CHAPTER4 An Overview of Licensing; Joint Ventures Technology and

Global Competition; Globalization and Human Resource Development; Globalization with Social Responsibility; World Economic Growth and the Environment; Country Evaluation and Selection; International Business Diplomacy: Negotiating an International Business, Issues in Asset Protection; Multilateral Settlements; Consortium Approaches; External Relations Approach (Elementary Idea Only).

How to Enter in Foreign Market??? Entrant Strategies

Entrant Strategies:
1.
2. 3. 4. 5.

Import-Export Fully owned subsidiary Licensing Joint ventures Franchising

Licensing
Licensing is defined as the process of leasing a trademarked or copyrighted entity (known as a property) for use in conjunction with a product, service or promotion. The property could be a name, likeness, logo, graphic, saying, signature, character or a combination of several of these elements. It is usually based on a contractual agreement between two business entities: the owner or agent of the property, also known as the licensor and the renter of the rights, and the prospective licensee.

When to go for Licensing??

When market cannot be served by exports. When exports are expensive. When trade restriction or foreign exchange restrictions are high. To protect its technology to being copied in other countries, so officially licensed somebody to use it. When company needs immediate cash flows. When risk in present market is not manageable.

Franchising
Franchise is a local representative of any organization who markets and conducts the entire marketing activity under complete guideline and support of franchisor in the area allotted to the franchisee. It is a kind of authorization granted to an individual or corporation by a franchisor to sell its goods or services in a defined way. Franchise means expanding the business in the new market by transferring trademark and goodwill to franchisee by charging fees. The concept of a franchise was originated in USA. http://www.siliconindia.com/franchiseindia/franchises.html

Features of Franchise
1. Well established business 2. Needs limited investment 3. Easy entry in new markets 4. Business has large establishments 5. Helps in diverting business risks 6. Separates labour and specialisation 7. Business is based on mutual agreement

Difference b/w Licensing and Franchising

In franchising, the franchisee and the franchisor are very closely linked and have better working relationships. The relationship between a licensee and the parent company is not as tight-knit. The franchisee gets to retain the rights to the franchisors logo and trademark. Licensee does not hold the rights to the trademark and logo of the parent companys brand.

Franchisees are often an extension of the parent company, in that they represent the parent companys brand and image. Therefore, they are usually provided assistance from parent company. Licensees also do not receive the same extent of support and training as compared to a franchisee
Another key difference is in the fact that licensees do not get to have territorial rights from the parent company. Which means that licensing organization gets to sell similar licenses and products in the same geographical area..

Exercise You have been in the restaurant business for the past five years. You have perfected the system of running it. You know where to get the best ingredients for your secret recipes. You have a recognized brand name. The business is rather successful and you are keen to expand to other areas. You dont have the financial and human resources to open or manage new restaurants effectively but want to ensure these new restaurants look and feel the same as the original. In your view, what is the best way to expand your business, licensing or franchising? Why??

Joint-venture
A joint venture can be described as participation of two companies in the ownership, management and control of a third enterprise designed to benefit both.

What are the cost and benefit to the company??

For JV the immediate cost are greater financing requirement for technology, raw material, management and mktg. etc. but it broken down in two (or more) partners. The benefit will primarily be increase in the sales, entrant in new market, increased assistance in technology, mktg., mgmt., and other skills.

What percentage of the ownership do the company require??What restrictions does local government impose?

The ownership of the both partners determined on the basis of cost and benefit analysis and on the basis of share in expected return. In many countries what can be a foreign partner owned is limited by the law. The local government may restrict the companys options in JV. The most significant limits may be on ownership, requirement to place, key positions in management etc.

Types of Joint Venture

1. 2.

Equity Based JV Contractual JV

Critical issues for starting JV

Type of JV Issue of ownership and control. Sharing of revenues and liabilities. Type of Hierarchy (Dual/Single) Product and market standardized strategies.

Critical issues in operating JV

Partner commitment and compatibility is a very critical issue in JV. Divergent objectives of the partners. Problem of coordination and control. Tolerance towards ambiguity. Lack of information is relationship-specific routes. Product diversification and innovation.

Technology & Global Competition

What are the technological capabilities??
Product innovation Process innovation Sustainability in innovation

Technological Learning & Development

Technological learning is an incremental process. It is often faces an uncertain environment where the skills , information, networks and credit needed are not really available.

