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  1. 1. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 1. Describe how the regional economic integration affects the APEC region. Answer: Supporting the multilateral trading system APEC Economic Leaders stressed that they place paramount importance on the effective functioning of the multilateral trading system represented by the World Trade Organization (WTO). They issued a strong statement calling for an early and successful conclusion of the Doha Development Agenda negotiations. They underlined that consensus would only be possible through an ambitious and balanced result delivering real and substantial market access improvements for agricultural and industrial goods as well as services. They also called for substantial reductions in trade-distorting agricultural subsidies. Exploring a free trade area of the Asia-Pacific APEC Leaders agreed that a Free Trade Area of the Asia-Pacific (FTAAP) could make a considerable contribution to economic integration in the Asia-Pacific region in the long-term. In doing so they acknowledged that the concept required more detailed examination before a decision could be taken on its feasibility and the modus operandi for progressing it. APEC has therefore agreed to examine the options and prospects for an FTAAP through a range of practical and incremental steps, including: • Compiling an inventory of issues that would need to be addressed as part of a preparatory process for an FTAAP and examining their implications • Conducting a study of existing free trade agreements in the region • Assessing the need for additional analytical work on the concept, and • Examining the feasibility of merging existing free trade agreements to form an FTAAP. Supporting regional economic integration through free trade areas Free trade areas are making a substantial contribution to trade and investment liberalization in the Asia-Pacific region. That said, APEC member economies have acknowledged business concerns about unnecessary complexity in free trade agreements as well as marked divergences between them. To address some of these issues, they have agreed to complete by 2008 a set of ‘model measures’ for commonly accepted chapters of free trade Page 1 of 16
  2. 2. MB0037 INTERNATIONAL BUSINESS MANAGEMENT agreements (informal guidelines to greater consistency across agreements). APEC has also agreed to explore in close cooperation with the business sector how rules of origin might be rationalized and examine how greater consistency might be achieved in free trade agreements in the region. Facilitating business activity through an expanded trade and investment agenda Since APEC’s inception in 1989, trade barriers in the APEC region have gradually fallen. Average tariffs have declined from around 17 per cent to just over 5 percent. This has brought to the fore the problem for business of burdensome or inconsistent regulatory frameworks which can affect trade and investment and impede business activity and competitiveness. An extensive work program in APEC will address some of these issues: • APEC’s second Trade Facilitation Action Plan will reduce trade transaction costs by five percent between 2007 and 2010 through actions, for example, on standards and conformance, customs procedures, ecommerce and business mobility • a region-wide Cooperation Initiative on Patent Acquisition Procedures and a customs clearance initiative for low-risk shippers have been launched • an Investment Facilitation Action Plan will be developed, and • Work will be undertaken with a view to developing principles for investment agreements. Supporting structural reform APEC economies have recognized the importance of structural reform to continued economic growth and facilitating business. While structural reform is specific to an economy and largely dependent on unilateral action, APEC economies see considerable scope to learn from each other and share best practices. Economies have agreed to strengthen the capacity of the APEC Secretariat to assist policy dialogue on structural reform and in strengthening domestic institutions that support the reform process. In the first instance, reform initiatives will be identified in areas with the best potential to improve economic growth and trade. A meeting on structural reform issues at ministerial level in 2008 will provide high-level guidance for APEC’s structural reform agenda. Page 2 of 16
  3. 3. MB0037 INTERNATIONAL BUSINESS MANAGEMENT Strengthening financial markets Well-functioning financial sectors are necessary for facilitating trade and investment. They provide markets and intermediaries for matching savings and financing requirements, exercising market discipline and spreading risks. To this end, APEC Economic Leaders have agreed to explore options to secure diversified and deeper capital markets, address structural policies and systems that pose barriers to deepening and developing financial markets, and to examine options for greater cooperation in the development of financial systems and capital markets Sectoral issues and private sector engagement APEC has a long history of promoting economic growth and reform in sectors vital to trade and investment. APEC has also benefited from dialogue and cooperation with the business community and this will be strengthened. New sectoral initiatives include: • in the transport sector, to identify possible further steps to liberalize air services, to improve port efficiency and to foster competition in maritime transport • APEC will support work done in the International Civil Aviation Organization to address emissions from aviation operations • barriers in the Asia-Pacific region to trade and investment in the mining sector will be examined • economies will develop programs to increase the competitiveness of small and medium sized enterprises in the global trading system, and • A study will be commissioned to identify barriers to trade and investment in energy and ways to adopt cleaner and more efficient fuels and technologies. A new APEC Energy Investment and Trade Roundtable will support this work. Page 3 of 16
