International Factor Movements and Entry Modes: Presented By: Ishpreet Jasmine Rahul Rajat Presented To DR Deepa Kapoor

International factor
movements and
Entry modes
Presented by:
Ishpreet
Presented to Jasmine
Dr Deepa kapoor Rahul
Rajat
International factor movement
may be thought of as a substitute
for international movements of goods
and services : It is movement of capital
and labor
Without movement of labour
Output , Q
Q (T, L)
Labor, L
Marginal Product of
labor,
MPL
Rents
Real
wage
Wages
MPL
Labor, L
After movement of labour
Home workers would like to move to Foreign

until the marginal product of labor is the same
in the two countries.
This movement will reduce the Home labor
force and thus raise the real wage in Home.
This movement will increase the Foreign
labor force and reduce the real wage in Foreign.
Home country : Foreign country:
Labour intensive Capital intensive
MPL Marginal product MPL*

of labor
B
A
C
MPL
MPL*
O Home L2 L1 Foreign O*
employment employment
Migration of labor
from Home to Foreign
Total world labor force
Types
Labour Transfer of
migration capital
Transfer of Capital
Foreign direct Portfolio

investment investment
Multi national Stocks

Companies Bonds
shares
Labour migration
International
Transfers Brain drain
Enter
Franchising
A foreign firm adopts the franchisor’s entire
business format in the local market , its name,
trademarks, business policies and specified set of
procedures, methods and layout of premises etc
Exporting
Exporting is the marketing and direct sale of
domestically-produced goods in another country.
Exporting is a traditional and well-established
method of reaching foreign markets.
Joint Venture
Objectives in a joint venture:
• Market entry
• Risk/reward sharing
• Technology sharing and joint product development
• Conforming to government regulations.
Strategic Alliance
• A Strategic Alliance is a formal relationship
between two or more parties to pursue a set of
agreed upon goals or to meet a critical business
need while remaining independent organizations
Turnkey Projects
Turn-key refers to something that is constructed by a
developer and sold or turned over to a buyer in a ready-to-use
condition. It includes selecting of store site, built the
store,equip it,train the employees & sometimes arrangement
of the funds is also done by the company itself.
Contract Manufacturing
Production of goods by one firm, under the label or brand of
another firm. Contract manufacturers provide such service
to several (even competing) firms based on their own or the
customers' designs, formulas, and/or specifications,
retaining the responsibility of marketing the product.
Management Contracting
Agreement between investors or owners of a project, and a management
company hired for coordinating and overseeing a contract. It spells out the
conditions and duration of the agreement, and the method of computing
management fees.
It can involve a wide range of functions, such as technical operation of a
production facility, management of personnel, accounting, marketing
services and training.
Mergers and Acquisitions
Mergers
Merger is a financial tool that is used for enhancing
long-term profitability by expanding their
operations. Mergers occur when the merging
companies have their mutual consent
Statutory Merger
A Statutory Merger is a combination of two

corporations, in which one of them cease to exist.
If rendered as an equation, a Statutory Merger
might be expressed like this:
Company X + Company Y = Company X
 E.g.-Hewlett-Packard’s acquisition of Digital
Equipment Corporation (DEC). As of 2006, DEC’s
products lines have been sold under the HP name.
As a distinct entity, DEC has ceased to exist.
Subsidiary Merger
A subsidiary merger occurs when the target

company (the company that is purchased)
becomes a subsidiary of the acquiring company.
 If Company X purchases Company Y, then we
will have:
Company X + Company Y = (Company X +
Company Y)
 To the public, Company Y will maintain its
former appearance; but it will be owned and
controlled by Company X.
Consolidation
A consolidation is a form of merger in which two

companies join to form a new corporate entity.
Company X + Company Y = Company Z
 A consolidation often means a new name, and a

new public identity. Consolidations, therefore,
usually involve companies in the same line of
business.
Is it a merger or a consolidation?
The terms merger and consolidation are
sometimes used interchangeably.
As a general rule of thumb, a merger describes

