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Chapter1IntroductiontoInternationalTradePracticeTeachingObjectives:1.Introducethreeinternationalbusinessforms:trade,licensing,andforeigndirectinvestment．2.Discusstypicalrisksassociatedwithinternationaltransaction.3.Explainparticipantsandproceduresofinternationaltrade.FocusinTeachingSection1FormsofInternationalBusinessBasedonthemethodsofenteringaforeignmarket，internationalbusinesscanbeclassifiedintothreebroadcategories：trade，intellectualpropertyrightsandinternationallicensingagreements，andforeigndirectinvestment．1.TradeTradeconsistsoftheimportandexportofgoodsandservices．Exportingistheshipmentofgoodsortherenderingofservicestoaforeignbuyerlocatedinaforeigncountry．Everyexportentailsanimport,andviceversa．Exportingisgenerallydividedintotwotypes．Directexportingisoftendonethroughforeignagentswhoworkoncommission，orbysellingdirectlytoforeigndistributors．Indirectexportingisusedbycompaniesseekingtominimizetheirinvolvementabroad．Thereareseveraltypesofindirectexporting：exporttradingcompanies(ETC)，exportagents，andexportmanagementcompany(EMC)．GovernmentControlsoverTradeTariffsareimportdutiesortaxesimposedongoodsenteringthecustomsterritoryofanation．Non-tariftbardersareallbarrierstoimportingorexportingotherthantariffs．Oneformofnon-tariffbarrieristhetechnicalbarriertotrade．orproductstandard．Anothertypeisexportcontro1．Tradeliberalizationreferstotheeffortsofgovernmentstoreducetariffsandnon—tariffbarrierstotrade．AllWTOnationsareentitledtonormaltraderelationswithoneanother．ThisisreferredtoasMostFavoredNationtradingstatus．2．IntellectualPropertyRightsandInternationalLicensingAgreementsIntellectualproperty,rightsareagrantfromagovernmenttoanindividualorfirmoftheexclusivelegalrighttouseacopyright，patent，ortrademarkforaspecifiedtime．Internationalficensing．agreementsarecontractsbywhichtheholderofintellectualpropertywillgrantcertainrightsinthatpropertytoaforeignfirmunderspecifiedconditionsandforaspecifiedtime．Theexchangeoftechnologyandmanufactnringknow—howbetweenfirmsindifferentcountriesthroughlicensingagreementsisknownastechnologytransfer.Franchisindisapopularformoflicensing．Thefranchiseeisallowedtouseatradenameortrademarkinofferinggoodsorservicestothepublicinreturnforaroyaltybasedonapercentageofsalesorotherfeestructure．Case1-1(Dayanv.McDonald'sCorp.)DayaninParishadanexclusivefranchiseagreementwithMcDonald’Sin1971．TheagreementrequiredthatDayanmeetallquailty,serviceandcleanliness(QSC)standardssetbyMcDonald’SDuetoqualityandcleanlinessviolationsforalongtime，McDonald’SterminatedthefranchiseagreementwithDayan．Dayancouldn’toperatetherestaurantwithMcDonald'Strademarksorname．3．ForeignDirectInvestmentForeigninvestmentorforeigndirectinvestmentreferstotheownershipandactivecontrolofongoingbusinessconcerns，includinginvestmentinmanufacturing，mining，farming，assemblyoperations，andotherfacilitiesofproduction．AdistinctioniSmadebetweenthehomeandhostcountriesofthefirmsinvolved．Thehomecountryreferstothatcountryunderwhoselawstheinvestingcorporationwascreatedorisheadquartered．MultinationalCorporationsarefirmswithsignificantforeigndirectinvestmentassets．Throughdirectinvestment，theycanstartanewforeignsubsidiarycompany,formaiointventurewithanexistingforeigncompanyoracquireanexistingforeigncompanybystockpurchase．Multinationalcorporationsareusuallynotasinglelegalentity．OfthethreeFormsofinternationalbusiness．Foreigninvestmentprovidesthefirmwiththemostinvolvement，andperhapsthegreatestriskabroad．Investmentinaforeignplantisoftenaresultofhavinghadsuccessfulexperiencesinexportingorlicensing，andofthesearchforwaystoovercomethedisadvantagesoftheotherentrymethods．Section2ManagingRisksofInternationalBusinessTransactionsIngeneral，thelevelofriskrisesfromtradetolicensing，andtoforeigndirectinvestment．Theriskswillalsovarydependingonwhichcountriesthebusinesspartiesarelocatedinorwhichcountrythetransactionistobeperformedin．Table1—1RisksofInternationalBusinessTransactionsRisksCharacteristicsPoliticalRiskPoliticalinstabilityandchangeinacountryLanguageandCulturalDifferencesLanguagebarriersandculturaldifferencesincommunicationCurrencyandExchangeRateRisksConvertibility,repatriationcurrencyratefluctuationLegalRiskDifferentlegalsystemsSpecialTransactionRisksPavment／creditriskDeliveryrisk1．PoliticaIRiskPoliticalriskisgenerallydefinedastherisktoafirm’sbusinessinterestsresultingfrompoliticalinstabilityorpoliticalchangeinacountryinwhichthefirmisdoingbusiness．Handlingpoliticalriskrequiresplanningandvigilance．2．LanguageandCulturalDifferencesEventhoughEnglishiswidelyusedinbusinessallovertheworld，thelanguageofagiventransactionstilldependsonthetypeofbusinessoneisdoingandontheregionoftheworld．Onedevicetoovercomelanguagedifferencesistohavethecontractdrawninboththelanguagesoftheparties．CaseI-2(Gaskinv.StllllllHHandelGmbh)Gaskin(anAmericancitizen)couldnotspeakorreadGerman，butheenteredintoanemploymentcontractwrittenentirelyinGermanwiththeGermanfirmofStummHandeloperatedinNewYork．WhenhesiRnedthecontract,thetermsofthecontractwereexplainedtohiminEnglish,includinRthefoumselectionclauseofsettlinganydisputesin