Until recently, the international economics literature and the corporate finance literature have evolved separately. Research on international trade has focused on the role of economies of scale and cross-country differences in productivity and factor endowments in predicting gains from trade and the pattern of aggregate trade flows according to comparative advantage. There are several areas where trade functionalities are mostly seen. Some of the trade activities can broadly be highlighted bellow.
v
Export and Importing
v
International Investments
v Licensing
v Franchising
v Merger
v Acquisition
v Contract
Management
v Multinational
Corporation
So,
in the following discussion an endeavor has been made towards better
understanding of international trade activities and other associated issues.
Additional insights have emerged from
introducing firm heterogeneity in trade participation when there are fixed and
variable trade costs. Research on the activities of multinational firms has
also emphasized cross-country differences in productivity and factor
endowments, as well as trade costs, market size, and economies of scale as the
key drivers of the decision to locate production abroad. Moral hazard and
intangible assets govern when it is advantageous to offshore production within
the boundaries of the firm rather than at arm’s length. Much of this work on
trade and foreign direct investment (FDI) pays little attention to corporate
finance considerations and effectively assumes that firms can access the financial
capital necessary to implement their first-best investment choices. This in
part reflects the historical challenges of measuring differences in access to
capital across countries and offering motivation for such differences.
The corporate finance literature, on the
other hand, has studied how firms obtain the funding needed to pursue
attractive business opportunities when financial markets are imperfect.
Managers are often assumed to know more about investment alternatives than do
investors but to not always act in the interest of investors. Information
asymmetries and moral hazard make it costly for managers to raise capital from
outside the firm and feature prominently in corporate finance research. This
research thus provides frameworks for thinking about how and why access to
capital might vary across heterogeneous firms, as well as across countries with
different institutional environments. Traditionally, however, the finance
literature has concentrated on companies that operate in a single country, and
only some strands of this work draw attention to cross-country differences that
affect firm decisions.
EXPORT AND IMPORTING
Exporting is the selling of products made in one’s
own country for use or resale in other countries. Import and export business is
a very lucrative venture. This business format has been a part of the global
trade since centuries. Even during ancient times when there were no proper
highways or hi tech ship import export between countries existed. The modern
version of import export business is structured and is conducted within the
strict framework of rules and regulations of the countries that are involved.
These strict rules are a must to prevent criminals from smuggling contra bands
in the country. Every country has their own set of rules and regulations. As an
import export company you have to ensure that you follow all the guidelines and
rules of the countries you are doing business with. It can be difficult to know
all the rules and documentations required for clearance of consignments at ports
and borders of all the countries. The documentation required by different
countries is different. Things can be simplified and made easy by taking the
help of customs agency services. They have experienced and professional customs
clearance agents who have thorough knowledge about the business practices
involved in import export. www.AssignmentPoint.com Established international
freight forwarding agencies are well connected. They not only know about the
procedure followed by Australian customs, but also have knowledge of other
countries too. You can use their knowledge to expand your business in other
countries without spending much time in researching to find out about the
complex customs rules and regulations of the foreign country. One of the most essential
things of any import export business is submitting documents. Most countries
have a complicated documentation process required for custom entry. In case you
miss out something, things can get out of the track and your file might get
stuck for a long time. The customs offices are always overloaded with lots of
work. Files that are with incomplete documentation are put in the incomplete
queue to be attended later, but because of the overload of work, once the file
enters the pending queue it gets delayed further. Custom clearance agents can
ensure that your documentation includes all the required papers and there is no
miss. In case you do not have a particular document, they can suggest you the
alternative to it. www.AssignmentPoint.com With the help of expert
international freight forwarding agencies you can complete the formalities at
the customs swiftly without any hurdles. Delays for any import and export
businesses mean additional cost and losses. Avoid this pit hole by hiring a
reputed custom clearance agent.
INTERNATIONAL
INVESTMENT
a)
FDI: Are investments made for the
purpose of actively controlling property, assets, or companies located in host
countries. Ex: All the Common stock of Jaguar Motor Company (U.K) by Ford
Motor.
b)
Portfolio Investment: Purchase of
foreign financial assets (stocks, bonds certificate of deposit) for a purpose
other than control. Ex: 1000 shares of Sony’s common stock by a Danish pension
fund. Hewlett-Packard (U.S) and Samsung (South Korea) have also initiated a
joint venture. Under the agreement,
Samsung will manufacture both microprocessor chips and computer workstations,
using Hewlett-Packard’s technology and software.
