Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
BUSINESS
Objectives of Session One
• International business and drivers, need for international business
• What is an MNC, Pros and cons for an MNC in a country especially in a
developing country like India
• Country competitiveness and whether India is competitive, discussions
on India’s infrastructure and other environment
• Opportunity scanning for international business in the manufacturing
and service sectors of India
• Modes of entry into a country with examples of how and why different
MNCs have entered into India
• FDI and its economic, political and operational impacts on a country and
on India
• FIIs and their impact on the Indian industries and stock exchange
WHEN IB
• of products, Mcdonald’s
1960s
Jet passenger aircraft
500-700mph.
The Changing World Order
• Apartheid
• Berlin wall
• Disintegrated USSR
• The fall of Communism in Eastern Europe and the former Soviet
Union.
• Czechoslovakia has divided itself into two states.
• Yugoslavia has divided into 5 (often warring) successor states.
• Pro-democracy movement (suppressed) in China.
• Latin America has seen both democracy and free market reforms.
• NEP of India
WHY AN MNC?
• JOBS
• MANAGEMENT PRACTICES
• TECHNOLOGY TRANSFER
• QUALITY OF LIFE
• UNIVERSALISATION OF CULTURE, STANDARDISATION,
• NEGOTIATION SKILLS.
Country Competitiveness
IS INDIA COMPETITIVE?
Country Competitiveness: a country’s ability to generate
wealth in comparison to other countries
Factor Endowments:
– natural resources
– climate
– location
– demographics
The Country Context
MIXED ECONOMY:
• Consumers influence production by exercising their power of choice
• Legal and institutional frameworks to safeguard economic choice
Global services location index by AT Kearney.
• India is the best place to start a business
• Has displaced the US to become the second-most
favoured destination for foreign direct investment after
China.
Been named as the top reformer in South Asia in the
annual Doing Business Report issued by the International
Finance Corporation (IFC).
In 2006, an international consultancy firm rated India
second, ahead of the US, in the FDI Confidence Index,
while UNCTAD put India as the third most attractive
destination in the world for FDI.
• Fifth largest economy in the world, ranking above
France, Italy, the United Kingdom, and Russia
• Has the third largest GDP in Asia.
• Massive market
• Exceptional economic prospects
• Little external susceptibilities
• Steady price levels
• A fair amount of candidness in business dealings
• A sizeable English-speaking population.
• Host-country policies that suit foreign investors,
such as promotion of private ownership and
financial market regulation.
• India is the software super power,
• Houses a large number of IT Parks, Business
Centres and SEZs in Bangalore, Gurgaon, Noida,
Hyderabad, Chennai, Chandigarh, Kolkata, Mumbai
and Pune.
• India is the world's most preferred manufacturing
“hub”.
Other unique Strengths
Indian Youth
• IIM students are turning down Rs 1 crore plus salary to start ventures
of their own.
• The fear of failure has vanished.
• India's roaring entrepreneurial culture has also outbid Chinese in
serious business overseas.
• A recent study by the Duke University’s School of Engineering and
University of California's Berkley School of Information reveals that
between 1996 and 2006,Indian immigrants founded more engineering
and technology companies in the us than Chinese and Taiwanese and
British immigrants put together.
• In fact, one in every four-technology companies set up by immigrants
had an Indian founder.
Indian Software Industry is estimated to
be worth USD 1.2 billion.
A. EXPORTS
Oil imports during April- August, 2008 were valued at US$ 45967
million which was 59.6 per cent higher than the oil imports of
US$ 28798 million in the corresponding period last year.
B. IMPORTS
• The trade deficit for April- August, 2008 was estimated at US $ 49139
million which was higher than the deficit at US $ 34543 million during
April- August, 2007.
• Steel tycoon Lakshmi Niwas Mittal has pledged an investment of
about US$ 20 billion for building two 12-million-tonne steel plants
in the states of Jharkhand and Orissa.
• Vodafone, the world's second-biggest mobile firm, plans to spend
US$ 2 billion a year on capital expenditure in India.
• Eyeing the projected 15 per cent growth in the luxury car market
segment, DailmerChrysler India Pvt Ltd, makers of Mercedes-Benz
cars, has decided to set up a new plant in Pune.
• Israeli mall developer Plaza Center NV will invest US$ 1.22 billion
over the next five-seven years to set up 50 malls in India.
