Free Online Course in International BusinessLicensingA licensing agreement will provide an overseas manufacture the right to produce products in a certain manner and use the name or logo of the product. A seller must provide specific and detailed instructions for manufacturing and will either require that all products be sold back to a seller or available for sale by the licensee. If the licensee is allowed to sell the products, an upfront fee as well as a percentage of sales is normally paid to the licensor.• Advantages to the licensor • decreased capital needs • increased return on research investment • decreased risk to local government issues • access to market faster – market test • extends life cycle of technology • Disadvantage to the licensor • less control – no marketing exposure • can steal technology after contract up • create own competitor • brand, quality and image must be protected • contract – negotiations must be thorough and complete FranchisingFranchising provides the right to conduct business in a certain manner to a franchisee. This form of business, which is normally found in the service sector, has become increasingly popular in developing countries since successful business models can be bought and quickly established. The franchisor is normally paid an upfront fee as well as a percentage of sales and often required marketing support fees.• Advantages to the franchisor • duplicate time • reduced market investment • increased income • duplicate business model • build International Brand • entry to controlled markets • Disadvantage to the franchisor • loss of control • need to adapt to local market demands • loss of proprietary information • must be a business model that can be duplicated Joint VentureA joint venture allows a foreign company to establish an overseas presence by partnering with local or international companies. Each partner may contribute different resources to a venture, so their risk and reward will be based on the level of investment. In some countries, a local partner is required; in others one may not be required.• Advantages to the partners • reduced investment • access to controlled markets • in market contacts • in market knowledge • in market presence • Disadvantage to the partners • reduced control • reduced ROI • chance to lose market with a buy out • creates local competitor Direct Foreign Investment (DFI)A direct foreign investment is established when an overseas presence is created by a foreign company. It is a single venture that does not include local or foreignpartners. The joint venture may be structured in the form of an overseas corporation or subsidiary of the parent company. This type of venture can be accomplished only if the foreign investment, property and labor laws of the overseas country allow for it. • Advantages to the seller • market control • local presence • increased return on investment (ROI) • developing relationships • in market knowledge • Disadvantage to the seller • increased investment of time • increased investment of financial resources • increased risk of buy out • increased investment of personnel resources Terms of Sale – the Advantages and DisadvantagesWhether the credit decision maker is dealing directly with the customer as the seller, agent or distributor, credit evaluations to determine appropriate payment terms must take place.The terms of sale that will result are normally an open account, documentary collection, letter of credit, or cash in advance. Open AccountWhen open account payment terms such as Net 90 Days – Invoice Date have been agreed to, the seller will ship the goods and all the necessary shipping and commercial documents directly to the buyer. The buyer has agreed to pay the seller’s invoice at a future date (in this case 90 days after invoice date). Therefore, the seller ships the goods to the buyer along with the commercial and shipping documents; and then the buyer remits the funds of the agreed date.• Advantages • easier to invoice • less paperwork required • allows buyer increased cash flow • Disadvantages • seller counts on a “promise to pay” with no guarantees • buyer counts on the seller to ship as agreed • seller loses immediate cash flow opportunities
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