1.

FRANCHISE FEVER

Franchise is a license to trade using a brand name. This is mode of entry a foreign market. This
form of business is gaining importance. One of the best-known franchisers is McDonald's, it
has 31.000 restaurants and has a turnover of more than $23 billion. This system works as a
group of enterprises with systematic operations which are planned, operated and controled by a
franchiser. There are 3 main characteristics of franchise business:

1.The franchiser owns a trademark or service mark and licenses it to franchisees in return for
royalty payments.

2. The franchisee is required to pay for the right to be a part of the system. This initial fee is
only a small part of the total amount that franchisees invest when they sign a contract.
Start-up costs include rental and rental of equipment and fixtures.

3. The franchiser provides its franchisees with marketing and operations system for doing
business. McDonald's requires franchisees to attend its "Hamburger University" for 3 weeks
to learn how to manage the business. The franchisees must also adhere to certain procedures
in buying materials.
The reasons considered before buying a franchise are:

High start-up costs and royalty fees. They can put a serious limitation on a franchisee's pay,

Lofty raw malarial costs. Franchisers insist that their franchisees buy raw materials from
them or from their supplier. It means that they receive rebates, so the prices are often
much higher.

Lack of financing. Most franchises don't provide financing. This means that the franchisee
will have a small business loan.

Lack of territory control. Most franchisers will limit the number of stores in a given area
because of market saturation and diminishing (=low) returns, but many franchisers will
still try to have many new stores.

The benefits for the franchiser are: their ability to cover a territory to very short time,
motivation and hard work of the employees who are entrepreneurs, the franchisees' familiarity
with local communities and conditions.

Finally, it isn't sure if franchisees will make a profit. Franchisees need skills and hard effort, but
it can pay off.
 2. Foreign Direct Investment

Foreign direct investment (FDI) happens when a firm invests directly in facilities to
produce or market a product in a foreign country. An FDI relationship is made up of a
parent enterprise and a foreign affiliate which together form a transnational corporation. In
FDI the parent enterprise owns more than 10% of the ordinary shares of the foreign
affiliate. After the Second World War the global FDI was dominated by the United States
because most of the world was recovering from the destruction caused by the war. Now FDI
is a global phenomenon and FDI stocks account for more than 20% of global GDP.
Nowadays the most favoured destinations for FDI are China and India.

FDI has two main forms:

Green-field investment, which involves direct investment into new facilities or the
expansion of the existing facilities. This type of investment is the primary aim of the host
country because it creates new production capacity and jobs, allows the transfer of
technology and know-how and links the local production to the global marketplace. The
downside of green-field investments is:
that they often crowd out local industry because multinationals are able to
produce goods more cheaply,
and that profits from the production don't return to local economy, but into the
multinationals home economy.
Mergers and Acquisitions occur when existing assets are transferred from local firms to
foreign firms.
When assets and operation of firms from different countries are combined to form a new legal
identity, we talk about a cross-border merger.
Cross-border acquisitions occur when the control of assets and operations is transferred
from a local to a foreign company. In this process the local company becomes an affiliate
of the foreign company.

Unlike green-field investments, acquisitions provide no long-term benefits to the local

economy. The majority of cross-border investment is in the form of mergers and acquisitions.

Three different types of FDI can be distinguished. As a result there are three types of
multinational companies.

Horizontal FDI is investment in the same industry abroad as a firm operates at home (as
General Motors, Ford, BMW and so on).

Vertical FDI occurs when a company locates different stages in the production and
marketing of single or group of products in different countries, it takes two forms:

Backward vertical FDI, where an industry abroad provides input for a firm's
domestic production process. This is common in extractive industries (i.e. oil
extraction, copper mining). The aim is to provide inputs for a firms downstream
operations (i.e. oil refining). Examples are Royal Dutch /Shell and British
Petroleum.
 Forward vertical FDI, in which an industry abroad sells the outputs of a firm's
domestic production. It is less common than backward vertical FDI. When
Volkswagen entered the U.S. market, it acquired a large number of dealers rather
than distributed its cars through independent U.S. dealers.