  4. 4. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 2. Describe the role of IMF and World Bank in the international monitory system. Answer: IMF On a number of other issues, there remain differences between industrial and developing country views, including on the extension of IMF surveillance to cover the observance of international standards and codes. Largely unsettled are the modalities of the involvement of the private sector in crisis resolution, with special reference to the development of arrangements in the international sphere that would be analogous to domestic bankruptcy procedures, including the declaration of standstills and principles for orderly and equitable debt workouts. The liberalization of the capital account and the choice of exchange regimes are two interconnected areas in which international prescriptions conflict with developing country insistence on the preservation of national autonomy and in favour of intermediate regimes, as opposed to corner solutions. The scope and content of IMF conditionality raises the issue of how to reconcile it with the importance of assuring country ownership. IMF is the central institution of the international monetary system. The responsibilities of IMF are: • To promote international monetary co-operation: prevent or manage financial crisis. • To facilitate expansion and balanced growth of international trade. • To promote exchange rate stability. • To assist in establishing multilateral system of payments. • To lend to member countries experiencing balance of payments difficulties. The IMF gets its resources from the quota countries’ pay when they join the IMF and from periodic increases in this quota. The quotas determine a country’s voting power and the amount of financing it can receive from the IMF. World Bank The World Bank is the sister organization of the IMF. Its primary objective is to fight poverty and assist less developed countries in their efforts to improve standards of living and reduce poverty. The World Bank Group consists of the following five institutions: Page 4 of 16
  5. 5. MB0037 INTERNATIONAL BUSINESS MANAGEMENT International bank for Reconstruction and Development (IBRD): The IBRD aims to reduce poverty in middle-income and creditworthy poorer countries. It is able to borrow at low cost and offer its clients good borrowing terms. International Development Association (IDA): IDA provides interest-free credits and grants to the world’s poorest countries that otherwise have little or no capacity to borrow on market terms. International Finance Corporation (IFC): Working with business partners and without government guarantees, the IFC promotes economic development through the private sector by providing equity, long-term loans, finance and risk management products, etc. Multilateral Investment Guarantee Agency (MIGA): MIGA helps promote foreign direct investment in developing countries by providing guarantees to investors against non- commercial risks, such as expropriation, currency inconvertibility, war and civil disturbance, etc. International Centre for Settlement of Investment Disputes (ICSID): ICSID helps encourage foreign investment by providing international facilities for conciliation and arbitration of investment disputes, thereby helping foster an atmosphere of mutual confidence between states and foreign investors. Page 5 of 16
  6. 6. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 3. Write a note on UNCITRAL. Answer: The United Nations Commission on International Trade Law (UNCITRAL) was established by the United Nations General Assembly by its Resolution 2205 (XXI) of 17 December 1966 quot;to promote the progressive harmonization and unification of international trade law. UNCITRAL carries out its work at annual sessions held alternately in New York City and Vienna. When world trade began to expand dramatically in the 1960s, national governments began to realize the need for a global set of standards and rules to harmonize national and regional regulations, which until then governed international trade. The United Nations in 1966 recognized the need for it to play a more active role in the flow of international trade and established the United Nations Commission on International Trade Law (UNCITRAL). Since that UNCITRAL has become the core legal body of the United Nations system in the field of international trade law. Much of the network of international legal rules and agreements that affects today's commercial arrangements has been reached through long consultations organized by UNCITRAL. Its purpose is to reduce legal obstacles to the flow of international trade and harmonize trade laws. Membership UNCITRAL's original membership comprised 29 states, and was expanded to 36 in 1973, and again to 60 in 2002. Member states of UNCITRAL are representing different legal traditions and levels of economic development, just as different geographic regions. States includes 14 African states, 14 Asian states, 8 Eastern European states, 10 Latin American and Caribbean states, and 14 Western European states. The Commission member States are elected by the General Assembly. Membership is structured so as to be representative of the world's various geographic regions and its principal economic and legal systems. Members of the Commission are elected for terms of six years, the terms of half the members expiring every three years. The methods of work are organized at three levels. The first level is UNCITRAL itself (The Commission), which holds an annual plenary session. The second level is the intergovernmental working groups (which is developing the topics on UNCITRAL's work program. Texts designed to simplify trade transactions and reduce associated costs are developed by working groups comprising all member States of UNCITRAL, which meet Page 6 of 16
