MIB Intro management of international business

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1- 1 Management of International Business:An Overview

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1- 2 Objectives To define Globalization and internal business (IB) To explain why companies engage in IB and why its growth has accelerated To introduce different modes a company can use to accomplish its global objectives To provide an overview of the primary patterns for companies’ international expansion To describe the major countervailing forces that affect IB

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1- 3 Why study international business? Twin Forces Of Ideological Change And Technology Revolution have created a scenario where any business may be related to global business environment Obtaining employment overseas or with foreign-owned business Languages to communicate for business manager As an informed citizen How do we engineer and exploit the ongoing globalization of our industry

Globalization :

1- 4 Globalization Growing economic interdependence among countries as Reflected in increasing cross border flows of three types of economic entities: goods and services, capital and know-how Worldwide- aggregation of economic interdependence Exports, FDIs, FIIs, M&A Specific country-interlinkages of a nation with others A specific industry A specific company Specific line of business functional activity Anil K. Gupta and Vijay Govindrajan (University of Maryland and Tuck School of business respectively)

Assessing Corporate Globality:

1- 5 Assessing Corporate Globality

Drivers Of Globalization :

1- 6 Drivers Of Globalization Emergence of WTO Free market ideology- economic liberalization and Privatization Economic center shifting to developing nations-Korea, Singapore, Taiwan and Hong Kong 1950 Poorest As a consequence of economic liberalization competitive moves of capturing global scale, Exploiting the cost reducing or quality enhancing potential of optimum locations (Porter) -

Digital Era:

1- 7 Digital Era Tapping Technological advancements wherever they may occur visible. Technological advances –computing , telecom,broadcast, transportation Convergence - computing , telecom,broadcast Ubiquitous Point And Click Interface Based On Open Standards Mobile Communication And Broadband Technologies

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1- 8 1. Introduction to International Business What is international business? International business is any business transaction that involves parties from more than one country. These transactions can take various forms and can involve different kinds of participants, e.g., individuals, non-profit organisations, companies, groups of companies, and government agencies.

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1- 9 Why Companies Engage in IB Expand sales— greater purchasing power in the world as a whole Acquire resources—products, services, components also, foreign capital, technologies, information Diversify sources of sales and supplies— takes advantage of business cycle differences among countries Minimize competitive risk— prevent competitor from gaining advantages

Reasons for Growth of IB :

1- 10 Reasons for Growth of IB Expansion of technology— transportation and communication are quicker and less costly Liberalization of cross-border movements Government barriers reduced because: desire for better access to greater variety of goods and services domestic producers forced to be more competitive lowered trade barriers to their own exports Development of supporting services by business and governments to: Ease the flow of goods and services sold abroad Reduce risks of IB Increase in global competition— firms have become more global to maintain competitiveness

Management Orientation and Global Business:

1- 11 Management Orientation and Global Business Different Management Orientations in the Global Arena – EPRG Framework HOWARD V. PERLMUTER Regiocentric Ethnocentric Geocentric Polycentric

Strategic Predispositions:

1- 12 Strategic Predispositions Ethnocentric predisposition A nationalistic philosophy of management whereby the values and interests of the parent company guide strategic decisions. Philosophies of Management Ethnocentric predisposition

Strategic Predispositions:

1- 13 Strategic Predispositions Polycentric predisposition A philosophy of management whereby strategic decisions are tailored to suit the cultures of the countries where the MNC operates. Philosophies of Management Ethnocentric predisposition Polycentric predisposition

Strategic Predispositions:

1- 14 Strategic Predispositions Regiocentric predisposition A philosophy of management whereby the firm tries to blend its own interests with those of its subsidiaries on a regional basis. Philosophies of Management Ethnocentric predisposition Polycentric predisposition Regiocentric predisposition

Strategic Predispositions:

1- 15 Strategic Predispositions Geocentric predisposition A philosophy of management whereby the company tries to integrate a global systems approach to decision making. Philosophies of Management Ethnocentric predisposition Polycentric predisposition Regiocentric predisposition Geocentric predisposition

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1- 16 Orientation of an MNC

Orientation of an MNC:

1- 17 Orientation of an MNC

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1- 18 International Business: Operations and Influences Modes Importing and exporting Tourism and transportation Licensing and franchising Turnkey operations Management contracts Direct and portfolio investment Functions Marketing Production Accounting Finance Human resources Overlaying Alternatives Choice of countries Organization and control mechanisms MEANS EXTERNAL INFLUENCES COMPETITIVE ENVIRONMENT Major advantage in price, marketing, innovation, or other factors Number and comparative capabilities of competitors Competitive differences by country PHYSICAL AND SOCIETAL FACTORS Political policies and legal practices Cultural factors Economic forces Geographical influences OPERATIONS OBJECTIVES Sales expansion Resource acquisition Diversification Competitive risk minimization STRATEGY