LICENSING
It is an agreement whereby a licensor grants the
rights to intangible property to another entity for a specified period in
return the licensor receives a loyalty fee from licensee. Ex: Walt Disney
Company may permit a German clothing manufacturer to market children cloths.
FRANCHISING
A franchise is a license sold by one firm to another,
allowing it to produce and sell a product or service under specific terms and
conditions. Franchising is a system for the selective distribution of goods and
or services under a brand name through outlets owned by independent business
men called franchisees; although the franchisor supplies the franchisee with
know-how or brand identification on a continuing basis , the franchisee enjoys
the rights to profit and runs the risk of loss.Ex: McDonald’s Corporation
franchises its fast food restaurant worldwide. A franchise is a right granted to an individual
or group to market a company’s goods or services within a certain territory or
location. Some examples of today’s popular franchises are McDonald’s, Subway,
Domino’s Pizza, and the UPS Store.
There
are many different types of franchises. Many people associate only fast food
businesses with franchising. In fact, there are over 120 different types of
franchise businesses available today, including automotive, cleaning &
maintenance, health & fitness, financial services, and pet-related
franchises, just to name a few.
Today, franchising is helping thousands of individuals be their
own boss and own and operate their own business. Franchising allows
entrepreneurs to be in business for themselves, but not by themselves. There is
usually a much higher likelihood of success when an individual opens a
franchise as opposed to a mom and pop business, since a proven business formula
is in place. The products, services, and business operations have already been
established.
Tips in
Franchise
·
Start by setting
specific criteria for the kind of franchise you want.
·
Look for franchises that
are established, with good growth prospects and good reputations.
·
Use online search tools
to help you target your research.
How to Select a Franchise
Here are some useful tips on how to select a franchise. When
selecting a franchise, carefully consider a number of factors, such as the
demand for the products or services, likely competition, the franchisor’s
background, and the level of support you will receive because like any other
investment, purchasing a franchise is a risk. You will do well to consider the
following items before selecting a franchise:
Demand: Is there a demand for the franchisor’s products
or services in your area? Is the demand seasonal? Is there likely to be a
continuing demand for the products or services in the future? Does the product
or service generate repeat business?
Competition: What is the level of competition? How many
franchised and company-owned outlets does the franchisor have in your area? How
many competing companies sell the same or similar products or services?
Ability to Operate the
Business: Will you be able to
operate your outlet even if the franchisor goes out of business? Will you need
the franchisor’s ongoing training, advertising, or other assistance to succeed?
Will you have access to the same suppliers?
Name Recognition: A primary reason for purchasing a franchise is
the right to associate with the company’s name. The more widely recognized the
name, the more likely it will draw customers who know its products or services:
Training and Support: Another reason for purchasing a franchise is to
obtain support from the franchisor. What training and ongoing support does the
franchisor provide?
Franchisor’s Experience: Many franchisors operate well-established
companies with years of experience both in selling goods or services and in
managing a franchise system. Carefully consider how long the franchisor has
managed a franchise system.
Growth: A growing franchise system increases the
franchisor’s name recognition and may enable you to attract customers. Make
sure the franchisor has sufficient financial assets and staff to support the
franchisees.
In the end, there is no formula for finding the right franchise.
It is as much about your instincts as it is about dollars and cents. Of course,
you want to shop around for the very best deal and find a franchise that will
deliver an excellent return on your investment. But much of finding the right
franchise has to do with how you feel about the business and the brand. If you
enjoy what you are doing, believe in the brand, and are passionate about the
business, you are more likely to succeed.
MERGER
Royal
Dutch Shell has been crowned the new monarch of the oil and gas industry. The
holding company was created after the long anticipated merger of the
Netherlands-based Royal Dutch Petroleum and the UK-based The "Shell"
Transport and Trading Company. The merger was spurred on by reporting
irregularities of the two company's proved reserves in 2004. Royal Dutch Shell
will act as the parent for Royal Dutch Petroleum and the "Shell"
Transport and Trading Company. Mergers come to the fore of corporate life for
many reasons. One of such reasons is that it makes good business sense when an
opportunity arises to join forces with another company and reap the dividends
of working together. A smart business merger gives you the opportunity to enter
new markets and reach even more customers. Furthermore, because of combined
strengths, a merger can override the competition.
Mergers give you an edge in the cutthroat world of competition.