Conglomerate FDI occurs when a company acquires a controlling interest, or it

merges with another company from a different country which produces completely
different products. In this way it is able to diversify. Examples are Mitsubishi and ITT
(US).
3. MERGERS, ACQUISITIONS AND TAKEOVERS
Mergers and acquisitions (M&A) usually occur in a friendly way when officers of both companies
come together to ensure a successful joining between all the parties involved through a due
diligence process.

On other occasions, acquisitions can happen through hostile takeover through absorbing the
majority of outstanding shares (=the shares a company possesses) in an open stock market.

A merger happens when 2 firms agree to continue as a single new company. For example, both
Daimler-Benz and Chrysler merged and created DaimlerChrysler.

The difference between merger and acquisition is in the way it is financed.

Merger: A stock swap involves issuing stock to exchange for the shares of the other company.
Acquisition: A cash deal involves buying a target company with cash.

In some cases, a company may acquire another company by issuing junk bonds to raise funds.

Advantages for shareholders in this kind of business are:

Economies of scale: The combined company can often reduce duplicative departments or
operations. In this way they lower the costs of the company and at the same time increase profit
Increased revenue due to the lack of competition: company will get rid of a major competitor
and increase its power to set prices.
Synergy - better use of complementary resources
Taxation - a profitable company can buy a loss maker to exploit the target's tax shield.

Disadvantages for shareholders are:

Overestimating the value of the target company. Surveys show that many parent companies
often overestimate the value of their target company due the lack of due diligence (=when a
company thinks of buying another, it looks carefully at its accounts, as it must do bylaw before the
deal can be agreed).

Diseconomies of scale - when a firm becomes too large which leads to higher costs. A larger
organization is harder to monitor.

Managers hubris: the management of the acquiring firm is often too optimistic about the value
that can be created through an acquisition, so it is willing to pay a significant premium over a target
firm's market capitalization.

Job loss - massive lay-offs.

Monopoly - a merger can lead to a monopoly if there are not many competitors in the market
giving the parent company the power to control the price.
4. World Trade Organization

WTO deals with the rules of trade at a global level. It is an organization for liberalizing trade. It is a
place for settling trade disputes.
The WTO agreements are long and complex. Multilateral trading system is based on simple
principles such as: trade without discrimination, freer trade, promoting fair competition, and
encouraging development and economic reform.
Trade without discrimination can be split into two additional principles:
1. MFN (Most-favoured Nation) which means treating other people equally. Under WTO
agreements, countries cannot discriminate between their trading partners. This means doing the
same thing for all WTO members. MOST-FAVOURED sounds like a contradiction because It
sounds like a special treatment but in the WTO it means non-discrimination - treating almost all
equally. It is the first article of GATT (General Agreement on Tariffs and Trade). MFN is also a
priority in GATS (General Agreement on Trade in Services, and on TRIPS (Trade-Related
Aspects of Intellectual Property Rights). These three agreements cover all three main areas of
WTO trade. Some exceptions are allowed! For example, countries can set up a free trade agreement
that refers only to goods that are traded within the group, and discriminating goods from outside.

That means every time a country lowers trade barrier or opens up a market, it has to do for the same
goods or services from all its trading partners.

2. National treatment which means treating foreigners and locals equally. This principle of
national treatment is found in the three main WTO agreements (GATT, GATS and TRIPS).
Charging customs duty on an import is not a violation of National Treatment because this principle
starts after a product/service enters a market.

The WTO agreement on TRIPS (1986-94, Uruguay) introduced intellectual property rules into the
multilateral trading system, because ideas and knowledge are an important part of trade. Creators
have right to negotiate payment if others use their inventions/innovations... These are called
"intellectual property rights". Their forms are: books, paintings, and films are copyrights,
inventions can be patented; brand names and product logos can be registered as trademarks, and so
on.

