LUẬN văn THẠC sĩ CHIẾN lược KINH DOANH QUỐC tế của VIETTEL GLOBAL

CHIẾN LƯỢC KINH DOANH QUỐC TẾ CỦA VIETTEL GLOBAL

INTERNATIONAL BUSINESS STRATEGY
OF VIETTEL GLOBAL

1


TABLE OF CONTENTS
Acknowledgements
List of figures, tables & charts...
INTRODUCTION
CHAPTER I: LITERATURE REVIEW ON INTERNATIONAL

Page
9
11

BUSINESS STRATEGY
1.1. Overview of international business strategy
1.1.1. Importance of business expansion to international market
1.1.2. Definition of international business strategy
1.2.
International
business
strategy
Formulation
and

11
11

13
13

Implementation
1.2.1. Analysis and evaluation of international business

13

opportunity
1.2.1.1. Analysis of local business environment
1.2.1.2.
Competitive environment analysis
1.2.1.3. Analysis of Enterprise’s internal resources
1.2.2. Selecting market – group of target nations/countries.
1.2.3. Select a form of international business.
1.2.3.1 Importing and Exporting
1.2.3.2. International Licensing
1.2.3.3. International Franchising
1.2.3.4. International Strategic Alliances and Joint

13
18
20
23
25
25
26
26
27

Ventures
1.2.3.5. Foreign direct investment (FDI)
1.3. Marketing mix for international market penetration
1.3.1- Product strategy
1.3.2. Price strategy on international market
1.3.3. Distribution strategy
1.3.4 Promotion strategy on international market
1.4. Some criteria to evaluation an international business strategy
CHAPTER II: OVERSEA TELECOM BUSINESS STRATEGY OF

27
28
29
30
31
32
33
35

VIETTEL OVER THE PAST
2.1. Overview of Viettel Global Investment Joint Stock Company
2.1.1. General introduction about foundation and development:
2.1.2. Organizational structure:
2.1.3. Business philosophy.
2.2. Business performance at current investment markets
2.2.1. General introduction about the Viettel international

35
35
35

36
36
36

market penetration process
2.2.2. Current foreign market of company

37
2


a.1. CombodiaMarket
a.2. Lao Market
2.2.3 Results of Investment promotion of Viettel Global until

37
42
47

late 2010
2.3. Analysis and Evaluation on Viettel Global’s international

47

telecom services business strategy
2.3.1. Business strategy of Viettel Global
2.3.1.1. Context of strategy formulation:
2.3.1.2. Strategy over the past:
2.3.2. Viettel Global’s International Marketing Activities
2.3.3. Limitation during strategy implementation over the past

CHAPTER III: SOLUTIONS TO IMPROVE INTERNATIONAL

47
47
49
49
55
58

MARKET PENETRATION STRATEGY OF VIETTEL
3.1
Overview of international telecom market during 2011-2015.
3.1.1 Total volume of International Telecom Market
3.1.2 Business environment analysis of foreign markets
3.1.3 Industrial Analysis and competitors of Viettel in

58
58
58
59

investment promotion activities
VIETTEL GLOBAL SWOT Analysis
3.2.1 Opportunities
3.2.2 Threats
3.2.3 Strengths
3.2.4 Weaknesses
Select a potential market for market expansion activities of

60

60
61
61
63
64

Viettel
STRATEGIC ORIENTATION OF VIETTEL 2011-2015
3.4.1 Strategic orientation:
3.4.2 Main objectives to 2015
3.4.3 Objectives in 2011-2015
Solutions from enterprises for investment promotion market
3.5.1 Search for new markets and select the suitable

67
67
68
69
70
70

penetrate methods
Organization..
Recruitment, Training and Using of human resources.
3.5.4 Policy.
3.5.5 Financial resources.
3.5.6 ROI.
3.5.7 Investment form.
3.5.8 Solutions for science, techniques, technology.
Solutions of enterprises for current market

3.6.1 Training human resource for a knowledge economy
3.6.2 Strengthen market research activities
3.6.3 Define the right target market

71
72
72
72
72
72
73
73
73
74
75

3.2

3.3
3.4

3.5

3.5.2
3.5.3

3.6

3

3.6.4 Improve the product and services quality
3.6.5 Building a flexible fee calculation scheme.
3.6.6 Establish an appropriate distribution channel
3.6.7 Designing effective sales promotion and support
programs
3.7 Solutions from state government

