government bureaucracy, political instability and safety risks, large unskilled
labor force, inflation etc. Government should take immediate actions to solve these problems in
order to make Bangladesh a better place for foreign investment. Otherwise Bangladesh may
struggle to achieve its goal of becoming a middle income country by the year 2021 (vision 2021).
Ferdous Mahmud Shaon, Student ID: 12164052 11 | P age

CHAPTER 4 CONCLUDING REMARKS

Bangladesh economic growth over the last half decade is more than 6%and it is one of the
emerging economies in South Asia. The real export growth is more than 9%, which is higher than
all other south Asian countries except India (WTI 2008). Bangladesh launched comprehensive
trade reforms in the early 1990s that included substantial reduction of tariffs, removal of
quantitative restrictions, and moves from multiple to a unified exchange rate and from a fixed to
freely floating exchange rate system to increase its export performance. The garments export
industry is allowed duty free import of raw materials. The maximum tariff rate has declined from
a high of 300%in the late 1990s to just 25%in 2007 (WTI 2008). The country has liberalized its
banking and telecommunication sectors. As a result, export growth has been satisfactory in the
last few decades. The major portion of export income comes from RMG sector but major portion
of raw materials for RMG sector are imported goods. So there is no positive effect in BOP. To
increase export growth even more, the export oriented industries should be diversified and
variety should also come. Besides exports, Bangladesh also earns good amount of foreign
currency by the means of franchising and joint ventures. FDI and remittance are playing a vital
role in the economic growth of Bangladesh. Bangladesh has a great potential for international
business activities and foreign investment due to its cheap labor cost and natural resources.
Different supportive conditions like stable political situation, no corruption, good quality
infrastructure, skilled labor force and developments of other areas can attract foreign investors
to invest more in Bangladesh, which will eventually act as a driving force for our economic and
social development.


Ferdous Mahmud Shaon, Student ID: 12164052 12 | P age

REFERENCES

Yadong, L. (1999), Entry and Cooperative Strategies in International Business Expansion
Age, Greenwood Publishing Group, ISBN 978-1-56720-161-1
Sherman, A. J. (2004), Franchising & licensing: two powerful ways to grow your business
in any economy
Mohammed Abu Rayhan (2009), Foreign Direct Investment in Bangladesh: Problems and
Prospects, ASA University Review, (Vol. 3, No. 2)
Arif Billah, (2012), Foreign Direct Investment Scenario: Bangladesh Perspective, (Vol. 22,
No. 1)
Dr. Laila Arjuman Ara and M. Masudur Rahman, The Competitiveness and Future
Challenges of Bangladesh in International Trade
Trading Economics, Bangladesh exports and imports, access on 1 August 2013
Abu Sayeed Chowdhury, Deputy Secretary, Ministry of Public Administration, A Handbook
for Export from Bangladesh
Official website of Board of Investment (BOI) Bangladesh, Prime Minister's Office -
www.boi.gov.bd
Official website of Bangladesh Bank - www.bb.org.bd
Official website of Bangladesh Bureau of Statistics - www.bbs.gov.bd
Official website of Ministry of Commerce Bangladesh - www.mincom.gov.bd