Foreign Direct Investment

Foreign direct investment
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a

business in one country by an entity based in another country.[1] It is thus distinguished from
a foreign portfolio investment by a notion of direct control.
The origin of the investment does not impact the definition, as an FDI: the investment may be
made either "inorganically" by buying a company in the target country or "organically" by
expanding the operations of an existing business in that country.
Definitions
Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities,
reinvesting profits earned from overseas operations, and intra company loans". In a narrow
sense, foreign direct investment refers just to building new facility, and a lasting management
interest (10 percent or more of voting stock) in an enterprise operating in an economy other
than that of the investor.[2] FDI is the sum of equity capital, long-term capital, and short-term
capital as shown in the balance of payments. FDI usually involves participation in
management, joint-venture, transfer of technology and expertise. Stock of FDI is the net (i.e.,
outward FDI minus inward FDI) cumulative FDI for any given period. Direct investment
excludes investment through purchase of shares (if that purchase results in an investor
controlling less than 10% of the shares of the company). [3]
FDI, a subset of international factor movements, is characterized by controlling ownership of a

business enterprise in one country by an entity based in another country. Foreign direct
investment is distinguished from foreign portfolio investment, a passive investment in the
securities of another country such as public stocks and bonds, by the element of "control".
[1]
According to the Financial Times, "Standard definitions of control use the internationally
agreed 10 percent threshold of voting shares, but this is a grey area as often a smaller block of
shares will give control in widely held companies. Moreover, control of technology,
management, even crucial inputs can confer de facto control."[1]
According to Grazia Ietto-Gillies (2012),[4] prior to Stephen Hymer's theory regarding direct

investment in the 1960s, the reasons behind foreign direct investment and multinational
corporations were explained by neoclassical economics based on macro economic principles.
These theories were based on the classical theory of trade in which the motive behind trade
was a result of the difference in the costs of production of goods between two countries,
focusing on the low cost of production as a motive for a firm's foreign activity. For example, Joe
S. Bain only explained the internationalization challenge through three main principles:
absolute cost advantages, product differentiation advantages and economies of scale.
Furthermore, the neoclassical theories were created under the assumption of the existence of
perfect competition. Intrigued by the motivations behind large foreign investments made by
corporations from the United States of America, Hymer developed a framework that went
beyond the existing theories, explaining why this phenomenon occurred, since he considered
that the previously mentioned theories could not explain foreign investment and its
motivations.
Facing the challenges of his predecessors, Hymer focused his theory on filling the gaps
regarding international investment. The theory proposed by the author approaches
international investment from a different and more firm-specific point of view. As opposed to
traditional macroeconomics-based theories of investment, Hymer states that there is a
difference between mere capital investment, otherwise known as portfolio investment, and
direct investment. The difference between the two, which will become the cornerstone of his
whole theoretical framework, is the issue of control, meaning that with direct investment firms
are able to obtain a greater level of control than with portfolio investment. Furthermore,
Hymer proceeds to criticize the neoclassical theories, stating that the theory of capital
movements cannot explain international production. Moreover, he clarifies that FDI is not
necessarily a movement of funds from a home country to a host country, and that it is
concentrated on particular industries within many countries. In contrast, if interest rates were
the main motive for international investment, FDI would include many industries within fewer
countries.
Another observation made by Hymer went against what was maintained by the neoclassical
theories: foreign direct investment is not limited to investment of excess profits abroad. In fact,
foreign direct investment can be financed through loans obtained in the host country,
payments in exchange for equity (patents, technology, machinery etc.), and other methods.
The main determinants of FDI is side as well as growth prospectus of the economy of the
country when FDI is made. Hymer proposed some more determinants of FDI due to criticisms,
along with assuming market and imperfections. These are as follows:
Firm-specific advantages: Once domestic investment was exhausted, a firm could exploit its
advantages linked to market imperfections, which could provide the firm with market power
and competitive advantage. Further studies attempted to explain how firms could monetize
these advantages in the form of licenses.
Removal of conflicts: conflict arises if a firm is already operating in foreign market or looking to
expand its operations within the same market. He proposes that the solution for this hurdle
arose in the form of collusion, sharing the market with rivals or attempting to acquire a direct
control of production. However, it must be taken into account that a reduction in conflict
through acquisition of control of operations will increase the market imperfections.
Propensity to formulate an internationalization strategy to mitigate risk: According to his
position, firms are characterized with 3 levels of decision making: the day to day supervision,
management decision coordination and long-term strategy planning and decision making. The
extent to which a company can mitigate risk depends on how well a firm can formulate an
internationalization strategy taking these levels of decision into account.
Hymer's importance in the field of international business and foreign direct investment stems
from him being the first to theorize about the existence of multinational enterprises (MNE) and
the reasons behind FDI beyond macroeconomic principles, his influence on later scholars and
theories in international business, such as the OLI (ownership, location and internationalization)
theory by John Dunning and Christos Pitelis which focuses more on transaction costs.
Moreover, "the efficiency-value creation component of FDI and MNE activity was further
strengthened by two other major scholarly developments in the 1990s: the resource-based
(RBV) and evolutionary theories"[5] In addition, some of his predictions later materialized, for
example the power of supranational bodies such as IMF or the World Bank that increases
inequalities (Dunning & Piletis, 2008). A phenomenon the United Nations Sustainable
Development Goal 10 aims to address.[6]
Types of FDI[edit]
Horizontal FDI arises when a firm duplicates its home country-based activities at the same
value chain stage in a host country through FDI.
Platform FDI Foreign direct investment from a source country into a destination country for the
purpose of exporting to a third country.
Vertical FDI takes place when a firm through FDI moves upstream or downstream in different
value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion
in a host country.
Methods[edit]
The foreign direct investor may acquire voting power of an enterprise in an economy through
any of the following methods:
by incorporating a wholly owned subsidiary or company anywhere
by acquiring shares in an associated enterprise
through a merger or an acquisition of an unrelated enterprise
participating in an equity joint venture with another investor or enterprise

Europe[edit]
According to a study conducted by EY, France was in 2020 the largest foreign direct investment
recipient in Europe, ahead of the UK and Germany. [12] EY attributed this as a "direct result
of President Macron's reforms of labor laws and corporate taxation, which were well received
by domestic and international investors alike."[12]
China[edit]
FDI in China, also known as RFDI (renminbi foreign direct investment), has increased
considerably in the last decade, reaching $19.1 billion in the first six months of 2012, making
China the largest recipient of foreign direct investment at that point of time and topping
the United States which had $17.4 billion of FDI.[13] In 2013 the FDI flow into China was
$24.1 billion, resulting in a 34.7% market share of FDI into the Asia-Pacific region. By contrast,
FDI out of China in 2013 was $8.97 billion, 10.7% of the Asia-Pacific share.[14] During the global
financial crisis FDI fell by over one-third in 2009 but rebounded in 2010. [15] China implemented
the Foreign Investment Law[16] in 2020.
India[edit]
Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA),

driven by then finance minister Manmohan Singh.[17][18] India disallowed overseas corporate
bodies (OCB) to invest in India.[19] India imposes cap on equity holding by foreign investors in
various sectors, current FDI in aviation and insurance sectors is limited to a maximum of 49%. [20]
[21]
A 2012 UNCTAD survey projected India as the second most important FDI destination (after
China) for transnational corporations during 2010–2012. As per the data, the sectors that
attracted higher inflows were services, telecommunication, construction activities and
computer software and hardware. Mauritius, Singapore, US and UK were among the leading
sources of FDI. Based on UNCTAD data FDI flows were $10.4 billion, a drop of 43% from the first
half of the last year.[22] In 2015, India emerged as top FDI destination surpassing China and the
US. India attracted FDI of $31 billion compared to $28 billion and $27 billion of China and the US
respectively.[23][24]
United States[edit]
Broadly speaking, the United States has a fundamentally "open economy" and low barriers to
the FDI.[25]
U.S. FDI totaled $194 billion in 2010.[26][27] Of FDI in the United States in 2010, 84% came from or
through eight countries: Switzerland, the United Kingdom, Japan, France, Germany,
Luxembourg, the Netherlands, and Canada.[28] A major source of investment is real estate;
the foreign investment in this area totaled $92.2 billion in 2013,[citation needed] under various forms
of purchase structures (considering the U.S. taxation and residency laws). [citation needed]
A 2008 study by the Federal Reserve Bank of San Francisco indicated that foreigners hold
greater shares of their investment portfolios in the United States if their own countries have
less developed financial markets, an effect whose magnitude decreases with income per capita.
Countries with fewer capital controls and greater trade with the United States also invest more
in U.S. equity and bond markets.[29]
White House data reported in 2011 found that a total of 5.7 million workers were employed at
facilities highly dependent on foreign direct investors. Thus, about 13% of the American
manufacturing workforce depended on such investments. The average pay of said jobs was
found as around $70,000 per worker, over 30% higher than the average pay across the entire
U.S. workforce.[25]
President Barack Obama said in 2012, "In a global economy, the United States faces increasing
competition for the jobs and industries of the future. Taking steps to ensure that we remain the
destination of choice for investors around the world will help us win that competition and bring
prosperity to our people."[25]
In September 2013, the United States House of Representatives voted to pass the Global

Investment in American Jobs Act of 2013 (H.R. 2052; 113th Congress), a bill which would direct
the United States Department of Commerce to "conduct a review of the global competitiveness
of the United States in attracting foreign direct investment".[30] Supporters of the bill argued
that increased foreign direct investment would help job creation in the United States. [31]
Eurasia[edit]
In November 2021, a report from the Eurasian Development Bank revealed that Kazakhstan
boasted the highest FDI stock value from the Eurasian Economic Union (EAEU) with $11.2 billion
by 2020 and an increase of over $3 billion since 2017.[32]
2. What is a Greenfield Investment?
In economics, a greenfield investment (GI) refers to a type of foreign direct investment

(FDI) where a company establishes operations in a foreign country. In a greenfield investment,
the company constructs new (“green”) facilities (sales office, manufacturing facility, etc.) cross-
border from the ground up.
According to the Bureau of Economic Analysis (BEA), a greenfield investment is a project

“where foreign investors establish a new business or expand an existing business on U.S. soil.”
(or where a U.S. investor establishes a new business on foreign soil)
Understanding a Greenfield Investment
A greenfield investment is a form of market entry commonly used when a company wants to
achieve the highest degree of control over its foreign activities. It can be compared to other
foreign direct investments such as the purchase of foreign securities or the acquisition of a
majority stake in a foreign company in which the parent company exercises little to no control
over daily business operations.
Apart from potential tax breaks or subsidies in establishing a greenfield investment, the

overarching goal of such an investment is to achieve a high level of control over business
operations and to avoid intermediary costs.
Advantages of a Greenfield Investment
There are numerous advantages to a greenfield investment, including the following:
 High level of control over business operations

 High level of quality control over the manufacturing and sale of products and/or services
 High control over brand image and staffing Economies of scale and economies of
scope can be achieved in terms of marketing, research and development, and
production Bypassing trade restrictions Creating jobs for the economy where the
greenfield investment is taking place
Disadvantages of a Greenfield Investment
There are, of course, potential disadvantages as well, such as the following:
An extremely high-risk investment – a greenfield investment is the riskiest form of foreign

direct investment
Potentially high market entry cost (barriers to entry)
Government regulations that may hamper foreign direct investments
High fixed costs involved in establishing a greenfield location
Example of a Greenfield Investment
Company A is based in Europe and is looking to expand its operations internationally. Namely,
the company wants to penetrate the US market with a new innovative product. Upon
completing market research, Company A realizes that there are few to no competitors in the
United States.
Thus, there are no acquisition opportunities available to the company to establish a “base.” In
addition, the United States previously imposed tariffs on all European imports, causing the
selling price of the company’s product to be very high when it comes as an import product.
Company A decides to create a sales office and manufacturing facility on US soil, with the goal
of bypassing existing US import tariffs and also to penetrate into the domestic market with its
new product. The company’s CEO deems establishing a foreign subsidiary crucial, as it will then
be able to exert complete control over its overseas business operations and brand image.
Real-World Examples of Greenfield Investments
Hyundai Motor Co. in Nošovice
In 2006, Hyundai Motor Company received approval to make around one billion euros with a
major greenfield investment in Nošovice in the Czech Republic. The automaker established a
new manufacturing plant that employed up to 3,000 individuals in its first year of operation.
The Czech Government provided tax relief and subsidies to prompt the greenfield investment,
in hopes of boosting the country’s economy and lowering the unemployment rate.
Toyota Motor Corp. in Mexico
In 2015, Toyota Motor Corporation announced plans to establish a new manufacturing facility
in Mexico through an investment of about US$1 billion. Slated to open in 2019, the facility is
expected to produce up to 200,000 units per year in conjunction with the currently established
Tijuana plant.
The rationale behind Toyota’s greenfield investment is to improve competitiveness in North

