international methods of business

1. INTERNATIONAL FINANCIAL MANAGEMENT
INTERNATIONAL BUSINESS METHODS
By
V S SARMA ,PROF, MBA VJIT
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2. INTERNATIONAL FINANCIAL MANAGEMENT
INTERNATIONAL BUSINESS METHODS:
 Rapid growth of International business for the
past two decades is a challenge to the finance
managers.
 Managers have to establish their presence in
global markets by one form or the other viz.,
Creating
Acquiring
Hybrid
 Keeping in view the generally accepted format FIVE
methods can be identified
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3. INTERNATIONAL FINANCIAL MANAGEMENT
SEVEN METHODS OF INTERNATIONAL BUSINESS
1) Licensing
2) Franchising
3) Joint ventures
4) Acquisition
5) Management contracts
6) Establishment of new subsidiaries
7) International Trade 3

4. INTERNATIONAL FINANCIAL MANAGEMENT
1) Licensing
 Firm in one country licenses another firm in other
country to the use of intellectual properties
(technology) for a fee examples:
- copy rights - Brand names - Trade Marks
- Patents - Legal rights
- enable other firm the use of technology without
much investment
eg: Pepsi cola licensed HEINKEN to make and sell pepsi cola
in The Netherlands
 Use of internet, brand names, advertise products over internet
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5. INTERNATIONAL FINANCIAL MANAGEMENT
2) Franchising
 A firm in one country authorizes a firm in other country to
use 1) Brand names (2) Logos in return of royalties.
 The franchiser provides specialized sales and service
strategies
 Support assistance
Extends initial investment
 Franchisee Units owned and manufactured by local
residents in many foreign countries
 Franchising allows firms to penetrate foreign markets
without too much investment
Eg. Mc Donald's, Pizza hut, Subway sandwiches
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6. INTERNATIONAL FINANCIAL MANAGEMENT
3) JOINT VENTURES (JVs)
A corporate entity or partnership that is jointly owned and
operated by two or more firms.
 JVs allow to apply their respective comparative advantage
in a given project.
 Some nations put restrictions in the formation of JVs eg. China
requires that on of the partner of JV should be Govt. owned
company
 Examples of JVs :
-General Mills Inc. - - JV with Nestle SA - Cereal powders are
manufactured by General mills Inc. and marketed by Sales
Distribution net work of Nestle in over seas
- General Motors  have JVs in automobile Manufacturers in
several countries including Hungary and Soviet union
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7. INTERNATIONAL FINANCIAL MANAGEMENT
4) ACQUISITIONS OF OPERATIONS (AOP)
 Firms acquire other firms in foreign countries
AOP enables quick control quick share in market
 examples:
 (1) Cadbury Schweppes : grown mainly through acquisitions
including wheedle chocolate (Poland 1999)
 (2) Hollywood chewing gum(France 2000) a buyout of
minority shareholders of Cadbury India (2002)
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8. INTERNATIONAL FINANCIAL MANAGEMENT
4) ACQUISITIONS OF OPERATIONS (AOP) (contd..)
 ADVANTAGES:
1) Quick way to grow and capture markets
2) Quick control on a well established company
3) Use of existing well established connections with
Govt.
 Disadvantages:
1) High acquisition cost ( High price)
2) Estimates of acquiring company may be wrong
3) Some unforeseen problems with acquired company
4) Incase of part acquisition, no full control of acquiring
co on acquired co 8

9. INTERNATIONAL FINANCIAL MANAGEMENT
5) MANAGEMENT CONTRACTS (MC)
 A firm in one country agrees to operate facilities or
provide other management services to a firm located
in another country for a fee.
 Operational control of the firm vests with another firm
Range of functions of Management contracts
 Technical operations of production facilities
Management personnel
Accounting and auditing eg Price water corp
Marketing services
Training
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10. INTERNATIONAL FINANCIAL MANAGEMENT
5) MANAGEMENT CONTRACTS (MC) (contd..)
 Examples of MC:
 Many hotels operate under M.C in Asia to obtain:
 Economies of scale
 Global Reservation
 Brand recognition
Example : Marriot International corporation
operates only M.Cs
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11. INTERNATIONAL FINANCIAL MANAGEMENT
6) ESTABLISING NEW FOREIGN SUBSIDIARIES
 This method attracts huge investments
 It is better than acquisition as subsidiaries operation
can be tailor made
Time will be taken for the new unit to pick up
 Need to establish new operations in foreign countries
to sell their products
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12. INTERNATIONAL FINANCIAL MANAGEMENT
7) International trade :
 Exports
 Imports
 No investment as in the case of Foreign Direct
Investments
 Minimum risk
 Use of internet facilities i.e. Exporting firms use their
websites to list the products they sell along with
prices. This allows good advertisement to potential
importers
 Import firms also can use export firm’s websites
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