Types of intellectual property are: copyright, trademarks, industrial designs, patents, and
undisclosed information, including trade secrets.
The WTOs TRIPS Agreement is the way of changing how these rights are protected around the
world. It is an attempt to make them be common international rules. It is the minimum level of
protection that each government has to give to intellectual property of WTO members. So there is a
balance between the long term benefits and possible short term costs.
5. Free trade vs. Protectionism

International trade is the exchange of goods and services across international territories. Increasing
international trade is the primary meaning of "globalization", and a healthy economy depends on
the country's ability to buy and sell goods in markets worldwide.

Economists are in favour of free trade, according to the principle of absolute advantage: if all
countries produce and exchange goods and services in which they have the highest
productivity, resources are put to their best use and everyone is richer as a result.

Advantages of protectionism are:

The "cheap foreign labour" argument. There are arguments that the economy must be protected
from imports which are produced with cheap (=sweated) labour. Although this may be true it
does not deny the benefits to free trade. Dumping is also related to the cheap foreign labour
argument imposing tariffs is a protection against dumping.

Buy local. Another argument for protectionism is that buying goods which are locally made is one
way of supporting the economy and promoting growth. Many major MNCs do not support these
tactics. A major problem with this approach is that it is difficult to determine which goods are
really made locally.

Infant industries. If a company is setting an industry it may be necessary to protect it from

competition until it reaches levels of production and costs which will allow it to compete with
established industries. It is a process of buying time.

Retaliation. Another reason for the growth of protectionism is to retaliate against countries which
don't allow equal market opportunities for products from other countries. For example, many
Americans think that the American market is quite open to Japanese goods while Japanese
market is closed to American goods.

Disadvantages of protectionism are:

Free trade pays off. Most economists support free trade because they realize that benefits are much
greater than the loss from lowering trade barriers and allowing nations to compete. This means
that become potential markets for the goods of other nations. But this doesnt mean that there
would be no tariffs or quotas. Trade barriers should be kept to a minimum and nations should be
allowed to compete on the basis of their strengths.

Protectionism leaves countries weak. If a country has high trade barriers, it allows companies to
dominate the market so companies dont invest in innovations. Protectionism makes companies
unable to keep up with the latest research and development. So, these domestic companies have
virtually no competition, so they lose their ability to create a market outside the country. This
makes their products outmoded. As a result, local companies often go out of business when
markets eventually open up.
6. Regional Economic Integration

By regional economic integration we mean that agreements among countries in a geographic region
to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods,
services and factors of production between each other. There are 3 types of regional integration
arrangements (RIA):
A free trade area (FTA) - an RIA formed by removing tariffs among FTA members, without
changing tariffs on Imports from non-members;
A customs union (CU) - members' tariff structures on the extra-CU are equal;
A common market (CM) - which permits free movement of factors as well as goods
and services between states.

Between 1948 and 1994 there were 124 regional trade agreements made. Regional economic
integration is very successful in Europe. The EU is a single market with more than 500 million
consumers. The member-states of the EU have launched a single currency, and they are discussing
including other European states.

There are similar moves toward regional integration in other parts of the world.

Canada, Mexico and the United States have implemented the North American Free Trade
Agreement (NAFTA).
Argentina, Brazil, Uruguay, and Paraguay are starting to reduce barriers to trade. It is known as
MERCOSUR, and is a move towards South American Free Trade Area (SAFTA).
21 Pacific Rim countries, including the NAFTA member states, Japan, and China, have been
discussing a possible pan-Pacific free trade with the help of the Asia Pacific Economic
Cooperation forum (APEC).
Closer integration of economies is seen as first step in creating a larger regional market for trade
and investment. This is good for efficiency, productivity gain, and competitiveness. This is not only
good for lowering border barriers, but also for reducing other costs and risks of trade and
investment. Bilateral trading arrangements encourage a shift towards greater market openness.
These agreements can reduce the risk of reversion towards protectionism, supporting further
structural adjustment.
This trend raises fear that in the future the world will be divided into regional trade blocs which
compete with each other. In this scenario, free trade will exist within blocs but each bloc will
protect its market with high tariffs. The presence of the EU and NAFTA turns into economic
fortresses" that shut out foreign producers with high tariff barriers. If this really happens the
decline in trade might be greater than the benefits of free trade within blocks.
There are many facts in favour of regional free trade agreements, but there is a certain concern that
the benefits of regional integration have been overestimated, and that the costs have been ignored.
7. The Impact of the Euro on Financial Markets in the EU