America – specifically within the United States. The low labor cost and the close proximity to US
markets offered the Japanese automaker an attractive opportunity to establish an overseas
manufacturing facility.
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3. Strategic Commitment:
Decision by a firm that has a long-term impact and is difficult to reverse. Strategic
Complements: Occurs when reaction functions of firms are upward sloping. The more of a
certain action one firm chooses the more of the same action the other firm will optimally choose.
: Strategic commitments are decisions that have long-term impact and are difficult to reverse. These
decisions are different from tactical decisions, which have a short-term impact and are easier to reverse.
Strategic commitments influence the nature of competition in the industry and competitive dynamics
evolve over time. The decision to build a new plant with substantial capacity in the above example
would discourage other firms from making investments in similar plants. Firms making
commitments need to balance the benefits of commitments with the loss of flexibility that come in
by making irreversible decisions. trategic alliance[edit]
strategic alliance is a type of cooperative agreements between different firms, such as shared
research, formal joint ventures, or minority equity participation. [33] The modern form of strategic
alliances is becoming increasingly popular and has three distinguishing characteristics: [34]
1. They are frequently between firms in industrialized nations.
2. The focus is often on creating new products and/or technologies rather than distributing existing
ones.
3. They are often only created for short term duration, non equity based agreement in which
companies are separated and are independent.
Advantages[edit]
Some advantages of a strategic alliance include:[35]
Technology exchange
This is a major objective for many strategic alliances. The reason for this is that many breakthroughs and
major technological innovations are based on interdisciplinary and/or inter-industrial advances. Because
of this, it is increasingly difficult for a single firm to possess the necessary resources or capabilities to
conduct their own effective R&D efforts. This is also perpetuated by shorter product life cycles and the
need for many companies to stay competitive through innovation. Some industries that have become
centers for extensive cooperative agreements are:
 Telecommunications
 Electronics
 Pharmaceuticals
 Information technology
 Specialty chemicals
Global competition
There is a growing perception that global battles between corporations be fought between teams of
players aligned in strategic partnerships.[36] Strategic alliances will become key tools for companies if
they want to remain competitive in this globalized environment, particularly in industries that have
dominant leaders, such as cell phone manufactures, where smaller companies need to ally in order to
remain competitive.
Industry convergence
As industries converge and the traditional lines between different industrial sectors blur, strategic
alliances are sometimes the only way to develop the complex skills necessary in the time frame required.
Alliances become a way of shaping competition by decreasing competitive intensity, excluding potential
entrants, and isolating players, and building complex value chains that can act as barriers. [37]
Economies of scale and reduction of risk
Pooling resources can contribute greatly to economies of scale, and smaller companies especially can
benefit greatly from strategic alliances in terms of cost reduction because of increased economies of
scale.
In terms on risk reduction, in strategic alliances no one firm bears the full risk, and cost of, a joint
activity. This is extremely advantageous to businesses involved in high risk / cost activities such as R&D.
This is also advantageous to smaller organizations which are more affected by risky activities.
Alliance as an alternative to merger
Some industry sectors have constraints to cross-border mergers and acquisitions, strategic alliances
prove to be an excellent alternative to bypass these constraints. Alliances often lead to full-scale
integration if restrictions are lifted by one or both countries.
Risks of competitive collaboration[edit]
Some strategic alliances involve many firms that are in fierce competition outside the specific scope of the
alliance. This creates the risk that one or both partners will try to use the alliance to create an advantage
over the other. The benefits of this alliance may cause unbalance between the parties, there are several
factors that may cause this asymmetry:[38]
 The partnership may be forged to exchange resources and capabilities such as technology. This
may cause one partner to obtain the desired technology and abandon the other partner,
effectively appropriating all the benefits of the alliance.
 Using investment initiative to erode the other partners competitive position. This is a situation
where one partner makes and keeps control of critical resources. This creates the threat that the
stronger partner may strip the other of the necessary infrastructure.
 Strengths gained by learning from one company can be used against the other. As companies
learn from the other, usually by task sharing, their capabilities become strengthened, sometimes
this strength exceeds the scope of the venture and a company can use it to gain a competitive
advantage against the company they may be working with.
 Firms may use alliances to acquire its partner. One firm may target a firm and ally with them to
use the knowledge gained and trust built in the alliance to take over the other.
Disadvantages[edit]
1. Difficult to find a good partner
2. Risk of unequal partnership
3. Loss of control
4. Relationship management across borders
Choosing a Partner for International Strategic Alliances[edit]
1. Strategic compatibility
The partners need to have the same general goal and understanding in forming a joint venture. The
differences in strategy produces more conflicts of interest in the later partnership (Lilley and Willianms,
1991).
2. Complementary skills and resources
Another important criterion is that the partners need to contribute more than just money to the venture
(Geringer and Michael, 1988). Each partner must contribute some skills and resources that complement
for another.
3. Relative company size
Different size of companies may cause domination of one firm or unequal agreement, which is not
favourable for long-term running (Lilley and Willianms, 1991)
4. Financial capability
The partners can generate sufficient financial resources to maintain the venture's efforts, which is also
important for long-term partnership (Lilley and Willianms, 1991)
Some more like compatibility between operating policies (Lilley and Willianms, 1991), trust and
commitment (Lilley and Willianms, 1991), compatible management styles (Geringer and Michael, 1988),
mutual dependency (Lilley and Willianms, 1991), communications barriers (Lilley and Willianms, 1991)
and avoid anchor partners (Geringer and Michael, 1988) are also important for partner selection but less
important than the first four.
Political Issues[edit]
Political issues will be faced mostly by the companies who want to enter a country that with
unsustainable political environment (Parboteeah and Cullen, 2011). A political decisions will affect the
business environment in a country and affect the profitability of the business in the country (Click, 2005).
Organizations with investments in such opaque countries as Zimbabwe, Myanmar, and Vietnam have
long-term experiences about how the political risk affects their business behaviors (Harvard Business
Review, 2014).
The following are the examples of political issues:
1. The politically jailing of Mikhail Khodorkovsky, the business giant, in Russia (Wade, 2005); 2. The
"Open-door" policy of China (Deng, 2001); 3. The Ukraine disputed elections resulting in the uncertain
president recent years (Harvard Business Review, 2014); 4. The corrupt legal system in many countries,
such as Russia (Samara, 2008)
Three different rules of entry mode selection[edit]
The following introductions were based on the statement of Hollensen: [39]
1. Naïve rule. The decision maker uses the same entry mode for all foreign markets. The companies
use this rule as the entry mode selection ignore the differences of individual foreign markets. The
performance of this selection could not be calculated, because it highly depends on the luck of the
manager.
2. Pragmatic rule. The decision maker uses a workable entry mode for each foreign market, which
means that the manager use different entry modes depend on the time stage or the business stage.
For example, as the first step to international business, companies tend to use exporting.
3. Strategy rules. This approach means that the company systematically compared all of the entry
modes and evaluated the value before any choice is made. This approach is common in large
firms, because the research requires resources, capital and time. It is rarely to see a small or
medium-sized company use this approach.
Besides these three rules, managers have their own ways to select entry modes. If the company could not
generate a mature market research, the manager tend to choose the entry modes most suitable for the
industry or make decisions by intuition.
Case analysis of Foreign Direct Investment of Telecommunication Company in Albania[edit]
Foreign Direct Investment (FDI) is an important factor for a country's economic growth especially in its
impacts on transmission of technology and developments in management and marketing strategies. FDI
takes place when a firm acquires ownership control of a production unit in a foreign country.
According to the content there are basically three forms of FDI: establishing new branch, acquiring
control share of an existing firm, and participating jointly in a domestic firm. As Albanian economy has
changed from a centrally planned to a market oriented one, FDI is seen as an important component of the
transition process toward a market-led economic system, since it contributes to the development of a
country through multiple channels (Kukeli, et al., 2006; Kukeli, 2007). In their study, a limited number of
successful mobile networks entry cases have been selected for deep investigation of entry models in
Albania, to find out the most important and efficient determinants of foreign mobile networks entry into
Albania's telecommunication market in the future as well. It provides a successful Albanian business
experience for the newcomers in mobile telecommunications industry. With its developing market
economy, Albania offers many opportunities for investors-property as labour costs are low, the young
and educated population is ready to work, and tariffs and other legal restrictions are low in many cases
and are being eliminated in some others (Albinvest, 2010). Location of Albania in itself offers a notable
trade potential, especially with EU markets, since it shares borders with Greece and Italy. In the last
years Albania has entered the free trade agreements with Balkan Countries creating the opportunity for
trade throughout the region. As Albanian economy tends to grow, the prospects and opportunities of
multinational enterprises (MNEs) to invest in Albania for a long-term period has increased also.
However, after the transition to democracy since 1992, the country has taken a long way in terms of
economic, political and social life (Ministry of Economy 2004, p. 9-10). Demirel (2008) finds all of these
changes to form the strengths of Albania in terms of FDI. In his study Demirel (2008) emphasizes that
Albania has one of the most friendly investment environments in the region of the South- Eastern
European Countries (SEECs) with her impressive economic performance in the last decade, liberal
economic legislation, rapid privatisation process and country specific advantages. By taking into account
all of these factors, the aim of this study is to offer a new perspective by the case studies of foreign
telecommunications companies, which form the majority of MNEs in this field, by finding the most
significant determinants before entering into Albania, with a successful entry strategy and crucial
consideration of FDI in Albania. It is crucially important to find the determinants and factors that affect
multinational firms when deciding on their entry modes, in order to successfully compete in the Albanian
mobile telecoms industry. There are four operators in these industries; two of the leading firms expand
rapidly in Albania by utilizing successful and aggressive entry strategies, and the other ones are new
entries in Albanian market. Lin (2008) emphasizes that the evaluation of the entry modes’ determinants is
better to be applied in some main theories and models such as transaction cost theory, eclectic theory and
internationalization model, which serve as theoretical foundation in these kind of studies, where host-
country condition, political and economic context, and organization capabilities are important factors
and require major consideration.
Licensing[edit]
An international licensing agreement allows foreign firms, either exclusively or non-exclusively to
manufacture a proprietor's product for a fixed term in a specific market.
In this foreign market entry mode, a licensor in the home country makes limited rights or resources
available to the licensee in the host country. The rights or resources may include patents,
trademarks, managerial skills, technology, and others that can make it possible for the licensee to
manufacture and sell in the host country a similar product to the one the licensor has already been
producing and selling in the home country without requiring the licensor to open a new operation
overseas. The licensor earnings usually take forms of one time payments, technical fees and royalty
payments usually calculated as a percentage of sales.
As in this mode of entry the transference of knowledge between the parental company and the
licensee is strongly present, the decision of making an international license agreement depend on
the respect the host government show for intellectual property and on the ability of the licensor to
choose the right partners and avoid them to compete in each other market. Licensing is a relatively
flexible work agreement that can be customized to fit the needs and interests of both, licensor and
licensee.
Following are the main advantages and reasons to use an international licensing for expanding
internationally:
 Obtain extra income for technical know-how and services
 Reach new markets not accessible by export from existing facilities
 Quickly expand without much risk and large capital investment
 Pave the way for future investments in the market
 Retain established markets closed by trade restrictions
 Political risk is minimized as the licensee is usually 100% locally owned
 Is highly attractive for companies that are new in international business.
On the other hand, international licensing is a foreign market entry mode that presents some
disadvantages and reasons why companies should not use it as:
 Lower income than in other entry modes
 Loss of control of the licensee manufacture and marketing operations and practices leading to
loss of quality
 Risk of having the trademark and reputation ruined by an incompetent partner
 The foreign partner can also become a competitor by selling its production in places where the
parental company is already in.
Exporting[edit]
Exporting is the process of selling of goods and services produced in one country to other countries.
[4]
There are two types of exporting: direct and indirect.

Direct Exports[edit]
Passive exports represent the treating and filling overseas orders like domestic orders. [5]
Types[edit]
Sales representatives
Sales representatives represent foreign suppliers/manufacturers in their local markets for an established
commission on sales. Provide support services to a manufacturer regarding local advertising, local sales
presentations, customs clearance formalities, legal requirements. Manufacturers of highly technical
services or products such as production machinery, benefit the most from sales representation.
Importing distributors
Importing distributors purchase product in their own right and resell it in their local markets to
wholesalers, retailers, or both. Importing distributors are a good market entry strategy for products that
are carried in inventory, such as toys, appliances, prepared food. [6]
Advantages[edit]
 Control over a selection of foreign markets and choice of foreign representative company
 Good information feedback from target market, developing better relationships with the buyers
 Better protection of trademarks, patents, goodwill, and other intangible property
 Potentially greater sales, and therefore greater profit, than with indirect exporting. [7]
Disadvantages[edit]
 Higher start-up costs and higher risks as opposed to indirect exporting
 Requires higher investments of time, resources and personnel and also organizational changes
 Greater information requirements
 Longer time-to-market as opposed to indirect exporting. [8]
Indirect exports[edit]
Indirect export is the process of exporting through domestically based export intermediaries. The
exporter has no control over its products in the foreign market.
Types[edit]
Export trading companies (ETCs)
These provide support services of the entire export process for one or more suppliers. Attractive to
suppliers that are not familiar with exporting as ETCs usually perform all the necessary work: locate
overseas trading partners, present the product, quote on specific enquiries, etc.
Export management companies (EMCs)
These are similar to ETCs in the way that they usually export for producers. Unlike ETCs, they rarely
take on export credit risks and carry one type of product, not representing competing ones. Usually,
EMCs trade on behalf of their suppliers as their export departments. [9]
Export merchants
Export merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers
for resale overseas under their own brand names. The advantage of export merchants is promotion. One
of the disadvantages for using export merchants result in presence of identical products under different
brand names and pricing on the market, meaning that export merchant's activities may hinder
manufacturer's exporting efforts.
Confirming houses
These are intermediate sellers that work for foreign buyers. They receive the product requirements from
their clients, negotiate purchases, make delivery, and pay the suppliers/manufacturers. An opportunity
here arises in the fact that if the client likes the product it may become a trade representative. A potential
disadvantage includes supplier's unawareness and lack of control over what a confirming house does
with their product.
Nonconforming purchasing agents
These are similar to confirming houses with the exception that they do not pay the suppliers directly –
payments take place between a supplier/manufacturer and a foreign buyer. [10]
Advantages[edit]
 Fast market access
 Concentration of resources towards production
 Little or no financial commitment as the clients' exports usually covers most expenses associated
with international sales.
 Low risk exists for companies who consider their domestic market to be more important and for
companies that are still developing their R&D, marketing, and sales strategies.
 Export management is outsourced, alleviating pressure from management team
 No direct handle of export processes.[11]
Disadvantages[edit]
 Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
 Wrong choice of distributor, and by effect, market, may lead to inadequate market feedback
affecting the international success of the company
 Potentially lower sales as compared to direct exporting (although low volume can be a key aspect
of successfully exporting directly). Export partners that incorrectly select a specific
distributor/market may hinder a firm's functional ability. [12]
Companies that seriously consider international markets as a crucial part of their success would likely
consider direct exporting as the market entry tool. Indirect exporting is preferred by companies who
would want to avoid financial risk as a threat to their other goals.
References[edit]
^ Jump up to:a b c "Foreign Direct Investment Definition from Financial Times

Lexicon". lexicon.ft.com. Archived from the original on 8 April 2019. Retrieved 13
September 2014.
^ "Foreign direct investment, net inflows (BoP, current US$) | Data | Table".
Data.worldbank.org. Retrieved 17 November 2012.
^ "CIA – The World Factbook". Cia.gov. Archived from the original on 1 December 2017.
Retrieved 17 November 2012.
^ Ietto-Gillies, Grazia (2012). Transnational corporations and international production:

Concepts, theories and effects. Cheltenham, UK; Northampton, MA: Edward Elgar. ISBN 978-0-
85793-225-9.
^ Dunning, John H.; Pitelis, Christos N. (2008). "Stephen Hymer's contribution to international

business scholarship: An assessment and extension". Journal of International Business
Studies. 39 (1): 167–176. doi:10.1057/palgrave.jibs.8400328. ISSN 0047-
2506. S2CID 153551822. Retrieved 12 July 2019.
^ "Goal 10 targets". UNDP. Archived from the original on 27 November 2020. Retrieved 23