They help fast track your success story because in a partnership you can afford
to launch new products, open new distribution channels, improve technical
knowledge and expand infrastructure base. Partnering with another company
offers fantastic opportunities. However, it is crucial that you get things
right from the jump. This includes finding the right company to merge with,
knowing how much they are worth and working with seasoned professionals like
lawyers and accountants who ensure that you get the best deal possible. If done
right, mergers are legally simple and do not cost as much as an outright
acquisition. The reason being that both businesses have agreed to combine
operations and so there is little need to transfer titles, deeds or assets from
one business to the other. Mergers enable companies to restructure and
strategize, thereby eliminating any arms of weakness. This puts them in a
potent position for the journey ahead. A merger makes it possible for companies
involved to make new investments and realize even better profits. In addition,
the transaction inspires greater confidence from customers with the firm seen
as more reliable and capable of gaining market share. This development will in
turn attract more customers who will be encouraged and confident that they are
in the right hands.
However, mergers come with a fair share of disadvantages. One major
disadvantage of a merger is that it needs to be sanctioned by shareholders from
each firm. On the average, over two-thirds of votes are needed for approval.
And that is if there are no high-stake politics or power-players to contend
with. When decision-making is not clear-cut and needs to follow procedures, a
merger can prove difficult and lengthy. Mergers can also create a clash of
goals and objectives between businesses, meaning that decisions would become
harder to make and disruptions could just become commonplace. This can cause
strife and disaffection amongst workers too as positions might be limited and
some staff might need to be laid off.
ACQUISITION
Take over existing or part
of business including assets.
EX: NEW YORK, NEW YORK (May 10, 1999) - NTL
Incorporated (NASDAQ: NTLI; EASDAQ: NTLI.ED) announced its first broadband
venture in Continental Europe with a significant acquisition in France.
Following a competitive tendering process, France Telecom and France Telecom
Cable have announced that NTL is the winning bidder to acquire the “1G
Networks” of France Telecom representing over 266,000 franchise homes.
MANAGEMENT
CONTRACTS
Provide facilities and management
service for an agreed upon fee.Ex: Marriott and Hilton often do not own the
expensive hotels outside the United States that bear their brand names but
rather operate them under management contracts
Contract management is the
administration of contracts made with vendors, customers, employees, or
partners. The workforce involved in contract management needed to negotiate,
support & manage productive contracts that are costly to train &
retain. Contract management comprises negotiating the terms' & conditions
in contracts & ensuring agreement with the terms' & conditions, and
also documenting & concurring on an amendment or changes that might arise
throughout its implementation or execution. It could be summarized as the
procedure of systematically & effectively managing contract formation,
execution, and testing for the purpose of improving financial & operational
performance & lessening the risk. General commercial contracts comprise
employment letters, purchase orders, sales invoices, and utility contracts.
Often complex contracts are essential for construction assignments, services or
goods they’re highly regulated, services or goods with detailed technical
patterns, international trade and intellectual property.
Contracts
A contract is a printed or verbal
legally binding agreement amid the parties recognized in the agreement to
fulfill the terms & conditions summarized in the agreement. A qualification
obligation for the application of a contract, among other things, is the
condition that the parties to the contract approve the terms of the asserted
contract.
Contracts could be of several kinds,
e.g. purchasing contracts, sales contracts, trade agreements, partnership
agreements, and intellectual agreements.
•
A purchasing contract is an agreement amid a corporation & a
supplier who's promising to sell services or products within agreed terms'
& conditions. In return, the company is compelled to recognize the service
or goods & pay for legal responsibility created.
•
A sales contract is an agreement amid a corporation & a consumer
where the corporation concurs to sell services or products, and the consumer in
return is compelled to reimburse for the services or product bought.
•
A partnership contract may be an agreement which officially sets up the
terms of a partnership amid 2 legal bodies such that they consider each other
as "partners" in a business agreement. However, such terms may also
be simply a way to reflect the wish of the contracting parties to act as if
both are in an affiliation with common objectives. Thus, it mightn't be the
common law agreement of an affiliation which by definition develop fiduciary
responsibilities, & which also has joint & several liabilities.
Contract
management software
The worth
of a business connection is best determined by the contract. Therefore, several
options are now accessible for contract management. Contact management software
is possibly the most essential tool to administer contracts productively,
particularly in companies dealing with huge volumes of contracts.
MULTINATIONAL CORPORATION (MNC)
A
multinational corporation (MNC) or multinational enterprise is an organization
that owns or controls production of goods or services in one or more countries
other than their home country. It can also be referred as an international
corporation, a "transnational corporation", or a stateless
corporation. The
problem of moral and legal constraints upon the behavior of multinational
corporations, given that they are effectively "stateless" actors, is
one of several urgent global socioeconomic problems that emerged during the
late twentieth century.
