I recently attended a session where the speaker began an insightful discussion on the forms of International Business in today’s LPG era — Liberalization, Privatization and Globalization. The speaker was explaining that after the 1991 reforms, India opened its doors to the world, and from that moment, cross-border business became a part of our everyday economic life. He started with a simple point: International Business is no longer a distant concept; it’s around us — in your food, clothes even the coffee we drink.
From there, the discussion moved into common examples that every student could relate to — export and import, licensing, franchising, joint ventures, collaborations, subsidiaries, management contracts, and foreign affiliates.
We must understand the forms of international business, because each form creates different financial requirements, risks, and opportunities. To make this topic clearer, let me share some examples of the concepts that were explained in the seminar.
Exports: Export deals with physical movement of goods and services from one place to another through a customs port following the rules of both the country of origin and country of destination. This is the simplest and oldest form of international business. Exports increase a country’s foreign exchange earnings while imports create a demand for foreign currency. That is why export–import is directly connected to exchange rate movements, letters of credit, foreign trade financing, and global payment systems.
Example: An Indian handicraft company receives large orders from Singapore. Every time the Singapore buyer pays in SGD, the Indian exporter must convert SGD to INR. If the SGD weakens, the exporter earns less. This is where International Finance concepts like hedging come into the picture.
International licensing: International licensing is an agreement between the licensor and the licensee over a period of time for the use of brand name, marketing, know-how, copyright, work method and trade mark by paying a license fee. Licensing allows companies to expand internationally without physical presence and earns royalty income.
Coca-Cola licenses a local bottling company in Sri Lanka to manufacture Coke using its formula.
Coca-Cola earns royalties in USD, while the Sri Lankan company uses its local distribution networks.
This creates foreign income and raises issues like royalty payments, tax treaties, and foreign exchange regulations.
Franchising: Franchising is a form of licensing wherein the franchiser exercises more control over franchisee. It allows a company (the franchisor) to expand across countries by giving local entrepreneurs (franchisees) the right to operate under their brand name, use their business model, and sell their products.
Example
McDonald’s in India
A classic example. McDonald’s did not enter India by opening its own outlets; instead, it offered franchise rights to Indian partners like Connaught Plaza Restaurants (North & East India) and Hardcastle Restaurants (West & South). The brand is global, but the operations and some pricing decisions are handled locally.
KFC & Pizza Hut (Yum! Brands)
Similar to McDonald’s, KFC and Pizza Hut expanded globally through franchise arrangements. In India, Sapphire Foods and Devyani International operate large networks of these outlets
Joint Venture: A joint venture is a binding contract between two venture partners to set up a project either in home country or host country or a third country. They create a new legal entity, share ownership, profits, and risks.
It is preferred when the market requires local knowledge and the government regulations restrict 100% foreign ownership but there a demand for new technology.
Example:
Maruti Suzuki (India–Japan JV) — a landmark case
Suzuki brought technology and capital, while Maruti offered understanding of the Indian market.
This arrangement generated cross-border investment, profit repatriation, and long-term collaboration — all key issues in International Finance.
Collaboration: A collaboration is a flexible partnership for R&D, marketing or technology sharing. No new entity is created; the companies remain separate but cooperate strategically. Collaboration deals with only a part of the functions.
Example
Bajaj Auto has technological collaboration with Kawasaki of Japan, who offers the technology for two wheelers. Others well known technological collaborations are Kinetic-Honda and Hero-Honda. Payments, shared investment, and risk-sharing cross national boundaries — all handled through international financial mechanisms.
Foreign Subsidiary: A foreign subsidiary is either:
- Wholly owned (100%), or
- Majority owned (more than 50%)
This shows deep international commitment. The parent company invests heavily, sets up production, hires local staff, and manages operations. It involves FDI (foreign direct investment), transfer pricing, profit repatriation etc.
Example
Hindalco Industries (an Aditya Birla Group company) owns Novelis Inc. in the United States.
Novelis functions as a wholly-owned foreign subsidiary, making aluminum products and operating independently under its own brand. Decisions on how much capital to send, in which currency, and how profits are taken back to the India fall directly under International Finance.
Management contracts: Companies with a low level of technology and managerial expertise may seek the assistance of foreign countries. A management contract is an agreement between two companies whereby one company provides managerial and technical assistance for which proper monetary compensation is given.
Example
The Oberoi Hotel Group managing luxury resorts in the Middle East. Delta airlines, Air France and KLM offer such services in developing countries
Payments are received in foreign currency; the contract requires careful handling of exchange risk and global service tax rules.
Foreign Affiliates: Affiliates are crucial for global supply chains. Affiliates are businesses abroad that are linked through ownership or control but may not be majority-owned. They handle distribution, marketing and logistics etc.
Example
Unilever has affiliates in numerous countries for distribution, even if not fully owned. These affiliates handle local sales but follow global pricing, invoicing, and financial reporting standards.
It was truly an engaging seminar, and many concepts became clear as the discussion unfolded. For students of finance, these concepts are more than theory — they prepare you for interviews, placements, and real-world decision-making. In today’s globalization era, where every business activity has a cross-border connection, understanding International Finance is no longer a specialised niche; it is a skill every modern finance professional must carry.