  7. 7. MB0037 INTERNATIONAL BUSINESS MANAGEMENT once or twice per year. Non-member States and interested international and regional organizations are also invited and can actively contribute to the work since decisions are taken by consensus, not by vote. Draft texts completed by these working groups are submitted to UNCITRAL for finalization and adoption at its annual session. The International Trade Law Division of the United Nations Office of Legal Affairs provides substantive secretariat services to UNCITRAL, such as conducting research and preparing studies and drafts. This is the third level, which assists the other two in the preparation and conduct of their work. UNCITRAL is: • Coordinating the work of organizations active and encouraging cooperation among them. • Promoting wider participation in existing international conventions and wider acceptance of existing model and uniform laws. • Preparing or promoting the adoption of new international conventions, model laws and uniform laws and promoting the codification and wider acceptance of international trade terms, provisions, customs and practice, in collaboration, where appropriate, with the organizations operating in this field. • Promoting ways and means of ensuring a uniform interpretation and application of international conventions and uniform laws in the field of the law of international trade. • Collecting and disseminating information on national legislation and modern legal developments, including case law, in the field of the law of international trade. • Establishing and maintaining a close collaboration with the UN Conference on Trade and development. • Maintaining liaison with other UN organs and specialized agencies concerned with international trade. Conventions The Convention is an agreement among participating states establishing obligations binding upon those States that ratify or accede to it. A convention is designed to unify law by establishing binding legal obligations To become a party to a convention, States are required formally to deposit a binding instrument of ratification or accession with the depositary. The entry into force of a convention is usually dependent upon the deposit of a minimum number of instruments of ratification. Page 7 of 16
  8. 8. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 4. Briefly discuss the INCOTERMS. Answer: INCOTERMS 2000 During the process of revision, which has taken about two years, ICC has done its best to invite views and responses to successive drafts from a wide ranging spectrum of world traders, represented as these various sectors are on the national committees through which ICC operates. Indeed, it has been gratifying to see that this revision process has attracted far more reaction from users around the world than any of the previous revisions of INCOTERMS. The result of this dialogue is INCOTERMS 2000; a version which when compared with INCOTERMS 1990 may appear to have effected few changes. It is clear, however, that INCOTERMS now enjoy worldwide recognition and ICC has therefore decided to consolidate upon that recognition and avoid change for its own sake. On the other hand, serious efforts have been made to ensure that the wording used in INCOTERMS 2000 clearly and accurately reflects trade practice. Moreover, substantive changes have been made in two areas: the customs clearance and payment of duty obligations under FAS and DEQ; and the loading and unloading obligations under FCA. All changes, whether substantive or formal have been made on the basis of thorough research among users of INCOTERMS and particular regard has been given to queries received since 1990 by the Panel of INCOTERMS Experts, set up as an additional service to the users of INCOTERMS. The Structure of INCOTERMS In 1990, for case of understanding, the terms were grouped in four basically different categories: namely starting with the term whereby the seller only makes the goods available to the buyer at the seller’s own premises (the quot;Equot; - term Ex works); followed by the second group whereby the seller is called upon to deliver the goods to a carrier appointed by the buyer (the quot;Fquot; - terms FCA, FAS and FOB); continuing with the quot;Cquot; - terms where the seller has to contract for carriage, but without assuming the risk of loss of or damage to the goods or additional costs due to events occurring after shipment and dispatch (CFR, CIF, CPT and CIP); and, finally, the quot;Dquot; - terms whereby the seller has to bear all costs and risks needed to bring the goods to the place of destination- (DAF, DES, DEQ, DDU and DDP). The following chart sets out this classification of the trade terms. Page 8 of 16
  9. 9. MB0037 INTERNATIONAL BUSINESS MANAGEMENT TERMINOLOGY While drafting INCOTERMS 2000, considerable efforts have been made to achieve as much consistency as possible and desirable with respect to the various expressions used throughout the thirteen terms. Thus, the use of different expressions intended to convey the same meaning has been avoided. Also, whenever possible, the same expressions as appear in the 1980 UN Convention on Cont- for the International Sale of Goods (CISG) have been used quot;Shipperquot; In some cases it has been necessary to use the same term to express two different meanings simply because there has been no suitable alternative. Traders will be familiar with this difficulty both in the context of contracts of sale and also of contracts of carriage. Thus, for example, the term quot;shipperquot; signifies both the person handing over the goods for carriage and the person who makes the contract with the carder: however, these two quot;shippersquot; may he different persons, for example under a FOB contract where