the acquisition of a smaller company by a larger
one.
If the union is between two corporations of
more or less equal size, then the term
consolidation is probably applicable.
1. Horizontal Merger: A merger occurring between
companies producing similar goods or offering similar
services.
Daimler-Benz and Chrysler is a popular example of
a horizontal merger.
2. Vertical: A merger between two companies producing
different goods or services for one specific finished
product.
A real life example of a vertical merger is Apple
( which manufacture computers) with Intel (which
manufactures processors that go in the Apple
Computers).
3. Conglomerate Merger: A conglomerate merger is
a union of two companies that
a.) are not competitors, and
b.) not part of the same supply chain
3. Conglomerate Merger: A conglomerate merger is
a union of two companies that
a.) are not competitors, and
b.) not part of the same supply chain
Kelso's acquisition of Nortek is an example of
conglomerate merger. The two companies are totally
unrelated. Nortek Inc. is a leading international
designer, manufacturer and marketer of building
products while Kelso & Company is a private equity firm
based in New York City.
Acquisitions
An acquisition, also known as a takeover or a
buyout, is the buying of one company by another.
Acquisitions or takeovers occur between the bidding
and the target company.
Major M&A
Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:
Transaction
Rank Year Purchaser Purchased value (in mil.
USD)
Vodafone
1 1999 Mannesmann 183,000
Airtouch PLC
2 1999 Pfizer Warner-Lambert 90,000
3 1998 Exxon Mobil 77,200
4 1998 Citicorp Travelers Group 73,000
SBC Ameritech
5 1999 63,000
Communications Corporation
AirTouch
6 1999 Vodafone Group 60,000
Communications
7 1998 Bell Atlantic GTE 53,360
8 1998 BP Amoco 53,000
Qwest
9 1999 US WEST 48,000
Communications
MCI
10 1997 Worldcom 42,000
Communications
Top 10 M&A deals worldwide by value (in mil. USD) from 2000 to 2008:
Transaction
Rank Year Purchaser Purchased value (in mil.
USD)
America Online
1 2000 Time Warner 164,747
Inc. (AOL)
Glaxo Wellcome SmithKline
2 2000 75,961
Plc. Beecham Plc.
Royal Dutch Shell Transport &
3 2004 74,559
Petroleum Co. Trading Co
BellSouth
4 2006 AT&T Inc. 72,671
Corporation
Comcast AT&T Broadband
5 2001 72,041
Corporation & Internet Svcs
Sanofi-
6 2004 Aventis SA 60,243
Synthelabo SA
Spin-off: Nortel
7 2000 Networks 59,974
Corporation
Pharmacia
8 2002 Pfizer Inc. 59,515
Corporation
JP Morgan
9 2004 Bank One Corp 58,761
Chase & Co[
Anheuser-Busch
10 2008 Inbev Inc. 52,000
Licensing
A license is really nothing more than a contractual
right that gives someone permission to engage in a
defined activity or to use certain property that is
owned by someone else.
Licensing involves transfer of industrial property rights (
patents, trademarks, technical know how ) from a
licensor in one country to a licensee in other country.
Licensing is thus an agreement between the company
which is seeking to do seeking to do business in
foreign market and any party of the local market.
Counter trade
1. Barter: Exchange of goods or services directly for
other goods or services without the use of money as
means of purchase or payment.
2. Offsets: They pertain mostly to military and
commercial aircraft sales.
The name comes from the fact that
part of the cost of the product is offset by purchasing
products in the country where the goods are being sold.
1. Direct offsets: McDonnell Douglas sold MD 82 mid-size
passenger aircraft to China. The contract included provisions for
the Chinese to manufacture aircraft components such as doors to
be used for landing gears, passengers, and cargo.
2. Indirect offsets: These are goods that are not used in the
products sold to that country.
e.g. - the price of DC-9s sold to Yugoslavia was indirectly offset by
the purchases of Elan skis.
3. Switch trading: Practice in which one company
sells to another its obligation to make a purchase in a
given country. This form normally occurs between
Eastern European countries and the LDC's.
4. Counter purchase: Counter purchase is an
agreement between two business units to buy from
each other in carrying amounts over varying periods of
time. This transaction creates hard
currency that is then used in turn to purchase products.
5. Buyback: It occurs when a firm builds a plant in a
country - or supplies technology, equipment, training, or
other services to the country and agrees to take a
certain percentage of the plant's output as partial
payment for the contract.

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International factor

Home workers would like to move to Foreign

MPL Marginal product MPL*

Foreign direct Portfolio

Multi national Stocks

A Statutory Merger is a combination of two

A subsidiary merger occurs when the target

A consolidation is a form of merger in which two

 A consolidation often means a new name, and a

As a general rule of thumb, a merger describes

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