75
77
78
80
81

CONCLUSION

83

REFERENCES

84

4


Acknowledgements
COMMITMENT LETTER
We hereby undertake: CAPSTONE PROJECT REPORT "INTERNATIONAL
BUSINESS STRATEGY OF VIETTEL GLOBAL (2011 – 2015)" was the subject
of research by our group. All of the data relating & information provided by Viettel

Global JSC.
To the present time, this is the first topic to be researched. Members of the group no
one has any conflicts of interest to this company

Hanoi, 29 October 2010

GROUP OF AUTHORS
Le Nguyen Tuyen (Leader of the Group)
Phan Truong Son
Nguyen Van Trung
Dang Hoang Tuan
Nguyen Thi Phuong Lan

5


LETTER OF THANKS

We would like to say thanks to Viettel Global JSC has enthusiastically supported us
in the process of providing data as well as working sessions to make strategic
business strategy for the company. Besides, we would like to thanks the professors
and doctors - who have given us the skills and knowledge of corporate governance
throughout the entire course. This knowledge is the basic foundation necessary for
us to write this topic as applied in practical work. In particular, we sincerely thank
the Academic Council of Griggs University has guided us in the process of
conducting research.

GROUP OF AUTHORS

6

LIST OF FIGURE, TABLE AND CHART

Page
1. FIGURE:
Figure 1.1: The External Environment
Figure 1.2 & 1.5: The External Analyses‘ Outcomes

14
17&2
3

Figure 1.3: The Diamond Model

19

Figure 1.4: The Value Chain

22

Figure1.6: General structure of distribution channel in international

31

marketing
Figure 3.2: EFE & IFE
2. TABLE:
Table 1.2: Comparison of international business forms
Table 3.1: EFE and IFE matrix for telecom business strategy in

28
64-67

Mozambican market
Table 3.3: Main objectives to 2015

68

Table 3.4: Objectives in 2011-2015

69

3. CHART:
Chart 2.1: Market Shares of Cambodia
Chart 2.2: Market Shares about Fixed Phone of Cambodia

39-40
41

Chart 2.3: Market Shares about Mobile phone of Laos

43-44

Chart 2.4: Market Shares about Fixed Phone of Laos

45

Chart 2.5: Market Shares about Internet of Laos

46

INTRODUCTORY
1. RATIONAL:
7


As one among the Vietnam’s leading telecom companies, Viettel telecom has
implemented an international business strategy. This is a pioneer in developing
Vietnam’s telecom industry for international integration through investment in
telecom infrastructure in domestic or oversea.
According to the ranking by BMI (Business Monitor International), Viettel is
currently ranked No 27 among 100 biggest international telecom brands. This is not
only the success of Viettel, but also achievements of Vietnam’s telecom industry
because with Viettel brand, Vietnam became a highly ranked nation with good
recognition on the world map.
However, the implementation of international business strategy in telecom
industry is very difficult and challenging. This requires Viettel not strategic thinking
about international development, and also a good compliance with the logic
procedures in international transactions.
That’s the reason why we chose the topic“ International business strategy of
Viettel Global (2011-2015)” as the main research object of this thesis.
2. Research objectives :
On the basis of liternature review on international business strategy, this
casptone project focuses on analysis, evaluation and reference to Viettel’s
international development. From the practical experience, this capstone will suggest
a suitable international business strategy for Viettel development orientation as well
as business environment, at the same time propose solutions to implement the
selected strategy.
3. Research object and scope:

This capstone researches some theoretical and practical issues of Viettel’s
international business strategy over the past.
This capstone also analyze some oversea markets which are considered highly
potential. Among them, there are some market where Viettel just began negotiation,
research, and project formation. Therefore, the research scope of this capstone
8


focuses only on the international business strategy in terms of coverage with some
example of Viettel’s Mozambic market.
4. Research Methodology:
During the research process, the capstone use mainly documentary method
with the analysis and evaluation on secondary statistics. Qualitative method is
conducted by consulting some executives and experts working in Viettel. Besides,
this capstone also uses figures, charts, tables to increase the visual effects and
maintain the details.
5. Research Structure
In addition to the introductory and conclusion, the capstone is presented in 3
chapters:
Chapter I: Literature review on international business strategy
Chapter II: Telecom Business strategy oversea of Viettel Global during the
Chapter III: Solutions to improve Viettel’s international business strategy

