Assignment on Modes of International Business Operations Essay
Along with exports, imports form the backbone of international trade. The higher the value of imports entering a country, compared to the value of exports, the more negative that country’s balance of trade becomes. Example: Him Distribution ( Phone & Pads) Advantage and Disadvantage of Export and Export Cost Reduction Manufacturing garments and accessories in developing countries can offer fashion-related companies opportunities to cut fixed costs through reductions in the price of production labor.
Overseas employers pay lower wages based on local standards of living, abusive practices toward their workers or both.
Vertical integration within some manufacturing firms enables them to control entire production processes from textile agriculture through finished goods, lowering costs in comparison to producers who must purchase raw materials. If your company imports its fashion merchandise from offshore firms or uses offshore production, you must verify that your trading partners offer cost savings without engaging in practices that violate human rights in field or factory.
Product Quality For a company that sends its manufacturing work overseas, monitoring a production line from afar poses challenges ranging from travel time and costs to engage barriers.
Likewise, producing goods for a distant client can complicate the steps involved in clarifying and upholding manufacturing expectations, especially if linguistic problems get in the way. The more translations and intermediaries the process involves, the larger the number of opportunities for miscommunication, mistakes and wasted time or goods.
Accurately produced samples, unambiguous specifications, local oversight and periodic facility inspections help assure a shared understanding of expectations. Production and Delivery Sending goods offshore or becoming an offshore manufacturing resource means leaning with the logistics of shipping and freight handling, the laws governing imports and exports, duties and tariffs, and the need to move products from a port of entry to a point of distribution.
For small companies that deal in equally small production volumes or quantities, the process of sending or receiving finished goods can involve freight forwarding companies, complex and time- consuming paperwork, and expensive transportation costs. Finding a trustworthy shipping vendor can simplify these procedures. Other Considerations Fashion draws on creative energies to propel sales through customer demand or trends, fads and seasonal styles. Import/export pipelines can help populate ready-to-wear versions of high-fashion looks throughout a range of retail pricing that reaches multiple spending levels.
For fashion-related companies that can build reliable relationships with overseas partners and with intermediaries who can simplify the complicated process of offshore logistics, serving as manufacturing vendors for overseas companies or sourcing production from other countries offers profitable opportunities. In a deregulated climate that has moved past many quotas and trade protection agreements, fashion production mains an industrial stepping stone for developing countries’ entrances into global trade.
Licensing A business arrangement in which one company gives another company permission to manufacture its product for a specified payment Example: Jones Group,Easy Mail Service (Air freight ) Advantages and Disadvantages of Subleasing/Licensing It’s all about control The franchiser has a direct contractual relationship with the landlord. The franchiser retains control over the premises (over the franchisee subleases/ licensee). No risk of franchisee tenant terminating or varying the lease without the consent of the Franchiser.
Franchiser can terminate tenancy and take over premises or sublease/license to a different franchisee – easier than forcing landlord/tenant to assign lease to you. Harder for the franchisee to “walk away’ from Franchise Agreement if franchiser controls the site. You are primarily liable – the landlord will expect you to comply with the tenant’s obligations under the lease. Follow up – because are the tenant, you will need to follow up to ensure the franchisee complies with the Tenant’s obligations under the lease. Director’s liability – directors of the Tenant entity need to be aware of their liability for reckless trading – i. Agreeing or allowing the business to be carried on in a manner likely to sustained risk of serious loss to the creditors (e. G. Allowing termination of a sublease). If franchisee absconds – you are left with the tenant’s obligations. Franchising A continuing relationship in which a franchiser provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing and managing in return for a monetary consideration. Franchising is a form of business by which the owner (franchiser) of a product, service or method obtains distribution through affiliated dealers
Example:KEF,Pizza Hut,Sugar Bun,Walter Much of the information you’ll need to gather in order to analyze a franchise will be acquired through the following: Interviews with the franchiser Interviews with existing franchisees Examination of the franchise’s Uniform Franchise Offering Circular (FCC) Examination of the franchise agreement Examination of the franchise’s audited financial statements An earnings-claim statement or sample unit income (profit-and-loss) statement Trade-area surveys List of current franchisees Newspaper or magazine articles about the franchise A list of the franchiser’s current assets and liabilities
Through this research, you want to find out the following: If the franchiser?as well as the current franchisees–are profitable How well- organized the franchise is If it has national adaptability Whether it has good public acceptance What its unique selling proposition is How good the financial controls of the business are If the franchise is credible What kind of exposure the franchise has received and the publics reaction to it If the cash requirements are reasonable What the integrity and commitment of the franchiser are If the franchiser has a monitoring system Which goods are proprietary and must be purchased from the franchiser What he success ratio is in the industry Advantages of a Franchise As a business structure, a franchise can certainly be an appealing option. With a number of advantages, it is often the choice of those looking to start a new business without the risks associated with going out on their own. An Established Business A franchise offers the advantage of operating under the banner of an already established business.
