Write a short note on types of international business in detail ?
19/June/2025 23:12
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Short Note: Types of International Business
International business involves various forms of cross-border activities. These types vary based on the level of investment, control, and mode of entry into foreign markets. Below are the main types of international business explained in detail:
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1. Export and Import
Definition:
Exporting is selling goods or services to another country, while importing is buying goods or services from a foreign country.
Explanation:
This is the simplest and most common form of international business. A company may produce goods domestically and sell them abroad (export) or buy goods from foreign markets and sell them locally (import).
Example:
India exports spices and imports crude oil.
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2. Licensing
Definition:
Licensing is an agreement where a domestic company (licensor) permits a foreign company (licensee) to use its intellectual property like brand name, patent, or technology for a fee or royalty.
Explanation:
It is low-risk and allows for quick expansion without owning production units abroad. However, the control over the licensee's operations is limited.
Example:
McDonald’s licenses its brand and operating model to local franchisees.
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3. Franchising
Definition:
Franchising is a specialized form of licensing where the franchisor gives rights to the franchisee to operate a business using its name, product, and management style.
Explanation:
It involves stricter control and is commonly used in the service sector like fast food, retail, and hospitality.
Example:
Domino’s Pizza operates internationally through franchising.
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4. Joint Venture
Definition:
A joint venture is a business arrangement where two or more companies from different countries come together to form a new business entity, sharing ownership, control, and profits.
Explanation:
It helps in entering a foreign market with local knowledge and reduced risk but may involve management conflicts.
Example:
Tata Starbucks is a joint venture between Tata Group (India) and Starbucks (USA).
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5. Foreign Direct Investment (FDI)
Definition:
FDI is when a company invests directly in facilities (like factories or offices) in a foreign country.
Explanation:
This involves high investment and risk but gives full control over operations. It’s ideal for long-term market presence.
Example:
Toyota setting up a manufacturing plant in India.
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6. Turnkey Projects
Definition:
In turnkey projects, a company designs, builds, and hands over a ready-to-operate facility to a foreign client.
Explanation:
Often used in sectors like construction, oil refining, or infrastructure. The foreign client only needs to “turn the key” to start operations.
Example:
An Indian engineering firm building a power plant in Africa.
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Conclusion
Each type of international business has its own benefits and risks. Companies choose based on their objectives, resources, and the nature of the target market. Understanding these types helps firms make informed global expansion decisions.