September 2020.
^ U.S. States regularly offer tax incentives to inbound investors. See, for example, an excellent
summary, written by Sidney Silhan, of state tax incentives offered to FDI businesses at: BNA
Portfolio 6580, U.S. Inbound Business Tax Planning, at p. A-71.
^ ≥
^ Sarkodie, Samuel Asumadu; Adams, Samuel; Leirvik, Thomas (1 August 2020). "Foreign direct
investment and renewable energy in climate change mitigation: Does governance
matter?". Journal of Cleaner Production. 263:
121262. doi:10.1016/j.jclepro.2020.121262. ISSN 0959-6526.
^ Jensen, Nathan M. (2008). Nation-States and the Multinational Corporation: A Political
Economy of Foreign Direct Investment. Princeton University Press. ISBN 978-1-4008-3737-3.
^ Tomas Havranek & Zuzana Irsova (30 April 2011). "Which Foreigners are Worth Wooing? A
Meta-Analysis of Vertical Spillovers from FDI". Ideas.repec.org. Retrieved 17 September 2012.
^ Jump up to:a b How can Europe reset the investment agenda now to rebuild its future?, EY, 28
May 2020
^ "China tops U.S. as investment target in 1st half 2012: U.N. agency". Reuters. 24 October
2012. Archived from the original on 24 September 2015. Retrieved 24 October 2012.
^ "The fDi Report 2014 – Asia Pacific". fDi Magazine. 25 June 2014. Retrieved 17 July 2014.
^ "FDI by Country". Greyhill Advisors. Retrieved 15 November 2011.
References[edit]
1. ^ Peng, W. Mike., (2018) Global Business. Cengage Learning, ISBN 978-0357670835
2. ^ P, W. Mike., (2008) Global Business Cengage Learning, ISBN 0-324-36073-8
3. ^ McDonald, F.; Burton, F.; Dowling, P. (2002), International Business, Cengage
Learning EMEA, ISBN 978-1-86152-452-2
4. ^ Yadong, L. (1999), Entry and Cooperative Strategies in International Business
Expansion Age, Greenwood Publishing Group, ISBN 978-1-56720-161-1
5. ^ Cullen, K. Praveen Parboteeah, John B. (2011). Strategic international
management (5th ed.). Australia: South-Western Cengage Learning. ISBN 978-
0538452960.
6. ^ Reynolds, F. (2003), Managing Exports: navigating the complex rules, controls,
barriers, and laws. Age, John Wiley & Sons, Inc., ISBN 0-471-22173-2
7. ^ Yoshino, M. Y.; Rang an, U. S. (1995), Strategic alliances: an entrepreneurial
approach to globalization, Harvard Business Press
8. ^ Foley, J. (1999), The Global Entrepreneur: taking your business international Age,
Dearborn.
9. ^ Foley, J. (1999), The Global Entrepreneur: taking your business international Age,
Dearborn, ISBN 1-57410-124-2
10. ^ Salomon, Robert (2006), Learning from Exporting: New Insights, New Perspectives,
Edward Elgar Publishing Limited
11. ^ Peng, Mike W. (2009), Global Business, Mason: South-Western College Pub
12. ^ Evans, Rachael (2005), Report on a turnkey project for Apple’s iPod in Nigeria,
Maryland: University of Maryland University College
13. ^ Franchising is one form of Licensing. Zimmerer, T. W.; Scarborough, N. M. (2008),
Essentials of Entrepreneurship and Small Business Management, New Jersey: Pearson
Prentice Hall, ISBN 978-0-13-727298-3
14. ^ Hoy, F.; Stanworth, J. (2003), Franchising: an international perspective, Routledge
15. ^ Cavusgil, T.; Knight, G.;Riesenberger, J. (2008), International Business - Strategy,
Management and the New Realities, Pearson
16. ^ Peng, Mike W. (2009), Global Business, Mason: South-Western College Pub
17. ^ Evans, Rachael (2005), Report on a turnkey project for Apple’s iPod in Nigeria,
Maryland: University of Maryland University
College, http://globalitek.homestead.com/Rachael_-
_Turnkey_projects_Nigeria_and_iPod.pdf
18. ^ Hitt, A. (2009), Strategic Management Competitiveness and Globalization, Nelson
Education Ltd, ISBN 0-17-650006-5
21. ^ Bartett, C.A. (2009), Transnational Management: Text, Cases and Readings in Cross-
Border Management. 5th Ed., McGraw-Hill Higher Education, ISB
Licensing
Licensing is a business arrangement in which one company gives another company permission
to manufacture its product for a specified payment. Licensing is defined as the granting of
permission by the licenser to the licensee to use intellectual property rights, such as
trademarks, patents, brand names, or technology, under defined conditions. The possibility of
licensing makes for a flatter world, because it creates a legal vehicle for taking a product or
service delivered in one country and providing a nearly identical version of that product or
service in another country. Under a licensing agreement, the multinational firm grants rights on
its intangible property to a foreign company for a specified period of time. The licenser is
normally paid a royalty on each unit produced and sold. Although the multinational firm usually
has no ownership interests, it often provides ongoing support and advice. Most companies
consider this market-entry option of licensing to be a low-risk option because there’s typically
no up-front investment.
For a multinational firm, the advantage of licensing is that the company’s products will be
manufactured and made available for sale in the foreign country (or countries) where the
product or service is licensed. The multinational firm doesn’t have to expend its own resources
to manufacture, market, or distribute the goods. This low cost, of course, is coupled with lower
potential returns, because the revenues are shared between the parties.
Licensing generally involves allowing another company to use patents, trademarks, copyrights,
designs, and other intellectual in exchange for a percentage of revenue or a fee. It’s a fast way
to generate income and grow a business, as there is no manufacturing or sales involved.
Instead, licensing usually means taking advantage of an existing company’s pipeline and
infrastructure in exchange for a small percentage of revenue.
An international licensing agreement allows foreign firms, either exclusively or non-exclusively,
to manufacture a proprietor’s product for a fixed term in a specific market.
To summarize, in this foreign market entry mode, a licensor in the home country makes limited
rights or resources available to the licensee in the host country. The rights or resources may
include patents, trademarks, managerial skills, technology, and others that can make it possible
for the licensee to manufacture and sell in the host country a similar product to the one the
licensor has already been producing and selling in the home country without requiring the
licensor to open a new operation overseas. The licensor’s earnings usually take the form of one-
time payments, technical fees, and royalty payments, usually calculated as a percentage of
sales.
Batman
The Batman character has been licensed to many companies, such as Lego.
As in this mode of entry the transference of knowledge between the parental company and the
licensee is strongly present, the decision of making an international license agreement depend
on the respect the host government shows for intellectual property and on the ability of the
licensor to choose the right partners and avoid having them compete in each other’s market.
Licensing is a relatively flexible work agreement that can be customized to fit the needs and
interests of both licensor and licensee. The following are the main advantages and reasons to
use international licensing for expanding internationally:
Obtain extra income for technical know-how and services.
Reach new markets not accessible by export from existing facilities.
Quickly expand without much risk and large capital investment.
Pave the way for future investments in the market.
Retain established markets closed by trade restrictions.
Political risk is minimized as the licensee is usually 100% locally owned.
This is highly attractive for companies that are new in international business. On the other
hand, international licensing is a foreign market entry mode that presents some disadvantages
and reasons why companies should not use it because there is:
Lower income than in other entry modes
Loss of control of the licensee manufacture and marketing operations and practices leading to
loss of quality
Risk of having the trademark and reputation ruined by an incompetent partner
The foreign partner also can become a competitor by selling its products in places where the
parental company has a presence
KEY POINTS
Licensing is a business agreement involving two companies: one gives the other special
permissions, such as using patents or copyrights, in exchange for payment.
An international business licensing agreement involves two firms from different countries, with
the licensee receiving the rights or resources to manufacture in the foreign country.
Rights or resources may include patents, copyrights, technology, managerial skills, or other
factors necessary to manufacture the good.
Advantages of expanding internationally using international licensing include: the ability to
reach new markets that may be closed by trade restrictions and the ability to expand without
too much risk or capital investment.
Disadvantages include the risk of an incompetent foreign partner firm and lower income
compared to other modes of international expansion.
Terms
Licensing: A business arrangement in which one company gives another company permission
to manufacture its product for a specified payment.
License: The legal terms under which a person is allowed to use a product.
Examples
Suppose Company A, a manufacturer and seller of Baubles, was based in the US and wanted to
expand to the Chinese market with an international business license. They can enter the
agreement with a Chinese firm, allowing them to use their product patent and giving
other resources, in return for a payment. The Chinese firm can then manufacture and sell
Baubles in China.
The above content was adapted from Boundless Business. Authored by: Boundless. Provided
by: Boundless. Located at: https://www.boundless.com/business/. License: CC BY-SA:
Attribution-ShareAlike under a Creative Commons Attribution-NonCommercial-ShareAlike
License and from International Business. Authored by: anonymous. Provided by:
Lardbucket. Located at: . License: CC BY-NC-SA: Attribution-NonCommercial-ShareAlike
Image of Lego Batman. Authored by: Vanessa Oshiro. Located

at: https://www.flickr.com/photos/vosh/2711847160/in/photolist-58CVFw-dGAgJE-7At97t-
bds4wz-9aHtcQ-dGuTSK-dcceg5-h4iXL-biKE3B-dU2uq3-dnXsP5-7x4DbG-gbvCFa-e1mUmN-
bQc1fK-pC5EXT-ntQkz3-bBhm5G-bAv8rs-bQc1hv-biKDq8-4k9p8a-dGuTp4-dGAhoU-opfeHq-
orsEqG-bBhkMJ-aiKxMo-aiGJJZ-aiKxNC-aa8LVZ-biKD84-gbvCBH-bvSHai-c9zKQE-aiKxPo-
bWnebX-aiGJJc-aapxdA-dpUwRH-aabA2G-eszrJq-biKDJV-gbv8PU-gbuZRa-eet8z7-bCsCz1-
a66HhR-iPxU5r-bjpvre. License: CC BY-NC-SA: Attribution-NonCommercial-ShareAlike
Cross-licensing
From Wikipedia, the free encyclopedia
Jump to navigationJump to search
A cross-licensing agreement is a contract between two or more parties where each party grants

rights to their intellectual property to the other parties.
Contents
1Patent law
2Non patent law
3See also
4References
5External links
Patent law[edit]
Licensing of patents
Overviews
Licensing
Royalties
Types
Compulsory licensing
Cross-licensing
Defensive Patent License
Defensive termination
Fair, reasonable, and non-discriminatory (FRAND,

RAND)
Shop right
Strategies
Catch and release
Defensive patent aggregation
Patentleft
Patent monetization
Patent pool
Stick licensing
Patent trolling
Clauses in patent licenses
Field-of-use limitation
Higher category: Patents, Patent law
In patent law, a cross-licensing agreement is an agreement according to which two or more

parties grant a license to each other for the exploitation of the subject-matter claimed in one or
more of the patents each owns.[1] Usually, this type of agreement happens between two parties
in order to avoid litigation or to settle an infringement dispute.[2] Very often, the patents that
each party owns covers different essential aspects of a given commercial product. Thus by cross
licensing, each party maintains their freedom to bring the commercial product to market. The
term "cross licensing" implies that neither party pays monetary royalties to the other party,
although this may be the case.
For example, Microsoft and JVC entered into a cross license agreement in January 2008.[3] Each

party, therefore, is able to practice the inventions covered by the patents included in the
agreement.[4] This benefits competition by allowing each more freedom to design products
covered by the other's patents without provoking a patent infringement lawsuit.
Parties that enter into cross-licensing agreements must be careful not to violate antitrust laws
and regulations. This can easily become a complex issue, involving (as far as the European
Union is concerned) Art. 101 and 102 of the Treaty on the Functioning of the European
Union (TFEU), previously Art. 81 and 82 of the EC Treaty, (abuse of dominant position, etc.) as
well as licensing directives, cartels, etc.
Some companies file patent applications primarily to be able to cross license the resulting
patents, as opposed to trying to stop a competitor from bringing a product to market. [5] In the
early 1990s, for example, Taiwanese original design manufacturers, such as Hon Hai, rapidly
increased their patent filings after their US competitors brought patent infringement lawsuits
against them.[6] They used the patents to cross license.
One of the limitations of cross licensing is that it is ineffective against patent holding

companies. The primary business of a patent holding company is to license patents in exchange
for a monetary royalty. Thus, they have no need for rights to practice other companies' patents.
These companies are often referred to pejoratively as patent trolls.
The economics literature has shown that firms with high capital intensities are more likely to
strike a cross-licensing deal.[7]
Non patent law[edit]
Other non-patent intellectual property such as copyright and trademark can also be cross-

licensed. For example, a literary work and an anthology that includes that literary work may be
cross-licensed between two publishers. A cross-license for computer software may involve a
combination of patent, copyright, and trademark licensing.
See also[edit]
Copyright protection for fictional characters
Crossover (fiction)
Defensive termination
Category:Intercompany crossovers
Licensing (strategic alliance)
Licensing Executives Society International
Patent thicket
References[edit]
^ Shapiro, Carl, “Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard
Setting”, Innovation Policy and the Economy, MIT Press2001, p119 et seq.
^ Statement of Jeffery Fromm, Hewlett-Packard Company, "Patent Pools and Cross Licensing",
2002, p8
^ Ed Oswald, “Microsoft, JVC agree to cross-license patents”, BetaNews January 16, 2008, 2:29
PM
^ The agreement does not necessarily include all of the patents that each owns
^ "Archived copy" (PDF). Archived from the original (PDF) on 2006-09-01. Retrieved 2006-09-

15. | Patent Flooding
^ Mark Nowotarski, “Introducing Patents into a Major Service Industry”, les Nouvelles, March
2003
Export
For other uses, see Export (disambiguation).
"exportation" redirects here. For the logical rule, see exportation (logic).
The examples and perspective in this article may not include all

significant viewpoints. Please improve the article or discuss the
issue. (February 2009) (Learn how and when to remove this template
message)
Part of a series on
World trade
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Theory
An export in international trade is a good produced in one country that is sold into another

country or a service provided in one country for a national or resident of another country. The
seller of such goods or the service provider is an exporter; the foreign buyer is an importer.
[1]
Services that figure in international trade include financial, accounting and other professional
services, tourism, education as well as intellectual property rights.
Exportation of goods often requires the involvement of customs authorities.
Contents
1Firms
2Barriers
2.1Strategic
2.2Tariffs
3Advantages
4Disadvantages
5Motivations
6Macroeconomics
7See also
8References
9External links
Firms[edit]
Many manufacturing firms begin their global expansion as exporters and only later switch to
another mode for serving a foreign market.[2]
Barriers[edit]
There are four main types of export barriers: motivational, informational, operational/resource-
based, and knowledge.[3][4]
Trade barriers are laws, regulations, policy, or practices that protect domestically made

products from foreign competition. While restrictive business practices sometimes have a
similar effect, they are not usually regarded as trade barriers. The most common foreign trade
barriers are government-imposed measures and policies that restrict, prevent, or impede the
international exchange of goods and services.[5]
Strategic[edit]
Further information: Export control
International agreements limit trade-in and the transfer of certain types of goods and
information, e.g., goods associated with weapons of mass destruction, advanced
telecommunications, arms and torture and also some art and archaeological artifacts. For
example:
Nuclear Suppliers Group limits trade in nuclear weapons and associated goods (45 countries
participate).
The Australia Group limits trade in chemical and biological weapons and associated goods (39
countries).
Missile Technology Control Regime limits trade in the means of delivering weapons of mass
destruction (35 countries).
The Wassenaar Arrangement limits trade in conventional arms and technological developments

(40 countries).
Although the outbreak of COVID-19 sufficiently changed the world economy, people started
doing business, so international trade is a key for economic growth. Armenia's economy is
dependent on international flows, tourism, and inner production. Competitive export Industries
were established which helped the growth of Gross Domestic Product(GDP) to generate
financial resources. The market shifted to more efficient exporters, which is the effect of trade
liberalization on aggregate productivity. Due to the increase of the number of international
business activities through a multilateral trading system, RA Government Program, which was
approved in February 2019, the government policy became the objective of economic growth.
The period established for the program was 2019-2024. Export quality is developed by
developing the export volumes and services.[6]
Tariffs[edit]
Tariffs, a tax on a specific good or category of goods exported from or imported to a country, is
an economic barrier to trade.[7] A tariff increases the cost of imported or exported goods, and
may be used when domestic producers are having difficulty competing with imports. Tariffs
may also be used to protect an industry viewed as being of national security concern. Some
industries receive protection that has a similar effect to subsidies; tariffs reduce the industry's
incentives to produce goods quicker, cheaper, and more efficiently, becoming ever less
competitive.
The third basis for a tariff involves dumping. When a producer exports at a loss, its competitors
may term this dumping. Another case is when the exporter prices a good lower in the export
market than in its domestic market.[8] The purpose and expected outcome of a tariff is to
encourage spending on domestic goods and services rather than their imported equivalents.
Tariffs may create tension between countries, such as the United States steel tariff in 2002, and
when China placed a 14% tariff on imported auto parts. Such tariffs may lead to a complaint
with the World Trade Organization (WTO) which sets rules and attempts to resolve trade
disputes.[9] If that is unsatisfactory, the exporting country may choose to put a tariff of its own
on imports from the other country.
Vessel at Altenwerder Container Terminal (Hamburg)
Advantages[edit]
Exporting avoids the cost of establishing manufacturing operations in the target country. [10]
Exporting may help a company achieve experience curve effects and location economies in their

home country.[10] Ownership advantages include the firm's assets, international experience, and
the ability to develop either low-cost or differentiated products. The locational advantages of a
particular market are a combination of costs, market potential and investment
risk. Internationalization advantages are the benefits of retaining a core competence within the
company and threading it though the value chain rather than to license, outsource, or sell it.
In relation to the eclectic paradigm, companies with meager ownership advantages do not

