Modes of International Business and Investment

• Modes of International Business

  • Merchandise Exports & Imports

-This is the most common mode of international business.

-Merchandise exports and imports are tangible products. They can be seen leaving and entering a country.

• • Services Exports & Imports

They are international non-product sales and purchases.

• • • Tourism and Transportation:

Are important sources of revenue for airlines, shipping companies, travel agencies, and hotels.

• • • Performance of Services

This refers to company's earnings in the form of fees (payments for the performance of a service).

1. Turnkey Operation

Is a deal where a company takes all responsibility for constructing, fitting and staffing a building (such as a school, hospital or factory) so that it is completely ready for the purchaser to take over).

2. Management Contracts

Companies also pay fees for management contracts.

-For example, Disney receives management fees for managing theme parks in France and Japan

• • • Use of Assets

When companies allow others to use their assets such as trademarks, copyrights, or expertise under contracts; they receive royalties.

-Royalties also come from franchise contracts.

• • Investments

    • Direct Investment FDI

-Involves control of a foreign company, it is also called FOREIGN DIRECT INVESTMENT.

-The IMF defines FDI as when one individual or business owns 10% or more of a foreign company's capital. Even with just 10%, the investor usually has significant influence on the company's management, operations and policies.

-The firm becomes a multinational enterprise

1. Joint-Venture

-When two or more companies share ownership of an FDI, the operation is a joint venture.

-A joint venture is a strategic alliance where two or more parties form a partnership to share markets, intellectual property, assets, knowledge, and, of course, profits.

For example, Disney has a joint venture for a theme park in Hong Kong. Hong Kong Disneyland Resort is owned by a joint venture company, Hong Kong International Theme Parks Limited, the Hong Kong Government and The Walt Disney Company. As of the end of fiscal 2014, the Hong Kong Government holds 52 per cent of shares in the company and The Walt Disney Company holds 48 per cent.

• • • Portfolio Investment

Is a non-controlling interest in a company or ownership of a loan to another party. It usually takes one of these two forms:

1. Stock in a company.

2. Loans to a company or country in the form of bonds, notes or bills.

Companies use them primarily for short-term financial gain.

There is risk here sometimes, there's no control of operations.