Globalization and European integration are the two factors that have the greatest influence on the
current developments in the European financial markets. Several important changes happened in
1999 that led to a much faster integration of the European financial markets.
These were:
The foreign exchange and the interbank markets switched to the euro.
A single monetary policy was established.
A unified payment system was introduced providing real-time gross settlement transfers in EU
area.
Government debt was re-denominated in euro.

However, prudential and fiscal regulations have remained unchanged. This shows that the
integration of the euro financial markets has to be seen as an evolutionary process with a number of
great changes such is the introduction of the Euro.

In 1999 eleven countries united under the same currency and formed the European Monetary
Union. This was the first time after the Roman Empire that the majority of Europe shared an
identical, fixed currency.

Europeans decided to introduce a single currency in the EU for many reasons. They believe that
firms and individuals will get significant savings from having one currency. These savings come
from lower exchange and hedging costs. Also comparing prices across Europe is easier. Because of
lower prices producers are forced to reduce their production costs. Another reason is the developing
of pan-European capital market.
The following changes occurred in financial markets since the introduction of the Euro:
A rapid integration of the national money markets into a single money market
The fast growth of the euro-denominated bonds and derivates.
Faster growth of pan- European pension funds
The securities infrastructure which should increase competition and make European markets
more resilient.

Not all EU members are equal because of some disadvantages. One of them is that national
authorities have lost control over monetary policy. It is important to make sure that the EUs
monetary policy is well managed. The Maastricht Treaty proposed establishing an independent
European Central Bank, which will be similar to the US Federal Reserve, in order to manage
price stability. Another is that EU is not an optimal currency area because many of European
economies are not similar (Finland and Portugal are very different).
8. The use and abuse of taxation

Management of money raised from taxes is called PUBLIC FINANCE. Such money is spent on
public services which is the primary function of taxation. If it is spent more than it is raised then the
government has to borrow money. There are two categories of taxes:

1. direct taxes and

2. indirect taxes.

Direct taxes are raised from individual income. Workers in full-time ]ob pay taxes as Pay as You
Earn" (PAYE) system. A capital gains tax (CGT) is a tax from capital gains, from sale of stocks,
bonds, precious metals etc. CGT is at lower rate than income tax. A capital transfer tax (=death
duty/inheritance or estate tax) is raised from inherited money. Companies pay corporation tax.
Business profits are taxed twice: companies pay profit tax and shareholders pay income tax.
Companies and their workers have to pay national insurance (in Britain), and the money is used to
finance unemployment pay, sick pay and so on.

Indirect taxes are raised from production or sale of goods and services. Companies pay VAT
(value-added tax). The total amount of taxes is added to final product price. European Union
Value Added Tax (EU VAT) is the value-added tax from EU members, and this tax is obligatory.
Governments also charge excise taxes (=excise duties or SIN TAXES) additional sales taxes on
tobacco products, alcoholic drinks and petrol. This tax differs from customs duties or customs
tariffs which are charges on imported goods, and this tax is called border tax.

Income tax for individuals is progressive: people with higher incomes pay higher rate of tax. The
problem with this tax is the marginal rate (=a tax on any additional income) is always high.
Indirect taxes are actually regressive!!! This is because poorer people need to spend a larger
proportion of their income on consumption than the rich. Indirect taxes (=sales tax and VAT) are
called proportional taxes, they have a fixed rate!

