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communist country like China, whose economy is centrally planned. Joint ventures often help. For example, Otis Elevator has a joint venture with Tianjin Lifts to make elevators for China. Alstohom of France makes the high-speed trains that go from Paris to Marseilles at speeds exceeding 180 miles per hour. That firm combined with Bombardier of Montreal (which has factories in the U.S.) to produce subway cars for New York. In 1987, there were 294 new joint ventures between U.S. and European firms. There were 92 such agreements between U.S. and Japanese firms. Two of the more heavily publicized international joint ventures in the 1980’s were the GM-Toyota plants in California and the Ford – Toyo Kogyo (Mazda) plant in Mexico. Both GM and Ford needed a small car to complete with the small Japanese cars. What better place to find the technology and experience than Japan? The GM-Toyota plant is equally owned by the two companies. The plant is called NUMMI for New United Motor Manufacturing, Inc., and makes the Chevy Nova Twin Cam with 16-valve engine. Ford owns the assembly plant in Mexico, but the car is one designed by

Japan’s Toyo Kogyo.

These auto company ventures are merely the most publicized cooperative efforts. Joint ventures are nothing new in international trade/ Perhaps the most visible example is the cooperation between major department stores and foreign producers of TV sets, videotape recorders, and other such goods (especially Japan). The foreign company produces the goods, and U.S. corporation provide the distribution and promotion expertise. In the United States, names such as Panasonic and Sony are as familiar as GE and Westinghouse because of joint ventures.

The benefits of international joint ventures are clear – shared technology, shared marketing expertise, entry into markets where foreign goods are not allowed unless produced locally, and shared risk. The drawbacks are not so obvious. One important one is that the partner can learn your technology and practices and go off on its as a competitor – a rather common practice, Over time, the technology may become obsolete or the partnership may be too large to be as flexible as needed. Because of these drawbacks, such agreements need to include some provision for shared information, shared management, and procedures for evaluating the agreement and potential separation. Given such arrangements, cooperative ventures promise to be a growing phenomenon as business firms seek to expand markets overseas.

Countertrading

One of the oldest forms of trade is called bartering, the exchange of merchandise for merchandise with no money involved. Countertrading is more complex than bartering in that several countries may be involved, each trading goods for goods. It

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has been estimated that countertrading accounts for 25 percent of all international exchanges.

Examples of countertrade and bartering agreements are many. Chrysler traded its vehicles in Jamaica for bauxite. McDonnell Douglas traded jets in Yugoslavia for canned hams. General Motors has traded vehicles with China for industrial gloves and cutting tools. Telex Media has traded television shows for advertising time in several foreign countries. Westinghouse sold a $100 million air defense radar system to Jordan in trade for phosphate.

Barter is especially important to poor countries that have little cash available for trade. Such countries may barter with all kinds of material, food or whatever resources they have. Colombia has traded coffee for buses. Romania traded cement for steam engines. The Sudan pays for Pepsi concentrate with sesame seeds. Tanzania uses sisal, and Nicaragua uses sesame seeds and molasses. With many world economies still in a state of flux, there is no question that countertrading will grow in importance in the 1990s. Trading products for products helps avoid some of the problems and hurdles experienced in global markets.

Vocabulary and language focus.

1.Find the definitions for the following terms:

1) foreign subsidiary

2) franchising

3) joint venture

4) counter-trading

5) licensing

6) on a royalty basic

7) licensee

8) licensor

9) expertise

2.Discuss the following questions:.

1.List four ways to enter foreign markets.

2.What caused establishing of export trading companies and what is their main function?

3.What are the two ways of exporting products?

4.Define the term licensing. What are the advantages and disadvantages licensing agreements?

5.Under what circumstances the foreign licensor may break the agreement?

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3. Translate the following sentences into English:

1.После объединения их компания получила право на осуществление полного контроля над пакетом ценных бумаг.

2.Фирма не учла, что жители данной страны очень привередливы, и потому их бизнес потерпел неудачу.

3.Более 14 новых торговых точек были открыты в центральной части НьюЙорка в прошлом году.

4.Проникновение в деловые круги некоторых азиатских стран иногда является настоящей проблемой.

