3.6 Participating in the Global Marketplace

Exporting

When a company decides to enter the global market, usually the least complicated and least risky alternative is exporting, or selling domestically produced products to buyers in another country. A company, for example, can sell directly to foreign importers or buyers. Exporting is not limited to huge corporations such as Caterpillar or Intel. Indeed, small companies typically enter the global marketplace by exporting. China is the world’s largest exporter, followed by the United States.³¹ Many small businesses claim that they lack the money, time, or knowledge of foreign markets that exporting requires. The U.S. Small Business Administration (SBA) now offers the Export Working Capital Program, which helps small and medium-size firms obtain working capital (money) to complete export sales. The SBA also provides counseling and legal assistance for small businesses that wish to enter the global marketplace. Companies such as American Building Restoration Products of Franklin, Wisconsin, have benefited tremendously from becoming exporters. American Building is now selling its chemical products to building restoration companies in Mexico, Israel, Japan, and Korea. Exports account for more than 5 percent of the firm’s total sales.

Government assistance and education is available when a company decides to begin exporting. Export Assistance Centers (EAC) provide a one-stop resource for help in exporting. Around 150 EACs are located in major cities and trade hubs around the country. Often the SBA is located in the same building as the EAC. The SBA can guarantee loans of up to $5 million to help an exporter grow its business. Online help is also available at https://www.ustr.gov. The site lists international trade events, offers international marketing research, and has practical tools to help with every step of the exporting process. Companies considering exporting for the first time can go to https://www.export.gov and get answers to questions such as: What’s in it for me? Am I ready for this? What do I have to do? The site also provides a huge list of resources for the first-time exporter.

Licensing and Franchising

Another effective way for a firm to move into the global arena with relatively little risk is to sell a license to manufacture its product to a firm in a foreign country. Licensing is the legal process whereby a firm (the licensor) agrees to let another firm (the licensee) use a manufacturing process, trademark, patent, trade secret, or other proprietary knowledge. The licensee, in turn, agrees to pay the licensor a royalty or fee agreed on by both parties.

International licensing is a multibillion-dollar-a-year industry. Technology/patent, trademark, and character licensing (such as Batman or Marvel comics characters) are strong sources of revenue in the licensing sector. Caterpillar licenses its brand for both shoes and clothing, which is very popular in Europe.

U.S. companies have eagerly embraced the licensing concept. For instance, Disney's Epcot entered into a licensing agreement with General Motors to create a Chevy-themed attraction at the park. The Spalding Company receives more than $2 million annually from license agreements on its sporting goods. Fruit of the Loom lends its name through licensing to 45 consumer items in Japan alone, for at least 1 percent of the licensee’s gross sales.

The licensor must make sure it can exercise sufficient control over the licensee’s activities to ensure proper quality, pricing, distribution, and so on. Licensing may also create a new competitor in the long run if the licensee decides to void the license agreement. International law is often ineffective in stopping such actions. Two common ways that a licensor can maintain effective control over its licensees are by shipping one or more critical components from the United States and by locally registering patents and trademarks in its own name.

Franchising is a popular form of licensing. U.S. franchisors operate thousands of outlets across the world. Approximately half of the international franchises are for fast-food restaurants and business services.

Having a big-name franchise doesn’t always guarantee success or mean that the job will be easy. For example, Home Depot opened 12 stores across 6 different cities in Asia and closed them all in less than 10 years from opening. This was in large part due to the lack of adaptation to the culture. Had they done more market research, they would have better understood the target customer and their needs. Those needs, vastly different from a U.S. consumer, included certain stylistic choices and less physically demanding projects.³² When Subway opened its first sandwich shop in China, it faced numerous challenges, many of which were cultural differences. Patrons were not accustomed to the ordering procedures and were unsure of the quality of the ingredients, which were presented differently than they were used to seeing in markets. The cold-sandwich concept was not part of the Chinese food culture, and the price point was too high. However, with time, the company adapted their approach and menu offerings to better appeal to the local market. The franchise has grown, and in 2025 they opened their 1,000th location in China with aggressive plans to open more stores in the future.

It’s not unusual for Western food chains to adapt their strategies when selling in China. In popular chains such as McDonald's and KFC, it is commonplace to see unique menu offerings that appeal to the local market that consumers will not see in U.S. locations.