enter foreign markets. If the company and its products are equipped with ownership advantage
and internalization advantage, they enter through low-risk modes such as exporting. Exporting
requires significantly less investment than other modes, such as direct investment. Export's
lower risk typically reduces the rate of return on sales versus other modes. Exporting allows
managers to exercise production control, but does not provide them the option to exercise as
much marketing control. An exporter enlists various intermediaries to manage marketing
management and marketing activities. Exports also has effect on the Economy. Businesses
export goods and services where they have a competitive advantage. This means they are
better than any other country at providing that product or have a natural ability to produce
either due to their climate or geographical location etc. [11]
Disadvantages[edit]
Exporting may not be viable unless appropriate locations can be found abroad. [2]
High transport costs can make exporting uneconomical, particularly for bulk products. [2]
Another drawback is that trade barriers can make exporting uneconomical and risky. [2]
For small and medium-sized enterprises (SMEs) with fewer than 250 employees, export is
generally more difficult than serving the domestic market. The lack of knowledge of trade
regulations, cultural differences, different languages and foreign-exchange situations, as well as
the strain of resources and staff, complicate the process. Two-thirds of SME exporters pursue
only one foreign market.[12]
Exports could also devalue a local currency to lower export prices. It could also lead to
imposition of tariffs on imported goods.[11]
Motivations[edit]
The variety of export motivators can lead to selection bias. Size, knowledge of foreign markets,
and unsolicited orders motivate firms to along specific dimensions (research, external,
reactive).[3][4]
Macroeconomics[edit]
In macroeconomics, net exports (exports minus imports) are a component of gross domestic
product, along with domestic consumption, physical investment, and government spending.
Foreign demand for a country's exports depends positively on income in foreign countries and
negatively on the strength of the producing country's currency (i.e., on how expensive it is for
foreign customers to buy the producing country's currency in the foreign exchange market).
See also[edit]
Business and economics portal
Politics portal
Business portal
Comparative advantage
Commodity currency
Commodity Classification Automated Tracking System
Demand vacuum
e-commerce
Embargo
Export-oriented industrialization
Export control
Export performance
Export promotion
Export strategy
Export subsidy
Export Yellow Pages
Free trade
Free trade agreement
Free trade area
Import
Infant industry argument
International trade
List of countries by exports
Protectionism
Sales
Trade barrier
Tariff
Non-tariff barriers to trade
References[edit]
^ Joshi, Rakesh Mohan, International Marketing, Oxford University Press, New Delhi and New
York. ISBN 0-19-567123-6
^ Jump up to:a b c d Washington, Charles W. L. Hill, University of (2015). International business :

competing in the global. Most developing economies now focus on
exportation.marketplace (Tenth ed.). p. 454. ISBN 978-0-07-811277-5.
^ Jump up to:a b Seringhaus, F. R (1990). Government export promotion: A global perspective.

Routledge. p. 1. ISBN 0415000645.
^ Jump up to:a b Stouraitis, Vassilios; Boonchoo, Pattana; Mior Harris, Mior Harun; Kyritsis,
Markos (2017). "Entrepreneurial perceptions and bias of SME exporting opportunities for
manufacturing exporters: A UK study". Journal of Small Business and Enterprise
Development. 24 (4): 906–927. doi:10.1108/JSBED-03-2017-0095.
^ "Targeted Trade Barriers". cftech.com. Archived from the original on 29 April 2013.

Retrieved 27 July 2015.
^ "Armenia's Export of Goods and Services". May 2020.
^ Staff, Investopedia (24 November 2003). "Tariff". Investopedia. Archived from the original on 6

December 2017. Retrieved 7 May 2017.
^ Mike Moffatt. "The Economic Effect of Tariffs". Archived from the original on 6 September

2015. Retrieved 27 July 2015.
^ US/China Trade Tensions Archived 16 May 2011 at the Wayback Machine, Darren Gersh.
Retrieved 21 May 2006.
^ Jump up to:a b Hill, Charles W.L. (2015). International Business: competing in the global

marketplace (15th ed.). New York: McGraw Hill. p. 454. ISBN 978-0078112775.
^ Jump up to:a b analysis, Full Bio Follow Linkedin Follow Twitter Kimberly Amadeo has 20 years
of experience in economic; Amadeo, business strategy She writes about the U. S. Economy for
The Balance Read The Balance's editorial policies Kimberly. "3 Ways Countries Increase
Exports". The Balance. Retrieved 21 September 2020. {{cite web}}: |first1= has generic name
(help)
^ Daniels, J., Radebaugh, L., Sullivan, D. (2007). International Business: environment and
operations, 11th edition. Prentice Hall. ISBN 0-13-186942-6
Import
For other uses, see Import and export.
Geigercars, which imports cars from North America to Europe, is called an importer.[1][2]
An import is the receiving country in an export from the sending country. Importation and
exportation are the defining financial transactions of international trade.[3]
In international trade, the importation and exportation of goods are limited by import
quotas and mandates from the customs authority. The importing and exporting jurisdictions
may impose a tariff (tax) on the goods. In addition, the importation and exportation of goods
are subject to trade agreements between the importing and exporting jurisdictions.
Contents
Import of goods[edit]
Importation and declaration and payment of customs duties is done by the importer of record,
which may be the owner of the goods, the purchaser, or a licensed customs broker.
See also[edit]
Export function
Importation right
List of countries by imports
References[edit]
^ Singh, Rakesh Mohan, (2009) International Business, Oxford University Press, New Delhi and
New York ISBN 0-19-568909-7
^ O'Sullivan, Arthur; Shjsnsbeffrin, Steven M. (2003). Economics: Principles in Action. Upper

Saddle River: Pearson Prentice Hall. p. 552. ISBN 0-13-063085-3.
^ ICC Export/Import Certification
^ Lequiller, F; Blades, D.: Understanding National Accounts, Paris: OECD 2006, pp. 139-143
^ for example, see Eurostat: European System of Accounts - ESA 1995, §§ 3.128-3.146, Office
for Official Publications of the European Communities, Luxembourg, 1996
^ economic territory
^ Burda, Wyplosz (2005): Macroeconomics: A European Text, Fourth Edition, Oxford University

Press
Wholly Owned Subsidiary
By
WILL KENTON
Updated February 13, 2022
Reviewed by
MICHAEL J BOYLE
What Is a Wholly Owned Subsidiary?
A wholly owned subsidiary is a company whose common stock is 100% owned by another
company. A company can become a wholly owned subsidiary through an acquisition by
a parent company. A majority-owned subsidiary is a company whose common stock is 51% to
99% owned by a parent company.
When lower costs and risks are desirable—or when it is not possible to obtain complete or
majority control—the parent company might introduce an affiliate, associate, or associate
company in which it would own a minority stake.
KEY TAKEAWAYS
A wholly owned subsidiary is a company whose common stock is 100% owned by a parent
company.
Wholly owned subsidiaries allow the parent company to diversify, manage, and possibly
reduce its risk.
Unlike other subsidiaries, a wholly-owned subsidiary has no obligations to minority

shareholders.
In general, wholly owned subsidiaries retain legal control over operations, products, and
processes.
The financial results of a wholly owned subsidiary are reported on the parent company's
consolidated financial statement.
0 seconds of 1 minute, 14 secondsVolume 75%
1:14
Wholly Owned Subsidiary
Understanding a Wholly Owned Subsidiary
Having a wholly owned subsidiary may help the parent company maintain operations in
diverse geographic areas and markets or separate industries. These factors help hedge against
changes in the market or geopolitical and trade practices, as well as declines in industry
sectors.
Because the parent company owns all the shares of a wholly owned subsidiary, there are no
minority shareholders. The subsidiary operates with the permission of the parent company,
which may or may not have direct input into the subsidiary’s operations and management.
This may make it an unconsolidated subsidiary.
Despite being owned by another entity, a wholly owned subsidiary may maintain its own
management structure, clients, and corporate culture. When a company is acquired, its
employees may worry about layoffs or restructuring.
Although subsidiaries are separate entities, they may share some executives or board
members with their parent company.
Accounting for a Wholly Owned Subsidiary
From an accounting standpoint, a wholly owned subsidiary is still a separate company, so it

keeps its own financial records and bank accounts tracking its assets and liabilities. Any
transactions between the parent company and the subsidiary must be recorded.
Both Generally Accepted Accounting Principles (GAAP) and the International Financial

Reporting Standards (IFRS) require companies to report the financial data of their subsidiaries
if the parent company is public. This information can be found in the parent
company's consolidated financial statement .1
Advantages and Disadvantages of a Wholly Owned Subsidiary
Although a parent company has operational and strategic control over its wholly owned
subsidiaries, the overall control is typically less for an acquired subsidiary with a strong
operating history overseas. When a company hires its own staff to manage the subsidiary,
forming common operating procedures is much less complicated than when taking over a
company with established leadership.
In addition, the parent company may apply its own data access and security directives for the
subsidiary as a method of lessening the risk of losing intellectual property to other companies.
Similarly, using similar financial systems, sharing administrative services, and creating similar
marketing programs help reduce costs for both companies, and a parent company directs how
its wholly-owned subsidiary’s assets are invested.
However, acquiring a wholly owned subsidiary may result in the parent company paying a high
price for its assets, especially if other companies are bidding on the same business. In addition,
establishing relationships with vendors and local clients often takes time, which may hinder
company operations; cultural differences may become an issue when hiring staff for an
overseas subsidiary.
The parent company also assumes all the risk of owning a subsidiary, and that risk may
increase when local laws differ significantly from the laws in the parent company's country.
Tax Advantages of Wholly Owned Subsidiaries
There are tax advantages for wholly owned subsidiaries that may be lost if the parent company
simply absorbs the assets of an acquired company. When a parent company acquires a
subsidiary by buying up that company's stock, the acquisition is considered a qualified stock
purchase for tax purposes. Moreover, any losses by a subsidiary can be used to offset the
profits of the parent company, resulting in a lower tax liability. 2
Sometimes, a subsidiary can do things that the parent company cannot. For example, a non-
profit entity can create a for-profit subsidiary, in order to raise revenue. While the subsidiary
would be subject to federal income taxes, the parent company would remain exempt. 2
What is a turnkey project?
According to the Oxford Dictionary, the word ‘turnkey’, an adjective, stands for anything that is
‘complete and ready to use immediately’. When applied to project development, a turnkey
project meaning remains the same. A turnkey project is one which is designed, developed
and equipped with all facilities by a company under a contract. It is handed over to a buyer
when it becomes ready to operate business. Obviously, the company responsible for building a
turnkey project does it for the cost as agreed in the contract. The work of the company includes
design, fabrication, installation, aftermarket support and technical service for the turnkey
project.

See also: All about Lighthouse projects
Turnkey project features
In this mode of carrying out international projects, a company in need of a manufacturing or

services facility hires a third-party operator to design and build, rather than doing everything on
its own. The third-party contractor is responsible for providing everything from manufacturing
to supply chain services.
See also: What is a Greenfield Project?
Turnkey project examples
A majority of government-funded, large-scale infrastructure projects are developed on a

turnkey basis. The upcoming Jewar Airport project, for example, is a turnkey project. It is being
developed by Swiss company Zurich Airport International. Once it is fully developed, the airport
will be handed over to the local authorities to operate. In the housing market, a turnkey
property is a fully-furnished flat or apartment that you can buy and rent immediately.
Joint venture
For other uses, see Joint Venture (disambiguation).

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A joint venture (JV) is a business entity created by two or more parties, generally characterized
by shared ownership, shared returns and risks, and shared governance. Companies typically
pursue joint ventures for one of four reasons: to access a new market, particularly emerging
markets; to gain scale efficiencies by combining assets and operations; to share risk for major
investments or projects; or to access skills and capabilities.[1] Work by Reuer and Leiblein
challenged the claim that joint ventures minimize downside risk.[2]
According to Gerard Baynham of Water Street Partners, there has been much negative press
about joint ventures, but objective data indicate that they may actually outperform wholly
owned and controlled affiliates. He writes, "A different narrative emerged from our recent
analysis of U.S. Department of Commerce (DOC) data, collected from more than 20,000
entities. According to the DOC data, foreign joint ventures of U.S. companies realized a 5.5
percent average return on assets (ROA), while those companies’ wholly owned and controlled
affiliates (the vast majority of which are wholly owned) realized a slightly lower 5.2 percent
ROA. The same story holds true for investments by foreign companies in the U.S., but the
difference is more pronounced. U.S.-based joint ventures realized a 2.2 percent average ROA,
while wholly owned and controlled affiliates in the U.S. only realized a 0.7 percent ROA." [3]
Most joint ventures are incorporated, although some, as in the oil and gas industry, are
"unincorporated" joint ventures that mimic a corporate entity. With individuals, when two or
more persons come together to form a temporary partnership for the purpose of carrying out a
particular project, such partnership can also be called a joint venture where the parties are "co-
venturers".
The venture can be a business JV (for example, Dow Corning), a project/asset JV intended to
pursue one specific project only, or a JV aimed at defining standards or serving as an "industry
utility" that provides a narrow set of services to industry participants.
Some major joint ventures include United Launch Alliance, Vevo, Hulu, Penske Truck Leasing,

and Owens-Corning.
Contents
1Legal definition
2Company incorporation
3Shareholders' agreement
4Dissolution
5Risks
6Joint ventures in different jurisdictions
6.1China
6.1.1Equity joint ventures
6.1.2Cooperative joint ventures
6.1.3Wholly foreign-owned enterprises (WFOEs)
6.1.4Foreign investment companies limited by shares (FICLBS)
6.1.5Investment companies by foreign investors (ICFI)
6.1.6List of prominent joint ventures in China
6.2India
6.3Ukraine
7See also
8References
9External links
Legal definition[edit]
In European law, the term "joint venture" is an exclusive legal concept, better defined under
the rules of company law. In France, the term "joint venture" is variously
translated "association d'entreprises", "entreprise conjointe", "coentreprise" or "entreprise
commune".[4]
Company incorporation[edit]
A JV can be brought about in the following major ways:
Foreign investor buying an interest in a local company
Local firm acquiring an interest in an existing foreign firm
Both the foreign and local entrepreneurs jointly forming a new enterprise
Together with public capital and/or bank debt
In the UK, India, and in many common law countries, a joint-venture (or else a company formed

by a group of individuals) must file with the appropriate authority the memorandum of
association. It is a statutory document which informs the outside public of its existence. It may
be viewed by the public at the office in which it is filed. A sample can be seen at wikimedia.org.
[5]
Together with the articles of association, it forms the "constitution" of a company in these
countries.
The articles of association regulate the interaction between shareholders and the directors of a
company and can be a lengthy document of up to 700,000+ pages. It deals with the powers
relegated by the stockholders to the directors and those withheld by them, requiring the
passing of ordinary resolutions, special resolutions and the holding of Extraordinary General
Meetings to bring the directors' decision to bear.
A Certificate of Incorporation[6] or the Articles of Incorporation[7] is a document required to form

a corporation in the U.S. (in actuality, the state where it is incorporated) and in countries
following the practice. In the US, the "constitution" is a single document. The Articles of
Incorporation is again a regulation of the directors by the stock-holders in a company.
By its formation, the JV becomes a new entity with the implication:
that it is officially separate from its Founders, who might otherwise be giant corporations, even
amongst the emerging countries
the JV can contract in its own name, acquire rights (such as the right to buy new companies),
and
it has a separate liability from that of its founders, except for invested capital
it can sue (and be sued) in courts in defense or its pursuance of its objectives.
On the receipt of the Certificate of Incorporation, a company can commence its business.
Shareholders' agreement[edit]
This is a legal area and is fraught with difficulty as the laws of countries differ, particularly on
the enforceability of "heads of" or shareholder agreements. For some legal reasons, it may be
called a Memorandum of Understanding. It is done in parallel with other activities in forming a
JV. Though dealt with briefly for a shareholders' agreement,[8] some issues must be dealt with
here as a preamble to the discussion that follows. There are also many issues which are not in
the Articles when a company starts up or never ever present. Also, a JV may elect to stay as a JV
alone in a "quasi partnership" to avoid any nonessential disclosure to the government or the
public.
Some of the issues in a shareholders' agreement are:
Valuation of intellectual rights, say, the valuations of the IPR of one partner and, say, the real
estate of the other
The control of the company either by the number of directors or its "funding"
The number of directors and the rights of the founders to their appoint directors which shows
as to whether a shareholder dominates or shares equality.
Management decisions – whether the board manages or a founder
Transferability of shares – assignment rights of the founders to other members of the company
Dividend policy – percentage of profits to be declared when there is profit
Winding up – the conditions, notice to members
Confidentiality of know-how and founders' agreement and penalties for disclosure
First right of refusal – purchase rights and counter-bid by a founder.
There are many features which have to be incorporated into the shareholders' agreement
which is quite private to the parties as they start off. Normally, it requires no submission to any
authority.
The other basic document which must be articulated is the Articles, which is a published
document and known to members. This repeats the shareholders agreement as to the number
of directors each founder can appoint to the board of directors; whether the board controls or
the founders; the taking of decisions by simple majority (50%+1) of those present or a 51% or
75% majority with all directors present (their alternates/proxy); the deployment of funds of the
firm; extent of debt; the proportion of profit that can be declared as dividends; etc. Also
significant is what will happen if the firm is dissolved, if one of the partners dies, or if the firm is
sold.
Often, the most successful JVs are those with 50:50 partnership with each party having the
same number of directors but rotating control over the firm, or rights to appoint the
Chairperson and Vice-chair of the company. Sometimes a party may give a separate trusted
person to vote in its place proxy vote of the Founder at board meetings.[9]
Recently, in a major case the Indian Supreme Court has held that Memorandums of

