INTERNATIONAL BUSINESS FINANCE Essay Example | Topics and Well Written Essays - 3000 words

INTERNATIONAL BUSINESS FINANCE - Essay Example A well reputed business will attract a vast pool of franchisees in the foreign land as brand recognition is one of the key advantages that every franchisee is keen to get from a franchise contract. Through franchising an organization can avoid many of the start up problems that it can face in a new country. By having a local person as a franchisee in order to sell its products the organization will be able to gain trust of the people of the new country and it will not feel alienated in a foreign land. Moreover the franchisee may guide the organization to gain recognition in its new market by applying specifically those marketing techniques that correspond to the taste of the general public. Additionally the organization will have a promising return in shape of royalty fees. But franchising also entails some drawbacks as an overseas expansion strategy. Firstly, the organization will face cultural barriers especially the language barrier (if the language of the home country and foreign country are different) while finding a suitable franchisee and then initiating its operations in a new territory. Secondly, the organization personals have to visit the foreign country, and most probably stay there for some time, in order to acquaint themselves with the ground realities and assist the initiation of operations. Thirdly, heavy capital investment will be needed in order to install machineries in new place. Lastly, the organization has to constantly inspect the franchisee operations in order to ensure quality consistency which is the essential characteristic of any franchise. 2. Licensing: licensing can be comparatively a safe mode of expanding overseas in which an organization (the licensor) permits the company (the licensee) in a target market to use its property which is usually intangible e.g. patents, trademarks and production techniques (Quick MBA n.d.). Licensing reduces risk as the licensor produces and markets the product while licensor receives the license fe e. Moreover licensor can get a higher ROI because of its minimum investment. Furthermore licensing is an effective tool to avoid the trade barriers and helps the organization to develop its brand name by familiarizing itself in the foreign country through licensing. But licensing is not without its drawbacks. The licensor does not get mega brand recognition in the new territory because it is not producing the producing but merely extending its name/label to the product. Even more there is a potential danger of knowledge spillovers and licensee may become a competitor in future once the license time period is over. 3. Joint Venture: joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation" (Market Entry Strategies n.d.).While joint venture facilitates the sharing of technology and work load it also ensures financial strength. Joint venture entails medium level of control as both the organizations in it work at the same level and there is no one boss who can dictate the working of joint venture rather it is more about mutual cooperation. It is a very suitable way of entering in a foreign market when the organization wants to create a synergy by combining two teams that have distinct skills and when combined together can produce outstanding results. Joint venture can prove to be an inappropriate way of entering in a new market when the partners in a joint venture can be potential competitors and have same line of products. In these cases join venture