Contract Manufacturing

In contract manufacturing, a foreign firm manufactures private-label goods under a domestic firm’s brand. Marketing may be handled by either the domestic company or the foreign manufacturer. Levi Strauss, for instance, entered into an agreement with the French fashion house of Cacharel to produce a new Levi’s line, Something New, for distribution in Germany.

The advantage of contract manufacturing is that it lets a company test the water in a foreign country. By allowing the foreign firm to produce a certain volume of products to specification and put the domestic firm’s brand name on the goods, the domestic firm can broaden its global marketing base without investing in overseas plants and equipment. After establishing a solid base, the domestic firm may switch to a joint venture or direct investment, explained below.

Joint Ventures

Joint ventures are somewhat similar to licensing agreements. In a joint venture, the domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. A joint venture is a quick and relatively inexpensive way to enter the global market. It can also be very risky. Many joint ventures fail. Others fall victim to a takeover, in which one partner buys out the other.

Sometimes countries have required local partners in order to establish a business in their country. China once had this requirement, and during that time, a joint venture was the only way to enter the market. Joint ventures help reduce risks by sharing costs and technology. Often joint ventures will bring together different strengths from each member. In a now-dissolved joint venture between General Motors and Suzuki in Canada (ended in 2011), both parties contributed and gained. The alliance, CAMI Automotive, was formed to manufacture low-end cars for the U.S. market. The plant, which was run by Suzuki management, produced several GM models, as well as the new Suzuki SUV. Through CAMI, Suzuki gained access to GM’s dealer network and expanded their market for parts and components. GM avoided the cost of developing lower-end models and obtained models it needed to expand its offerings to consumers of various demographics and revitalize its average fuel economy rating. The CAMI factory, now fully owned by GM, is a highly productive plant in North America through GM's acquisition of Japanese work teams, flexible assembly lines, and efficient quality control measures.³³

Direct Foreign Investment

Active ownership of a foreign company or of overseas manufacturing or marketing facilities is direct foreign investment. Direct investors have either a controlling interest or a large minority interest in the firm. Thus, they stand to receive the greatest potential reward but also face the greatest potential risk. A firm may make a direct foreign investment by acquiring an interest in an existing company or by building new facilities. It might do so because it has trouble transferring some resources to a foreign operation or obtaining that resource locally. One important resource is personnel, especially managers. If the local labor market is tight, the firm may buy an entire foreign firm and retain all its employees instead of paying higher salaries than competitors.

Sometimes firms make direct investments because they can find no suitable local partners. Also, direct investments avoid the communication problems and conflicts of interest that can arise with joint ventures. IBM, in the past, insisted on total ownership of its foreign investments because it did not want to share control with local partners, but today it utilizes joint ventures, partnerships, and strategic alliances.

Walmart now has around 5,300 stores located outside of the United States. In 2025, international sales were over $150 billion. Walmart's expansion strategy has shifted toward e-commerce over physical stores as they look to grow their presence in global markets.³⁴

Not all of Walmart’s global investments have been successful. In the late 1990s, Walmart entered the German market by purchasing two existing retail chains: Wertkauf and Interspar. Many factors contributed to the failure of the initiative, including cultural differences as Walmart attempted to replicate the American Walmart experience in the German locations. Additional roadblocks included differences in management styles, restrictions on operating hours, customer loyalty to existing stores, and negative press around labor issues. By 2006, Walmart left Germany with about $1 billion in financial losses.

Walmart has turned the corner on its international operations. It is pushing operational authority down to country managers in order to respond better to local cultures. Walmart enforces certain core principles such as everyday low prices, but country managers handle their own buying, logistics, building design, and other operational decisions.

Global firms change their strategies as local market conditions evolve. For example, major oil companies have to continue to react and adapt to changes in the price of oil due to technological advances.

Countertrade

International trade does not always involve cash. Today, countertrade is a fast-growing way to conduct international business. In countertrade, part or all of the payment for goods or services is in the form of other goods or services. Countertrade is a form of barter (swapping goods for goods), an age-old practice whose origins have been traced back through history. Estimates are that between 5 and 15 percent of all international trade involves countertrade. The practice is primarily used in emerging markets and nations. Many U.S. companies, including Fortune 500 firms, barter billions of goods and services every year. For example, China and the Malaysian government reached a barter deal to exchange Malaysian palm oil for construction and natural resources products along with civilian equipment.