CHAPTER I
LITERATURE REVIEW ON INTERNATIONAL BUSINESS STRATEGY
1.1. Overview of international business strategy
9


1.1.1. Importance of business expansion to international market

 For enterprises
- Improve the competitiveness of enterprises
International market participation requires Vietnamese goods to take world
market demand as the production basis. The market expansion process require to
put production structure in the competitive relation in the world market, production
keep improving the technological level and productivity, meeting the demand from
domestic and world market at reasonable price. This requirement is useful for the
enterprise’s development, forcing enterprises to self-improve for enhanced
competitive capacity.
- Looking for new customers
Non-domestic market is very wide. Therefore, the current products of
enterprise can meet the demand of new customers in different places and different
market segments. Enterprise’s products are familiar with the domestic customers,
but for oversea markets, they are still new and fresh, somehow they are still
attractive to the consumers and can generate the revenue and profit for the
enterprise.
- Lengthen the product life circle:
In domestic market, the products are at the saturated stage, while they are still
at the beginning of its life circle in some foreign markets, the products’ life is
therefore lengthened with its existence in the international market.
- Lower production cost
The enterprise entering new markets will take advantage of equipments and
machineries, experience, production at a larger scale, which will enable lowering
product unit cost and therefore enhance competitiveness.
- Spread the market and reduce the business risk:
Due to the limited scope of domestic market and increase of competition…,
it’s difficult for enterprise’s business operation. Therefore, international business
expansion will enable enterprises to benefit from preferential policy by state
government regarding the business domain, which will reduce the competition and
business risk.

 For country development::
- Benefit from national advantages over other nations in economic
development, improving the country position on international level.
10


In economics, the law of comparative advantage refers to the ability of a
party (an individual, a firm, or a country) to produce a particular good or service at
a lower opportunity cost than another party. It is the ability to produce a product
with the highest relative efficiency given all the other products that could be
produced.
- International business greatly contributes to pushing domestic production
and expanding the consumption market
In developing and under developed countries, the average income per capital is
low, which explains the low purchasing power, the domestic market is therefore
limited, not be able to cover the production cost following international standards.
This leads to domestic production constraint. International business is a solution for
these countries if they can take good use of high income level, diversified taste of
consumers in foreign markets to increase demand, and push production and expand
the market then. It can not be avoided to increase export and push commercial
transaction for a nation to have economic development.
In short, international business and global commerce integrations are critical
and natural trends. International business engagement will bring benefits to both
nation and enterprise: benefit from comparative advantage to develop the economy,
expand the consumption market, push production, and enhance competitiveness of
products …
1.1.2. Definition of international business strategy
In most corporations, strategy can be defined with different levels:
- Corporate strategy refers to the overarching strategy of the diversified firm.
Such a corporate strategy answers the questions of "which businesses should we be

in?" and "how does being in these businesses create synergy and/or add to the
competitive advantage of the corporation as a whole?"
- Business strategy refers to the aggregated strategies of single business firm
or a strategic business unit (SBU) in a diversified corporation.
- International business strategy: Develop business strategy in foreign
markets
-

Functional strategies include marketing strategies, new product

development strategies, human resource strategies, financial strategies, legal
11


strategies, supply-chain strategies, and information technology management
strategies.
International business strategy is the one which search for market share
increase of current products in other nations via enhancing marketing and market
research efforts.
This strategy is broadly applied as a separate strategy related to other
strategies. The decision on the market penetration method depends a lot on market
relating factors such as competitors and the company’s capacity.
In brief, international business strategy is a detailed thinking and action plan
mapped out to achieve the enterprise’s objectives. It includes following issues: How
to select the target nation, how to get the product penetrate in the market, how to
satisfy the customers, how to compete with competitors, how to meet with the
market conditions and changes… to successful carry out the business objectives.
1.2. International business strategy Formulation and Implementation
1.2.1. Analysis and evaluation of international business opportunity
1.2.1.1. Analysis of local business environment