The ideas, the brand, the operating techniques and much more are already tried and tested and in place ready to be implemented again and again at a new location as each franchisee takes up the mantle. A Known Brand Operating under the banner of a franchise allows a franchisee to take advantage of the previously established brand of the business. This means there will (in theory) be far less work (and cost) involved in trying to establish and build on the brand of the business. It will already be known and trusted by the market and therefore should produced a steady stream of brand-loyal customers. Adopting a franchise means the advantage of the franchises trademark and the benefits of a registered trademark.
Simpler Business Financing Yet another advantage of franchises is the fact that acquiring business finance is generally easier. Investors are far more willing to invest in a business with an established network, secure brand and effective support structure. In some instances, finance may be acquired from the franchiser, making life even simpler for the new business. Business Relationships The franchisee can also take advantage of the numerous business relationships already established by the franchiser. In all likelihood, relationships with suppliers (and perhaps distributors) will already be in place and easy to manage. The advantages of already established relationships with advertisers and marketing teams may also be of benefit to the new business start-up.
Support and Security Franchises offer the advantage of a support and security system. Often franchisers will offer training schemes and support with things like the management of accounts, sales, advertising and more. These sorts of things may well be included in the price of the franchise fee. Less Likely To Fail The old myth is that 95% of businesses fail within the first 5 years – this (false) point is often championed by franchisers who are trying to encourage new people into their network. The security offered by the franchise can give the impression that the business will be less likely to fail. You’ll Make More Money? People often think that another advantage of starting a franchise is that they will make more money.
With the backing of a big name and a big brand, they think they’ll get more customers and thus more profits. In truth, this isn’t always the case. The fees that a franchisee pays to the franchiser often means a big cut in profit and due to the limits imposed by the rules of the franchise it is often less easy to invest the profits in a tax-efficient way as you could by forming a new limited company. A franchisee might benefit from higher profits in the beginning, but in the long term, they will often find that starting their own business would eave been more profitable. Disadvantages of a Franchise Just as with any business model, there are disadvantages to setting up a franchise.
Quite often people are under the mistaken belief that the advantages outweigh the disadvantages, but this is because they are commonly blinded by the potential risks of starting a new business from scratch. No Control The first and most significant disadvantage of a franchise is the fact that the franchisee has no control of the business or how it is run (or very limited control). The rules of the business are already established and part of the franchise agreement. How the business operates is set out by the brand of the franchise and it is very rare that a new franchisee will be able to operate outside of these borders. Tied To Suppliers Operating a business, you’d probably like to keep costs down. Finding the cheapest suppliers to minimizes your overheads and maximize your profits.
But being part of a franchise means you’ll be required to use the franchise supply network. You will be tied to the suppliers dictated to you by the franchise agreement. The obviously disadvantage for a franchisee here is not only the lack of control, but the reduction in potential profits. Risks From Others Another serious disadvantage of a franchise is the risk that others might damage the reputation of your business. As a franchisee you would rely on the brand of the business to bring you customers. If other franchisees did something to damage the reputation of the brand, this would have a knock on effect on your own business. Potentially this could damage your sales and overall profits.
Franchise Costs This is a big disadvantage for most franchises – the costs. A franchisee will often be expected to pay an initial cost to buy into the franchise agreement. As part of he continuing franchise agreement, they will then be paying on-going fees for the support and training provided by the franchiser. In the long term, this means a restriction to the amount of profit (and money in your pocket) that you can make as a franchisee. Completing a company formation to start your own limited company will often be the better choice, as there will be fewer restrictions on how you operate your business and more potential avenues for profit, without the overheads.
Contract manufacturer A contract manufacturer (“CM”) is a manufacturer that contracts with a firm for components or products. It is a form of outsourcing. In the food business a contract manufacturer is called caperer. In a contract manufacturing business model, the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the parts based on processes, labor, tooling, and material costs. Typically a hiring firm will request quotes from multiple SMS. After the bidding process is complete, the hiring firm will select a source, and then, for the agreed-upon price, the CM acts as the hiring firm’s factory, producing and shipping units of the design on behalf of the hiring firm. Example: Unlived Benefits
Cost Savings – Companies save on their cost of capital because they do not have to pay for a facility and the equipment needed for production. They can also save on labor costs such as wages, training and benefits. Some companies may look to contract manufacture in low-cost countries, such as India, to benefit from the low cost of labor. [l] Mutual Benefit to Contract Site – A contract between the manufacturer and the company it’s producing for may last several years. The manufacturer will know that it will have a steady flow of business until then.  Advanced Skills – Companies can take advantage of skills that they may to possess, but the contract manufacturer does.
