1. 1
International Business
Rakesh Mohan Joshi
Professor & Chairperson, IIFT New Delhi
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

2. Chapter 11
MODES OF
INTERNATIONAL
BUSINESS EXPANSION
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

3. Learning Objectives







To explain the concept of expansion modes for
international business
To examine strategic trade-offs in selecting
expansion modes
To discuss trade-related expansion modes
To evaluate contractual expansion modes
To elucidate investment modes of expansion
To explicate strategy for selecting the expansion
modes
To elaborate the decision making process for
selecting the expansion modes
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

4. Modes of International Business
Expansion
These are specific forms of entering a foreign
country so as to have international presence and
achieve firm’s strategic goals.
Mode of international business expansion is an
institutional mechanism by which a firm expands
its operations overseas.
Modes of expansion have also been referred to
as entry modes in the international business
literature.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

5. Factors Affecting Strategic Trade-offs in
Selecting an Expansion Mode






Ability and willingness to commit resources in the
target country
Magnitude of risk the firm is willing to take in its
international expansion
Types of return anticipated from overseas
operations
Extent of control to be exerted in firm’s foreign
operations
Level of externalisation of firm’s resources
including its intellectual property
Desired flexibility of expansion modes
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

6. Trade Related Modes
Expansion modes that employ some form of
trade
to
expand
business
in
foreign
countries.
Trade related modes are low- risk expansion
modes, highly suitable for simultaneous
expansion
in
geographically
diverse
countries.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

7. Exports
Manufacturing
the
goods
in
the
home
country or a third country and shipping
them for sales to a country other than the
country of production.
Export is the most common initial mode of
entry into foreign markets as it involves
much lower risks and is a low cost and
simple mode of entry.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

8. Indirect Exports
Selling through an export intermediary
based in its home country and does not
take care of export activity.
In indirect exports, the firm is not
required to deal with hassles of export
operations, it need little international
experience, and much less resource
commitment.
Indirect exports may take place either
through home based agents or through
merchant intermediaries.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

9. Agents
Agents do not take the title of the goods and
operate on behalf of principal firms, rather than
themselves on commission basis.
Types of Export Agents

Importer’s buying agents

Country-controlled buying agents

Buying offices
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

10. Merchant Intermediaries
Exports intermediaries that buy and sell
goods for a profit and take title of the goods
and assume risks thereof.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

11. Merchant Exporters
They
collect
manufacturers
produce
or
from
producers,
several
export
directly in their own name and work on
profit margins.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

12. International Trading Companies
Generally large companies that accumulate,
transport, and distribute goods in various
markets.
Trading companies have been operating for
centuries as pioneers of international trade.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

13. Trading/Export Houses
Home-country
based
firms
involved
in
international trading activities that serve as
merchant intermediary for exports.
As a part of export development strategies,
most
countries
facilitate
such
trading/exports houses.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

14. Direct Exports
Making
domestically
available
in
foreign
produced
markets
products
without
employing any market intermediary in the
home county. It does not mean that the
goods are sold directly to foreign-based end
customers.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

15. Manufacturers’ Export Agents or Sales Representatives
The individual intermediaries who operate on a
commission basis and travel frequently to overseas
markets and carry out business in the name of the
firm rather than in their own name.
These agents specialize in one or a few countries
and
offer
their
services
to
a
number
of
manufacturers for non-competing products.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

16. Overseas-based Buying Agents
Foreign based agents that
contract
arrangements
to
have exclusive
perform
the
exporting firm’s business, generally paid on
the basis of a specific percentage of profit
and the cost incurred.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

17. Merchant importers
An overseas-based trader who imports
products and further sells these to a
wholesaler or a retailer for a profit.
Merchant importers take possession and
title of the goods, therefore assuming
risks and responsibilities thereof..
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

18. Distributors
The overseas distributors purchase the
goods and subsequently sell them
either to a market intermediary or to
the ultimate customer. The distributors
have contractual agreements with the
exporting manufacturers and deal with
them on a long-term basis.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

19. Piggybacking (Complementary Exports)
Use of well-established distribution network
of another company in foreign country.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

20. Counter-Trade
Various forms of trade arrangements
wherein
the
payment
is
in
form
of
reciprocal commitments for other goods
or services rather than an exclusive cash
transaction. In addition, trade financing
and price-setting are tied together in a
single transaction.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

21. Forms of Counter-Trade

Simple
barter:

Clearing arrangement: The transaction of
Direct and simultaneous
exchange of goods without use of money.
goods and services that extends an agreed period
of time.