Understanding (whose details are not in the articles of association) are "unconstitutional" giving
more transparency to undertakings.
Dissolution[edit]
The JV is not a permanent structure. It can be dissolved when:
Aims of original venture met
Aims of original venture not met
Either or both parties develop new goals
Either or both parties no longer agree with joint venture aims
Time agreed for joint venture has expired
Legal or financial issues
Evolving market conditions mean that joint venture is no longer appropriate or relevant
One party acquires the other
Risks[edit]
Joint ventures are risky forms of business partnerships. Literature in business and management
has paid attention to different factors of conflict and opportunism in joint ventures, in particular
the influence of parent control structure,[10] ownership change, and volatile environment.[11]
Joint ventures in different jurisdictions[edit]
China[edit]
According to a report of the United Nations Conference on Trade and Development 2003, China
was the recipient of US$53.5 billion in direct foreign investment, making it the world's largest
recipient of direct foreign investment for the first time, to exceed the USA. Also, it approved the
establishment of nearly 500,000 foreign-investment enterprises. [citation needed] The US had 45,000
projects (by 2004) with an in-place investment of over 48 billion.[12]
Chinese requited Joint Ventures are a mechanism for forced technology transfer. In many cases,
technology transfers are effectively required by China's Foreign direct investment (FDI) regime,
which closes off important sectors of the economy to foreign firms. In order to gain access to
these sectors, China forces foreign firms to enter into joint ventures with Chinese entities they
do not have any connection with.
Until recently, no guidelines existed on how foreign investment was to be handled due to the
restrictive nature of China toward foreign investors. Following the death of Mao Zedong in
1976, initiatives in foreign trade began to be applied, and law applicable to foreign direct
investment was made clear in 1979, while the first Sino-foreign equity venture took place in
2001.[13] The corpus of the law has improved since then.
Companies with foreign partners can carry out manufacturing and sales operations in China and
can sell through their own sales network. Foreign-Sino companies have export rights which are
not available to wholly Chinese companies, as China desires to import foreign technology by
encouraging JVs and the latest technologies.
Under Chinese law, foreign enterprises are divided into several basic categories. Of these, five
will be described or mentioned here: three relate to industry and services and two as vehicles
for foreign investment. Those five categories of Chinese foreign enterprises are: the Sino-
Foreign Equity Joint Ventures (EJVs), Sino-Foreign Co-operative Joint Ventures (CJVs), Wholly
Foreign-Owned Enterprises (WFOE), although they do not strictly belong to Joint Ventures, plus
foreign investment companies limited by shares (FICLBS), and Investment Companies through
Foreign Investors (ICFI). Each category is described below.
Equity joint ventures[edit]
The EJV Law is between a Chinese partner and a foreign company. It is incorporated in both
Chinese (official) and in English (with equal validity), with limited liability. Prior to China's entry
into WTO – and thus the WFOEs – EJVs predominated. In the EJV mode, the partners share
profits, losses, and risk in equal proportion to their respective contributions to the venture's
registered capital. These escalate upwardly in the same proportion as the increase in registered
capital.
The JV contract accompanied by the articles of association for the EJV are the two most
fundamental legal documents of the project. The Articles mirror many of the provisions of the
JV contract. In case of conflict the JV document has precedence. These documents are prepared
at the same time as the feasibility report. There are also the ancillary documents (termed
"offsets" in the US) covering know-how and trademarks and supply-of-equipment agreements.
The minimum equity is prescribed for investment (truncated), [14] where the foreign equity and
debt levels are:[15]
Less than US$3 million, equity must constitute 70% of the investment;
Between US$3 million and US$10 million, minimum equity must be US$2.1 million and at least
50% of the investment;
Between US$10 million and US$30 million, minimum equity must be US$5 million and at least
40% of the investment;
More than US$30 million, minimum equity must be US$12 million and at least 1/3 of the
investment.
There are also intermediary levels.
The foreign investment in the total project must be at least 25%. No minimum investment is set
for the Chinese partner. The timing of investments must be mentioned in the Agreement and
failure to invest in the indicated time, draws a penalty.
Cooperative joint ventures[edit]
Co-operative Joint Ventures (CJVs)[citation needed] are permitted under the Sino-Foreign Co-operative
Joint Ventures. Co-operative enterprises are also called Contractual Operative Enterprises.
The CJVs may have a limited structure or unlimited – therefore, there are two versions. The
limited-liability version is similar to the EJVs in status of permissions – the foreign investor
provides the majority of funds and technology and the Chinese party provides land, buildings,
equipment, etc. However, there are no minimum limits on the foreign partner which allows him
to be a minority shareholder.
The other format of the CJV is similar to a partnership where the parties jointly incur unlimited
liability for the debts of the enterprise with no separate legal person being created. In both the
cases, the status of the formed enterprise is that of a legal Chinese person which can hire labor
directly as, for example, a Chinese national contactor. The minimum of the capital is registered
at various levels of investment.
Other differences from the EJV are to be noted:
A Co-operative JV does not have to be a legal entity.

The partners in a CJV are allowed to share profit on an agreed basis, not necessarily in
proportion to capital contribution. This proportion also determines the control and the risks of
the enterprise in the same proportion.
It may be possible to operate in a CJV in a restricted area
A CJV could allow negotiated levels of management and financial control, as well as methods of
recourse associated with equipment leases and service contracts. In an EJV management
control is through allocation of Board seats.[16]
During the term of the venture, the foreign participant can recover his investment, provided
the contract prescribes that and all fixed assets will become the property of the Chinese
participant on termination of the JV.
Foreign partners can often obtain the desired level of control by negotiating management,
voting, and staffing rights into a CJV's articles; since control does not have to be allocated
according to equity stakes.
Convenience and flexibility are the characteristics of this type of investment. It is therefore
easier to find co-operative partners and to reach an agreement.
With changes in the law, it becomes possible to merge with a Chinese company for a quick
start. A foreign investor does not need to set up a new corporation in China. Instead, the
investor uses the Chinese partner's business license, under a contractual arrangement.
However, under the CJV, the land stays in the possession of the Chinese partner.
There is another advantage: the percentage of the CJV owned by each partner can change
throughout the JV's life, giving the option to the foreign investor, by holding higher equity,
obtains a faster rate of return with the concurrent wish of the Chinese partner of a later larger
role of maintaining long-term control.
The parties in any of the ventures, EJV, CJV or WFOE prepare a feasibility study outlined above.
It is a non-binding document – the parties are still free to choose not to proceed with the
project. The feasibility study must cover the fundamental technical and commercial aspects of
the project, before the parties can proceed to formalize the necessary legal documentation.
The study should contain details referred to earlier under Feasibility Study [citation
needed]
(submissions by the Chinese partner).
Wholly foreign-owned enterprises (WFOEs)[edit]
Main article: Wholly Foreign-Owned Enterprise

There is basic law of the PRC concerning enterprises with sole foreign investment controls,
WFOEs. China's entry into the World Trade Organization (WTO) around 2001 has had profound
effects on foreign investment. Not being a JV, they are considered here only in comparison or
contrast.
To implement WTO commitments, China publishes from time to time updated versions of its
"Catalogs Investments" (affecting ventures) prohibited, restricted.
The WFOE is a Chinese legal person and has to obey all Chinese laws. As such, it is allowed to
enter into contracts with appropriate government authorities to acquire land use rights, rent
buildings, and receive utility services. In this it is more similar to a CJV than an EJV.
WFOEs are expected by PRC to use the most modern technologies and to export at least 50% of
their production, with all of the investment is to be wholly provided by the foreign investor and
the enterprise is within his total control.
WFOEs are typically limited liability enterprises[17] (like with EJVs) but the liability of the
directors, managers, advisers, and suppliers depends on the rules which govern the
Departments or Ministries which control product liability, worker safety or environmental
protection.
An advantage the WFOE enjoys over its alternates is enhanced protection of its know-how but a
principal disadvantage is absence of an interested and influential Chinese party.
Parts of this article (those related to Distribution Analysis of JV in

Industry) need to be updated. Please help update this article to
reflect recent events or newly available information. (November
2013)
As of the 3rd Quarter of 2004, WFOEs had replaced EJVs and CJVs as follows: [16]
Distribution Analysis of JV in Industry – PRC
200 200
Type JV 2000 2002 2004 (3Qr)
1 3
WFOE 46.9 50.3 60.2 62.4 66.8
EJV,% 35.8 34.7 20.4 29.6 26.9
CJV,% 15.9 12.9 9.6 7.2 5.2

Misc JV* 1.4 2.1 1.8 1.8 1.1
CJVs 158 154

1735 1595 996
(No.)** 9 7
(*)=Financial Vventures by EJVs/CJVs (**)=Approved JVs
Foreign investment companies limited by shares (FICLBS)[edit]
These enterprises are formed under the Sino-Foreign Investment Act. The capital is composed
of value of stock in exchange for the value of the property given to the enterprise. The liability
of the shareholders, including debt, is equal to the number of shares purchased by each
partner.
The registered capital of the company the share of the paid-in capital. The minimum amount of
the registered capital of the company should be RMB 30 million. These companies can be listed
on the only two PRC Stock Exchanges – the Shanghai and Shenzhen Stock Exchanges. Shares of
two types are permitted on these Exchanges – Types "A" and Type "B" shares.
Type A are only to be used by Chinese nationals and can be traded only in RMB. Type "B" shares
are denominated in Renminbi but can be traded in foreign exchange and by Chinese nationals
having foreign exchange. Further, State enterprises which have been approved for
corporatization can trade in Hong Kong in "H" share and in NYSE exchanges.
"A" shares are issued to and traded by Chinese nationals. They are issued and traded in
Renminbi. "B" shares are denominated in Renminbi but are traded in foreign currency. From
March 2001, in addition to foreign investors, Chinese nationals with foreign currency can also
trade "B" shares.
Investment companies by foreign investors (ICFI)[edit]
Investment companies are those established in China by sole foreign-funded business or jointly
with Chinese partners who engage in direct investment. It has to be incorporated as a company
with limited liability.
The total amount of the investor's assets during the year preceding the application to do
business in China has to be no less than US$400 million within the territory of China. The paid-
in capital contribution has to exceed $10 million. Furthermore, more than 3 project proposals
of the investor's intended investment projects must have been approved. The shares
subscribed and held by foreign Investment Companies by Foreign Investors (ICFI) should be
25%. The investment firm can be established as an EJV.
On March 15, 2019, China's National People's Congress adopted a unified Foreign Investment
Law,[18] which comes into effect on January 1, 2020.
List of prominent joint ventures in China[edit]
AMD-Chinese
Huawei-Symantec
Shanghai Automotive Industry Corporation (上海汽车集团股份有限公司), also known as SAIC

(上汽) and SAIC-GM (上汽通用), is a Chinese state-owned automotive manufacturing company
headquartered in Shanghaioperating in joint venture with US owned General Motors. Products
produced by SAIC joint venture companies are sold under marques
including Baojun, Buick, Chevrolet, Iveco, Škoda, and Volkswagen
General Motors with SAIC Motor, formerly known as Shanghai General Motors Company Ltd.,
makes numerous cars in China in four factories, especially Buick, but also some Chevrolet and
Cadillac models. In November 2018, the company announced new Chevrolet models for the
Chinese market, including an extended-wheelbase Malibu XL, a new Chevy SUV concept, and a
new Monza.
Volkswagen Group China - The numerous VW and Audi cars manufactured in China are made
under two joint-venture partnerships: FAW-Volkswagen and SAIC Volkswagen.
Beijing Benz Automotive Co., Ltd is a joint venture between BAIC Motor and Daimler AG. As of
November 22, 2018, a full two million Mercedes-Benz vehicles had been built in China by this
alliance.
Dongfeng Motor Corporation (东风汽车公司, abbreviated to 东风) is a Chinese state-owned

automobile manufacturer headquartered in Wuhan. The company was the second-largest
Chinese vehicle maker in 2017, by production volume, manufacturing over 4.1 million vehicles
that year. Its own brands are Dongfeng, Venucia, and Dongfen Fengshen. Joint ventures
include Cummins, Dana, Honda, Nissan, Infiniti, PSA Peugeot Citroën, Renault, Kia,
and Yulon. FAW Group Corporation (第一汽车集团, abbreviated to 一汽) is a Chinese state-
owned automotive manufacturing company headquartered in Changchun. In 2017, the
company ranked third in terms of output making 3.3 million vehicles. FAW sells products under
at least ten different brands including its own and Besturn/Bēnténg,
Dario, Haima, Hongqi, Jiaxing, Jie Fang, Jilin, Oley, Jie Fang and Yuan Zheng, and Tianjin Xiali.
FAW joint ventures sell Audi, General Motors, Mazda, Toyota and Volkswagen.
GAC (Guangzhou Automobile Group), is a Chinese state-owned automobile manufacturer
headquartered in Guangzhou. They were the sixth biggest manufacturer in 2017,
manufacturing over 2 million vehicles in 2017. GAC sells passenger cars under the Trumpchi
brand. In China, they are more known for their foreign joint-venture with Fiat, Honda, Isuzu,
Mitsubishi, and Toyota.
Chang'an Automobile Group (重庆长安汽车股份有限公司, abbreviated to 长安) is an

automobile manufacturer headquartered in Chongqing, and is a state-owned enterprise. In
2017, the company ranked fourth in terms of output making 2.8 million vehicles in 2017.
Changan designs, develops, manufactures and sells passenger cars sold under the Changan
brand and commercial vehicles sold under the Chana brand. Foreign joint venture companies
include Suzuki, Ford, Mazda and PSA Peugeot Citroën.
Chery, a Chinese state-owned automobile manufacturer based in Anhui. They were the tenth
biggest manufacturer in 2017. They have a foreign joint venture with Jaguar Land Rover for the
production of Jaguar and Land Rover cars in China.
Brilliance Auto, is a Chinese state-owned automobile manufacturer based in Shenyang. They

were the ninth biggest manufacturer in 2017. They have a foreign joint venture with BMW and
also sells passenger vehicles under their own brand Brilliance and are expected to make
520,000 cars in China during 2019.
Honda Motor Co has a joint venture with Guangzhou Automobile Group (GAC Group)
Greely-Volvo, Geely, is the biggest privately owned automobile manufacturer and seventh

