U8: Forms of International Business Page: 58half-59

Question 1

Forms of International Business (Globalization)

International business can either be trading or investing overseas.

Answer 1

1. International Trade

2. International Investment {Consortium}

Question 2

1 International Trade

International trade refers to the import and export of goods and services between two countries.

Answer 2

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{Import trade} involves the purchase of goods and services [from] overseas.
{Export trade} involves the [sale] of goods and services to another country.

Question 3

2 International Investment (Pg 59)

A firm can also own (control) a business in another country through the following ways:

Answer 3

1. Licensing A&B
2. Joint Ventures
3. Setting up Foreign Subsidiaries and/or Branches

Question 4

1. Licensing A
   Licensing involves the international firm (licensor) granting access to a foreign company (the licensee) the use of its intellectual property. In return, the licensee has to:

Answer 4

• Pay the licensor a free or royalty payment (e.g., a specified percentage of sales)
• Abide by certain terms and conditions of operation laid down by the licensor (e.g., cannot carry rival brands, must use the same corporate colours.)

Question 5

1. Licensing B

There are different names for such licensing arrangement:

Answer 5

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Patent is a government grant giving the exclusive right of making, using or selling an invention.
Franchising is a form of business in which the owner (franchiser) gives license to distribute products, services or methods of business to affiliated dealers (franchisees).
Copyright is a protection that covers literary and artistic works.

Question 6

2. Joint Ventures

Answer 6

A firm may partner with a foreign firm to jointly produce and market manufactured goods/services. (Note: When a joint venture involved more than two partners, it is called a consortium.)

Question 7

3. Setting up Foreign Subsidiaries and/or Branches

Answer 7

A firm may set up business in another country, an operation that is a mini-replica of its head office back home. It could be in the form of a subsidiary or a branch, with the main difference being
> A subsidiary is legally independent of its parent company (> 50%)
> A branch is wholly owned by the parent company (similar to parent company. Parent-look-a-like (100% owned))