the seller would hand over the goods for carriage and the buyer would make the contract with the carrier. quot;Deliveryquot; It is particularly important to note that the term quot;deliveryquot; is used in two different senses in INCOTERMS. First, it is used to determine when the seller has fulfilled his delivery obligation which is specified in the A4 clauses throughout INCOTERMS. Second, the term quot;deliveryquot; is also used in the context of the buyer's obligation to take or accept delivery of the goods, an obligation which appears in the B4 clauses throughout INCOTERMS. Used in this second context, the word quot;deliveryquot; means first that the buyer quot;acceptsquot; the very nature of the quot;Cquot; - terms, namely that the seller fulfils his obligations upon the shipment of the goods and, second that the buyer is obliged to receive the goods. This latter obligation is important so as to avoid unnecessary charges for storage of the goods until they have been collected by the buyer. Thus, for example under CFR and CIF contracts, the buyer is bound to accept delivery of the goods and to receive them from the carder and if the buyer fails to do so, he may become liable to pay damages to the seller who has made the contract of carriage with the carder or, alternatively, the buyer might have to pay demurrage charges resting upon the goods in order to obtain the carrier's release of the goods to him. When it is said in this context that the buyer must quot;accept deliveryquot;, this does not mean that the buyer has accepted the goods as conforming with the contract of sale, but only that he has accepted that the seller has performed his obligation to hand the goods over for carriage in accordance with the contract of carriage which he has to make under the A3 a) clauses of the quot;Cquot; - terms. So, if Page 9 of 16
  10. 10. MB0037 INTERNATIONAL BUSINESS MANAGEMENT the buyer upon receipt of the goods at destination were to find that the goods did not conform to the stipulations m the contract of sale, he would be able to use any remedies which the contract of sale and the applicable law gave him against the seller, matters which, as has already been mentioned, he entirely outside the scope of INCOTERMS. Where appropriate, INCOTERMS 2000 have used the expression quot; placing the goods at the disposal X' the buyer when the goods are made available to the buyer at a particular place. This expression is intended to bear the same meaning as that of the phrase 'landing over the goodsquot; used in the 1980 United Nations Convention on Contracts for the International Sale of Goods. quot;Usualquot; The word quot;usualquot; appears in several terms, for example in EXW with respect to the time of delivery (A4) and in the quot;Cquot; - terms with respect to the documents which the seller is obliged to provide and the contract of carriage which the seller must procure (A8, A3). It can, of course, he difficult to tell precisely what the word quot;usualquot; means, however, in many cases, it is possible to identify what persons in the trade usually do and this practice will then he the guiding fight. In this sense, the word quot;usualquot; is rather more helpful than the word quot;reasonablequot; that requires an assessment not against the world of practice but against the more difficult principle of good faith and fair dealing. In some circumstances it may well be necessary to decide what “reasonable” However is, for the reasons given; in INCOTERMS the word quot;usualquot; has been generally preferred to the word quot;reasonablequot;. quot;Chargesquot; With respect to the obligation to clear the goods for import it is important to determine what is meant by quot;chargesquot; which must he paid upon import of the goods. In INCOTERMS 1990 the expression quot;official charges payable upon exportation and importation of the goodsquot; was used in DDP A6. In INCOTERMS 2000 DDP A6 the word quot;officialquot; has been deleted, the reason being that this word gave rise to some uncertainty when determining whether the charge was quot;officialquot; or not. No change of substantive meaning was intended through this deletion. The quot;chargesquot; which must be paid only concern such charges as are a necessary consequence of the import as such and which thus have to be paid according to the applicable import regulations. Any additional charges levied by private parties in connection with the import are not to be included in these charges, such as charges for storage unrelated to the clearance obligation. However, the performance of that obligation Page 10 of 16
  11. 11. MB0037 INTERNATIONAL BUSINESS MANAGEMENT may well result m some costs to customs brokers or freight forwarders if the party bearing the obligation does not do the work himself. quot;Ports”, quot;places”, quot;pointsquot; and quot;premisesquot; So far as concerns the place at which the goods are to be delivered, different expressions are used in INCOTERMS. In the terms intended to he used exclusively for carriage of goods by sea - such as FAS, FOB, CFR, CIF, DES and DEQ - the expressions “port of shipment “and” port of destination “have been used. In all other cases the word quot;placequot; has been used. In some cases, it has been deemed necessary also to indicate a quot;pointquot; within the port or place as it may be important for the seller to know not only that the goods should be delivered in a particular area like a city but also where within that area the goods should be placed at the disposal of the buyer. Contracts of sale would frequently lack information in this respect and INCOTERMS therefore stipulate that if no specific point has been agreed within the named place, and if there are several points available, the seller may select the point which best suits his purpose (as an example see FCA A4). Where the delivery point is the seller's place the expression quot;the seller's premisesquot; (FCA A4) A4) has been used. quot;Shipquot; and quot;vesselquot; Needless to say, the term quot;shipquot; would have to he used when it is an ingredient in the trade term itself such as in -free alongside shipquot; (FAS) and quot;delivery ex shipquot; (DES). Also, in view of the traditional use of the expression quot;passed the ship's railquot; in FOB, the word quot;shipquot; has had to be used in that connection. Page 11 of 16