There are many factors in the macro-environment that will effect the decisions
of the managers of any organization. Tax changes, new laws, trade barriers,
demographic change and government policy changes are all examples of macro
change.
Figure 1.1: The External Environment

12


(Source: « Strategic Management: Concepts and Cases: Competitiveness and
Globalization »’ Micheal Hitt and all, 2010)
 Economic environment
Economic environment can influence the international business operation. It
decides the attractiveness of the international market via evaluation of national
infrastructure. Attractiveness of a nation can be considered and evaluated with 3
elements: Population, economic structure and living standard. This feature of
economic environment can be used to classify export market into different types.
By living standards, there are five groups as followed:
- Low living standard economies: simple product, self provision.
- Relatively low living standard economies: Most of consumption goods are
produced by the state enterprise within the countries. There are some exchange
possibilities with outsiders.
- Economies with big different living standards, featured by a special market
situation. Most of the population has low living standard and rely mainly on
agricultural products and some imported consumption goods. The rich people
mainly use imported goods.

13

- Economics with different living standards. In these economies, there is still a
middle class remaining from the industrialization stage. This class has relatively
high income and formed a relatively diversified market…
- Economies with high living standard, featured by the narrowing distance of living
standards. In these economies, middle class account for a big proportion with high
income. Here, it forms a diversified market with numerous products of all kinds.
In recent years, economic environment experience big changes and
movements due to the economic unification trends at different levels: Free trade
areas, Unified customer regions, common markets, and unified economic zones.
 Cultural envrionment
. When working in the global commercial environment, knowledge of the
impact of cultural differences is one of the keys to international business success.
Improving levels of cultural awareness can help companies build international
competencies and enable individuals to become more globally sensitive. Culture,
alongside economic factors, is probably one of the most important environmental
variables to consider in global marketing. Culture is very often hidden from view
and can be easily overlooked. Similarly, the need to overcome cultural myopia is
paramount
The major elements of culture are material culture, language, aesthetics,
education, religion, attitudes and values and social organisation
 Legal/ political environment
Legal and political environment can be considered in 3 aspects:
- Environment of exporting country.

This environment has influence on the

international cooperation of companies via creating development opportunities,
apply export protection (property right protection at the importing country),
formulate export production zone. Fundamental elements of legal and political
environment of home country and the role of government are illustrated in:

- Export control: Encouragement, support, supervision and limitation of export
- Import control: tax, license
-International business regulations
14


- Environment in host country, influence of local authorities on foreign enterprises
changed dramatically from one country to another. International businessmen
should consider all following issues of legal and political environment:
- Attitudes to foreign investors. Some countries like Vietnam want and
encourage foreign investment. But, India is very strict on limiting import and
oversea money transferring...
- Political stability. Political system of some countries can be changed easily,
which cause more change for foreign investment and products. International
marketer in such an instable political environment should adapt their strategies to
those market features.
- Regulations on foreign exchange rate: exporters or investors want to pay
with valuable currency. In reality, many exporting companies suffer damage due to
the tight control on the foreign exchange rate of the payment currency, or the money
liquidity, or sometimes money is exchanged for bad goods which can not be
liquidated.
- Administrative procedure: it could be custom procedure, information
disclosure and business contact. Administrative procedure sometimes discourages
the investors or exporters and causes the corruption evils.
The Political and legal environment in a country provide a framework within
which an organization operates. In some countries this environment is very
restrictive and has significant impact on all aspects of the organization; in other
countries the administrative/legal context is more permissive. Understanding the
administrative/legal environment is essential to determining if organizational
change can take place. The administrative context within which the organization

operates may be shaped by a unique combination of forces, including international,
governmental,

nongovernmental

policy,

legislative,

regulatory,

and

legal

frameworks. An organization is affected by the policy or regulatory context that
gave rise to it. This includes specific laws and regulations that support or inhibit the
institution's development.
 Technological environment
15


Technological factors include technological aspects such as R&D activity,
automation, technology incentives and the rate of technological change. They can
determine barriers to entry, minimum efficient production level and influence
outsourcing decisions. Furthermore, technological shifts can affect costs, quality,
and lead to innovation.
Figure 1.2: The External Analyses‘ Outcomes