The contract manufacturer is likely to have relationships formed with raw material suppliers or methods of efficiency within their production .  Quality – Contract Manufacturers are likely to have their own methods of quality control in place that helps them to detect counterfeit or damaged materials early. Focus- Companies can focus on their core competencies better if they can hand off base production to an outside company.  Economies of Scale – Contract Manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring raw materials by benefiting from economies of scale.
The more units there are in one shipment, the less expensive the price per unit will be Risks Lack of Control – When a company signs the contract allowing another company to produce their product, they lose a significant amount of control over that product. They can only suggest strategies to the contract manufacturer; they cannot force them to implement them. Relationships – It is imperative that the company forms a good relationship with its contract manufacturer. The company just keep in mind that the manufacturer has other customers. They cannot force them to produce their product before a competitor’s. Most companies mitigate this risk by working cohesively with the manufacturer and awarding good performance with additional business.
Quality concerns – When entering into a contract, companies must make sure that the manufacturer’s standards are congruent with their own. They should evaluate the methods in which they test products to make sure they are of good quality. The company has to rely on the contract manufacturer for having good suppliers that also meet these standards. Intellectual Property Loss – When entering into a contract, a company is divulging their formulas or technologies. This is why it is important that a company not give out any of its core competencies to contract manufacturers. It is very easy for an employee to download such information from a computer and steal it.
The recent increase in intellectual property loss has corporate and government officials struggling to improve security. Usually, it comes down to the integrity of the employees. Outsourcing Risks – Although outsourcing to low- cost countries has become very popular, it does bring along risks such as engage barriers, cultural differences and long lead times.  This could make the management of contract manufacturers more difficult, expensive and time- consuming. Capacity Constraints – If a company does not make up a large portion of the contract manufacturer’s business, they may find that they are De- prioritize over other companies during high production periods. Thus, they may not obtain the product they need when they need it.
Loss of Flexibility and Responsiveness – Without direct control over the manufacturing facility, the company will lose some of its ability to respond to disruptions in the supply chain. It may also hurt their ability to respond to demand fluctuations, risking their customer service levels. Protectionism In an international context, establishing a foreign subsidiary as a contract manufacturer can have favorable tax benefits for the parent company, allowing them to reduce overall tax liabilities and increase profits, depending upon the activities of the contract manufacturer. This is a form of protectionism. The pad and phone, which are products from Apple Inc. , are manufactured in China by Foxing.
Hence, Foxing is a contract manufacturer and Apple benefits from a lower cost of manufacturing devices. CO]Imitate an original design manufacturer (EDM) company which designs and manufactures the electronic point of sale system for the newly formed company, Toshiba Global Commerce Solutions (TAGS). Management contract A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise that performs the necessary managerial functions in return for a fee. Management contracts involve not just selling a method of doing things (as with franchising or licensing) but involve actually doing them.
A management contract can involve a wide angel of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training. In Asia, many hotels operate under management contract arrangements, as they can more easily obtain economies of scale, a global reservation systems, brand recognition etc. It is not unusual for contracts to be signed for 30 years, and having a fee as high as 3. 5% of total revenues and 6-10% of gross operating profit. Authenticator International Corporation operates solely on management contracts. Example: Thai Airlines and Chitchatting Airport, Pad Oil, Unlived Overview
Hotel management contract is a written agreement between the owner and the operator of the hotel. The base of this relationship is that the operator handles the day to day working of the hotel and takes up all the additional responsibilities such as maintenance, front office, housekeeping, handling food and beverages and sale. The management contract company has the power to recruit and fire the employees. The owner will authorize and pay for the capital project of the hotel but the responsibility of it is assigned to the operator. The hotel management contracts can be lengthy and complicated. The negotiation of his agreement focusing the power of the owner and the rights of the operator.
The initial draft is offered by the prospective operator. It usually is in favor of the operator so that operator can seek a long term contract. It doesn’t want any interference from the owner but at the same time wants continuous supply of investment for the expansion and growth of the project.  Purpose of this contract The main purpose of this agreement is that the investors of some hotels lack the skill and knowledge of operating them. They are mere businessman with good financial status. They lack experience or expertise in such field. Therefore they need the assistance of such management companies who can get the output of their investment. 1 1] Major Elements of the Contract] – Terms and conditions of the agreement – Length and durability of the agreement – Procedure for early termination by either party of the contract – Insurance polios of the hotel and its fixed assets – Management company ownership or investment required – Contract terms in the event of sale of the hotel – Incentive fees earned or penalties assessed related to operating performance – The exclusivity of the management company – Status of the employees ADVANTAGES AND DISADVANTAGES OF MANAGEMENT CONTRACT Responsibility If you own more than one business, you may benefit from hiring a contract management company to handle the day-to-day details of your company, leaving you time to focus on the big picture.