  12. 12. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 5. Discuss the five major product strategies available to global marketers. Answer: Global Product Strategy: Pursuing a global product strategy implies that a company has largely globalized its product offering. Although the product may not need to be completely standardized worldwide, key aspects or modules may in fact be globalized. Global product strategies require that product use conditions, expected features and required product functions be largely identical so that few variations or changes are needed. Companies pursuing a global product strategy are interested in leveraging the fact that all investments for producing and developing a given product have already been made. Global strategies will yield more volume, which will make the original investment easier to justify. There are five major product strategies in international marketing: • Product communications extension: This strategy is very low cost and merely takes the same product and communication strategy into other markets. However, it can be risky if misjudgments are made. For example, CPC International believed the US consumer would take to dry soups, which dominate the European market. It did not work. • Extended product- communications adaptation: If the product basically fits the different needs or segments of a market it may need an adjustment in marketing communications only. Again this is a low cost strategy, but different product functions have to be identified and a suitable communications mix developed. • Product adaptation- communication extension: The product is adapted to fit usage conditions but the communication stays the same. The assumption is that the product will serve the same function in foreign markets under different usage conditions. • Product adaptation- communication adaptation: Both product and communication strategies need attention to fit the peculiar need of the market. • Product invention: This needs a totally new idea to fit the exclusive conditions of the market. This is very much a strategy which could be ideal in a Third World situation. The development costs may be high, but the advantages are also very high. Page 12 of 16
  13. 13. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 6. Discuss the international market entry strategies in detail. Answer: Exporting as an Entry Strategy: Exporting represents the least commitment on the part of the firm entering a foreign market. Exporting to a foreign market is a strategy many companies follow for at least some of their markets. Since many countries do not offer a large enough opportunity to justify local production, exporting allows a company to centrally manufacture its products for several markets and therefore to obtain economies of scale. Furthermore, since exports add volume to an already existing production operation located elsewhere, the marginal profitability of such exports tends to be high. Foreign Production as an Entry Strategy: Many companies realize that to open a new market and serve local customers better, exporting into that market is not a sufficiently strong commitment to realize strong local presence. As a result, these companies look for ways to strengthen their base by entering into one of several ways to manufacture. Licensing: Licensing is similar to contract. Manufacturing as the foreign licensee receives specifications for producing products locally but the licensor generally receives a set fee or royalty rather than finished products. Licensing may offer the foreign firm access to brands, trademarks, trade secrets or patents associated with products manufactured. Under licensing, a company assigns the right to a patent (which protects a product, technology or process) or a trademark (which protects a product name) to another company for a fee or royalty. Using licensing as a method of market entry, a company can gain market presence without an equity (capital) investment. The foreign company or licensee gains the right to commercially exploit the patent or trademark on either an exclusive (the exclusive right to a certain geographic region) or an unrestricted basis. Due to advantages of low risk and low investment, licensing is a particularly attractive mode for small and medium-sized firms. Licensing also is an effective mode for testing the future viability of more active involvement with a foreign partner. Companies use licensing for a number of reasons. For one, a company may not have the knowledge or the time to engage more actively in international marketing. The market potential of the target country may also be too small to support a manufacturing operation. A Page 13 of 16
