A trading company buys goods in one country and sells them to buyers in another country. Trading companies handle all activities required to move products from one country to another; similar to an export agent but their role is much broader. Licensing is a trade arrangement in which one company—the licensor — allows another company—the licensee — to use its company name, products , patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty. Licensing is an attractive alternative to direct investment, especially when political stability is in doubt. Large companies, such as Coca-Cola and PepsiCo, use licensing but it is especially advantageous for small manufacturers wanting to launch a well- known brand internationally. 26
You are probably familiar with franchising such as Wendy’s, McDonald’s, H&R Block, and Holiday Inn. All are franchisers. Franchising is a form of licensing in which a company – the franchiser – agrees to provide a franchisee a name, logo, methods of operation, advertising, products and other elements associated with a franchiser’s business, in return for a financial commitment and the agreement to conduct business in accord with the franchiser’s standard of operation. Franchising allows companies to enter a marketplace without spending large sums of money or hiring or transferring personnel to handle overseas affairs. 27
Contract manufacturing occurs when a company hires a foreign company to produce a specified volume of the firm’s product to specification; the final product carries the domestic firm’s name. For example, Reebok uses Korean contract manufacturers to produce many of its shoes. Earlier, we defined outsourcing as transferring manufacturing or other tasks (such as information technology operations) to companies in countries where labor and supplies are less expensive. Many U.S. firms have outsourced tasks to India, Ireland, Mexico, and the Philippines, where there are many well-educated workers and significantly lower labor costs. Although outsourcing has become politically controversial in recent years amid concerns over jobs lost to overseas workers, foreign companies transfer tasks and jobs to U.S. companies—sometimes called insourcing —far more often than U.S. companies outsource tasks and jobs abroad. However, some firms are bringing their outsourced jobs back after concerns that foreign workers were not adding enough value. 28
We define offshoring as the relocation of business processes by a company, or subsidiary, to another country. It is different from outsourcing: the company retains control of the offshored processes. The company retains control because they are not subcontracting to another company. Companies may choose to offshore for a number of reasons, ranging from lower wages, skilled labor, or taking advantage of time zone differences in order to offer services around the clock.
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- Spring '14
- International Trade