Modes Of Ib

Modes of International business in IFM

Amit Kumar Giri PGDM-III(SEM) R.N.:-MO8013 Date:- 12-11-2009

International Business 

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In simple, IB means carrying of business activities beyond national boundary. Business Activities includes international trade of goods and services.

There are mainly three modes of International Business:Modes of I.B.

International Trade

Contractual Entry mode

Foreign Investment

1.International Trade:International trade is the exchange of capital,goods,and services across the international borders or territories. It is further divided into two parts: Export 

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Import

Direct Indirect

2. Contractual Entry Mode 

Contractual entry does not involve any financial investment. So it is also known as technical collaboration. Some of its different forms are:   

Franchising Licensing Management contracts Turn-Key Projects

Franchising

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Franchising is the practice of using another person's business model. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee.

Licensing 

When a firm lacks capital and detailed knowledge about a foreign market, it allows its technology, patent, trade mark and other proprietary advantages to be used for a fee by a licensee or technology importing firm.

Management contracts 

Management contracts are often formed where there is a lack of local skills to run a project. Management capabilities are transferred abroad in case of management contracts.

Turn Key Projects 

A turn-key or a turn-key projects are those where a firm constructs the plant in a foreign location and hands over the key to the foreign partner for operation.

3. Foreign Investment   

It is further divided into two parts:Foreign direct investment Foreign portfolio investment

Foreign Portfolio Investment 

FPI occurs when firms diversify their investment in international securities and often operate on the stock exchange in a foreign country with the sole objective of higher return.

Foreign Direct Investment 

Foreign direct investment (FDI) is very much concerned with the operation and ownership of host country firm. 1. 2. 3.

Greenfield investment Mergers and acquisitions Brownfield investment

Green-field Investment 

It can be made through opening of branch in a host country or through making investment in the equity capital of the host-country firm. It is also known as financial collaboration.

Mergers & Acquisition 

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Merger is defined as the combination of two or more companies into a single company where one survives and others lose their corporate existence. An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile.

Brown Field Investment 

It is the combination of green field investment and M&A. It exists when a company first goes for an international M&A and then makes huge investment for replacing plant & machinery in the target company.