  14. 14. MB0037 INTERNATIONAL BUSINESS MANAGEMENT licensee has the advantage of adding the licensed product`s volume to an ongoing operation thereby reducing the need for a large investment in new fixed assets. A company with limited resources can gain advantage by having a foreign partner market its products by signing a licensing contract. Licensing not only saves capital because no additional investment is necessary but also allows scarce managerial resources to be concentrated on more lucrative markets. Also, some smaller companies with a product in high demand may not be able to satisfy demand unless licenses are granted to other companies with sufficient manufacturing capacity. Franchising: Franchising is a special form of licensing in which the franchiser makes a total marketing program available including the brand name, logo, products and method of operation. Usually the franchise agreement is more comprehensive than a regular licensing agreement in as much as the total operation of the franchisee is prescribed. It differs from licensing principally in the depth and scope of quality controls placed on all phases of the franchisee`s operation. The franchise concept is expanding rapidly beyond its traditional businesses (such as service stations, restaurants and real-estate brokers) to include less traditional formats such as travel agencies, used car dealers, the video industry and professional and health improvement services. About 80 percent of all McDonald`s restaurants are franchised and as of 1999 the firm operated about 24,500 stores in 116 countries. Local Manufacturing: A common and widely practiced form of market entry is the local manufacturing of a company`s products. Many companies find it to their advantage to manufacture locally instead of supplying the particular market with products made elsewhere. Numerous factors such as local costs, market size, tariffs, laws and political considerations may affect a choice to manufacture locally. The actual type of local production depends on the arrangements made; it may be contract manufacturing, assembly or fully integrated production. Since local production represents a greater commitment to a market than other entry strategies, it deserves considerable attention before a final decision is made. Often, companies want to take advantage of lower wage costs by shifting the labor- intensive operation to the foreign market; this results in a lower final price of the products. In many cases, however, the local government forces the setting up of assembly operations either by banning the import of fully assembled products or by charging excessive tariffs on imports. As a defensive move, foreign companies begin assembly operations to protect their markets. However, successful assembly operations require dependable access to imported Page 14 of 16
  15. 15. MB0037 INTERNATIONAL BUSINESS MANAGEMENT parts. This is often not guaranteed and in countries with chronic foreign exchange problems, supply interruptions can occur. To establish a fully integrated local production unit represents the greatest commitment a company can make for a foreign market. Since building a plant involves a substantial outlay in capital, companies only do so where demand appears assured. International companies may have any number of reasons for establishing factories in foreign countries. Often, the primary reason is to take advantage of lower costs in a country, thus providing a better basis for competing with local firms or other foreign companies already present. Also, high transportation costs and tariffs may make imported goods uncompetitive. Some companies want to build a plant to gain new business and customers. Such an aggressive strategy is based on the fact that local production represents a strong commitment and is often the only way to convince clients to switch suppliers. Local production is of particular importance in industrial markets where service and reliability of supply are main factors in the choice of product or supplier. Ownership Strategies: Companies entering foreign markets have to decide on more than the most suitable entry strategy. They also need to arrange ownership, either as a wholly owned subsidiary, in a joint venture, or more recently in strategic alliance. Joint Ventures: In a joint venture, an investing firm owns roughly 25 to 75 percent of a foreign firm, allowing the investing firm to affect management decisions of the foreign firm. Under a joint venture (JV) arrangement, the foreign company invites an outside partner to share stock ownership in the new unit. The particular participation of the partners may vary, with some companies accepting either a minority or majority position. In most cases, international firms prefer wholly owned subsidiaries for reasons of control; once a joint venture partner secures part of the operation, the international firm can no longer function independently, which sometimes lead to inefficiencies and disputes over responsibility for the venture. Strategic Alliances: A more recent phenomenon is the development of a range of strategic alliances. Alliances are different from traditional joint ventures in which two partners contribute a fixed amount of resources and the venture develops on its own. In an alliance, two entire firms pool their resources directly in a collaboration that goes beyond the limits of a joint venture. Although a new entity may be formed, it is not a requirement. Sometimes, the alliance is supported by some equity acquisition of one or both of the Page 15 of 16
  16. 16. MB0037 INTERNATIONAL BUSINESS MANAGEMENT partners. In an alliance, each partner brings a particular skill or resource-usually they are complementary-and by joining forces, each expects to profit from the other`s experience. Typically, alliances involve distribution access, technology transfers or production technology with each partner contributing a different element to the venture. Alliances can be in the forms of technology-based alliances, production-based alliances or distribution-based alliances. Entering Markets Through Mergers and Acquisitions: Although international firms have always made acquisitions, the need to enter markets more quickly than through building a base from scratch or entering some type of collaboration has made the acquisition route extremely attractive. This trend has probably been aided by the opening of many financial markets, making the acquisition of publicly traded companies much easier. Most recently even unfriendly takeovers in foreign markets are now possible. Nevertheless, international mergers and acquisitions are difficult to make work. Page 16 of 16