Between (6-8) in a Foreign Land or Unfavorable Investment Climate

The study of Patel et al. (2012) highlights the various drivers that push businesses to expand globally. The authors argue that desirable locations, networks and alliances, and preemptive positions are key pull factors for small businesses. However, SMEs may not have the resources to make significant international investments, making export a more attractive option. Export offers advantages such as quick business expansion, reduced investment risks, and lower labor costs. Nevertheless, exporting also poses challenges, including limited control over foreign operations and difficulties in establishing a company image internationally. Large companies often choose joint ventures or strategic partnerships as an entry mode into the international market. Joint ventures allow for risk sharing, ownership, rewards, and management among partner companies. Franchising is another popular option, where franchisors provide trademarks, formats, or products to franchisees operating in host countries. This mode offers benefits such as reduced investment risks, but also carries risks like brand damage. The choice of entry mode depends on internal and external factors, including market conditions, company resources, and competitive pressures.

Essay Question- Details about the meaning of the global business and identification of different
forms of global business should be included. Motive and advantage of the global business
approach also add effectiveness in the essay. Moreover, the strength and weakness of each form
of global business should be addressed.
The trends in business have completely changed post globalization. The companies have got
more opportunities to expand their business as the whole world has become a market place.
Although the free trade concept has melted down the borders between the countries, still there
are certain rules and regulations companies have to follow while doing global business. The
process of making an effort to have a global presence or to increase the international operations
is known as the internationalization of the business. The global business is thus defined as the
presence of operation of the company in various countries across the world, rather than just in
the home country (Hill, Cronk and Wickramasekera, 2013). It is important to consider the
broader concept of the global business as it involves the dynamics of international trade.
Now, the question is why companies prefer to go global? As per Hollensen (2007), there are
proactive and reactive reasons behind the global business. The proactive reasons involve the
need to increase the profit and due to growth goal (Hill, Cronk and Wickramasekera, 2013).
Various companies choose to go global to exploit the unique competencies or market
possibilities (Suárez-Ortega and Alamo-Vera, 2005). The motivation for growth, entrepreneurial
desire for market expansion, to get a sustainable competitive edge, forming economies of scale
and to get tax benefits are the common proactive reasons behind global expansion of the business
(Hollensen, 2007). However, some companies prefer to jump in the international market due to
threats present in a home market, which are termed as reactive reasons of global business. When
the competitors have major market share in the home market, companies want to expand their
business in new market, here the competitive pressure act as a reason behind a global business.
The saturation of the domestic market can also be the reason for international business. When the
product reaches the end of life cycle in the domestic market, the companies start looking for a
new market to sell the product (Kose, Otrok and Prasad, 2012). Some of the companies are
observed to move in the international market due to overproduction and capacity. When the firm
has capabilities to manufacture products on the huge scale but the demand in the domestic
market is low, the companies start selling the product in other countries (Hollensen, 2007). The

world trade organization is continuously predicting the increase in global business, the recent
forecast claim 2.4% expansion of global trade in 2017 (WTO, 2017). The present essay provides
insight on global business, mode of entry and different aspects related to international business
through export, joint venture, and franchise mode.
Once the firm decides to explore the international market, the company has to take a decision
about mode of entry. There are different ways to make a presence in the international market and
companies decide about the mode of entry based on the internal and external factors (Hill, Cronk
and Wickramasekera, 2013). The external factors which influence the mode of entry are political
risk, cultural distance from the foreign country (Okoro, 2012) and language diversity (Duarte and
Suarez, 2010). According to Kankaanranta and Louhiala-Salminen (2013), English is the
common communication language used in the international business. The study was done by
Kankaanranta and Louhiala-Salminen (2013) on Finnish and Swedish employees provides that
English is the language in which all the business people communicate with each other hassle
free. Thus, most of the companies now can more in the international market due to the absence
of language barrier. The companies often go for an internal analysis of the present condition of
the business and decide the mode of entry based on capabilities and strategic characteristics of
the company.
One of the common modes of entry in the international market is through export. Here, the
companies manufacture their product in the domestic branch of the company and then transfer it
to the host country for trade. The export is considered as a low-risk mode of entry as it needs
lower cost of investment as compared to the other mode of entry in the international market.
Many times companies choose to export as a way of doing business in the international market
due to lack of perspective about how to work in a foreign land or unfavorable investment climate
in the targeted host country (Sidoryuk, 2006). The study of Patel, Pieper and Hair (2012) has
shown that there are different drivers which push the business go find an international way of
expansion. The authors claimed that desirable location of the business, networks and alliances
and preemptive positions are the pull factors of the global expansion of small business. However,
the companies are not might in the position to make the huge international investment to expand
their business. Thus, in the case of small family business or small-and medium-sized companies
(SMEs), export is the most preferred mode to enter in the international market (Zellweger, Bird