5.Совет директоров компании постановил начать работу по осуществлению проекта реконструкции старой части города.

6.Слишком тяжело представить экономическую ситуацию в развивающихся странах, так как они всё время находятся в состоянии постоянного движения.

Listening

You will hear Margaret Galfand, Director of Communication in France, talking about why the merger between the major automotive companies, Renault and Volvo, failed. Listen and decide if the following statements are true or false.

1.The reason why the merger failed are very simple to understand.

2.The shareholders were afraid that Volvo would lose its Swedish identity.

3.The shareholders feared that Renault was trying to take over their company.

4.The Swedish management were keen for the merger to go ahead.

Think of any other reasons why a merger might fail.

4.Role – play

Beta Digital is a young British company which produces specialist hi – fi

equipment. At the moment it manufactures only CD players, but it is planning to expand its range. It markets the CD players in Britain and also, from an office in Los Angeles, to a few outlets in the Unites States. XL Audio is a dealer, also based in Britain, which sells hi – tech audio equipment – speakers, amplifiers, etc. – from several leading European manufacturers. Last week Al Feinstock, Beta Digital’s representative in L.A., received a letter from Gary Levin, XL Audio’s sales manager.

In it Levin proposed a deal: that Beta Digital and XL Audio could market their products together in the U.S. Feinstock wrote back that he liked the idea very much and arranged a meeting at the L.A. office to hear more about it.

Look at you brief and prepare some notes before your meeting.

STUDENT A

You are Al Feinstock You can offer:

- To sell XL Audio’s products in the U.S. through your existing outlets.

- A two-year contact (until your company has more of its own products on the market).

You want:

- 16% commission on XL Audio sales

- All dealing with U.S. clients to be handled by you.

- Technical back-up for repairs and after-sales service.

- The right to sell goods from some of XL Audio’s competitors.

During the negotiation try to reach an agreement because it is both your interest to do so.

2. A joint venture. Advantages and disadvantages

A joint venture may be (1) a corporate entity between an international company and local owners, (2) a corporate entity between two or more international companies, or (3) a cooperative undertaking between two or more firms of a limited-duration project. Last construction jobs are frequently handled by this last form. Ford and Volkswagen formed a novel joint venture in which their operations in Argentina and Brazil were merged into a holding company, Autolatina, in an effort to eliminate losses suffered by both. The new company owned 51% by VW and 49% by Ford (although the venture is considered by both to be an equal partnership), has $4 billion in sales, 76600 employees, and 15 plants (10 in Brazil). “While Ford will still be Ford and VW will still be VW”, said the president of Ford-Brazil, “the merger will provide greater efficiency and technical capacity, a sort of pooling of resources that will help us both”. When the government of a host country requires companies to have some local participation, foreign firms must engage in a joint venture with local owners to

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do business in that country. In some situations, however, a foreign firm will seek local partners even when there is no local requirements to do so.

Strong nationalism. Strong nationalistic sentiment may cause the foreign firm to try to lose its identity by joining with local investors. Care must be taken with this strategy, however. Although a large number of people in many developing countries dislike multinationals for “exploiting” them, they still believe that the products of the foreign companies are superior to the products of purely national firms. One solution to this ambivalence has been to form a joint venture in which the local partners are highly visible, give it an indigenous name, and then advertise that a foreign firm (actually the partner) is supplying the technology. Even wholly owned subsidiaries have followed this strategy.

Eastman Kodak has eliminated the word Kodak of its 100-percent-owned subsidiaries in Venezuela, Mexico, Chile, Peru and Colombia. Kodak-Venezuela has become Foto Interamericana, and Kodak’s large manufacturing company in Mexico is now called Industria Fotografica Interamericana.

Acquire expertise, tax and other benefits. Other factors that influence managements to enter joint ventures are the ability to acquire an expertise that is lacking, special tax benefits some governments extend to companies with local partners, or the need for additional capital and experienced personnel.

Some firms, as a matter of policy, enters joint ventures to reduce investment risk. Their strategy is to enter a joint venture with either native partners or another worldwide company. Still others, such as Ford and Volkswagen, have joined together to achieve economies of scale.

