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Forms of International Business
• Trade
• International licensing of technology and
  intellectual property (trademarks, patents
  and copyrights)
• Foreign direct investment




                                  1
Trade
• Exporting
• Importing
• Government controls over trade: tariffs
  and non-tariff barriers
• Role of trade in services




                                  2
Trade
• Exporting: shipment of goods or the
  rendering of services to a foreign buyer
• Importing: process of buying goods from a
  foreign supplier and entering them into the
  customs territory of a different country




                                  3
Trade: Government controls
          over trade
Tariffs: import duties or taxes imposed on
 goods entering the customs territory of a
 nation
Why impose?
 revenue collection, protection of domestic
 industry, political control



                                 4
Trade: Government controls
• Non-tariff Barriers: all barriers to importing
  or exporting other than tariffs ex. product
  standards
• Quota: restriction imposed by law on the
  numbers or quantities of goods or of a
  particular type of good
• Embargo: a total or near total ban on trade
  with a particular country e.g. used against
  Iraq in 1990
                                    5
Trade: trade in services
• Travel, banking, insurance and securities,
  professional services (law & architecture)

           Trade: exporting
• Direct: often use foreign sales agents
• Indirect: use export trading companies


                                  6
Intellectual Property and
             Licensing
• Definitions
  – Copyrights: legal rights to an artistic or written
    work
  – Trademarks: the legal right to use a name or
    symbol; that identifies a firm or its product
  – Patents: governmental grants to inventors
    assuring them of the legal right to produce,
    use and sell their invention for a period of
    years

                                         7
International Licensing
              Agreements
• International licensing agreements: contracts by
  which the holder of intellectual property will grant
  certain rights in that property to a foreign firm to
  use for a period of time under certain conditions
  in return for a licensing fee
• How does this work as a business model?
• Technology transfer: exchange of technology
  and know how between firms in different
  countries through licensing

                                         8
Protecting Intellectual Property
is a key issue for your business
• Inventory and secure your intellectual
  property as you would a building
• Difficult, Why?
• What is piracy?




                                  9
Legal and Political Issues in
Technology Transfer Agreements

• Regulated by some governments
  – generally in Asia, Latin America, and the
    Middle East
  – terms restricted to benefit the developing
    country




                                      10
Foreign Direct Investment
• Ownership and active control of ongoing
  business concerns including investment in
  manufacturing, mining, farming and other
  production facilities
• Multinational corporation
• Wholly owned foreign subsidiary
• Joint venture
• Mergers and acquisitions
                                11
International Framework for
              Trade
• Trade liberalization: efforts of
  governments to reduce tariffs and non-
  tariff barriers
• General Agreement on Tariffs and Trade,
  1947
  – Sets rules on how member nations will
    regulate international trade
• WTO: 1995 came into existence

                                    12
How do you manage the risks of
   international business?

• Consider “ The management of
  international business is the management
  of risk.”




                                13
Managing Risk: Risk
           Assessment
• Market entry strategy
• Shifting the risk
• Using the contract to fix responsibility,
  allocate risk and price accordingly
• Payment and credit risk, property risk,
  delivery risk
• Managing distance and communications

                                  14
Managing Risk
• Managing language and cultural
  differences
• Managing currency and exchange rate risk




                               15
Ethical Issues
•   Bribes?
•   Child labor?
•   Different working conditions and wages?
•   Corporate response?




                                  16
Contracts Clauses of the Intellectual
          Property’s Protection
•   Geographic limit
•   Field of use limitations
•   Output/ customer restrictions
•   Confidentiality
•   Ownership/use
•   Disclose improvements
•   Grant back
•   Termination
•   Non competition

                                    17
Franchising: International
           Licensing Pitfalls
•   Duration                 •Counter trade
•   Royalty                  •Tax laws
•   Trademark protection     •Language
•   Competition laws              problems
•   Tied purchase            •Disclosure
•   Geographic exclusivity
•   Repatriation
                                    18

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Tariff and Non Tariff Barriers

  • 1. Forms of International Business • Trade • International licensing of technology and intellectual property (trademarks, patents and copyrights) • Foreign direct investment 1
  • 2. Trade • Exporting • Importing • Government controls over trade: tariffs and non-tariff barriers • Role of trade in services 2
  • 3. Trade • Exporting: shipment of goods or the rendering of services to a foreign buyer • Importing: process of buying goods from a foreign supplier and entering them into the customs territory of a different country 3
  • 4. Trade: Government controls over trade Tariffs: import duties or taxes imposed on goods entering the customs territory of a nation Why impose? revenue collection, protection of domestic industry, political control 4
  • 5. Trade: Government controls • Non-tariff Barriers: all barriers to importing or exporting other than tariffs ex. product standards • Quota: restriction imposed by law on the numbers or quantities of goods or of a particular type of good • Embargo: a total or near total ban on trade with a particular country e.g. used against Iraq in 1990 5
  • 6. Trade: trade in services • Travel, banking, insurance and securities, professional services (law & architecture) Trade: exporting • Direct: often use foreign sales agents • Indirect: use export trading companies 6
  • 7. Intellectual Property and Licensing • Definitions – Copyrights: legal rights to an artistic or written work – Trademarks: the legal right to use a name or symbol; that identifies a firm or its product – Patents: governmental grants to inventors assuring them of the legal right to produce, use and sell their invention for a period of years 7
  • 8. International Licensing Agreements • International licensing agreements: contracts by which the holder of intellectual property will grant certain rights in that property to a foreign firm to use for a period of time under certain conditions in return for a licensing fee • How does this work as a business model? • Technology transfer: exchange of technology and know how between firms in different countries through licensing 8
  • 9. Protecting Intellectual Property is a key issue for your business • Inventory and secure your intellectual property as you would a building • Difficult, Why? • What is piracy? 9
  • 10. Legal and Political Issues in Technology Transfer Agreements • Regulated by some governments – generally in Asia, Latin America, and the Middle East – terms restricted to benefit the developing country 10
  • 11. Foreign Direct Investment • Ownership and active control of ongoing business concerns including investment in manufacturing, mining, farming and other production facilities • Multinational corporation • Wholly owned foreign subsidiary • Joint venture • Mergers and acquisitions 11
  • 12. International Framework for Trade • Trade liberalization: efforts of governments to reduce tariffs and non- tariff barriers • General Agreement on Tariffs and Trade, 1947 – Sets rules on how member nations will regulate international trade • WTO: 1995 came into existence 12
  • 13. How do you manage the risks of international business? • Consider “ The management of international business is the management of risk.” 13
  • 14. Managing Risk: Risk Assessment • Market entry strategy • Shifting the risk • Using the contract to fix responsibility, allocate risk and price accordingly • Payment and credit risk, property risk, delivery risk • Managing distance and communications 14
  • 15. Managing Risk • Managing language and cultural differences • Managing currency and exchange rate risk 15
  • 16. Ethical Issues • Bribes? • Child labor? • Different working conditions and wages? • Corporate response? 16
  • 17. Contracts Clauses of the Intellectual Property’s Protection • Geographic limit • Field of use limitations • Output/ customer restrictions • Confidentiality • Ownership/use • Disclose improvements • Grant back • Termination • Non competition 17
  • 18. Franchising: International Licensing Pitfalls • Duration •Counter trade • Royalty •Tax laws • Trademark protection •Language • Competition laws problems • Tied purchase •Disclosure • Geographic exclusivity • Repatriation 18