MNB3702: GLOBAL BUSINESS MANAGEMENT
1.1 LEARNING UNIT 1: STARTING INTERNATIONAL BUSINESS
1.1.1 Aim
In the context of the purpose, nature and scope of this module, the aim of this learning unit is to provide you
with an overview of international business strategy from the perspective of a small firm. This includes
entrepreneurial start-ups that take the first step of international business and engage (initially) using non-
equity modes. It explains critical concepts around non-equity modes and the internationalisation process. It
thus lays the foundation for bigger international business ventures in the form of Foreign Direct Investment,
which are discussed in the next learning unit.
1.1.2 Learning outcomes
• Explain the different options for firms to start engaging in international business
• Explain how firms develop resources for international business
• Explain how institutions influence exporting behaviour
• Critically discuss the debates on early stage internationalisation
1.1.3 Required and additional reading
You are required to study Chapter 11 in your textbook in order to achieve the learning outcomes.
Managing exports and imports:
small- and medium-sized enterprises (SMEs) Firms with fewer than 500 employees.
Challenges SME’s have when going international:
• Transaction costs are higher in international business.
• Many differences in formal and informal norms.
• Harder to assess if potential partner is trustworthy.
• Can’t simply buy up local firms to establish a foothold in foreign market because of fewer resources.
entrepreneur Leader identifying opportunities and taking decisions to exploit them.
entrepreneurial team A group of people jointly acting as entrepreneurs.
,exporter Seller of products or services to another country.
importer Buyer of goods or services from another country.
Explain the different options for firms to start engaging in international business:
Table 11.1 non-equity internationalization modes
Seller (Exporting) buyer (importing)
• Direct exports
• Indirect exports via • Direct import
domestic intermediary • Indirect import
Good
• Indirect export with • Subcontracting of
foreign distributor or manufacturing
agent
• Delivering services to
customers abroad
• Hiring consultants based abroad
Service • Attracting foreign
• Business process outsourcing
customers to your
location
• Licensor
• Franchisor • Licensee
Combination of
• Turn-key projects Franchisee
goods, services and
• Build-operate-transfer • Subcontracting
rights
contracts • R&D contracts
• Management contracts
,Table 11.2 the trader’s vocabulary
term Meaning Explanation
trade
documents
Document issued by an airline to certify receipt of merchandise. Contrary to
aWL Airway bill
B/L, it does not entail a legal title to the products.
Document issued by a courier or shipping company certifying that the
b/L Bill of lading merchandise has been delivered and paid for. Only the person holding the B/L
has the right to claim the products.
A document certifying that the importer’s bank will pay a specific sum of money
L/c Letter of credit to the exporter upon delivery of the merchandise. This reduces transaction
costs.
contract
terms
Cost, insurance
ciF The seller pays all costs of transport, including insurance and freight.
& freight
Delivered duty The seller will deliver the goods to a specified place and pay the necessary
DDP
paid customs duties.
EXW Ex works Buyer has to pick up the goods from the seller’s specified factory or warehouse.
The seller delivers the goods on board a boat or train but does not pay for the
FOb Free on board
transport.
direct exports The sale of products made by firms in their home country to customers in other countries.
, Trade intermediaries:
export intermediary A firm that performs an important ‘middleman’ function by linking sellers and buyers
overseas.
Benefits of doing exports via intermediaries:
• Economies of scale in domestic production (similar to direct exports)
• Worry free because intermediary handles cross-cultural communication, international payments etc.
• Removes information asymmetries of foreign country.
Drawbacks:
• Third parties can have hidden agendas with different objectives to exporters.
• Take advantages of exporters lack of information.
• Both access to customers and after-sales service- thus controlling the local market and shares
information selectively.
• High tech products could have difficult after sales challenges.
sales agent An intermediary receiving commission for sales.
distributor An intermediary trading on their own account.
1.1 LEARNING UNIT 1: STARTING INTERNATIONAL BUSINESS
1.1.1 Aim
In the context of the purpose, nature and scope of this module, the aim of this learning unit is to provide you
with an overview of international business strategy from the perspective of a small firm. This includes
entrepreneurial start-ups that take the first step of international business and engage (initially) using non-
equity modes. It explains critical concepts around non-equity modes and the internationalisation process. It
thus lays the foundation for bigger international business ventures in the form of Foreign Direct Investment,
which are discussed in the next learning unit.
1.1.2 Learning outcomes
• Explain the different options for firms to start engaging in international business
• Explain how firms develop resources for international business
• Explain how institutions influence exporting behaviour
• Critically discuss the debates on early stage internationalisation
1.1.3 Required and additional reading
You are required to study Chapter 11 in your textbook in order to achieve the learning outcomes.
Managing exports and imports:
small- and medium-sized enterprises (SMEs) Firms with fewer than 500 employees.
Challenges SME’s have when going international:
• Transaction costs are higher in international business.
• Many differences in formal and informal norms.
• Harder to assess if potential partner is trustworthy.
• Can’t simply buy up local firms to establish a foothold in foreign market because of fewer resources.
entrepreneur Leader identifying opportunities and taking decisions to exploit them.
entrepreneurial team A group of people jointly acting as entrepreneurs.
,exporter Seller of products or services to another country.
importer Buyer of goods or services from another country.
Explain the different options for firms to start engaging in international business:
Table 11.1 non-equity internationalization modes
Seller (Exporting) buyer (importing)
• Direct exports
• Indirect exports via • Direct import
domestic intermediary • Indirect import
Good
• Indirect export with • Subcontracting of
foreign distributor or manufacturing
agent
• Delivering services to
customers abroad
• Hiring consultants based abroad
Service • Attracting foreign
• Business process outsourcing
customers to your
location
• Licensor
• Franchisor • Licensee
Combination of
• Turn-key projects Franchisee
goods, services and
• Build-operate-transfer • Subcontracting
rights
contracts • R&D contracts
• Management contracts
,Table 11.2 the trader’s vocabulary
term Meaning Explanation
trade
documents
Document issued by an airline to certify receipt of merchandise. Contrary to
aWL Airway bill
B/L, it does not entail a legal title to the products.
Document issued by a courier or shipping company certifying that the
b/L Bill of lading merchandise has been delivered and paid for. Only the person holding the B/L
has the right to claim the products.
A document certifying that the importer’s bank will pay a specific sum of money
L/c Letter of credit to the exporter upon delivery of the merchandise. This reduces transaction
costs.
contract
terms
Cost, insurance
ciF The seller pays all costs of transport, including insurance and freight.
& freight
Delivered duty The seller will deliver the goods to a specified place and pay the necessary
DDP
paid customs duties.
EXW Ex works Buyer has to pick up the goods from the seller’s specified factory or warehouse.
The seller delivers the goods on board a boat or train but does not pay for the
FOb Free on board
transport.
direct exports The sale of products made by firms in their home country to customers in other countries.
, Trade intermediaries:
export intermediary A firm that performs an important ‘middleman’ function by linking sellers and buyers
overseas.
Benefits of doing exports via intermediaries:
• Economies of scale in domestic production (similar to direct exports)
• Worry free because intermediary handles cross-cultural communication, international payments etc.
• Removes information asymmetries of foreign country.
Drawbacks:
• Third parties can have hidden agendas with different objectives to exporters.
• Take advantages of exporters lack of information.
• Both access to customers and after-sales service- thus controlling the local market and shares
information selectively.
• High tech products could have difficult after sales challenges.
sales agent An intermediary receiving commission for sales.
distributor An intermediary trading on their own account.
