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:
- Financial collaboration.
- Technical collaboration.
- Marketing collaboration.
- 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:
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.