Disadvantages. While the joint venture arrangement offers the advantage of less commitment of financial and managerial resources, and thus less risk, there are some disadvantages for a foreign firm. One, obviously, is the fact that profits must be shared. Furthermore, if the law allows the foreign investors to have no more than 49% participation, they may not have control.

Lack of control over the joint venture is the reason why many managements resist making such arrangements. They feel that they must have tight control of their foreign subsidiaries to obtain an efficient allocation of investments and production and to maintain a coordinated marketing plan worldwide. For example, local partners might wish to export to markets that the global company serves from its own plants, or they might want to make the complete product locally when the global company’s strategy is to produce only certain components there and import the rest from other subsidiaries.

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In recent years numerous governments of developing nations have passed laws requiring local majority ownership for the purpose of giving control of firms within their borders to their citizens. Despite these laws, control with a minority ownership is still feasible.

Control with minority ownership. There have been occasions when the foreign partner has been able to circumvent the spirit of the law and ensure its control by taking 49% of the shares and giving 2 % to its local law firm or some other trusted national. Another method is to take in a local majority partner, such as government agency, an insurance company, or financial institution, that is content to invest merely for a return while leaving the venture’s management to the foreign partner. If neither arrangement can be made, the foreign company may still control the joint venture by means of a management contract.

The management contract is an arrangement under which a company provides managerial know-how in some or all functional areas to another party for fee that ranges from 2 to 5 percent of sales. International companies make such contracts with

(1) firms in which they have no ownership (examples: Hilton Hotel provides management for non-owned overseas hotels that use the Hilton name, and Delta provides management assistance to foreign airlines),

(2) joint - venture partners, and (3) wholly owned subsidiaries. The last arrangement is made solely for the purpose of allowing the partner to siphon off some of the subsidiary’s profits. This becomes extremely important when, as in many foreign exchange-poor nations, the parent firm is limited in the amount of profits it can repatriate. Moreover, because the fee is an expense, the subsidiary receives a tax benefit. Management contracts can enable the global partner to control many aspects of a joint venture even when holding only a minority position. If it supplies key personnel, such as production and technical managers, the global company can be assured of product quality with which its name may be associated as well as be able to earn additional income by selling the joint venture inputs manufactured in the home plant. This is possible because the larger global company is more vertically integrated. a local paint company, for example, might have to import certain semiprocessed pigments and driers that the foreign partner produces in its home country for domestic operations. If these can be purchased elsewhere at a lower price, the local majority could insist on other sources of supply. This rarely happens, because the production and technical managers can argue that only inputs form their employer will produce a satisfactory product. They are the experts and they generally have the final word.

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Purchasing commission. There is another source of income that the global company derives not only from firms with which it has a management contract but also form joint ventures and wholly owned subsidiaries. That source is a commission for acting as purchasing agent of imported raw materials and equipment. This relieves the affiliates of having to establish credit lines with foreign suppliers and assures them that they will receive the same materials used by the foreign partner. The commission received for this service averages about 5 percent of invoice value and is in addition to the management contract fee.

Vocabulary and language focus

1.Paraphrase the following sentences, substituting the words or phrases in italics with the appropriate words or phrases from the text.

1.Two companies decided to merge in order to get rid of losses suffered by both.

2.One of the advantages of a merger is the possibility to combine resources to achieve greater efficiency.

3.Sometimes the government of a host country requires foreign companies to take part in joint ventures.

4.One of the factors that influences management to enter joint ventures is the ability to get an expertise that they don’t have.

5.Management of the company engaged in joint venture realizes that the foreign subsidiary must be firmly controlled if they want to place their investments efficiently.

6.The management contract can allow the parent company to take away some of the subsidiary’s profits.

7.We mustn’t forget the Sales Department’s information and advice they provided us with.

8.Sometimes the foreign partner is able to bypass (avoid) the laws in the country where he has a subsidiary.

Understanding the main points.

1.What are the three types of joint ventures?

2.What are the reasons for a company from one country to engage in a joint venture with local businesses of another country?

3.What disadvantages of forming a joint venture can you name?

4.How can a foreign company control the joint venture?

5.What is a management contract?

6.What is purchasing commission?