and Weber, 2015). Companies get an advantage of export in terms of quick expansion of
business, no risk of huge investment and no burden of labor cost or financial commitment in the
international market. However, the export mode of international business comes with some
disadvantage as well. The companies who do export are not able to keep control over the foreign
operations and unable to make a proper ‘company image’ in the international market.
The companies which are quite stable in the domestic market and big in size often choice Joint
Venture (JVs) or Strategic partnerships as a way to do international business. In the joint venture
the companies which come together share the risk, ownership, rewards, and management of the
newly formed company. Osland, Taylor and Zou (2001), stated that in the joint venture, each
company involved making a contribution in terms of finance, technology or equipment. The
companies select the joint venture mode of entry in order to share the risk with their business
partners. Also, when a company makes a joint venture with the other partner who is active in the
international land, they can use the existing distribution channels to penetrate into the host
market. The study by Gereffi and Lee (2012) has highlighted that why it is important to consider
the supply chain management while doing international business. The authors conducted
literature survey which provides that in order to process a successful global business; supply
chain system has to be effective. The paper provides that companies should do global value chain
analysis through which the profit and risk distribution can be carried out according to the
capability of a nation that is associated with global business. The benefits of forming a joint
venture are that both the companies can grow and gain profit by contributing their best assets,
also the risk distribution boosts the confidence of both the party to explore the unknown business
territory. However, the conflicts of interests, the absence of compromise and strategic differences
in the business partners can make the joint venture effort a failure. China has established the
nation as a destination for global business with 2nd highest FDI in the country and attracting
many companies for joint ventures in the country (Aronczyk, 2013). One of the most popular and
successful joint ventures is between Sony and Ericsson. The Sony Company which is considered
as a electronics giant in Japan made a joint venture with Ericsson which is a technological expert
in the Swedish market. These two companies came together with a joint venture of ‘Sony
Ericsson’ and manufactured the technological advance and best-handled phone present in the
market (Christian, 2009).

The licensing mode of international business is no pick in the present world. Franchising has
become very popular among the food chain and retail companies. It is entry mode in which the
franchisor provides the ‘trademark’ or ‘format of businesses’ or the ‘product’ to
the franchisee which do business in the host country. The franchisor in this mode of entry in the
international business helps the franchisee to keep up the production schedules, maintain the
image of the company in the market and receive the fees along with the royalty
from franchisee (Johansson, 2006). The franchising is beneficial as the companies just have to
hand over the business to another company without doing the ground work. However, the risk of
damaging the brand name of the company due to wrong work by the franchisee does exist in this
mode of entry. The best example of successful franchising is a global expansion of KFC and
McDonald in past 3-4 years.
Finally, the global business can be summarized using few points. The global expansion is a need
of an hour. The companies should look forward to international expansion to get recognition for
their work, explore new opportunities and gain growth. The saturated domestic market also
pushes the companies to go global. The mode of entry in the international market should be a
very conscious decision as it is one of the factors which determine the success of companies in
the international market. Companies should consider the benefits and risk associated with each
mode of entries in the international business. Export, joint ventures, and franchising are the
popular ways in which companies prefer to entry in new countries for business. Based on the
internal and external factors the companies should carefully select one of these ways of doing
international business to ensure the long term success.
References
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Hill, C.W., Cronk, T. and Wickramasekera, R., 2013. Global business today. McGraw-Hill
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