biggest manufacturer overall in China. Their flagship brand Geely Auto became the top Chinese
car brand in 2017. Currently one of the fastest growing automotive groups in the world, Geely is
known for their ownership of Swedish luxury car brand, Volvo. In China, their passenger car
brands include Geely Auto, Volvo Cars, and Lynk & Co. The entire Volvo Cars company has been
owned by the Chinese company Geely since 2010 and manufactures most of the XC60 vehicles
in China for export.
India[edit]
JV companies are the preferred form of corporate investment but there are no separate laws
for joint ventures. Companies which are incorporated in India are treated on par as domestic
companies.
The above two parties subscribe to the shares of the JV company in agreed proportion, in cash,
and start a new business.
Two parties, (individuals or companies), incorporate a company in India. Business of one party
is transferred to the company and as consideration for such transfer, shares are issued by the
company and subscribed by that party. The other party subscribes for the shares in cash.
Promoter shareholder of an existing Indian company and a third party, who/which may be
individual/company, one of them non-resident or both residents, collaborate to jointly carry on
the business of that company and its shares are taken by the said third party through payment
in cash.
Private companies (only about $2500 is the lower limit of capital, no upper limit) are
allowed[19] in India together with and public companies, limited or not, likewise with
partnerships. sole proprietorship too are allowed. However, the latter are reserved for NRIs.
Through capital market operations, foreign companies can transact on the two exchanges
without prior permission of RBI but they cannot own more than 10 percent equity in paid-up
capital of Indian enterprises, while aggregate foreign institutional investment (FII) in an
enterprise is capped at 24 percent.
The establishment of wholly owned subsidiaries (WOS) and project offices and branch offices,
incorporated in India or not. Sometimes, it is understood, that branches are started to test the
market and get its flavor. Equity transfer from residents to non-residents in mergers and
acquisitions (M&A) is usually permitted under the automatic route. However, if the M&As are in
sectors and activities requiring prior government permission (Appendix 1 of the Policy) then
transfer can proceed only after permission.[20]
Joint ventures with trading companies are allowed together with imports of secondhand plants
and machinery.
It is expected that in a JV, the foreign partner supplies technical collaboration and the pricing
includes the foreign exchange component, while the Indian partner makes available the factory
or building site and locally made machinery and product parts. Many JVs are formed as public
limited companies (LLCs) because of the advantages of limited liability. [21]
Ukraine[edit]
In Ukraine, most of joint ventures are operated in the form of Limited liability company,[22] as
there is no legal entity form as Joint venture. Protection of the rights of foreign investors is
guaranteed by Law of Ukraine "On Foreign Investment". In Ukraine, JV can be established
without legal entity formation and act under so called Cooperation Agreement [23] (Dogovir pro
spilnu diyalnist; Ukr. Договір про спільну діяльність). Under Ukraine civil code, CA can be
established by two or more parties; rights and obligations of the parties are regulated by the
agreement. Cooperation agreement has been widely spread in Ukraine, mainly in the field of oil
and gas production. Since the Independence of Ukraine, Corruption doesn't allow to execute
the Ukraine Law, Investors need to protect their Rights and Property themselves.
See also[edit]
Common purpose, also known as a "joint enterprise" (criminal law)
Division (business)
International joint venture
Joint venture broker
Partnership
Subsidiary
References[edit]
^ Roos, Alexander; Khanna, Dinesh; Verma, Sharad; Lang, Nikolaus; Dolya, Alex; Nath, Gaurav;
Hammoud, Tawfik. "Getting More Value from Joint Ventures". Transaction Advisors. ISSN 2329-
9134.
^ Reuer, Jeffrey J., and Michael J. Leiblein (2000). "Downside risk implications of
multinationality and international joint ventures." Academy of Management Journal, 43 (2),
203-214.
^ Baynham, Gerard (October 6, 2017). "Learn Why Joint Ventures Are Staging a Quiet
Comeback". ChiefExecutive.net. Retrieved May 19, 2021.
^ "Joint ventures in Lebanese and European law". Mallat.com. Archived from the original on
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Archived from the original on February 8, 2010. Retrieved January 1, 2012.
Franchising
This article is about the business concept. For other uses, see Franchise.
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A McDonald's franchise in Moncton, New Brunswick, Canada
Franchising is based on a marketing concept which can be adopted by an organization as a

strategy for business expansion. Where implemented, a franchisor licenses some or all of its
know-how, procedures, intellectual property, use of its business model, brand, and rights to sell
its branded products and services to a franchisee. In return the franchisee pays certain fees and
agrees to comply with certain obligations, typically set out in a franchise agreement.
The word "franchise" is of Anglo-French derivation—from franc, meaning free—and is used

both as a noun and as a (transitive) verb.[1] For the franchisor, use of a franchise system is an
alternative business growth strategy, compared to expansion through corporate owned outlets
or "chain stores". Adopting a franchise system business growth strategy for the sale and
distribution of goods and services minimizes the franchisor's capital investment and liability
risk.
Franchising is rarely an equal partnership, especially in the typical arrangement where the
franchisee is an individual, unincorporated partnership or small privately-held corporation, as
this will ensure the franchisor has substantial legal and/or economic advantages over the
franchisee. The usual exception to this rule is when the prospective franchisee is also a
powerful corporate entity controlling a highly lucrative location and/or captive market (for
example, a large sports stadium) in which prospective franchisors must then compete to
exclude one another from. However, under specific circumstances like transparency, favourable
legal conditions, financial means and proper market research, franchising can be a vehicle of
success for both a large franchisor and a small franchisee.
Thirty-six countries have laws that explicitly regulate franchising, with the majority of all other
countries having laws which have a direct or indirect effect on franchising. [2] Franchising is also
used as a foreign market entry mode.
Contents
1History
2Fees and contract arrangement
3Rationale and risk shift
4Advantages and disadvantages of franchising as an entry mode
5Obligations of the parties
6Regulations
6.1Australia
6.1.1Franchising code of conduct
6.2New Zealand
6.3Brazil
6.4Canada
6.5China
6.6India
6.7Kazakhstan
6.8Europe
6.8.1France
6.8.2Italy
6.8.3Norway
6.8.4Russia
6.8.5Spain
6.8.6Turkey
6.8.7United Kingdom
6.9United States
7Social franchises
8Third-party logistics franchising
9Event franchising
10Home-based franchises
11See also
12Further reading
13References
14External links
History[edit]
The boom in franchising did not take place until after World War II. Nevertheless, the rudiments
of modern franchising date back to the Middle Ages when landowners made franchise-like
agreements with tax collectors, who retained a percentage of the money they collected and
turned the rest over.[3] The practice ended around 1562 but spread to other endeavors. [4] For
example, in 17th century England franchisees were granted the right to sponsor markets and
fairs or operate ferries. There was little growth in franchising, though, until the mid-19th
century, when it appeared in the United States for the first time.
One of the first successful American franchising operations was started by an enterprising
druggist named John S. Pemberton. In 1886, he concocted a beverage comprising sugar,
molasses, spices, and cocaine. Pemberton licensed selected people to bottle and sell the drink,
which was an early version of what is now known as Coca-Cola. His was one of the earliest—
and most successful—franchising operations in the United States.
The Singer Company implemented a franchising plan in the 1850s to distribute its sewing

machines. The operation failed, though, because the company did not earn much money even
though the machines sold well. The dealers, who had exclusive rights to their territories,
absorbed most of the profits because of deep discounts. Some failed to push Singer products,
so competitors were able to outsell the company. Under the existing contract, Singer could
neither withdraw rights granted to franchisees nor send in its own salaried representatives. So,
the company started repurchasing the rights it had sold. The experiment proved to be a failure.
That may have been one of the first times a franchisor failed, but it was by no means the last.
(Even Colonel Sanders did not initially succeed in his Kentucky Fried Chicken franchising efforts.)
Still, the Singer venture did not put an end to franchising.
Other companies tried franchising in one form or another after the Singer experience. For
example, several decades later, General Motors Corporation established a somewhat successful
franchising operation in order to raise capital. Perhaps the father of modern franchising,
though, is Louis K. Liggett. In 1902, Liggett invited a group of druggists to join a "drug
cooperative." As he explained to them, they could increase profits by paying less for their
purchases, especially if they set up their own manufacturing company. His idea was to market
private label products. About 40 druggists pooled $4,000 of their own money and adopted the
name "Rexall". Sales soared, and Rexall became a franchisor. The chain's success set a pattern
for other franchisors to follow.
Although many business owners did affiliate with cooperative ventures of one type or another,
there was little growth in franchising until the early 20th century, and in whatever form
franchising existed, it looked nothing like what it is today. As the United States shifted from an
agricultural to an industrial economy, manufacturers licensed individuals to sell automobiles,
trucks, gasoline, beverages, and a variety of other products. The franchisees did little more than
selling the products, though. The sharing of responsibility associated with contemporary
franchising arrangement did not exist to a great extent. Consequently, franchising was not a
growth industry in the United States.
It was not until the 1960s and 1970s that people began to take a close look at the attractiveness
of franchising. The concept intrigued people with entrepreneurial spirit. However, there were
serious pitfalls for investors, which almost ended the practice before it became truly popular.
A Pizza Hut franchise
The United States is a leader in franchising, a position it has held since the 1930s when it used
the approach for fast-food restaurants, food inns and, slightly later, motels at the time of
the Great Depression.[5][6] As of 2005, there were 909,253 established franchised businesses,
generating $880.9 billion of output and accounting for 8.1 percent of all private, non-farm jobs.
This amounts to 11 million jobs, and 4.4 percent of all private sector output. [7]
Mid-sized franchises like restaurants, gasoline stations and trucking stations involve substantial
investment and require all the attention of a businessperson.
There are also large franchises like hotels, spas and hospitals, which are discussed further
under technological alliances.
"No poaching" agreements are prevalent within franchises, thus limiting the ability of
employers at one franchise establishment to hire employees at an affiliated franchise.
Economists have characterized these agreements as a contributor to oligopsony.[8]
Fees and contract arrangement[edit]
Three important payments are made to a franchisor: (a) a royalty for the trademark, (b)
reimbursement for the training and advisory services given to the franchisee, and (c) a
percentage of the individual business unit's sales. These three fees may be combined in a single
'management' fee. A fee for "disclosure" is separate and is always a "front-end fee".
A franchise usually lasts for a fixed time period (broken down into shorter periods, which each
require renewal), and serves a specific territory or geographical area surrounding its location.
One franchisee may manage several such locations. Agreements typically last from five to thirty
years, with premature cancellations or terminations of most contracts bearing serious
consequences for franchisees. A franchise is merely a temporary business investment involving
renting or leasing an opportunity, not the purchase of a business for the purpose of ownership.
It is classified as a wasting asset due to the finite term of the license.
Franchise fees are on average 6.7% with an additional average marketing fee of 2%. [9] However,
not all franchise opportunities are the same and many franchise organizations are pioneering
new models that challenge antiquated structures and redefine success for the organization as
well as the franchisee.
A franchise can be exclusive, non-exclusive or "sole and exclusive".
Although franchisor revenues and profit may be listed in a franchise disclosure

document (FDD), no laws require an estimate of franchisee profitability, which depends on how
intensively the franchisee "works" the franchise. Therefore, franchisor fees are typically based
on "gross revenue from sales" and not on profits realized. See remuneration.
Various tangibles and intangibles such as national or international advertising, training and

other support services are commonly made available by the franchisor.
Franchise brokers help franchisors find appropriate franchisees. [10] There are also main 'master
franchisors' who obtain the rights to sub-franchise in a territory.
According to the International Franchise Association approximately 44% of all businesses in the
United States are franchisee-worked.
Rationale and risk shift[edit]
Franchising is one of the few means available to access venture capital without the need to give
up control of the operation of the chain and build a distribution system for servicing it. After the
brand and formula are carefully designed and properly executed, franchisors are able to sell
franchises and expand rapidly across countries and continents using the capital and resources
of their franchisees while reducing their own risk.
There is also risk for the people buying the franchises. However, failure rates are much lower
for franchise businesses than independent business startups. [11]
Franchisor rules imposed by the franchising authority are becoming increasingly strict. Some
franchisors are using minor rule violations to terminate contracts and seize the franchise
without any reimbursement.[12]
Advantages and disadvantages of franchising as an entry mode[edit]

Franchising brings with it several advantages and disadvantages for firms looking to expand into
new areas and foreign markets. The primary advantage is that the firm does not have to bear
the development cost and risks of opening a foreign market on its own, as the franchisee is
typically responsible for those costs and risks, putting the onus on them to build a profitable
operation as quickly as possible.[13] Through franchising, a firm has the potential of building a
global presence quickly and also at a low cost and risk.[13]
For the franchisee, the primary advantages are access to a well-known brand, support in setting
up the business using operating manuals, and ongoing operational support including access to
suppliers and employee training.[14]
A primary disadvantage to franchising is quality control, as the franchisor wants the firm's
brand name to convey a message to consumers about the quality and consistency of the firm's
product.[13] They want the consumer to experience the same quality regardless of location or
franchise status.[13] This can prove to be an issue with franchising, as a customer who had a bad
experience at one franchise may assume that they will have the same experience at other
locations with other services. Distance can make it difficult for firms to detect whether or not
the franchises are of poor quality.[13] One way around this disadvantage is to set up extra
subsidiaries in each country or state in which the firm expands. This creates a smaller number
of franchisees to oversee, which will reduce the quality control challenges. [13]
Obligations of the parties[edit]
Each party to a franchise has several interests to protect. The franchisor is involved in securing
protection for the trademark, controlling the business concept and securing know-how. The
franchisee is obligated to carry out the services for which the trademark has been made
prominent or famous. There is a great deal of standardization required. The place of service has
to bear the franchisor's signs, logos and trademark in a prominent place. The uniforms worn by
the staff of the franchisee have to be of a particular design and color. The service has to be in
accordance with the pattern followed by the franchisor in the successful franchise operations.
Thus, franchisees are not in full control of the business, as they would be in retailing.
A service can be successful if equipment and supplies are purchased at a fair price from the
franchisor or sources recommended by the franchisor. A coffee brew, for example, can be
readily identified by the trademark if its raw materials come from a particular supplier. If the
franchisor requires purchase from her stores, it may come under anti-trust legislation or
equivalent laws of other countries.[15] So too the purchase things like uniforms of personnel and
signs, as well as the franchise sites, if they are owned or controlled by the franchisor.
The franchisee must carefully negotiate the license and must develop a marketing or business
plan with the franchisor. The fees must be fully disclosed and there should not be any hidden
fees. The start-up costs and working capital must be known before the license is granted. There
must be assurance that additional licensees will not crowd the "territory" if the franchise is
worked according to plan. The franchisee must be seen as an independent merchant. It must be
protected by the franchisor from any trademark infringement by third parties. A franchise
attorney is required to assist the franchisee during negotiations. [16]
Often the training period – the costs of which are in great part covered by the initial fee – is too
short in cases where it is necessary to operate complicated equipment, and the franchisee has
to learn on their own from instruction manuals. The training period must be adequate, but in
low-cost franchises it may be considered expensive. Many franchisors have set up corporate
universities to train staff online. This is in addition to providing literature, sales documents and
email access.
Also, franchise agreements carry no guarantees or warranties and the franchisee has little or no
recourse to legal intervention in the event of a dispute. [17] Franchise contracts tend to be
unilateral and favor of the franchisor, who is generally protected from lawsuits from their
franchisees because of the non-negotiable contracts that franchisees are required to
acknowledge, in effect, that they are buying the franchise knowing that there is risk, and that
they have not been promised success or profits by the franchisor. Contracts are renewable at
the sole option of the franchisor. Most franchisors require franchisees to sign agreements that
mandate where and under what law any dispute would be litigated.
Regulations[edit]
Australia[edit]
In 2016 there were an estimated 1,120 franchise brands operating in Australia and an
estimated 79,000 units operating in business format franchises, with a total brand turnover of
approximately $146 billion and a sales revenue of approximately $66.5 billion. [18] In 2016 the
majority of franchise brands were retailers with the largest segment being non-food retailing,
accounting for 26 percent of brands, a further 19 percent of brands were involved in food
retailing, 15 percent of franchisors operated in administration and support services, 10 percent
in other services, 7 percent in education and training and 7 percent in rental, hire and real
estate services.[18]
Franchising in Australia commenced in a significant way in the early 1970s under the influence
of the franchised US fast food systems such as KFC, Pizza Hut, and McDonald's.[19] It was
however underway prior to this and a decade earlier in 1960 Leslie Joseph Hooker, considered a
pioneer of franchising, created Australia's first national real estate agency network
of Hooker real estate agencies.[20][21]
In Australia, franchising is regulated by the Franchising Code of Conduct, a mandatory code of
conduct concluded under the Trade Practices Act 1974.[22] The ACCC regulates the Franchising
Code of Conduct, which is a mandatory industry code that applies to the parties to a franchise
agreement.[23] This code requires franchisors to produce a disclosure document which must be
given to a prospective franchisee at least 14 days before the franchise agreement is entered
into.
The code also regulates the content of franchise agreements, for example in relation to
marketing funds, a cooling-off period, termination, and the resolution of disputes by mediation.
Franchising code of conduct[edit]
On 1 January 2015, the old Franchising Code was repealed and replaced with a new Franchising
Code of Conduct. The new Code applies to conduct on or after 1 January 2015.
The new Code:
introduces an obligation under the Code for parties to act in good faith in their dealings with
one another
introduces financial penalties and infringement notices for serious breaches of the Code
requires franchisors to provide prospective franchisees with a short information sheet outlining
the risks and rewards of franchising
requires franchisors to provide greater transparency in the use of and accounting for money
used for marketing and advertising and to set up a separate marketing fund for marketing and
advertising fees
requires additional disclosure about the ability of the franchisor and a franchisee to sell online
prohibits franchisors from imposing significant capital expenditure except in limited

