Sole Proprietorship vs. Corporation

Sole Proprietorship

• It is a business owned by one person
• It requires three elements to start: a product or service to sell, money for start-up expenses, and the ability to manage business activities
• Advantages include ease of starting, freedom in decision-making, profit retention, and pride of ownership
• Disadvantages include limited funding sources, long hours, unlimited risks, and limited business life

Corporation

• In the United States corporations account for 90% of sales, despite sole proprietorships being more common
• Corporations raise money by selling stock, making shareholders part owners
• A stock certificate represents ownership in a corporation
• Stockholders can earn dividends and vote on company policies
• They also indirectly control the company management
• Each share typically grants one vote to elect the board of directors
• The board of directors then hires managers to run the company
• Corporations act as a legal entity for the owners
• Advantages for corporations are more sources of funds, fixed financial liability of owners, specialized management, and unlimited life of the company
• Disadvantages for corporations are a difficult creation process, owners have limited control and double taxation

Other Forms of Organization for Internationalization

• A municipal corporation is an incorporated town or city providing services for citizens rather than profit, that may have partnerships with other cities
• Nonprofit corporations exist to provide a service and are not concerned with making a profit
• Churches, schools, hospitals and charities fall into the nonprofit category
• A cooperative is a business owned by its members and operated for their benefit, often formed by a community or place of worship

Multinational Companies

• MNCs operate in multiple countries and are also known as global, transnational, or worldwide companies
• MNCs have divisions or separate companies in one or more host countries and a parent company in a home country

Characteristics of Multinational Companies

• A worldwide market view entails seeking product ideas through foreign subsidiaries and obtaining raw materials on a worldwide basis
• Companies standardize products by looking for similarities among markets
• There is culturally-sensitive hiring by using constant hiring policies throughout the world but are also culturally sensitive to host countries to recruit managers internationally
• They have an international and local perspective through distribution, production, pricing, and promotion with both an international and local outlook

International Business Involvement

• There are eight main ways for companies to get involved in international business
• As steps are ascended firms gain more control and risk
• A company has more direct control over its business dealings with a joint venture than with indirect exporting

Indirect Exporting

• Indirect exporting has minimum costs and risks
• It occurs when a company sells its products in a foreign market, without any special activity for that purpose
• The company finds a demand for its service or product without really trying
• It's sometimes known as casual or accidental exporting by utilizing agents and brokers to connect sellers and buyers in different countries

Direct Exporting

• The organization creates an exporting department when sales increase
• The company actively seeks and conducts exporting
• A manager controls company plans

Management Contracting

• An ability to find business opportunities, coordinate resources, solve problems, and make productive decisions is a skill that will be in demand
• The ability of managers to assist companies in developing countries are valuable exports for industrialized countries
• A low-risk management contract is when a company sells only its management skills
• With a management contract, managers can usually leave a country quickly if the business environment becomes too risky
• Contract manufacturing involves a variation of this type of agreement

Licensing

• A company can allow a foreign company to use a procedure it owns to produce items in other countries without being actively involved
• Licensing sells the right to use some intangible property, can be production process, trademark, or brand name for a fee or royalty
• A licensing agreement provides a royalty to the company granting the license in return for the right to use the process, brand name, or trademark
• The potential financial return is low due to licensing having a low monetary investment, however, the risk is also low

Franchising

• The right to use a company name for a fee
• Contracts typically outline that other countries set up business that looks and operates like the parent company
• The company gaining the franchises will usually adapt various business elements
• Marketing elements must meet cultural and legal requirements
• Franchising and licensing are similar as both involve a royalty payment for the right to use a process or famous company name.
• Licensing usually involves a manufacturing process, while franchising involves selling a product or service

Joint Ventures

• Business activities with higher risks can return greater profits
• Foreign direct investments and joint ventures give companies more direct control over its business operations
• A joint venture, one type of international partnership is an agreement between two or more companies from different countries to share a business project
• Benefits of a joint venture; sharing raw materials, shipping facilities, management, activities, and production facilities
• Downsides of collaborative operations; sharing profits and having less control
• Arrangements share costs, risks, and profits in any combination

Foreign Direct Investment

• Companies who are more involved internationally may make a direct investment in a foreign country
• Foreign direct investment (FDI) is when a company buys land or other resources in another country
• Real estate and existing companies are common purchases
• Foreign direct investment can have a wholly-owned subsidiary, which is an independent company owned by a parent company
• Subsidiaries are frequently wholly-owned by multinational companies and result from foreign direct investments
• To prevent economic control of one country by another, a nation may restrict how much of its land or factories may be sold to foreign owners