• Nokia plans to invest US$ 100 million in India in the next three
years to ramp up its capacity in Chennai.
• US-based aircraft engine manufacturer, Pratt and Whitney, plans to
invest about US$ 30 million in the infotech and spare parts
manufacturing sector.
INDIA ABROAD-The year 2006 marks the point when, 60 years after
independence from colonial rule, Indians are investing more abroad
than the country is receiving as foreign direct investment (FDI).
• The Mukesh Ambani-owned Reliance Industries, India’s second largest
private firm, aims to be among the top 10 in the list.
• With Novelis, Kumar Birla's Hindalco Industries will definitely be
entering the list, three years ahead of its target year.
• Indian firms, like Videocon, Moser Baer and Bharat Forge have
emerged as global leaders in their respective sectors.
• 'The Apollo Group of Hospitals may strike cross border deals through
strategic partners with some of the local hospital chains overseas while
pursuing mergers and acquisitions in the US and Europe’.
• Nicholas Piramal India Ltd plans to invest $50 million over a three-year
period in its plants in the UK and India
• In the energy sector, India's Suzlon Energy Limited, the world's fifth
largest wind turbine manufacturer, bid $1.3 billion for Germany's RE
power.
A BCG report said that the axis of corporate power was shifting towards
the BRIC (Brazil, Russia, India and China) countries. It identified 100
new global challengers from these nations, including 21 Indian firms,
including Bharat Forge, Hindalco, Videocon and Tata Steel.
• A McKinsey study (2006) found the dynamics in emerging markets like
India "actually provide an invaluable springboard" for their companies to
go global.
• A 2006 study by Mape, an investment bank, concluded "the Indian
Multinational Company (MNC) has finally come of age" and "Indian
buyers have become a force to reckon with in many industries such as
pharma, auto components and oil and gas".
• Manufacturing and construction, which grew at 12 per cent in 2006-
07, decelerated by about 2.5 percentage points in 2007-08. The slower
growth of consumer durables was the most important factor in the
slowdown of manufacturing.
• There was a sharp acceleration in the growth of manufacturing from
3.3 per cent during the Ninth Five Year Plan to 8.6 per cent during the
Tenth Five Year Plan. The average growth of manufacturing during
the five years ending 2007-08 is expected to be about 9.1 per cent.
• The contribution of manufacturing to overall growth increased from
about 9.6 per cent during the Ninth Five Year Plan to about 17.7 per
cent during the Tenth Five Year Plan.
• Among the subsectors of services, “transport and communication”
has been the fastest growing with growth averaging 15.3 per cent
per annum during the Tenth Five Year Plan period followed by
“construction”. The impressive progress in the telecommunication
sector and higher growth in rail, road and port traffic played an
important role in the growth of this sector.
• Education
• Infrastructure
• Health: the Indian health system is ranked 118 among 191 WHO
member countries on overall health performance
• Judicial system
• Etiquette
India Inc’s bottlenecks
Regarding the ease of registering property, India ranks 110th in the world.
The process itself takes 6 procedures and 62 days.
• India gets the 65th rank on the simplicity of getting credit for
business purposes.
• India scores 5 out of 10 on the legal rights index, which measures the
degree to which collateral and bankruptcy laws facilitate lending.
Paying taxes
• India ranks 158th in ranking on the ease of paying taxes. and the
time spent on complying with tax requirements is is 264 hours
per year. The tax regime requires 59 separate payments annually.
In India, claimants can expect to recover less than 13 cents on the dollar,
as compared to an average of 20 cents in South Asia, 18 cents in Sub-
Saharan Africa, 32 cents in China and 93 cents in Japan, which is the
highest in the world.
Further, are the government's opaque policies:
• absence of clarity relating to norms for acquiring agricultural land for
setting up industrial units, especially those located in special economic
zones or export-oriented localities where industrial ventures receive
tax concessions as well as regulations for inviting foreign investment
in retail concerns.
• Over the coming decade or so, India needs to invest at least 150 billion
dollars for improving its infrastructure and a similar amount on retail
ventures if the economy is to continue to grow at 8 percent each year.