(Source: « Strategic Management: Concepts and Cases: Competitiveness and

Globalization »’ Micheal Hitt and all, 2010)
In order to evaluate the impacts of macro environment to the strategic operation of
enterprise, we can use External Factor Evaluation (EFE) matrix, which is a
strategic-management tool often used for assessment of current business conditions.
The EFE matrix is a good tool to visualize and prioritize the opportunities and
threats that a business is facing.
External factors assessed in the EFE matrix are the ones that are subjected to the
will of social, economic, political, legal, and other external forces (annex 1).
1.2.1.2 Competitive environment analysis
Upon entering a foreign market, enterprises always have to face competition,
this competition is not only within the country but around the world. The
16


competition degree on international markets is high; it can be among the enterprises
of the same industry, potential competitors, and threats of substitutes, or pressure
from supplier… Enterprises who understand well about competition, competitors …
and based on that to build up the differentiation with current advantages such as:
production capacity, production infrastructure and facilities, recognition and
prestige, technological know-how, location advantage, traditional partners…
The diamond model is an economical model developed by Michael Porter in
his book The Competitive Advantage of Nations, where he published his theory of
why particular industries become competitive in particular locations
Figure 1.3: The Diamond Model

(Source: “The Competitive Advantage of Nations”, Michael E. Porter, Press, New
York, 2008)
 Factor conditions are human resources, physical resources, knowledge
resources, capital resources and infrastructure. Specialized resources are often
specific for an industry and important for its competitiveness. Specific resources

can be created to compensate for factor disadvantages.
 Demand conditions in the home market can help companies create a
competitive advantage, when sophisticated home market buyers pressure firms to
innovate faster and to create more advanced products that those of competitors.
17


 Related and supporting industries can produce inputs which are important
for innovation and internationalization. These industries provide cost-effective
inputs, but they also participate in the upgrading process, thus stimulating other
companies in the chain to innovate.
 Firm strategy, structure and rivalry constitute the fourth determinant of
competitiveness. The way in which companies are created, set goals and are
managed is important for success. But the presence of intense rivalry in the home
base is also important; it creates pressure to innovate in order to upgrade
competitiveness
 Government can influence each of the above four determinants of
competitiveness. Clearly government can influence the supply conditions of key
production factors, demand conditions in the home market, and competition
between firms. Government interventions can occur at local, regional, national or
supranational level.
 Chance events are occurrences that are outside of control of a firm. They are
important because they create discontinuities in which some gain competitive
positions and some lose.
So, Porter's diamond model suggests that there are inherent reasons why some
nations, and industries within nations, are more competitive than others on a global
scale. The argument is that the national home base of an organization provides
organizations with specific factors, which will potentially create competitive
advantages on a global scale.
1.2.1.3. Analysis of Enterprise’s internal resources

Internal environment of an enterprise is the key factor influencing the business
operation of enterprise. Consideration and evaluation of internal market include the
analysis of internal variables such as:
- Experience on international market
- Financial situation and ability of fund mobilization of enterprise
- R&D possibility for equipments and technology. Product quality
- Marketing capacity. Recognition, brand of enterprise on market
- Organization and management
- Human resource qualification
- Corporate culture
18


Above factors can be strengths or weaknesses in selecting markets for business
operation. International business strategy of enterprise must be based on the internal
capability in maximizing resources and taking best uses of those in decisive
operations for the enterprise success in production and business. Right definition of
ability and resources will enable enterprise to create competitiveness for its products.
The value chain is a systematic approach to examining the development of
competitive advantage. It was created by M. E. Porter in his book, Competitive
Advantage (1980). The chain consists of a series of activities that create and build
value. They culminate in the total value delivered by an organization. The 'margin'
depicted in the diagram is the same as added value. The organization is split into
'primary activities' and 'support activities
Primary Activities.
Inbound Logistics. Here goods are received from a company's suppliers. They are
stored until they are needed on the production/assembly line. Goods are
moved around the organization.
Operations. This is where goods are manufactured or assembled. Individual
operations

could

include

room

service

in

a

hotel,

packing

of

books/videos/games by an online retailer, or the final tune for a new car's
engine.
Outbound Logistics. The goods are now finished, and they need to be sent along
the supply chain to wholesalers, retailers or the final consumer.
Marketing and Sales. In true customer orientated fashion, at this stage the
organization prepares the offering to meet the needs of targeted customers.
This area focuses strongly upon marketing communications and the
promotions mix.
Service. This includes all areas of service such as installation, after-sales service,
complaints handling, training and so on.
Support Activities.

