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international trade transactions

All firms that want to go international have one goal in common; the desire to increase their respective economic values when engaging in international trade transactions. To accomplish this goal, each firm must develop its individual strategy and approach to maximize value, lower costs, and increase profits. A firm’s value creation is the difference between V (the value of the product being sold) and C (the cost of production per each product sold).[3]

Value creation can be categorized as: primary activities (research and development, production, marketing and sales, customer service) and as support activities (information systems, logistics, human resources).[4] All of these activities must be managed effectively and be consistent with the firm strategy. However, the success of firms that extend internationally depends on the goods or services sold and on the firm’s core competencies (Skills within the firm that competitors cannot easily match or imitate). For a firm to be successful, the firm’s strategy must be consistent with the environment in which the firm operates. Therefore, the firm needs to change its organizational structure to reflect changes in the setting in which they are operating and the strategy they are pursuing.

Once a firm decides to enter a foreign market, it must decide on a mode of entry. There are six different modes to enter a foreign market, and each mode has pros and cons that are associated with it. The firm must decide which mode is most appropriately aligned with the company’s goals and objectives. The six different modes of entry are exporting,[5] turnkey projectslicensingfranchising, establishing joint ventures with a host-country firm, or setting up a new wholly owned subsidiary in the host country.[6