“Foreign Production”

➢ What is foreign production?

Programs that are produced and funded outside of the respondent country and
that are not specifically edited for the domestic population of the respondent
country.
There are some ways of foreign production. From them we will describe here Six:
-The first one is “Licensing”:
Licensing is defined as a business arrangement, wherein a company authorizes
another company by issuing a license to temporarily access its intellectual
property rights, i.e. manufacturing process, brand name, copyright, trademark,
patent, technology, trade secret, etc. for adequate consideration and under
specified conditions. A company sells licenses to other (typically smaller)
companies to use intellectual property (IP), brand, design or business programs
e.g. Microsoft in BD. These licenses are usually non – exclusive, which means
they can be sold to multiple competing companies serving the same market. In
this arrangement, the licensing company may exercise control over how its IP is
used but does not control the business operations of the licensee. A fee or
royalty is charged by the licensor to the licensee for the use of intellectual
property right. For example: Under licensing system, Coca-Cola and Pepsi are
globally produced and sold, by local bottlers in different countries. In finer terms, it
is the simplest form of business alliance, wherein a company rents out its product-
based knowledge in exchange for entry to the market.

Why Licensing?

The overseas company enters into a licensing agreement with another company
based in the domestic country, for a specified period of time. The two primary
reasons for entering in the licensing agreement are:

➢ International expansion of a brand franchise.

➢ Need for commercialization of new technology.

Generally, a firm opts for license its products, when the firm holds that the
consumer’s acceptance of the product is high. It helps the licensee to differentiate
the product from other products offered by the competitors in the market.
 Further, it also assists the licensing company in reaching new customers at a low
price.

Benefits of Licensing:
➢ In licensing, the licensor gets the advantage of entering the international
market at little risk.

➢ In addition to this, if the licensee gets success, the firm has given up profits.

➢ As a prevention measure, there are certain proprietary product components

supplied by the licensor itself.

➢ The licensee acquires expertise in production or a renowned brand name.

➢ It expects that the arrangement will increase the overall sales, which might
open the doors to the new market and help in achieving the business
objectives.

Limitations of Licensing:
➢ The licensor has little to no control over the licensee, in terms of production,
distribution and sales of the product.
➢ Whenever the licensing agreement expires, the firm might find that it has
given birth to a competitor.

➢ Innovation is considered as the appropriate strategy so that the licensee will

have to depend on the licensor.

➢ However, it requires a considerable capital investment, to start the operations,

as well as the developmental cost is also borne by the licensee.

Name of some companies which are practicing foreign production by

Licensing: -
The Second one is Franchising:
A Franchise Agreement is a legal, binding contract between a franchisor and
franchisee. A franchise agreement contents can vary in content depending upon
the franchise system, the state government laws of the franchisor or franchisee. A
lot of franchising business have been established in Bangladesh. All of them are
highly are popular and our people accepted them well. In this form not only sells
intellectual properties to franchisee but also the franchisee agrees to abide by
strict rules and regulation as to how it does business. Franchisor have controlling
power for product quality. Franchising is an arrangement where franchisor (one
party) grants or licenses some rights and authorities to franchisee (another party).
Franchising is a well-known marketing strategy for business expansion. In return,
the franchisee pays a one-time fee or commission to franchisor and some share of
revenue. Some advantages to franchisees are they do not have to spend money
on training employees, they get to learn about business techniques. Franchising is
basically a right which manufacturers or businesses give to others.

Advantages and Disadvantages of Franchising:

Advantages to Franchisors:
➢ Firstly, franchising is a great way to expand a business without incurring
additional costs on expansion. This is because all expenses of selling are
borne by the franchise.
➢ This further also helps in building a brand name, increasing goodwill and
reaching more customers.

Advantages to Franchisees:
➢ Franchisees will get to know business techniques and trade secrets of
brands.
 ➢ Another advantage is that sometimes a franchisee may get exclusive rights
to sell the franchisor’s products within an area.
➢ Furthermore, the franchise also does not need to spend money on training
and assistance because the franchisor provides this.

Disadvantages for Franchisors:

➢ The most basic disadvantage is that the franchise does not possess direct
control over the sale of its products. As a result, its own goodwill can suffer
if the franchisor does not maintain quality standards.
➢ Furthermore, the franchisee may even leak the franchisor’s secrets to
rivals. Franchising also involves ongoing costs of providing maintenance,
assistance, and training on the franchisor.

Disadvantages for Franchisees:

➢ First of all, no franchise has complete control over his business. He always
has to adhere to policies and conditions of the franchisor.
➢ Another disadvantage is that he always has to pay some royalty to the
franchisor on a routine basis. In some cases, he may even have to share his
profits with the franchisor.

Name of some companies which are practicing foreign production by

Franchising:

The Third one is Contract Manufacturing:

Contract manufacturing is defined as the production of goods by a company for a
brand or label of another company. This is an outsourcing process that is
conducted by a contract manufacturer who offers such services for several firms.
The products that are manufactured are customized as per the specifications and
design of the customer and sometimes even their own. contract manufacturing is
the organization that is creating or manufacturing the product for the other
company. The concept is also used to refer to the companies that offer special
services to several organizations about the manufacturing process. The company
contracts with manufacturers in the foreign market to produce its product or
provide its service. They have only production control power rather than product
quality control. In the international scenario, contract manufacturing is applicable
when one firm asks another company located in a different country to
manufacture its products.
For Example, ABC Company is facing criticism for its quality which was considered
top-notch at the beginning. It decides to enter into a deal with Peter & Company,
which is a reputed contract manufacturing firm to outsource its products
temporarily to see whether its customers are now satisfied with the products. The
company sees a dramatic shift as the customers appreciate the new products, and
it results in an increase in sales figures as well as revenues. ABC Company decides
to continue its contract manufacturing deal with Peter & Company as it has
proved beneficial.
Advantages of contract manufacturing:
➢ Saves ample time especially the time needed to set up manufacturing units
in another place.
➢ Hiring a contract manufacturing firm results in an increase in productivity. It
helps to send your products to market quickly.
➢ There is an improved allocation of resources, and the company can put its
onus on other important areas of its business.
➢ Increased innovation and ultimately improved brand reputation and
recognition as the firm are dealing with quality products.