Procurement. This function is responsible for all purchasing of goods, services and
materials. The aim is to secure the lowest possible price for purchases of the
highest possible quality. They will be responsible for outsourcing (components
19


or operations that would normally be done in-house are done by other
organizations), and purchasing (using IT and web-based technologies to
achieve procurement aims).
Technology Development. Technology is an important source of competitive
advantage. Companies need to innovate to reduce costs and to protect and
sustain competitive advantage. This could include production technology,
Internet marketing activities, lean manufacturing, Customer Relationship
Management (CRM), and many other technological developments.
Human Resource Management (HRM). Employees are an expensive and vital
resource. An organization would manage recruitment and s election, training
and development, and rewards and remuneration. The mission and objectives
of the organization would be driving force behind the HRM strategy.
Firm Infrastructure. This activity includes and is driven by corporate or strategic
planning. It includes the Management Information System (MIS) and other
mechanisms for planning and control such as the accounting department.
Figure 1.4: The Value Chain

(Source: « Strategic Management: Concepts and Cases: Competitiveness and
Globalization »’ Micheal Hitt and all, 2010)
20


Figure 1.5: The External Analyses‘ Outcomes

(Source: « Strategic Management: Concepts and Cases: Competitiveness and
Globalization »’ Micheal Hitt and all, 2010)
The outcomes of above external environment analysis will be considered in
relation with the current resources of enterprises so that enterprises can make the
decision on choice of target markets.
1.2.2. Selecting market – group of target nations/countries.
After external environment analysis and the ability to join the international
market of enterprise, we will list all the potential nations and markets and their
prospects.
This selection process of markets and nations are conducted in 02 steps:
divide the market in terms of geographic consumption or customer. In order to
evaluate an international market, we will follow 5 stages:
+ Evaluating the current potential of each export market
+ Forecasting the future potential of each market
21


+ Forecasting the future market share of the enterprise
+ Estimating the cost and profit on each market
+ Evaluating the profitability of each market
Internal Factor Evaluation (IFE) matrix is a strategic management tool for
auditing or evaluating major strengths and weaknesses in functional areas of a
business. IFE matrix also provides a basis for identifying and evaluating
relationships among those areas. The Internal Factor Evaluation matrix or short
IFE matrix is used in strategy formulation. The IFE Matrix together with the EFE
matrix is a strategy-formulation tool that can be utilized to evaluate how a company
is performing in regards to identified internal strengths and weaknesses of a
company. The IFE matrix method conceptually relates to the Balanced Scorecard
method in some aspects
SWOT analysis, method, or model is a way to analyze competitive position of

your company. SWOT analysis uses so-called SWOT matrix to assess both internal
and external aspects of doing your business. The SWOT framework is a tool for
auditing an organization and its environment.
SWOT is the first stage of planning and helps decision makers to focus on key
issues. SWOT method is a key tool for company top officials to formulate strategic
plans. Each letter in the word SWOT represents one strong word: S = strengths,
W = weaknesses, O = opportunities, T = threats.
SWOT model analyzes factors that are internal to your business and also
factors that affect your company from outside. Strengths and weaknesses in the
SWOT matrix are internal factors. Opportunities and threats are external factors.
SWOT can be used in conjunction with other tools for strategic planning, such as
the Porter's Five-Force analysis or the Balanced Scorecard framework. SWOT is a
very popular tool in marketing because it is quick, easy, and intuitive.
-