If taxes are so high people are made to cheat! Some employers give their staff a lot of perks in
order to reduce income tax liability. Legal ways of avoiding tax like this one is called loopholes.
Using legal methods to minimize taxes is called tax avoidance. Tax shelters are used for
postponing the taxes through life insurance policies, pension plans etc. Donations to charities are
called tax-deductible.

Using legal methods for not declaring incomes or declaring them inaccurately is called tax
evasion. Multinational companies often register their head offices in tax havens (=small
countries where income taxes for foreign companies are low), for example Monaco, the Cayman
Islands, and the Bahamas.
9. Human Resource Management (HRM)

HRM are formal systems invented for the management of employees.

Until recently this department was at lower level of corporate hierarchy but it has recently been
understood as a very important department for bringing to company work force. Even small
businesses start having this department although they do not have the same volume of workers as
large organizations, but they have the same personnel management problems that can have a great
impact on business health.

Human resource management responsibilities can be divided into: individual, organizational

and career areas.

Individual area helps workers indentify their strengths and weaknesses; correct their
shortcomings; and make their best contribution to the company. This is done through a variety of
activities such as performance reviews, trainings, and testing.

Organizational development focuses on fostering a successful system that maximizes human

resources.

Career development matches individuals with the most suitable jobs and career paths.

The primary responsibilities related to human resource management include:

Job analysis determines the nature and responsibilities of various positions. Staffing is the process
of managingthe flow of staff into, within (through transfers and promotions), and out of an
organization.
Organization, using, and maintenance of work force making maximum use of human
resources and implementing systems of communication that help operating. Other
responsibilities are safety and health of workers. Maintenance tasks are: working with labour
unions, handling complaints of misconduct like theft or sexual harassment.
Performance appraisal is assessing employee job performance and giving feedback about both
positive and negative aspects of their performance.
Reward system is important for giving workers rewards for past achievements and encouraging
them in high performance in the future.
Employee development and training are responsible for researching an organization's training
needs, and for starting and assessing employee development programs.
Meaningful contributions to business processes are more and more recognized as within the
purview of active human resource management practices.

The reason for HRM becoming so important is new technologies (i.e. in the sense of electronic
communication, giving and obtaining information). Telecommuting, for example, has become
a very popular option for many people. Many companies have already changed or adjusted
their traditional hierarchy in favour of HRM. Another reason is a fast market globalization.
10. Customer relationship management (CRM)

It is a strategy made to reduce costs and increase profitability by making stronger customer
loyalty (=customer allegiance, customer fidelity). It is getting to know your customers.
Dealing with them as individuals is the ultimate goal something like one-to-one marketing.
For example, Dell puts together its products according to the specifications of individual
customers in a process of mass customisation.

CRM is a strategy used to learn more about customers needs and behavior in order to develop
stronger relationships with them. If customer relationships are the heart of business success,
then CRM is the valve hat pumps a companys life blood.

It lasts more to get a new customer than to keep one. The objective of CRM is to create
customer loyalty, and reduce the number of customers who stop using services. Customer
attrition (=customer churn, customer turnover, customer defection) is a term used to describe
loss of clients or customers. It must be reduced as much as possible, but a company can learn
from mistakes by asking them why they stop using services. This method is called customer
analysis.

Until a person does not buy more than twice or three times, they should not be related as
CUSTOMERS but just as PROSPECTS, because it is not their custom to buy your product or
service, and what is the most important you will not make any profit from their buying.
Customer loyalty and profitability can be changing thing so companies have to know where
their customers are on the loyalty ladder. This ladder is the heart of creating a success and
it is a key to getting referrals (=recommendations) - the most powerful and cost-effective
form of marketing, word of mouth.

The ladder has seven rungs:

SUSPECTS: anyone Who might buy from you. Your target market.