MODES OF ENTRY INTO
INTERNATIONAL BUSINESS
MODES OF ENTRY
• Mining
– UK based Vedanta Resources’ recent
announced acquisition of 71% stake in Sesa Others
Goa for € 972m 7%
Cement
• Cement Consumer
23%
54
European Acquirers – Indian Targets
Top 10 Deals (2005 – 2007YTD)
Year Acquirer Country Target Deal Value
(€ m)
2007 Vodafone Group PLC UK Hutchison Essar (67%) 10,507
2007 Vedanta Resources PLC UK Sesa Goa (71%) 972
2005 Vodafone Group PLC UK Bharti Airtel (6%) 686
2006 Holcim Ltd Switzerland Gujarat Ambuja (20%) 466
2005 Michael Huber Muenchen Germany Micro Inks Ltd (71%) 246
2004 Hewlett-Packard Leiden Netherlands Digital Globalsoft (49%) 245
2005 Holcim Ltd Germany Ambuja Cement (67%) 182
2005 SABMiller PLC* UK Shaw Wallace 108
2006 Ciments Francais France Zuari Cement (50%) 100
2004 DHL Worldwide SA Belgium Blue Dart (68%) 97
Source: SDC, Merger Market, Rothschild analysis
Note *- Through its Indian Subsidiary, Mysore Breweries
55
Foreign Direct Investment (FDI) is defined as
"investment made to acquire lasting interest in enterprises
operating outside of the economy of the investor."
• Trade Barriers
• Labour Market Imperfections
• Intangible Assets
• Vertical Integration
• Product Life Cycle
• Shareholder Diversification
Labour Market Imperfections
• U.S. firms develop new products in the developed world for the
domestic market, and then markets expand overseas.
• FDI takes place when product maturity hits and cost becomes an
increasingly important consideration for the MNC.
Product Life Cycle
The U.S.
Quantity
production exports
imports
ptio n
ns u m
co
n
p tio
su m
con
imports
production
• Technology transferred at prices that are too high or terms too stringent
• Inappropriate technology used
• Maintain key functions/knowledge at home country to perpetuate
dependence of MNCs
• Introduce superfluous products that are not useful to society
• Expatriates have top management positions
Gross Fixed Capital Formation and FDI
• At least one out of four people in India live below the international-
defined poverty line of one U.S. dollar a day.
• Discovered had to change US model
– Differences in local taste, preferences and local infrastructure
– Change store location, layout and stocking practices
– Keep company’s core strategies and operations – emphasize everyday low prices & realize
operating efficiencies from world class logistics management and information systems
• Benefits – becoming transnational corporation
– Enhanced bargaining power with suppliers
– Ability to transfer valuable ideas from one country to another
– Balance global standardization with local customization
Boeing enlists the support of its Japanese partners to help offset the
high development costs of the next generation of Jumbos
With Quantas, British Airways can provide coverage of Australia, Asia and
the Pacific
• Visa and Master Card, traditionally arch rivals, entered into an
alliance with Microsoft. They together created specifications for
secure online transactions oner open networks, the internet, to
prevent payment fraud.
• TNT, an Australian air express firm, and the post offices of Canada,
France, Germany, the Netherlands and Sweden established a joint
venture to get quick entry into these markets and to counter
competition from federal express, DHL worldwide and United
Parcel Service
A complementor
• 'if customers value your product more when they have the other
player's product than when they have your product alone.‘ - Barry
J.Nalebuff and Adam M.Brandenburger, who coined the word 'co-
opetition' to describe the new world of companies working in
alliance.
• Co-opetitors abound in information and communications
technology, because no company, however mighty, can supply from
its own resources all the hardware, software, connections and
distribution that customers require - and it's customer needs that drive
co-opetition.
• Intel and Microsoft are inseparable complementors in the Wintel
Supplier-Customer Alliances
• The goal was exchange rate stability without the gold standard.
• The result was the creation of the IMF and the World Bank.
• Under the Bretton Woods system, the U.S. dollar
was pegged to gold at $35 per ounce and other
currencies were pegged to the U.S. dollar.
• Free Float
– The largest number of countries, allow market forces to determine
their currency’s value.
• Managed Float
– About 25 countries combine government intervention with market
forces to set exchange rates.
• Pegged to another currency
– Such as the U.S. dollar or euro (through franc or mark).
• No national currency
– Some countries do not bother printing their own, they just use the
U.S. dollar. For example, Ecuador has recently dollarized.