SO strategy: pursue opportunities that are a good fit to the company’s

strengths.
-

WO strategy: Overcome weaknesses to pursue opportunities

-

ST strategy: Identify ways that company can use its strengths to reduce its

vulnerability to the external threats.
22

-

WT strategy: Establish a defensive plan to prevent the firm’s weaknesses

from making it highly susceptible to external threats.
After targeting a nation or export market, enterprises need market
segmentation and come to decision on the target market which the enterprise will
penetrate. The ultimate purpose is to find out particular feature of target market
segments. Enterprise can use geographic, demographic, psychological rules to
segment the market. After segmenting the market according to certain criteria,
enterprise will select a suitable market segment. The enterprise need criteria to
make comparison, evaluation… and then select the most potential market which
match well with the enterprises’ internal resources.
1.2.3. Select a form of international business.
Once a company decides to operate in the global marketplace, it must decide on the
level of involvement it is willing to undertake. Five common forms of international
business activities are importing and exporting, licensing, franchising, strategic
alliances and joint ventures, and foreign direct investment. Each has a varying
degree of ownership, financial commitment, and risk.
1.2.3.1 Importing and Exporting
Importing, the buying of goods or services from a supplier in another country, and
exporting, the selling of products outside the country in which they are produced,
have existed for centuries. In the last few decades, however, the increased level of
these activities has caused the economies of the world to become tightly linked.
Exporting, one of the least risky forms of international business activity permits a
firm to enter a foreign market gradually, assess local conditions, and then fine tune
its product to meet the needs of foreign consumers. In most cases the firm's
financial exposure is limited to market research costs, advertising costs, and the
costs of either establishing a direct sales and distribution system or hiring
intermediaries. Such intermediaries include export management companies,

domestic firms that specialize in performing international marketing services on a
commission basis, and export trading companies, general trading firms that will buy
23


your products for resale overseas as well as perform a variety of importing,
exporting, and manufacturing functions. Still another alternative is to use foreign
distributors.
Working through a foreign distributor with connections in the target country is often
helpful to both large and small companies because such intermediaries can provide
you with the connections, expertise, and market knowledge you will need to
conduct business in a foreign country. In addition, many countries now have foreign
trade offices to help importers and exporters interested in doing business within
their borders. Other helpful resources include professional agents, local
businesspeople, and the International Trade Administration of the U.S. Department
of Commerce. This trade organization offers a variety of services, including
political and credit risk analysis, advice on entering foreign markets, and financing
tips.
1.2.3.2. International Licensing
Licensing is another popular approach to international business. License agreements
entitle one company to use some or all of another firm's intellectual property
(patents, trademarks, brand names, copyrights, or trade secrets) in return for a
royalty payment.
Many firms choose licensing as an approach to international markets because it
involves little out-of-pocket costs. A firm has already incurred the costs of
developing the intellectual property to be licensed. Of course, licensing agreements
are not restricted to international business. A company can also license its products
or technology to other companies in its domestic market.
1.2.3.3. International Franchising
Some companies choose to expand into foreign markets by franchising their

operation. International franchising is among the fastest-growing forms of
international business activity today. Under this arrangement, a franchisor enters
into an agreement whereby the franchisee obtains the rights to duplicate a specific
product or service—perhaps a restaurant, photocopy shop, or a video rental store—
and the franchisor obtains a royalty fee in exchange. By franchising its operations, a
24


firm can minimize the costs and risks of global expansion and bypass certain trade
restrictions
1.2.3.4. International Strategic Alliances and Joint Ventures
A strategic alliance is a long-term partnership between two or more companies to
jointly develop, produce, or sell products in the global marketplace. To reach their
individual but complimentary goals, the companies typically share ideas, expertise,
resources, technologies, investment costs, risks, management, and profits.
Strategic alliances are a popular way to expand one's business globally. The benefits
of this form of international expansion include ease of market entry, shared risk,
shared knowledge and expertise, and synergy. In other words, companies that form
a strategic alliance with a foreign partner can often compete more effectively than if
they entered the foreign market alone.
A joint venture is a special type of strategic alliance in which two or more
firms join together to create a new business entity that is legally separate and
distinct from its parents. In some countries, foreign companies are prohibited from
owning facilities outright or from investing in local business. Thus, establishing a
joint venture with a local partner may be the only way to do business in that
country. In other cases, foreigners may be required to move some of their
production facilities to the country to earn the right to sell their products there
1.2.3.5. Foreign direct investment (FDI)
Foreign investment refers to long term participation by country A into country
B. It usually involves participation in management, joint-venture, transfer of

technology and expertise. There are two types of FDI: inward foreign direct
investment and outward foreign direct investment, resulting in a net FDI inflow
(positive or negative) and "stock of foreign direct investment", which is the
cumulative number for a given period. Direct investment excludes investment
through purchase of shares
Table 1.2: Comparison of international business forms
Form

Advantage

Disadvantage

25