International Business Expansion Methods - Lesson | Study.com (2024)

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 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.

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.

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.

Outsourcing involves contracting certain business activities to external companies who can perform the activities more cheaply. Many of these outsourcing companies are located in foreign markets where labor laws and other regulations are more lenient than in the United States. The company can then focus on those activities in which it has a competitive advantage. For example, Lisa may outsource the actual production of her clothing lines to factories in Indonesia but do the research and marketing in-house.

Another option for Lisa is to move her operations to another country. While outsourcing involves contracting out certain business activities to other companies who are often located in foreign countries, offshoring involves moving part or all of your business to a foreign country and conducting business there. For example, rather than contracting with a firm in Indonesia to produce her clothing line, Lisa may decide to move her factory there instead and do the manufacturing herself.

Let's review what we've learned. The international marketplace offers opportunities for a growing business. A business can expand its business into foreign markets with the aid of international trade agreements and through tools, such as licensing, franchising and joint ventures. A business may also be able to improve its bottom line by outsourcing some activities to overseas firms or by offshoring some or all of its own activities to foreign countries.

Following this lesson, you should have the ability to: