After studying this lesson, you will be able to :
• understand the
definition of global business
;
• identify various
types of global business
;
• explain the
procedures for global business
.
Overview : Concept of Global Business
• Global business refers to
international trade
.
• International trade
is the exchange of goods and services among individuals
and businesses in multiple countries.
• Business refers to any human activity to earn profit or monetary gain undertaken on a regular basis with the object through production, distribution, sale or purchase of goods and services.
When you undertake a task or job, you start doing it and accept responsibility for it.
• Business may also be defined as “an activity involving regular production or purchase of goods and services for sale, transfer and exchange with an object of earning profit.”
• Visible trade / Tangible trade • Invisible trade / Intangible Trade • Direct trade / Bilateral trade
• Indirect Trade / Multilateral Trade
Intermediate trade Merchandising trade
Transit trade (Passing trade) Switch trade
Triangular trade
Overview : Types of Global Business
There are many different types of global business or international trade between
the multi-national parties involved in the common practices and the channels
for the flow of goods or services. They include the
specific types of import
and export transactions
or other transaction methods depending upon the
categorisation of items and the degree of involved parties.
• Counter trade
Barter trade
Compensation trade Counter purchase
Visible / Tangible Trade
Invisible / Intangible Trade
Overview : Types of Global Business
Visible
trade
refers
to
the
exchange of physically tangible
goods
between
countries,
involving the export, import and
re-export of goods at various
stages of production.
Invisible
trade
involves
the
export and import of physically
intangible
items
such
as
services.
Direct / Bilateral Trade
Indirect /
Multilateral Trade
Overview : Types of Global Business
Direct trade refers to a system of
trading between two parties from
different countries attempting to
balance its trade with that of the
other.
Indirect
trade
requires
the
involvement of a third party and
it includes intermediate trade,
merchandising
trade,
transit
trade and switch trade.
Indirect Trade
• Intermediate trade
• Merchandising Trade
• Transit (Passing) Trade
• Switch Trade
Counter trade
• Barter Trade
Overview : Types of Global Business
Compensation trade
•Compensation Trade
•Counter Purchase
6
Major Types of
Global Business
In general, a firm can sell a physical product (abroad /
overseas) in terms of export or can locate a production
facility abroad via FDI. There is an array of
intermediate types
of global business
that can allow a firm to acquire global or
international returns on its unique advantages as follows:
• Exporting / Importing
• Licensing
• Franchising
• Management Contracts
• Turn-key Operation
6
Major Types of
Global Business
(i) Exporting
• It is a type of global business selling a physical product and receiving a sales price in return unless it is done in the way of counter trade.
• It only entails foreign marketing and documentation from domestic operations without significant changes.
• Little investment, typically no
investment abroad, is required.
• However, it is susceptible to trade barriers and exchange rate fluctuation. • It also has logistical difficulties and is
less suitable for service products.
9
(i) Importing
• Import is the act of bringing goods into a country.
• Importing is defined as goods and services produced by the host country and purchased by the parent country.
6
Major Types of
Global Business
(ii) Licensing
• It deals with technical information, assistance, and / or using rights. • In return, it collects a licensing fee
and the commitment to use the information or rights.
• It is advantageous for increasing a return on investment in technology, creativity, or customer relations. • It also requires little additional
capital or time investment.
• However, the downside is that the agreement generally prohibits the originating firm from exploiting the assets in particular foreign markets.
6
Major Types of
Global Business
(iii) Franchising
• This type of business transacts trademarks, on-going service, some inputs and shared marketing expenses.
• In return, it is given payment for the trademark, payment for inputs used, and a share of operating revenue or profits.
• There are three main advantages. Firstly, it is an important way of gaining foreign returns on certain kinds of customer services and trade name assets.
• Secondly, it allows some control over the conditions of sale in the foreign market. • Finally, it only entails a limited financial commitment..
6
Major Types of
Global Business
(iv) Management Contracts
• It involves interacting with people for a certain period of time.
• In return for this, it receives a salary, benefits and indirect costs, as well as a share of operating revenues or profits.
• This type has both pros and cons. The contractor puts up no capital and bears no risk.
• It is also useful in foreign contexts which prohibit FDI or FDI is too risky.
• However, the contractee has a good chance to become a competitor, at least in the local market.
6
Major Types of
Global Business
(v) Turn-key Operation
• It offers design, construction and equipping of a production facility to the trading partner.
• In return, it takes all costs plus fees, assumption of ownership and risk at end of the project.
• As the contractor bears no risk in this type of business, it is useful in a foreign context to prohibit FDI or FDI is too risky.
• However, the contractee might have a good chance to become a competitor, at least in the local market.
6
Major Types of
Global Business
(vi) Foreign Direct Investment (FDI)
• This type of business provides capital, management, technology, and perhaps key material inputs. • As a reward, it collects repatriated
profits, licensing fees and transfer payments for inputs.
• It is profitable, relatively easy to handle quality control and has the
possibility of tax avoidance