Disadvantages of contract manufacturing:

➢ The firm that places an order is dependent on the contract manufacturer for
meeting his demands promptly. There is also a lack of flexibility without direct
control.
➢ Outsourcing has a risk of its own like lengthy lead times and cultural barriers
that could result in difficult situations.
➢ It loses a certain part of the profit instead of offering contract manufacturing
to another firm.
➢ It is vital to maintain a good relationship with your contract manufacturer.
Name of some companies which are practicing foreign production by
Contract Manufacturing:

The Fourth one is Assembly:

Assembly is a manufacturing strategy under which the manufacturer stocks up on
sub-assembly parts and inventories and assembles the parts into the final product
when a customer places an order. The strategy relies on the ability of the company
to assemble and deliver goods quickly.
How Does It Work?
In an assembling strategy, the manufacturer forecasts orders for the goods based on
historical data, macroeconomic trends, and the overall condition of the market.
Based on the forecasts, the manufacturer orders and stocks up on sub-assembly
parts of the finished goods.
A customer then places an order, which can be customizable since the good is not
finished. Based on the specific order, the manufacturer assembles the sub-
assembly parts into the finished product that is delivered to the customer. An
assembling strategy is essentially a combination of the make-to-order and make-
to-stock production strategies.

Make-to-order
The make-to-order strategy involves ordering parts and assembling them based
on the specific orders placed by customers and takes a longer time to deliver the
final good to the customer.

Make-to-stock
The make-to-stock strategy involves stocking up on inventory of the final good
based on demand forecasts. However, the cost of holding large quantities of
unsold inventory tends to be high – and so does the risk.
The assemble-to-order method combines the two strategies above to form a
more efficient way to deliver customized goods, without incurring the extra costs
of storing finished inventory.
Advantages of the Assembly Strategy:
 By reducing storage and inventory needs, the assembly strategy
substantially reduces capital costs, such as warehousing and investment in
materials and raw supplies.
 By keeping a variety of sub-assembly parts in stock, which can be put
together to produce a unique finished good.

Disadvantages of the Assemble-to-Order Strategy:

 Manufacturers using assemble-to-order stock up on sub-assembly parts
based on historical sales data used to forecast demand. 
 It is important to monitor the status of inventories in order to achieve a
smooth and streamlined supply chain in times of higher demand.

Name of some companies which are practicing foreign production by

Assembly:

The Fifth one is Management Contracting:

The Business Dictionary defines a management contract as an “agreement
between investors or owners of a project, and a management company hired for
coordinating and overseeing a contract”. A business or an organization will hire a
management company to perform specific tasks. The management company will
receive a compensation for the work. Your organization might hire a management
company to look after its marketing and under the contract, the management
company would perform marketing on your company’s behalf and receive a fee
for doing so. 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 but involve actually
doing them.
THE ADVANTAGES AND DISADVANTAGES:
The advantages of management contract:
The benefits of creating a management contract deal with timesaving,
operational continuity and knowledge.
Handing out operational control of a specific function ticks out the specific
operation from the business’ ‘To Do’-list.
The disadvantages of management contract:
The organization is essentially surrendering information about its
products, finances and other such matters to another entity.
Privacy issues are not just about your information and relationship with the
management company.
Name of some companies which are practicing foreign
production by Management Contracting:

The Sixth one is Fully integrated product:

Companies with long term and substantial interest in the foreign market normally
establish fully integrated manufacturing facilities there. The method may not be
allowed or favored in some countries, particularly in low priority areas. This
method demands sufficient financial and managerial resources on the part of the
company. In this form of strategy, the firm will go to abroad & set up a plant for
production. It is riskier & costly mode of entry. In this type of entry mode, a
company can establish operations in a foreign country without direct involvement
of the company from that country.

The advantages of fully integrated product are:

 It helps a company to achieve long-term profitability;
 It helps a company to establish direct contact with local actors such as
customers, suppliers, intermediaries, or governmental institutions.
The drawbacks of this entry mode are:
 It requires higher commitments in terms of the firm’s resources and
capabilities.
 It’s a lengthy, complex, and costly process.
Joint ventures
Joint ventures can be defined as "an enterprise in which two or more investors
share ownership and control over property rights and operation". Joint ventures
are a more extensive form of participation than either exporting or licensing. In
Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food
processing.
The advantages of Joint ventures are:
➢ Sharing of risk and ability to combine the local in-depth knowledge with a
foreign partner with know-how in technology or process.
➢ Joint financial strength
➢ May be only means of entry
They also have disadvantages:
➢ Partners do not have full control of management.
➢ May be impossible to recover capital if need be
➢ Disagreement on third party markets to serve and
· Partners may have different views on expected benefits.
Name of A company which are practicing foreign production by Joint
ventures:

UAE & BANGLA

DESH