Globalization & Human Resource Development

Effect of Globalization on Human Resource Development: a) Employment Generation b) Employment Quality c) Upgrading skills d) Public Private Partnership Model (P3) for skill development e) Industrial Relations advancement.

Globalization with Social Responsibility

The concept of social responsibility implies that firms have some obligations that go beyond the requirements of the company responsibility. Flowchart

World Economic Growth & The Environment

Environmental Strategies of MNCs: I. Work for the benefits of environment with due regards to domestic laws. II. A parent firm can establish uniform environmental standards across the country. III. Same approach is used for the stakeholders such as- Suppliers, distributors.

Country evaluation and selection

Firms lack sufficient resources to pursue all opportunities, they must:
determine

the order of country entry establish the resource allocation across countries find specific geographic locations to produce or market their products take a Portfolio approach

What factors should consider to evaluate a country?

Return (opportunity) Issues

market

size [sales potential] ease and compatibility of operation costs and resource availability

Risk Issues
Political

Risk Competitive risk Monetary risk

International Business Diplomacy

It is the art and practice of conducting negotiations between representatives of groups or states. It is the conduct of international relations through the intercession of professional diplomats with regard to issues of peace-making, trade, war, economics, culture, environment, and human rights. International treaties are usually negotiated by diplomats prior to endorsement by national politicians. In an informal or social sense, diplomacy is the employment of tact to gain strategic advantage or to find mutually acceptable solutions to a common challenge, one set of tools being the phrasing of statements in a nonconfrontational, or polite manner.

Negotiating
Every wish or need may cause a negotiation. Once people exchange their ideas to adjust their relation, or they exchange views to reach agreements, they are negotiating
Gerafd I Niernberg, The Art of Negotiating

Negotiation is a discussion intended to produce an agreement; a treaty with another respecting sale or purchase; a transaction of business between nations; the mutual interaction of governments by diplomatic agents, in making treaties, smoothing differences, etc. Negotiation is a viable way of resolving a conflict when the following conditions hold true: 1) There are two or more parties 2) There is a conflict of interest between two or more parties; 3) The parties negotiate because they think they can use some form of influence to get a better deal than simply take what the other side will voluntarily give them or let them have. Negotiation is largely a voluntary process. 4) The parties, at least for the moment, prefer to search for agreement rather than to fight openly, have one side capitulate, permanently break off contact, or take their dispute to a higher authority to resolve it. Negotiation occurs when there is no fixed or established set of rules, procedures, or system for resolving the conflict, or when the parties prefer to work outside of the system to invent their own solution to the conflict; 5) Finally, in negotiate, we expect give and take. We expect that both sides will modify or give in somewhat on their opening statements, requests, or demands.

External Relation Approach

Diplomacy Negotiation Intellectual Property Rights Conflicts Resolution International labor laws

Issues in Assets Protection

Trade Related Intellectual Property Rights (TRIPS): Intellectual Property Rights are copyrights, patent, trademark etc. Under TRIPS, owner of patent get asset registered for a particular period of time. Any person who wants to use that patent can use it by paying the royalty to the owner of the patent. Only those properties can be patented which are new, involve research and can be put to industrial use. But plants cannot be patented.
1)

Under TRIPS life of the patent has been fixed as follow:

General Patent
Copyrights Trade Mark Industrial Designs Medicines

20 years 50 years 7 years 10 years 10 years

Case:
Historically, in the developed economies, key drivers for the adoption of good corporate governance have been the following: the search for investment capital, the desire to list on major global stock exchanges, the need to gain access to technology, and the desire to build solid supply chains. In todays global economy, corporate governance is becoming increasingly recognized as a key factor affecting businesses success in emerging markets as well. Opportunities and competitive threats created by the global economy make instituting good corporate governance practices key to developing a strategy for the company to prosper. Improving corporate governance allows companies to attract greater investment at lower cost, strengthens corporate strategy and its implementation, clarifies accountability, enhance shareholders

Contd.
protection, and helps to attract and retain quality employees. This is true not only for large publicly-listed multinationals but for other types of companies as well. For controlling shareholders, corporate governance clarifies roles and improves accountability, enhances senior executives professionalization, and increases company value. Crucially, for society as a whole, corporate governance minimizes the occurrence of corruption, reduces the risk of devastating systemic crises, and improves productivity. Comment on the situation.