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International Business Expansion Methods

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  • 1:03 Licensing
  • 1:39 Franchising
  • 2:33 Joint Ventures
  • 3:21 Outsourcing
  • 4:05 Offshoring
  • 4:39 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Oftentimes, the best opportunities for a business are not at home but abroad. In this lesson, you'll learn about different methods of taking advantage of the international market. You'll also have a chance to take a short quiz after the lesson.

Trade Agreements

Lisa is a CEO of a clothing company. Her business is located in the United States, but she plans to try her product line in the international marketplace. Lisa's government has already provided her a competitive advantage compared to some of her potential foreign competitors. The United States has entered into many trade agreements with other countries. A trade agreement is an agreement between countries that outlines the rules that will govern the trade between them.

Trade agreements will address such things as tariffs, import quotas and other barriers to trade, typically lowering or eliminating these barriers. Consequently, Lisa will have an easier time exporting her clothing line to countries that have a trade agreement with the United States. For example, the North American Free Trade Agreement (NAFTA) is an agreement between Canada, the United States and Mexico that makes trade between the countries much easier.

Licensing

Another option for Lisa is to explore granting licenses to foreign companies in their home markets. A licensing agreement is a contract between a licensor, who grants the license, and the licensee, the party who receives the license. The license gives the licensee the right to produce and sell the licensor's products. The license may permit the use of the licensor's brand name or trademark. Lisa could decide to allow a small start-up to use her brand name, trademark or even her designs.

Franchising

Franchising is another option for the international entrepreneur. A franchise is a type of license where a person or business is given the right to use the name, products and business model of a successful company. A franchisor is the original company that grants the franchise license to another person or business, who is known as the franchisee.

Whereas a simple license may allow a person to purchase the right to use a specific product design or process, a franchise pretty much lets the franchisee own and operate the same business as the franchisor's business. The most famous franchise is probably McDonald's. While thousands of people probably own McDonald's franchises, they all pretty much look the same, provide the same products and have the same business processes.

Joint Ventures

Lisa could consider a joint venture with a local company in each foreign market in which she wants to do business. A joint venture is a temporary business association between two or more people or companies. You can think of it as a temporary partnership for a specific purpose. The terms of the joint venture are usually outlined in a joint venture agreement.

Joint ventures usually provide benefits for all parties to the agreement. For example, Lisa may provide product and capital, while the local business entrepreneur can provide local knowledge of the customs, laws and regulations of the market. A joint venture can give Lisa a foothold in a foreign market that might otherwise be a hard nut to crack.

Outsourcing

Lisa can also use the international marketplace as an opportunity to lower costs, improve productivity and improve her bottom line. One way she can accomplish this is by outsourcing.

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