International Business Structures
Competition is one of the key challenges that an international business will have to be subjected to and as such different countries have developed laws that promote fair competition among businesses. These laws normally have impacts on different structures of businesses in the global market. The common structures include franchising, licensing and exclusive distributorships. This assignment will therefore seek to impacts that different laws of competition has on the above business structures with specific references to the US and EU markets.
This is one of the key approaches to international business and constitutes one of the ways that companies can enter an international market. Under licensing agreements a company will give another exclusive right to produce its products, use its technology or market that product for a fee or sometimes a royalty. This is a common method that many organizations have adopted in international business and it enables the company to conduct business without necessarily having to establish a subsidiary. It will therefore benefit from reduced costs of operation as the company that acquires the license becomes responsible for every process. The company will also avoid barriers to entry as the company that acquires the license is normally domiciled in the country where the business is to be conducted. Licensing therefore basically entail transfer of know how for a fee. The US and EU have developed laws that seeks to enhance competition among businesses for the sake of the consumers and to provide them with a whole range of choices in the market. In the US the competition law is referred to as the antitrust law that protects the spirit of completion among businesses. The EU has also established a similar law that operates across the EU the members of the association. All these laws are based on the General agreements on tariffs and trade which was signed in 1947 as part of bodies under the world trade organization. These laws therefore open up countries for investment and expansion of businesses in a competitive manner (Buttigieg, 2009). Licensing agreements therefore promotes the expansion of businesses and breaks the barrier that could close down some business establishments. This arrangement also encourages business expansions by reducing the costs of starting an enterprise. In this sense the licensing agreements supports the advancement of the law of competition by allowing free trade and investment among countries. Its worth noting that some businesses may resort to granting the license to a competitor so that it can avoid the market and hence it may lead to development of monopolistic tendencies in the market. The UK that operates under the EU laws has experienced some of the licensing agreements for instance the one between Carlsberg and courage but the laws have strictly allowed the firm behavior to retain national segment and to avoid business integrations that could be detrimental to the consumers (Buttigieg, 2009).
Franchising is also another strategy of entry into an international market and it involves the use of a well established brand name to duplicate the product by using the already existing brand.Francinsing agreements also seek to insulate companies entering a new market from restrictions and challenges related to the entry. Well established firms tend to weather the effect of completion and hence franchising will definitely reduce the level of competitiveness among firms, this totally against the laws of competition. The UE through their laws of competition have been very much concerned about the increasing trend of franchising that reduces establishment of new brands and hence it avoids competition. The union has therefore included post term and in term laws that franchisors must apply throughout the contract so that competition can be promoted among firms. These provisions are enforceable in all member countries and they mostly relate to pricing strategies, sales and other controls that can affect the law of competition. These measures clearly demonstrate the impact that unchecked franchising can cause on the laws of competition and hence it kills the spirit of completion among firms by shielding some businesses (Mendelsohn, 2004).
This is one of the most visible strategy and the most criticized system of entry into the market. Under this agreement the supplier or wholesaler make an exclusive deal with the distributor so that the distributor can only deal in specific products from the supplier. This system will lock out other suppliers that may be interested in that channel of distribution and hence creates barrier for other competitors. This is basically a monopoly in the distribution of the product. The antitrust laws of the use consider such restrictions as vertical and non-competitor and hence may not affect the price in the market. The laws however regard them as against the spirit of competition if they seek to create monopoly in a certain line of business or reduces inter brand competition. One such case was witnessed in the US when a leading manufacturer of false teeth called DENTSPLY was accused of building monopoly by entering into exclusive distributorship agreements with most distributors in the country and hence developing a strong network.
Its therefore clear that the above entry strategies in the international business will definitely affect the law of competition and as seen in the EU and US the legal framework created by laws to promote competition may not be adequate hence there is need for establishment of laws that govern individual strategies to avoid the instances of violation of the law of competition as witnessed in some firms.
Buttigieg,E.(2009). Competition law: Safeguarding the consumer interest : a
comparative analysis of US antitrust law and EC competition law. Austin : Wolters
Kluwer Law & Business.
Mendelsohn,M.(2004). The guide to franchising. 7th Ed.London ; New York : Thomson, 2004.