One of the
first multinational business organizations, the East India Company, arose in
1600. After East India Company, came the Dutch East India Company, founded
March 20, 1602, which would become the largest company in the world for nearly
200 years. The
actions of multinational corporations are strongly supported by economic
liberalism and free market system in a globalized international society. According
to the economic realist view, individuals act in rational ways to maximize
their self-interest and therefore, when individuals act rationally, markets are
created and they function best in free market system where there is little
government interference. As a result, international wealth is maximized with
free exchange of goods and services. To many economic liberals,
multinational corporations are the vanguard of the liberal order. They are the
embodiment par excellence of the liberal ideal of an interdependent world
economy. They have taken the integration of national economies beyond trade and
money to the internationalization of production. For the first time in history,
production, marketing, and investment are being organized on a global scale rather
than in terms of isolated national economies.
Transnational corporations
A
transnational corporation differs from a traditional multinational corporation
in that it does not identify itself with one national home. While traditional
multinational corporations are national companies with foreign subsidiaries,
transnational corporations spread out their operations in many countries to
sustain high levels of local responsiveness. An example of a transnational
corporation is Nestlé who employ senior executives from many countries and try
to make decisions from a global perspective rather than from one centralized
headquarters. Another
example is Royal Dutch Shell, whose headquarters are in The Hague, Netherlands,
but whose registered office and main executive body are headquartered in
London, United Kingdom.
Multinational corporations
The
history of multinational corporations is closely intertwined with the history
of colonialism, with the first multinational corporations founded to undertake
colonial expeditions at the behest of their European monarchical patrons. Prior
to the era of New Imperialism, a majority European colonies not held by the
Spanish and Portuguese crowns were administered by chartered multinational
corporations. Examples of such corporations include the British East India
Company, the Swedish Africa Company, and the Hudson’s Bay Company. These early
corporations facilitated colonialism by engaging in international trade and
exploration, and creating colonial trading posts. Many of these corporations,
such as the South Australia Company and the Virginia Company, played a direct
role in formal colonization by creating and maintaining settler colonies.
Without exception these early corporations created differential economic
outcomes between their home country and their colonies via a process of
exploiting colonial resources and labour, and investing the resultant profits
and net gain in the home country. The end result of this process was the
enrichment of the colonizer and the impoverishment of the colonized. Some multinational corporations, such as the
Royal African Company, were also responsible for the logistical component of
the Atlantic Slave Trade, maintaining the ships and ports required for this
vast enterprise. During the 19th century formal corporate rule over colonial
holdings largely gave way to state-controlled colonies, however corporate
control over colonial economic affairs persisted in a majority of colonies. During the process of decolonization
the European colonial charter companies were disbanded, with the final colonial
corporation, the Mozambique Company, dissolving in 1972. However the economic
impact of corporate colonial exploitation has proved to be lasting and far
reaching, with some commentators asserting that this impact is among the chief
causes of contemporary global income inequality.
Contemporary
critics of multinational corporations have charged that some present day
multinational corporations follow the pattern of exploitation and differential
wealth distribution established by the now defunct colonial charter
corporations, particularly with regards to corporations based in the developed
world that operate resource extraction enterprises in the developing world,
such as Royal Dutch Shell, and Barrick Gold. Some of these critics argue that
the operations of multinational corporations in the developing world take place
within the broader context of neocolonialism.
Criticism of multinationals
Anti-corporate
advocates criticize multinational corporations for entering countries that have
low human rights or environmental standards. In the world economy facilitated
by multinational corporations, capital will increasingly be able to play
workers, communities, and nations off against one another as they demand tax, regulation
and wage concessions while threatening to move. Some negative outcomes
generated by multinational corporations include increased inequality,
unemployment, and wage stagnation. The aggressive use of tax avoidance
schemes allows multinational corporations to gain competitive advantages over
small and medium-sized enterprises. Organizations such as the Tax Justice
Network criticize governments for allowing multinational organizations to
escape tax since less money can be spent for public services.
CONCLUSION
International
trade is becoming a way of life for an increasing number of businesses. As
there are many business risks and uncertainties associated with trading outside
domestic markets, organizations require secure partnerships. Trade Services’
strength is to provide an understanding of the local needs of its customers,
while having the global coverage to ensure it can provide solutions to business
problems wherever in the world they occur.
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