International trade

International trade is a relatively conservative approach that can be used by companies to penetrate the market (by exporting) or to obtain supplies at a low cost (by importing). This approach entails minimal risk because the company does not put its capital at risk. If a company experiences a decline in exports or imports, it can usually reduce or stop its business share at a low cost. Many large U.S.-based MNCs, including Boeing, DowDuPont, General Electric, and

IBM, generates more than $4 billion in annual sales from exports. Nonetheless, small businesses account for more than 20 percent of the value of all U.S. exports.


A license is an arrangement in which one company provides its technology (copyright, patent, trademark, or trade name) in exchange for a fee or other consideration. Many software manufacturers allow foreign companies to use their software for a fee. In this way, they can generate income from abroad without setting up production factories abroad or transporting goods abroad.


Under a franchise arrangement, one company provides a special sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees, which allows local residents to own and manage specific units. For example, McDonald’s, Pizza Hut, Subway, and Dairy Queen have franchises owned and managed by locals in many foreign countries. As part of the franchise arrangement, McDonald’s usually buys land and builds buildings. It then leases the building to the franchisee and allows the franchisee to operate the business in the building for a certain number of years (such as 20 years), but the franchisee must follow the standards set by McDonald’s when operating the business. Since franchising by MNCs often requires direct investment in foreign operations, this is referred to as foreign direct investment (DFI).

Joint efforts

A joint venture is a business jointly owned and operated by two or more companies. Many companies enter overseas markets by engaging in joint ventures with established companies in those markets. Most joint ventures allow two companies to apply their respective comparative advantages in a particular project. These ventures often require some level of DFI, while other parties involved in joint ventures also participate in investments.

For example, General Mills joined forces with Nestlé SA so that cereals produced by General Mills could be sold through the overseas sales distribution network established by Nestlé. Xerox Corp. and Fuji Co. (Japan) are involved in a joint venture that allows Xerox to penetrate the Japanese market while allowing Fuji to enter the photocopying business. Kellogg Co. and Wilmar International Ltd. (based in Singapore) have established a joint venture to manufacture and distribute cereals and snack products in China. Wilmar already has a wholly owned subsidiary in China, and that subsidiary participates in the venture. Joint ventures between automakers are numerous because each manufacturer can offer its own technological advantages. General Motors, for example, has ongoing joint ventures with automakers in several different countries.


  • Madura, J. (2020). International financial management. Cengage Learning.
  • Madura, J., & McCarty, D. E. (1989). Research trends and gaps in international financial management: a note. Management International Review, 75-79.

Image Sources: Google Images