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1- 19 Means of Carrying Out International Operations Modes Importing and exporting Tourism and transportation Licensing and franchising Turnkey operations Management contracts Direct and portfolio investment Functions Marketing Production Accounting Finance Human resources Overlaying Alternatives Choice of countries Organization and control mechanisms MEANS EXTERNAL INFLUENCES COMPETITIVE ENVIRONMENT PHYSICAL AND SOCIETAL FACTORS OPERATIONS OBJECTIVES STRATEGY

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1- 20 Modes of IB Merchandise exports and imports— most common international economic transaction, especially for smaller companies Major source of international revenue and expenditures for most companies Service exports and imports— nonproduct international earnings Tourism and transportation Performance of services for a fee turnkey operations management contracts Use of assets by others—licensing agreements royalties Franchising —franchisor: allows franchisee to use trademark provides components, technology, services

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1- 21 Modes of IB (cont.) Investments— ownership of foreign property in exchange for financial return Foreign direct investment—investor gains a controlling interest in foreign company joint venture mixed venture Portfolio investment—noncontrolling interest International Companies—terminology Strategic alliance— collaborative arrangement of critical importance to the competitive viability of one or more partners Multinational enterprise (MNE)— company with global approach to foreign markets and production Globally integrated company— integrates operations located in different countries Multidomestic company— foreign-country operations act fairly independently

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1- 22 Physical and Societal Influences on International Business EXTERNAL INFLUENCES COMPETITIVE ENVIRONMENT PHYSICAL AND SOCIETAL FACTORS Political policies and legal practices Cultural factors Economic forces Geographical influences OPERATIONS OBJECTIVES MEANS STRATEGY

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1- 23 External Influences on IB Physical and societal factors— must understand Politics that affect whether and how IB occurs Domestic and international law determines what managers can do in IB Economics Geography—determine location and availability of world’s resources Competitive environment Varies by industry, company, and country strategies differ across companies e.g., importance of controlling labor costs e.g., influence of local and international competitors size of market differs across countries

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1- 24 Competitive Environment and International Business OPERATIONS OBJECTIVES MEANS STRATEGY EXTERNAL INFLUENCES PHYSICAL AND SOCIETAL FACTORS COMPETITIVE ENVIRONMENT Major advantage in price, marketing, innovation, or other factors Number and comparative capabilities of competitors Competitive differences by country

International Business :

1- 25 Global business is the process of focusing resources on global marketing opportunities Goal, to create customer value & competitive advantage by maintaining focus Three classifications of management orientation: ethnocentric, polycentric, regiocentric, geocentric Global business importance is shaped by a variety of driving & restraining forces International Business

Meeting the Challenge:

1- 26 Meeting the Challenge Many MNCs are committed to a globalization imperative A belief that one worldwide approach to doing business is the key to both efficiency and effectiveness Many factors are facilitating the need to develop unique strategies for different cultures The diversity of worldwide industry standards such as those in broadcasting, where television sets must be manufactured on a country-by-country basis A continual demand by local customers for differentiated products, as in the case of consumer goods that must meet local tastes The importance of being an insider, as in the case of customer who prefer to “buy local”

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1- 27

Meeting the Challenge:

1- 28 Meeting the Challenge The difficulty of managing global organizations, as in the case of some local subsidiaries that want more decentralization and others that want less The need to allow subsidiaries to use their own abilities and talents and not be restrained by headquarters, as in the case of local units that know how to customize products for their market and generate high returns on investment with limited production output

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1- 29 Evolution of Strategy in International Process Risk minimization— foreign operations viewed as risky international commitments evolve gradually Patterns of expansion Passive to active pursuit of IB opportunities – initially wait for foreign opportunity External to internal handling of IB rely on intermediaries at first Limited to extensive modes of operations begin with importing or exporting operation Few to many foreign locations Similar to dissimilar business environments Leapfrogging of expansion— new companies begin with international focus Possible because of founder’s experience and technological advances that help define foreign markets

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1- 30 Countervailing Forces— complicate decision making Global standards— export suited to many countries results in economies of scale based on global strategy Nationally responsive practices— adjust product or service to unique local conditions multidomestic approach advisable Country versus company competitiveness Companies compete by seeking maximum efficiency on a global scale Countries compete with each other to attain economic, political, and social goals no consensus on measures of goal attainment Relationship unclear between country and company performance high-value activities —produce high profits or performed by well-paid employees

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1- 31 Countervailing Forces (cont.) Sovereignty— freedom from external control Countries will cede in order to: gain reciprocal advantages bilateral or multilateral commercial treaties or agreements attack problems that cannot be solved by a single country problem is too big or widespread problem results from conditions that spill over from another country deal with areas of concern that lie outside the territory of all countries (noncoastal areas of the ocean, outer space, Antarctica) technologically advanced countries believe that companies should reap benefits from exploitation other countries want to share the spoils

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