THE INTERNATIONAL BANK FOR
RECONSTRUCTION & DEVELOPMENT
(IBRD):
The official name for the IBRD &
the International Finance Corporation
is the world bank.
1.INTERNATIONAL DEVELOPMENT
ASSOCIATION (IDA)
2.THE INTERNATIONAL FINANCE
CORPORATION (IFC)
3.THE MULTILATERAL
INVESTMENT GUARANTEE AGENCY
(MIGA)
4.THE INTERNATIONAL CENTER
FOR SETTLEMENT OF INVESTMENT
DISPUTES (ICSID).
INTERNATIONAL
DEVELOPMENT
ASSOCIATION (IDA)
• Highest level: Ministerial Conference
– Meets at least every two years
– Comprised of countries or customs unions
– Makes decisions on all matters under any of
the multilateral trade agreements
Structure (cont.)
• Second level: General Council
– Handles the daily work of the ministerial conference along
with the Dispute Settlement Body and the Trade Policy Review
Body
– Consists of representatives of all WTO member states
Structure (cont.)
• Third level: Councils for Trade
– Work under the General Council
• Three parts
– Council for Trade in Goods
– Council for Trade-Related Aspects of Intellectual Property
Rights
– Council for Trade in Services
• Six other bodies report to the General Council
– trade and development
– the environment
– regional trading arrangements
– administrative issues.
Structure
1. Free of discrimination
– Cannot privilege a particular trading partner above others within the
system
– Cannot discriminate against foreign products and services.
2. Tend toward more freedom
– fewer trade barriers (tariffs and non-tariff barriers)
3. Predictable
– trade barriers will not be raised arbitrarily
– markets will remain open.
4. Tend toward greater competition
5. More accommodating for less developed countries
– Give them more time to adjust, greater flexibility, and more
privileges.
Agreements
• Market access
– Developed countries- reduce tariffs by 36%
– Developing countries- reduce tariffs by 24%
• Export subsidies
– Reduce tariffs by 35%
General Agreement on Trade in Services
(GATS)
Began November
2001
WTO @ Cancun
Hong Kong
ASEAN
Free Trade Areas.
➲ No Internal Tariffs.
➲ External Tariffs could be different.
➲ Cooperation on economic issues.
➲ No free labor or capital movements.
➲ N.A.F.T.A. --
➲ U.S.-Israel, European Free Trade Area
Full Customs Union.
➲ No Internal Tariffs.
➲ Common External Tariffs.
➲ No Free labor or
capital movements.
➲ Usually a small country
close to a large one.
➲ France-Monaco
➲ Italy-San Marino.
Common Market.
➲ No Internal Tariffs.
➲ Common External Tariffs.
➲ Free flow of labor and capital.
➲ Southern Cone Common Market
(Mercosur) - Argentina, Brazil,
Paraguay, Uraguay, Bolivia,
and Chile.
➲ Caribbean Community
and Common Market.
Economic Union.
➲ No Internal Tariffs.
➲ Common External Tariffs.
➲ Free flow of labor and capital.
➲ Integration of economic policies.
➲ Harmonize monetary policies, taxation, and government spending.
➲ Common currency or fixed exchange rates.
➲ E.U. - Full monetary union by 1999 and single European currency by 2002.
Political union
Political union
– Involves complete political and economic integration, either
voluntary or enforced.
– Commonwealth – a voluntary organization providing for the loosest
possible relationship that can be classified as economic integration.
– Two new political unions came into existence in the 1990s:
• The Commonwealth of Independent States (CIS)
• The European Union (EU)
EU Institutions.
• Its 21 members
range from China
and Russia to the
United States, Japan
and Australia,
and account for 45%
of world trade.
03/09/98
Africa
Several categories of
individuals and institutions
stand accused.
SUB-PRIME LENDERS
• The root of much of the current difficulties lies in the sub-prime loans
market, predominantly in the US. The sub-prime category refers to the
category of borrowers at the highest risk of defaulting on their loan -
perhaps those with a poor credit history or unreliable income.
• "The poorest people pay the highest interest rates," he says. In the low
interest rate years after 2001, sub-prime borrowers might pay two or
three times the interest of a prime borrower.
• And if some defaulted, it wasn't the end of the world.
Property prices were rising so fast in the US that the odd
repossession wasn't a major problem. In an atmosphere of
speculation, many people saw there was money to be made
in property and so the spiral continued.