circumstances.
These are significant changes and it is important that franchisors, franchisees and potential
franchises understand their rights and responsibilities under the Code.
For further information about the changes to the Code, please see the updated Franchisor
Compliance Manual and the Franchisee Manual.
The Code explanatory materials are available from the ComLaw website (link is external). [24]
New Zealand[edit]
New Zealand is served by around 423 franchise systems operating 450 brands, giving it the
highest proportion of franchises per capita in the world. Despite (or because of) the 2008-09
recession, the total number of franchised units increased by 5.3% from 2009 to 2010. [25] There is
no separate law covering franchises, so they are covered by normal commercial law. This
functions very well in New Zealand and includes law as it applies to contracts, restrictive trade
practices, intellectual property, and the law of misleading or deceptive conduct. [26]
The Franchise Association of New Zealand introduced a self-regulatory code of practice for its
members in 1996. This contains many provisions similar to those of the Australian Franchising
Code of Practice legislation, although only around a third of all franchises are members of the
association and therefore bound by the code.[27]
A case of fraud in 2007 perpetrated by a former master franchisee of the country's largest
franchise system[28] led to a review of the need for franchise law by the Ministry of Economic
Development.[29] The New Zealand Government decided there was no case for franchise-specific
legislation at that time.[30] This decision was criticised by the opposition,[31] which had initiated
the review when in power, and the review process was questioned by a leading academic.
[32]
The Franchise Association originally supported the positive regulation of the franchise
sector[33] but its eventual submission to the review was in favour of the status quo of self-
regulation.[34]
Brazil[edit]
By the end of 2012, about 2,031 franchise brands were operating in Brazil, with approximately
93,000 locations,[35] making it one of the largest countries in the world in terms of number of
units. Around 11 percent of this total were foreign-based franchisors.
The Brazilian Franchise Law (Law No. 8955 of December 15, 1994) defines the franchise as a
system in which the franchisor licenses the franchisee, for a payment, the right to use a
trademark or patent along with the right to distribute products or services on an exclusive or
semi-exclusive basis. The provision of a "Franchise Offer Circular", or disclosure document, is
mandatory before execution of agreement and is valid for all of the Brazilian territory. Failure to
disclose voids the agreement, which leads to refunds and serious payments for damages. The
Franchise Law does not distinguish between Brazilian and foreign franchisors. The National
Institute of Industrial Property (INPI) is the registering authority. Indispensable documents are a
Statement of Delivery (of disclosure documentation) and a Certification of Recording (INPI). The
latter is necessary for payments. All sums may not be convertible into foreign currency.
Certification may also mean compliance with Brazil's antitrust legislation.
Parties to international franchising may decide to adopt the English language for the document,
as long as the Brazilian party knows English fluently and expressly acknowledges that fact, to
avoid translation. The registration accomplishes three things:
* It make the agreement effective against third parties
* It permits the remittance of payments
* It qualifies the franchisee for tax deductions.
Canada[edit]
In Canada, recent legislation has mandated better disclosure and fair treatment of franchisees.
The regulations also ensure their right to form associations and launch collective action, even if
they signed contracts prohibiting such moves. Franchising in Canada involves 1,300 brands,
80,000 franchise units accounting for about 20% of all consumer spending. [36]
China[edit]
China has the most franchises in the world but the scale of their operations is relatively small.
The average franchise system in China has about 45 outlets, compared to more than 540 in the
United States. Together, there are 2600 brands in some 200,000 retail markets [clarification needed]. KFC
was the most significant foreign entry in 1987 and is widespread. [37] Many franchises are in fact
joint-ventures, as at their forming the franchise law was not explicit. For
example, McDonald's is a joint venture. Pizza Hut, TGIF, Wal-mart, Starbucks followed not long
thereafter. But total franchising is only 3% of retail trade, which seeks foreign franchise growth.
The year 2005 saw the birth of an updated franchise law,[37] "Measures for the Administration
of Commercial Franchise".[38] Previous legislation (1997) made no specific inclusion of foreign
investors. Further updates were made in 2007, with the objective of increased clarity of the
law.[citation needed]
The laws are applicable if there are transactions involving a trademark combined with
payments with many obligations on the franchisor. The law comprises 42 articles and eight
chapters.
Among the franchisor obligations are:
The FIE (foreign-invested enterprise) franchisor must be registered by the regulator
The franchisor (or its subsidiary) must have operated at least two company-owned franchises in
China (revised to "anywhere") for more than 12 months ("the two-shop, one-year" rule)
The franchisor must disclose any information requested by the franchisee
Cross-border franchising, with some caveats, is possible (2007 law).
The franchisor must meet a list of requirements for registration, among which are:
The standard franchise agreement, working manual and working capital requirements,
A track-record of operations, and ample ability to supply materials,
The ability to train the Chinese personnel and provide long-term operational guidance,
The franchise agreement must have a minimum three-year term.
Among other provisions:
The franchisor is liable for certain actions of its suppliers
Monetary and other penalties apply for infractions of the regulations.
The disclosure must take place 20 days in advance. It has to contain:
Details of the franchisor's experience in the franchised business with scope of business
Identification of the franchisor's principal officers
Litigation of the franchisor during the past five years
Full details about all franchise fees
The amount of a franchisee's initial investment
A list of the goods or services the franchisor can supply, and the terms of supply
The training franchisees will receive
Information about the trademarks, including registration, usage and litigation
Demonstration of the franchisor's capabilities to provide training and guidance
Statistics about existing units, including number, locations and operational results, and the
percentage of franchises that have been terminated, and
An audited financial report and tax information (for an unspecified period of time).
Other elements of this legislation are:

The franchisee's confidentiality obligations continue indefinitely after termination or expiration
of the franchise agreement
If the franchisee has paid a deposit to the franchisor, it must be refunded on termination of the
franchise agreement; upon termination, the franchisee is prohibited from continuing to use the
franchisor's marks.
India[edit]
The franchising of foreign goods and services to India is in its infancy. The first International
Exhibition was only held in 2009.[39] India is, however, one of the biggest franchising markets
because of its large middle-class of 300 million who are not reticent about spending and
because the population is entrepreneurial in character. In a highly diversified society,
(see Demographics of India) McDonald's is a success story despite its menu differing from that
of the rest of the world.[40]
So far, franchise agreements are covered under two standard commercial laws: the Contract
Act 1872 and the Specific Relief Act 1963, which provide for both specific enforcement of
covenants in a contract and remedies in the form of damages for breach of contract.
Kazakhstan[edit]
In Kazakhstan franchise turnover for 2013 is 2.5 billion US$ dollars per year. Kazakhstan is the
leader in Central Asia in the franchising market. A special law on franchising came into effect in
2002. There are more than 300 franchise systems and the number of franchised outlets
approaches 2000.[41] Kazakhstan franchising began with the emergence of a "Coca-Cola" factory,
opened to sublicense a Turkish licensor of the same brand. The plant was built in 1994. Other
brands that are also present in Kazakhstan through the franchise system include Pepsi, Hilton,
Marriott, Intercontinental, and Pizza Hut.
Europe[edit]
Franchising has grown rapidly in Europe in recent years, but the industry is largely unregulated.
The European Union has not adopted a uniform franchise law. [42] Only six of the 28 member
states have a pre-contract disclosure law. They are France (1989), Spain (1996), Romania
(1997), Italy (2004) Sweden ( 2004) and Belgium (2005). [43] Estonia and Lithuania have franchise
laws that impose mandatory terms on franchise agreements. In Spain there is also mandatory
registration on a public registry. Although they have no franchise specific laws, Germany and
those countries with a legal system based upon that of Germany, such as Austria, Greece and
Portugal, probably impose the greatest regulatory burden on franchisors due to their tendency
to treat franchisees as quasi consumers in certain circumstances and the willingness of the
judiciary to use the concept of good faith to make pro-franchisee decisions. In the UK, the
recent[when?] Papa John case shows that there is also a need for pre-contractual disclosure and
the Yam Seng case shows that there is a duty of good faith in franchise relationships.
The European Franchising Federation's Code of Ethics has been adopted by seventeen national
franchise associations. However this has no legal force and enforcement by the national
associations is neither uniform of rigorous. Commentators like Dr Mark Abell, in his book "The
Law and Regulation of Franchising in the EU" (published in 2013 by Edward Elgar ISBN 978 1
78195 2207) consider this lack of uniformity to be one of the greatest barriers to franchising
realising its potential in the EU.
When adopting a European strategy, it is important that a franchisor takes expert legal advice.
Most often one of the principal tasks in Europe is to find retail space, which is not so significant
a factor in the USA. This is where the franchise broker, or the master franchisor, plays an
important role. Cultural factors are also relevant, as local populations tend to be
heterogeneous.
France[edit]
France is one of Europe's largest markets. Similar to the United States, it has a long history of
franchising, dating back to the 1930s. Growth came in the 1970s. The market is considered
difficult for outside franchisors because of cultural characteristics, yet McDonald's and Century
21 are found everywhere. There are some 30 U.S. firms involved in franchising in France. [44]
There are no government agencies regulating franchises. The Loi Doubin Law of 1989 was the
first European franchise disclosure law. Combined with Decree No. 91-337, it regulates
disclosure, although the decree also applies to any person who provides to another person a
corporate name, trademark or trade name or other business arrangements. The law applies to
"exclusive or quasi-exclusive territory". The disclosure document must be delivered at least 20
days before the execution of the agreement or any payments are made.
The specific and important disclosures to be made are:[45]
The date of the founding of the franchisor's enterprise and a summary of its business history
and all information necessary to assess the business experience of the franchisor, including
bankers,
A description of the local market for the goods or services,
The franchisor's financial statements for the previous two years,
A list of all other franchisees currently in the network,

All franchisees who have left the network during the preceding year, whether by termination or
non-renewal, and
The conditions for renewal, assignment, termination and the scope of exclusivity.
Initially, there was some uncertainty whether any breach of the provisions of the Doubin Law
would enable the franchisee to walk away from the contract. However, the French supreme
court (Cour de cassation) eventually ruled that agreements should only be annulled where
missing or incorrect information affected the decision of the franchisee to enter into the
agreement. The burden of proof is on the franchisee.[46]
Dispute settlement features are only incorporated in some European countries. By not being
rigorous, franchising is encouraged.
Italy[edit]
Under Italian law franchise [47] is defined as an arrangement between two financially

independent parties where a franchisee is granted, in exchange for a consideration, the right to
market goods and services under particular trademarks. In addition, articles dictate the form
and content of the franchise agreement and define the documents that must be made available
30 days prior to execution. The franchisor must disclose:
a) A summary of the franchise activities and operations,
b) A list of franchisees currently operating in the franchise system in Italy,
c) Year-by-year details of the changes in the number of franchisees for the previous three years
in Italy,
d) A summary of any court or arbitral proceedings in Italy related to the franchise system, and
e) If requested by the franchisee, copies of franchisor's balance sheets for the previous three
years, or since start-up if that period is shorter.
Norway[edit]
There are no specific laws regulating franchising in Norway. However, the Norwegian
Competition Act section 10 prohibits cooperation which may prevent, limit or diminish the
competition. This may also apply to vertical cooperation such as franchising.
Russia[edit]
In Russia, under chapter 54 of the Civil Code (passed 1996), franchise agreements are invalid
unless written and registered, and franchisors cannot set standards or limits on the prices of the
franchisee's goods. Enforcement of laws and resolution of contractual disputes is a problem:
[citation needed]
Dunkin' Donuts chose to terminate its contract with Russian franchisees who were
selling vodka and meat patties contrary to their contracts, rather than pursue legal remedies. [48]
Spain[edit]
The legal definition of franchising in Spain is an activity in which an undertaking, the franchisor,
grants to another party, the franchisee, for a specific market and in exchange for financial
compensation (either direct, indirect or both), the right to exploit an owned system to
commercialize products or services already exploited by the franchisor with enough success and
experience.
The Spanish Retail Trading Act regulates franchising. [49] The contents of the franchise must
include, at least:
The use of a common name or brand or any other intellectual property right and a uniform
presentation of the premises or the transport means included in the agreement.
The communication by the franchisor to the franchise of certain technical knowledge or

substantial and singular know-how that has to be owned by the franchisor, and
Technical or commercial assistance or both, provided by the franchisor to the franchisee during
the agreement, without prejudice to any supervision faculty to which the parties could freely
agree in the contract.
In Spain, the franchisor submits the disclosure information 20 days prior to signing the
agreement or prior to any payment made by the franchisee to the franchisor. Franchisors are to
disclose to the potential franchisee specific information in writing. This information has to be
true and not misleading and include:
Identification of the franchisor;
Justification of ownership or license for use of any trademark or similar sign and judicial claims
affecting them as well as the duration of the license;
General description of the sector in which the franchise operates;
Experience of the franchisor;
Contents and characteristics of the franchise and its exploitation;
Structure and extension of the network in Spain;
Essential elements of the franchise agreement.