Responsibilities you can turn over to the management team include recruiting, hiring and training your staff. Terminations also can be turned over to the outsiders. Instead of relying on an in-house manager, you’ll be bringing on the expertise of an entire management team that usually brings to the table experience in a number of management areas, such as employee tax codes, marketing and accounting. Privacy You do give up some of your privacy and may enter into confidentiality disputes when you hand over management of your company to a third party. Agreements made with vendors necessarily become open to the managers for a number of uses, ranging from ordering to price negotiations and inventory control.
Employee records, including pay, insurance and personal information, become part of the management team’s responsibility. Your own financial information also becomes accessible to the outsiders, leaving you potentially vulnerable to fraud, ethical breaches and public exposure. Continuity While managers may come and go, leaving you without a consistent team in place to run your operations, a management contract firm can change the players without affecting the continuity of your business model. The contract company may experience employee turnover, but it won’t affect your business as much because of the contract you have in place that specifies how your business is to be managed.
The contractor must maintain a level of accuracy and efficiency as spelled out in your contract that usually is backed up by an experienced home office. Conflicts It can be difficult to foresee the number of conflicts that could occur with an outside contractor. For example, you may hire a management company to run your business and it in turn takes on the management of one of your suppliers. Price changes, discounts and forecasts could be compromised. Many contract management companies use a home office to handle back office duties, such as payroll and accounting. Conflicts could ensue if the company manages competitors or clients of your business. Make sure your contract provides a legal way out if you find such conflicts developed.
Turnkey A turnkey or a turnkey project (also spelled turn-key) is a type of project that is instructed so that it could be sold to any buyer as a completed product. This is contrasted with build to order, where the constructor builds an item to the buyer’s exact specifications, or when an incomplete product is sold with the assumption that the buyer would complete it. A turnkey project or contract as described by Duncan Wallace (1984) is:[ a contract where the essential design emanates from, or is supplied by, the Contractor and not the owner, so that the legal responsibility for the design, suitability and performance of the work after completion will be made to rest with the contractor ‘Turnkey’ is treated s merely signifying the design responsibility as the contractor’s. Example: Bangladesh Gobo.
And Petrol Bangle Common usage Turnkey refers to something that is ready for immediate use, generally used in the sale or supply of goods or services. Turnkey is often used to describe a home built on the developer’s land with the developer’s financing ready for the customer to move in. If a contractor builds a “turnkey home” they frame the structure and finish the interior. Everything is completed down to the cabinets and carpet. “Turnkey” is commonly used in the construction industry, or instance, in which it refers to the bundling of materials and labor by sub contractors. ‘Turnkey’ is also commonly used in motorists to describe a car being sold with traveling (engine, transmission, etc. To contrast with a vehicle sold without one so that other components may be re-used. Similarly, this term may be used to advertise the sale of an established business, including all the equipment necessary to run it, or by a business-to-business supplier providing complete packages for business start-up. An example would be the creation of a “turnkey hospital” which would be building a complete medical centre with installed medical equipment. Specific usage The term turnkey is also often used in the technology industry, most commonly to describe pre-built computer “packages” in which everything needed to perform a certain type of task (e. G. Audio editing) is put together by the supplier and sold as a bundle.
This often includes a computer with pre-installed software, various types of hardware, and accessories. Such packages are commonly called appliances. A website with a ready-made solutions and some configurations is called a turnkey website. Turnkey products are synonymous to “off-the-shelf’ solutions and not customized. In real estate, turnkey is fined as delivering a location that is ready for occupation. The turnkey process includes all of the steps involved to open a location including the site selection, negotiations, space planning, construction coordination and complete installation. Turnkey real estate also refers to a type of investment.
This process includes the purchase, construction or rehab (of an existing site), the leasing out to tenants, and then the sale of the property to a buyer. The buyer is purchasing an investment property which is producing a stream of income. Advantages and Disadvantages of Turnkey Control Are you talking about real estate? The term turnkey refers to the state in which a home is sold. When it is sold ‘turnkey” it is ready to live in w/o moving anything in. It is not only furnished, but has dishes, toilet paper, soap, etc. Kind of like a hotel room where everything you need to live is provided (except food). All you have to do is turn the key to open the door, and live there.
The advantages are: -No moving expenses -Ready to live in, no remodeling -easy for people just starting with nothing, or people wanting a fresh start Perfect for those who are moving long distances, or very quickly -Great for short stays (move around a lot, military) The disadvantages are: -May not be your style -You do not know the history of the furniture or how long things have been there -Little room for personal items -everything stays when you move out again, so you still have nothing to take with you. So, if this is what you were referring to, I hope this helps. If not, please edit with more details and I’ll go from there.