PROSPECTS: anyone who at least knows about your business because of your marketing.
You have to get and know every contact you make with prospects because it is the key for
starting to build business. So a comprehensive database is invaluable.

SHOPPERS: persons who bought once from you. They are not yet customers. Companies at
this point very often lose customers because of indifference (-ravnodusnost) to shoppers.

CUSTOMERS: if a shopper returns and buys again and again they become customers. They
are lifeblood of every successful company.

MEMBERS: making our customers feel to belong to a club is the next stage. They are invited
to exclusive events. They are given cards entitling them as Members only". This feeling of
exclusivity helps making stronger customer loyalty.
 ADVOCATES: Near the top are customers so pleased with your service that they actively
market your business for you. They tell their friends about your products and services. They
endorse (-podrzavati, zastupati) your business.

RAVING (-ushicen) FANS: On the top rung are special customers. They not only market
your business BUT actively sell for you. They are better than any advertisement. They are
much like a valuable member of your team.

The more customers you help to climb the loyalty ladder, the more your business will benefit!
11. Who's afraid of the big wolf? Or, competing with P & G

P&G sells the number one brand in each of 8 important categories (Pampers, Tide, Head &
Shoulders and so on). This market leadership is based on several principles:

Product Innovation
P&G is an active product innovator. It launches new products which meet new consumer needs
rather than just new brands of already existing products.

Quality strategy
P&G products are designed to be above average quality. P&G continuously improves the quality of
their products.

Product flanking
By producing brands in several sizes and forms P&G products occupy more shelf space which
prevents competition from moving in.

Multibrand strategy
P&G often produces several brands in the same market category. In that way P&G gains more
control over distributors.

Brand extension strategy

P&G often extends an already existing brand to include other products. This reduces the cost of
advertising and makes the new product more easily recognized.

Heavy advertising
P&G is the biggest advertiser in the world (with annual budget of more than $4 billion). Their
advertising is meant to communicate effectively, not to be original or entertaining. They use a lot of
words in their commercials (more than 100 in a 30-second commercial).They never use a celebrity
in a commercial.

In order to influence a broader market, P&G uses early adopters" (getting trendsetter to buy new
products in order to influence wide market) and prosumers" (=proactive consumers)

Competitive toughness
P&G makes a great effort to constrain competitors. They spend large sums of money to outpromote
competitive brands.
They can be beaten because of their CONSISTENCY. They are always predictable.
12. The economics of tourism

Tourism is able to create wealth and give employment by providing facilities, accommodation and
organization of holidays. Tourism has huge future potential. It is predicted that it will rise and
become the worlds largest export industry. These are features which cost the locals nothing -
scenery, weather, landscape. All this attract visitors and bring in revenue. Tourists and travelers can
also benefit from this development for they have now a chance to cross geographical and cultural
borders which were closed to them 20 years ago.

There are direct (actual expenditure by tourists) and indirect effects (spending on marketing
overseas, paying commissions, purchases and so on) of tourism.

A major component of tourism is the tourist destination and it depends on three factors:

attractions;
accessibility;
amenities.

Attractions can be natural or human-made as historical building or events.

Accessibility is related how easily people can get to a destination.
Amenities include entertainment, accommodation, catering facilities and local transport - services.

Whether a country will benefit from the development of tourism depends on 3 important factors:

Propensity to import:
The more locally made products are sold to tourists, the more tourist money will stay in the country.

The amount of foreign labour used:

Many countries use foreign labour because the local people either dont want to do the work or
don't have the necessary skills. As a result, money paid In wages is not spent in the destination
country but in the employee's home country.

The type of capital investment

Some underdeveloped countries turn to foreign countries and corporations for assistance when
building Infrastructure and facilities. This can lead to high leakage from the local economy because
the profits are sent out of the country.

A number of pressure groups have involved in tourism such as Friends of the Earth, Greenpeace
and community organization.