Switch trading: Trading involving a third
party, known as switch trader in the transaction
to facilitate buying of unwanted goods from the
importer and make payment by cash or barter to
the exporter.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

22. 
Counter purchase: A deal involving two
separate
transactions
payable
in
currency, each with its own cash value.
hard

Buyback: Often used as a marketing tool to

sell plant and equipment wherein the payment
is recovered by way of output from plant and
equipment sold.
Offset: Partial payment is made by the
importer in hard currency, besides promising
to source inputs from the importing country
and also make investment to facilitate
production of such goods.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

23. e-Modes of Business Expansion
Use of information and communication
technology
for
expanding
business
internationally.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

24. Contractual Modes of Business
Expansion
Making use of strategic strengths and
resources of a foreign-based partner
company
for
international
business
expansion.
In contractual expansion modes, the partner
firms complement each other with one or
more of their strategic strengths, such as
superior technology, strong brand equity,
manufacturing facilities, well-established
distribution network, etc.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

25. International Strategic Alliance
Cooperation with one or more than one firm
overseas to carry out a business activity
wherein each one contributes its different
capabilities and strengths to the alliance.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

26. International Contract Manufacturing
A contractual arrangement under which a
firm’s manufacturing operations are carried
out in foreign countries.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

27. International Management Contracts
Providing managerial and technical expertise
to an overseas firm on contractual basis.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

28. International Turnkey Project
Conceptualizing,
installing,
testing
and
of
designing,
carrying
constructing,
out
manufacturing
preliminary
facilities
or
engineering projects at overseas locations
for a client organization.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

29. International Leasing
Making available new and used equipment
through a foreign-based firm for use, in
return of a fee called leasing fee.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

30. International Licensing
Making available intangible assets to a
foreign
company,
such
as
patents,
trademarks and copyrights, technical knowhow and skills (technical guidance, feasibility
and product studies, manuals) engineering,
designs, etc., for a fee termed as royalty.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

31. Major Types of Licensing Arrangements



Process licensing
Trade-mark licensing
Cross-licensing
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

32. International Franchising
A
special
form
of
licensing
in
which
intangible assets are transferred to a foreign
firm alongwith methods of doing business in
a prescribed manner and other assistance
over an extended period of time in return for
a franchising fee.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

33. Investment Modes of Business
Expansion
If a country is found attractive enough to
justify
a
firm’s
long-term
commitment,
investment modes of expansion are often
adopted.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

34. Overseas Assembly
Exports of components, parts or machinery
in CKD condition and assembling these parts
at a site in a foreign country.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

35. International Joint Venture
Equity participation of two or more firms
resulting in formation of a new entity.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

36. Wholly Owned Subsidiary
Setting up a fully owned new entity in a
foreign country.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

37. Greenfield Operations
Creating production and marketing facilities
on a firm’s own from scratch.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

38. Mergers and Acquisitions
Transfer of existing assets of a domestic firm to
a foreign firm lead to mergers and acquisitions.
Cross-border mergers:
emerges
by
way
of
a new legal entity
merging
assets
and
operations of firms from more than one country.
Cross-border acquisition: involves transferring
management control of assets and operations of
a domestic company to a foreign firm. As a
result the local firm becomes an affiliate of the
foreign company.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

39. Strategy for Selecting International
Business Expansion Mode

Naïve rule

Pragmatic rule

Strategy rule
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

40. Marketing Strategy and Expansion
Modes
Market penetration strategy: When a
firm focuses itself on a select few countries.
Market-skimming strategy: When a firm
either simultaneously or in quick succession
enters a large number of countries.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

41. Sequential Adoption of Business
Expansion Modes



Platform countries: eg. Singapore and
Hong Kong
Emerging
countries:
eg.
Myanmar, Laos, and Cambodia
Vietnam,
Growth countries: eg. China, India,
Thailand,
Indonesia,
Malaysia,
and
Philippines

Maturing countries: eg. Korea and Taiwan

Established countries: eg. Japan
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion

42. Decision-Making Process for Selecting
Modes of International Business
Expansion
The expansion mode strategy should aim
at achieving a firm’s strategic goals.
It
should aim at optimal harnessing of a
firm’s
core
competencies
by
way
of
international expansion.
Copyright @ Oxford University Press
International Business
R. M. Joshi
Chapter 11: Modes of International
Business Expansion