Franchisors (with some exceptions) should be registered in the Franchisors' Register and
provide the requested information. According to the regulation in force in 2010 this obligation
has to be met within three months after the start of its activities in Spain. [50]
Turkey[edit]
Franchising is a sui generis contract which bears the characteristics of several explicitly

regulated contracts such as; agency, sales contract and so forth. The regulations concerning
these kinds of contracts in Turkish Commercial Code and in Turkish Code of Obligations are
applied to franchising. Franchising is described in doctrine and has several essential
components such as; the independence of the franchisee from the franchisor, the use of know-
how and the uniformity of product and services, standard use of the brand and logo, payment
of a royalty fee, increasement of sales by the franchisee and continuity. Franchising may be for
a determined or undetermined period of time. The undetermined one can only be annulled
either by a notice before a reasonable amount of time or by a just cause. The franchising
agreement with a determined time period ends within the end of the time period if not
specified otherwise in the agreement. However, termination based on just cause is also
foreseen for franchising agreement with a determined time period.
United Kingdom[edit]
In the United Kingdom there are no franchise-specific laws; franchises are subject to the same
laws that govern other businesses.[51] There is some self-regulation through the British Franchise
Association (BFA) and the Quality Franchise Association (QFA).
There are a number of franchise businesses which are not members of the BFA and many which
do not meet the BFA membership criteria. Part of the BFA's role in self-regulation is to work
with franchisors through the application process and recommend changes which will lead to
the franchise business meeting BFA standards. A number of businesses that refer to themselves
as franchises do not conform to the BFA Code of Ethics are therefore excluded from
membership.
On 22 May 2007, hearings were held in the UK Parliament concerning citizen-initiated petitions
for special regulation of franchising by the government of the UK due to losses incurred by
citizens who had invested in franchises. The Minister for Industry and the Regions, Margaret
Hodge, conducted hearings but saw no need for any government regulation of franchising with
the advice that government regulation of franchising might lull the public into a false sense of
security. Mr Mark Prisk MP suggested that the costs of such regulation to the franchisee and
franchisor could be prohibitive and would in any case provide a system which mirrored the
work already being completed by the BFA. The Minister for Industry and the Regions indicated
that if due diligence were performed by the investors and the banks, the current laws governing
business contracts in the UK offered sufficient protection for the public and the banks. The
debate also made reference to the self-regulatory function performed by the BFA recognizing
that the association "punched above its weight".[52]
In the 2010 case of MGB Printing v Kall Kwik UK Ltd., the High Court established that a
franchisor may assume a duty of care to a franchisee in certain circumstances. Kall Kwik, a
design and print franchisor, had incorrectly advised MGB, who was purchasing a franchise, of
the costs of undertaking refit work needed to meet Kall Kwik's franchising requirements. In this
particular case, Kall Kwik had stated that they would provide professional advice to potential
franchisees, and because they had not provided details of the fitting standards which must be
met, they had encouraged MGB to rely on the advice offered by themselves.[53]
United States[edit]
Isaac Singer, who made improvements to an existing model of a sewing machine in the 1850s,
began one of the first franchising efforts in the United States, followed later by Coca-
Cola, Western Union,[54] and by agreements between automobile manufacturers and dealers. [55]
Modern franchising came to prominence with the rise of franchise-based food service
establishments. In 1932, Howard Deering Johnson established the first modern restaurant
franchise based on his successful Quincy, Massachusetts Howard Johnson's restaurant founded
in the late 1920s.[56][57] The idea was to let independent operators use the same name, food,
supplies, logo and even building design in exchange for a fee. The growth in franchising
accelerated in the 1930s when such chains as Howard Johnson's started to franchise motels.
[58]
The 1950s saw a boom in franchise chains in conjunction with the development of the U.S.
Interstate Highway System and the growing popularity of fast food.[59]
The Federal Trade Commission has oversight of franchising via the FTC Franchise Rule.[60]
The FTC requires that the franchisee be furnished with a Franchise Disclosure Document (FDD)
by the franchisor at least fourteen days before money changes hands or a franchise agreement
is signed.[61] Whereas elements of the disclosure may be available from third parties, only that
provided by the franchisor can be depended upon. The U.S. Franchise Disclosure Document
(FDD) is lengthy (300–700 pp +) and detailed (see Franchise Disclosure Document, above), and
generally requires audited financial statements from the franchisor in a particular format,
except in some circumstances, such as where a franchisor is new. It must include such data as
the names, addresses and telephone numbers of the franchisees in the licensed territory (who
may be contacted and consulted before negotiations), estimate of total franchise revenues and
franchisor profitability.
Individual states may require the FDD to contain their own specific requirements, but the
requirements in state disclosure documents must be in compliance with the federal rule that
governs federal regulatory policy. There is no private right of action of action under the FTC rule
for franchisor violation of the rule, but fifteen or more of the states have passed statutes that
provide this right of action to franchisees when fraud can be proven under these special
statutes. The majority of franchisors have inserted mandatory arbitration clauses into their
agreements with their franchisees, some of which the U.S. Supreme Court has dealt with.
In response to the implementation of California Assembly Bill 5 (2019) which limits the use of
classifying workers as independent contractors rather than employees in California, the United
States Court of Appeals for the Ninth Circuit reinstated its decision in Vazquez v. Jan-
Pro [62] which impacts California franchise law and California independent contractor law [63] by
making it unclear that if a franchisor licenses its trademark to a franchisee, whether the
franchisor incurs the liabilities of an employer for a franchisee's employees.
There is no federal registry of franchises or any federal filing requirements for information.
States are the primary collectors of data on franchising companies and enforce laws and
regulations regarding their presence and their spread in their jurisdictions.
Where the franchisor has many partners, the agreement may take the shape of a business
format franchise – an agreement that is identical for all franchisees.
Social franchises[edit]
In recent years, the idea of franchising has been picked up by the social enterprise sector, which
hopes to simplify and expedite the process of setting up new businesses. A number of business
ideas, such as soap making, wholefood retailing, aquarium maintenance, and hotel operation
have been identified as suitable for adoption by social firms employing disabled and
disadvantaged people.
The most successful examples are probably the Kringwinkel second-hand shops employing

5,000 people in Flanders, franchised by KOMOSIE, [64] the CAP Markets, a steadily growing chain
of 100 neighbourhood supermarkets in Germany.[65] and the Hotel Tritone in Trieste, which
inspired the Le Mat social franchise, now active in Italy and Sweden.[66]
Social franchising also refers to a technique used by governments and aid donors to provide
essential clinical health services in the developing world.
Social Franchise Enterprises objective is to achieve development goals by creating self

sustainable activities by providing services and goods in un-served areas. They use the
Franchise Model characteristics to deliver Capacity Building, Access to Market and Access to
Credit/Finance.[67]
Third-party logistics franchising[edit]
Third-party logistics has become an increasingly more popular franchise opportunity due to the
quickly growing transportation industry [68] and low cost franchising. In 2012, Inc.
Magazine ranked three logistics and transportation companies in the top 100 fastest growing
companies in the annual Inc. 5000 rankings.[69]
Event franchising[edit]
Event franchising is the duplication of public events in other geographical areas, retaining the
original brand (logo), mission, concept and format of the event.[70] As in classic franchising,
event franchising is built on precisely copying successful events. An example of event
franchising is the World Economic Forum, also known as the Davos forum, which has regional
event franchisees in China, Latin America, etc. Likewise, the alter-globalist World Social
Forum has launched many national events. When The Music Stops is an example of an events
franchise in the UK, in this case, running speed dating and singles events.
Home-based franchises[edit]
The franchising or duplication of another firm's successful home-based business model is

referred to as a home-based franchise. Home-based franchises are becoming popular as they
are considered to be an easy way to start a business as they may provide a low barrier for entry
into entrepreneurship. It may cost little to start a home-based franchise, but experts say that
"the work is no less hard."[71]
See also[edit]
American Association of Franchisees and Dealers
Franchise termination
Franchise agreement
Franchise consulting
Franchise Disclosure Document
Franchise fraud
List of franchises
The Franchise Rule
U.S. Securities and Exchange Commission
Martha Matilda Harper, another female franchising pioneer
Leslie Joseph Hooker, Australian pioneer of franchising of LJ Hooker real estate
Further reading[edit]
Callaci, B. (2021). "Control Without Responsibility: The Legal Creation of Franchising, 1960–
1980." Enterprise & Society, 22(1), 156–182.
References[edit]
^ "franchise" Online Etymology Dictionary
^ "International Franchise and Distribution". DLA Piper. 2012. Archived from the original on

2012-04-02. Retrieved 2012-02-02.
^ "History of Franchising" (PDF). Franchoice.com. Retrieved 30 December 2017.
^ "Where it all began. The evolution of franchising". Franchise-chat.com. Retrieved 2017-06-06.
^ Stephen T. Schroth, "Vacation", in The Social History of the American Family: An Encyclopedia,
ed. Marilyn J. Coleman and Lawrence H. Ganong (NY: Sage, 2014), 1411-
14. ISBN 9781452286150 For a parallel discussion of Canada, see Alan Gordon, Time Travel:
Tourism and the Rise of the Living History Museum in Mid-Twentieth-Century
Canada (Vancouver: UBC Press, 2016), 85-87. ISBN 9780774831567
^ Kallianiotis, I. (2013-12-18). International Financial Transactions and Exchange Rates: Trade,

Investment, and Parities. Springer. ISBN 9781137356932.
^ "The Economic Impact of Franchised Businesses In the United States" (PDF). Price Waterhouse

Coopers. 2012. Archived from the original (PDF) on 2012-06-17. Retrieved 2012-02-02.
^ Krueger, Alan B.; Ashenfelter, Orley (2021). "Theory and Evidence on Employer Collusion in the
Franchise Sector". Journal of Human Resources. 57: S324–
S348. doi:10.3368/jhr.monopsony.1019-10483. ISSN 0022-166X. S2CID 240643326.
^ "The Profile of Franchising Report Series III – Royalty and Advertising Fees". International
Franchise Association. 2006. Archived from the original on 2013-05-12. Retrieved 2013-04-16.
^ Libava, Joel (5 January 2012). "What is a Franchise Broker". Small Business Administration.

Archived from the original on 7 June 2017. Retrieved 22 July 2017.
^ Martin, Robert E. (1988). "Franchising and Risk Management". The American Economic
Review. 78 (5): 954–968. ISSN 0002-8282. JSTOR 1807159.
^ Martin, Robert E. (1988). "Franchising and Risk Management". The American Economic

Review. 78 (5): 954–968. ISSN 0002-8282. JSTOR 1807159.
^ Jump up to:a b c d e f Hill, Charles W.L. (2015). International Business. New York: McGraw-Hill

Education. p. 457. ISBN 978-0-07-811277-5.
^ Hollenbeck, Brett (2017). "The Economic Advantages of Chain Organization". RAND Journal of

Economics. 48 (4): 1103–1135. doi:10.1111/1756-2171.12214. SSRN 2621840.
^ "Contractual and Business Aspects of Structuring Supplier Agreements" (PDF). Maslynlaw.com.

Retrieved 30 December 2017.
^ Manual on Technology Transfer Negotiation (A reference for policy-makers and practitioners

on Technology Transfer), 1996, United Nations Industrial Development Organization, Vienna,
1990, ISBN 92-1-106302-7
^ Larson, Aaron. "Should You Invest in a Franchise Opportunity". ExpertLaw. Retrieved 22

July 2017.
^ Jump up to:a b "Franchising Australia 2016". Franchise Council Of Australia. Archived from the

original on 2 April 2018. Retrieved 2 April 2018.
^ "Franchising: An Introduction". Franchise Council Of Australia. Archived from the original on 2

April 2018. Retrieved 2 April 2018.
^ "L J Hooker, the man behind the brand". ABC. 17 March 2011. Retrieved 2 April 2018.
^ "LJ Hooker's Heritage, History and Brand". LJ Hooker. Retrieved 2 April 2018.
^ "Federal Register of Legislation – Australian Government". Legislation.gov.au. Retrieved 11

August 2017.
^ "Archived copy". Archived from the original on 2015-06-07. Retrieved 2015-08-17.
Foreign direct investment
A foreign direct investment is an investment in the form of a controlling ownership in a

business in one country by an entity based in another country. It is thus distinguished from a
foreign portfolio investment by a notion of direct control. Wikipedia
Importance
Foreign direct investment is significant for developing economies and emerging markets where
companies need funding and expertise to expand their international sales. Private investment
in infrastructure, energy, and water is a critical driver of the economy as helps in increasing jobs
and wages.Mar 30, 2020
Why is FDI so important?https://www.fdi.finance › blog › why-is-fdi-so-important
Search for: the importance of foreign investment
Types
There are three general types of direct investment: vertical, horizontal, or conglomerate
investment.
Direct Investment Definition - Investopediahttps://www.investopedia.com › terms › direct-

investment
Search for: types of direct investments
Good
FDI allows the transfer of technology—particularly in the form of new varieties of capital inputs
—that cannot be achieved through financial investments or trade in goods and services. FDI can
also promote competition in the domestic input market.
How Beneficial Is Foreign Direct Investment for Developing Countries?https://www.imf.org ›

pubs › fandd › 2001/06 › loungani
Search for: foreign direct investment good
Effects
FDI contributes more jobs to the local economy by directly adding new jobs and indirectly when
local spending increases due to purchases of goods and services by the new increase in
employees. All of these in turn are expected to have positive multiplier effects for an economy.

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Foreign direct investment

A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a

FDI, a subset of international factor movements, is characterized by controlling ownership of a

According to Grazia Ietto-Gillies (2012),[4] prior to Stephen Hymer's theory regarding direct

by incorporating a wholly owned subsidiary or company anywhere

by acquiring shares in an associated enterprise

through a merger or an acquisition of an unrelated enterprise

participating in an equity joint venture with another investor or enterprise

Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA),

In September 2013, the United States House of Representatives voted to pass the Global

2. What is a Greenfield Investment?

In economics, a greenfield investment (GI) refers to a type of foreign direct investment

According to the Bureau of Economic Analysis (BEA), a greenfield investment is a project

Apart from potential tax breaks or subsidies in establishing a greenfield investment, the

Advantages of a Greenfield Investment

There are numerous advantages to a greenfield investment, including the following:

 High level of control over business operations

Disadvantages of a Greenfield Investment

There are, of course, potential disadvantages as well, such as the following:

An extremely high-risk investment – a greenfield investment is the riskiest form of foreign

Potentially high market entry cost (barriers to entry)

Government regulations that may hamper foreign direct investments

High fixed costs involved in establishing a greenfield location

Example of a Greenfield Investment

Real-World Examples of Greenfield Investments

Hyundai Motor Co. in Nošovice

Toyota Motor Corp. in Mexico

The rationale behind Toyota’s greenfield investment is to improve competitiveness in North

There are two types of exporting: direct and indirect.

^ Jump up to:a b c "Foreign Direct Investment Definition from Financial Times

^ Ietto-Gillies, Grazia (2012). Transnational corporations and international production:

^ Dunning, John H.; Pitelis, Christos N. (2008). "Stephen Hymer's contribution to international

^ "Goal 10 targets". UNDP. Archived from the original on 27 November 2020. Retrieved 23

^ "FDI by Country". Greyhill Advisors. Retrieved 15 November 2011.

Obtain extra income for technical know-how and services.

Reach new markets not accessible by export from existing facilities.

Quickly expand without much risk and large capital investment.

Pave the way for future investments in the market.

Retain established markets closed by trade restrictions.

Political risk is minimized as the licensee is usually 100% locally owned.

Lower income than in other entry modes

Risk of having the trademark and reputation ruined by an incompetent partner

Image of Lego Batman. Authored by: Vanessa Oshiro. Located

Jump to navigationJump to search

A cross-licensing agreement is a contract between two or more parties where each party grants

2Non patent law

Defensive Patent License

Fair, reasonable, and non-discriminatory (FRAND,

Catch and release

Defensive patent aggregation

Clauses in patent licenses

Higher category: Patents, Patent law

In patent law, a cross-licensing agreement is an agreement according to which two or more

For example, Microsoft and JVC entered into a cross license agreement in January 2008.[3] Each

One of the limitations of cross licensing is that it is ineffective against patent holding

Non patent law[edit]

Other non-patent intellectual property such as copyright and trademark can also be cross-

Copyright protection for fictional characters

Licensing (strategic alliance)