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Concept and Types of Foreign Collobarations

Foreign collaboration is defined as an alliance between domestic and foreign entities to collectively work on agreed upon tasks or projects. There are generally four main types of foreign collaboration: [1] financial collaboration which involves foreign investment and lending; [2] technical collaboration to transfer foreign technology; [3] marketing collaboration to sell domestic goods abroad; and [4] management consultancy collaboration to improve domestic management skills. The primary goals of foreign collaboration are to improve financial growth, increase market share, reduce costs, optimize resource use, and generate employment in the domestic country.

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Yash Punjabi
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4K views

Concept and Types of Foreign Collobarations

Foreign collaboration is defined as an alliance between domestic and foreign entities to collectively work on agreed upon tasks or projects. There are generally four main types of foreign collaboration: [1] financial collaboration which involves foreign investment and lending; [2] technical collaboration to transfer foreign technology; [3] marketing collaboration to sell domestic goods abroad; and [4] management consultancy collaboration to improve domestic management skills. The primary goals of foreign collaboration are to improve financial growth, increase market share, reduce costs, optimize resource use, and generate employment in the domestic country.

Uploaded by

Yash Punjabi
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Definition of Foreign Collaboration

In general, the definition of foreign collaboration can be stated as follows.


“Foreign collaboration is an alliance incorporated to carry on the agreed task
collectively with the participation (role) of resident and non-resident entities.”
Alliance is a union or association formed for mutual benefit of parties.
Foreign collaboration is such an alliance of domestic (native) and abroad (non-
native) entities like individuals, firms, companies, organizations, governments,
etc., that come together with an intention to finalize a contract on some tasks or
jobs or projects.

In finance, the definition of foreign collaboration can be specified as follows.


“Foreign collaboration includes ongoing business activities of sharing
information related to financing, technology, engineering, management
consultancy, logistics, marketing, etc., which are generally, offered by a non-
resident (foreign) entity to a resident (domestic or native) entity in exchange of
cheap skilled and semi-skilled labour, inexpensive high-quality raw-materials,
low cost hi-tech infrastructure facilities, strategic (favourable) geographic
location, and so on, with an approval (permission) from a governmental authority
like the ministry of finance of a resident country.”
Foreign collaboration is thus an alliance (a union or an association) formed for
mutual benefit of collaborating parties.

Meaning of Foreign Collaboration


The main intention or prime goal or objective of foreign collaboration is to:

1. Improve the financial growth of the collaborating entities.


2. Occupy a major market share for the collaborating entities.
3. Reduce the higher operating cost of a non-resident entity.
4. Make an optimum and effective use of resources available in the resident
entity's country.
5. Generate employment in the resident entity's country.

What are Types of Foreign Collaboration?

The four main types of foreign collaboration are depicted below.


The classification or types of foreign collaboration include namely:
1. Financial collaboration.
2. Technical collaboration.
3. Marketing collaboration.
4. Management consultancy collaboration.
Now let's proceed further to discuss each type of foreign collaboration.

1. Financial collaboration

In case of financial collaboration, the inflow of foreign investment takes place in


the domestic (host) country.

Financial collaboration is a summation of domestic and foreign investment.


In this method, the foreign company lends finance by:
(a) Purchasing ownership shares

Here, foreign company purchases ownership shares of the domestic


company and in return gets the dividend for these shares.

(b) Giving long-term loans


Here, foreign company gives long-term loans to the domestic company
and in return gets interest from these loans.

(c) Giving credit facility

Here, foreign company gives credit facility to the domestic (native)


company. The native company uses this credit facility to purchase raw-
materials, plant and machinery.

Thus, in this collaboration, there is an inflow of finance from developed countries


to developing countries.
Generally, it is seen that developing countries face fiscal problems. Financial
collaboration comes as an aid to solve these problems, and therefore, it is very
popular in the developing countries.

2. Technical collaboration

In case of technical collaboration, the inflow of foreign technology takes place in


the domestic (host) country.

Technical collaboration includes integration of foreign technology with domestic


(indigenous) technology.
In technical collaboration, the foreign company provides technological know-
how, professional services and expertise, installs automated machineries, etc., in
the domestic country. Here, an inflow of modern technology takes place from the
developed country to the developing country.
Technical collaboration helps to remove an existing technological gap. Therefore,
the governments of developing countries encourage such collaborations. In
developing countries, most of the foreign collaborations are technical in nature.
3. Marketing collaboration

In case of marketing collaboration, the inflow of foreign goods and services take
place in the domestic (host) country.

In marketing collaboration integration of domestic and foreign market takes


place.
In marketing collaboration, foreign company agrees to sell goods produced by
the domestic company.
The foreign company sells these goods in its own country and/or in the
international market. It uses its distribution network to sell the goods.
From the viewpoint of a developing country, marketing collaboration is very
beneficial for increasing its exports of goods and services.

4. Management consultancy collaboration

In case of management consultancy collaboration, the inflow of foreign


management consultancy takes place in the domestic (host) country.

In management consultancy collaboration integration of domestic and foreign


consultancy takes place.
In management consultancy collaboration, foreign company provides
management skills to the domestic company and teaches it everything about
management. In other words, it gives advice and solves management problems of
the domestic company.
It teaches management skills for the following:
o Production management.
o Marketing management.
o Personnel management.
o Financial management.
The foreign company also helps the domestic company to modernize and
diversify its business process.
So, in management consultancy collaboration, the foreign company increases the
management efficiency of the domestic company. This type of collaboration is
found in both private and public sector.

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