• But when the housing market took a turn for the worse, the
problems started. Many borrowers were on deals that for the
first two years had low rates and then switched to a much
higher rate. Once house prices fell, borrowers who were
struggling started defaulting on loans. Repossessed houses
flooding onto the market caused a vicious circle.
• But these sub-prime loans were parcelled up and turned into complex
financial products traded on markets all over the world. The esoteric
nature of some of the products related to these loans has been blamed by
many for the extent of the crisis.
WHAT IS SHORT-SELLING?
A key issue is the opacity of the banking system. If no-one can truly
assess the liabilities of a given financial institution, how can they
confidently lend it money? But this has helped people make
money.
THE GREAT DEPRESSION
1929
• Agriculture
• Railroads
• Textiles
• Steel
• Mining
• Lumber
• Automobiles
• Housing
• Consumer goods
FARMERS STRUGGLE
• No industry suffered as much
as agriculture
• During World War I
European demand for
American crops soared
• After the war demand
plummeted
• Farmers increased production
sending prices further
downward
• By the late 1920s, American
consumers were buying less
• Rising prices, stagnant wages
and overbuying on credit were
to blame
• Most people did not have the
money to buy the flood of
goods factories produced
GAP BETWEEN RICH & POOR
• The gap between rich and
poor widened
• The wealthiest 1% saw their
income rise 75%
• The rest of the population
saw an increase of only 9%
• More than 70% of American
families earned less than
$2500 per year
• By 1929, many Americans had
invested in the Stock Market
• The Stock Market had become
the most visible symbol of a
prosperous American economy
• The Dow Jones Industrial
Average was the barometer of the
Stock Market’s worth
• The Dow is a measure based on
the price of 30 large firms
STOCK PRICES RISE THROUGH
THE 1920s
• Through most of the 1920s,
stock prices rose steadily
• The Dow reached a high in
1929 of 381 points (300 points
higher than 1924)
• By 1929, 4 million Americans
owned stocks
• By the late 1920s, problems
with the economay emerged
• Speculation: Too many
Americans were engaged in
speculation – buying stocks &
bonds hoping for a quick profit
• Margin: Americans were
buying “on margin” – paying a
small percentage of a stock’s
price as a down payment and
borrowing the rest
• In September the Stock Market
had some unusual up & down
movements
• On October 24, the market took
a plunge . . .the worst was yet to
come
• On October 29, now known as
Black Tuesday, the bottom fell
out
• 16.4 million shares were sold
that day – prices plummeted
• People who had bought on
margin (credit) were stuck with
huge debts
By mid-November, investors had
lost about $30 billion
THE GREAT DEPRESSION
• The Stock Market crash
signaled the beginning of the
Great Depression
• The Great Depression is
generally defined as the period
from 1929 – 1940 in which the
economy plummeted and
unemployment skyrocketed
• The crash alone did not cause
the Great Depression, but it
hastened its arrival
FINANCIAL COLLAPSE
• Between 1928-1932, the U.S.
Gross National Product (GNP)
– the total output of a nation’s
goods & services – fell nearly
50% from $104 billion to $59
billion
• 90,000 businesses went
bankrupt
• Unemployment leaped from 3%
in 1929 to 25% in 1933
CAUSES OF THE GREAT
DEPRESSION
• Tariffs & war debt
policies
• U.S. demand low, despite
factories producing more
• Farm sector crisis
• Easy credit
• Unequal distribution of
income
Will
History repeat
itself…. ?
The Mexican Peso Crisis
• The Asian currency crisis turned out to be far more serious than the
Mexican peso crisis in terms of the extent of the contagion and the
severity of the resultant economic and social costs.
• Many firms with foreign currency bonds were forced into bankruptcy.
• The region experienced a deep, widespread recession.
Currency Crisis Explanations
Banks can also fail for irrational reasons, which non-financial companies
are less likely to do. A perfectly sound bank could fail just because its
customers panic and all ask for their money on the same day.
US AIRLINE SECTOR 2001
The airline industry faced collapse after the terrorist attacks of 11
September. United was one of the airlines worst affected by 9/11.
Carriers faced immediate problems when a flying ban was imposed and
people were afraid to fly. The US government provided compensation.
But once flights resumed, the airlines faced a problem that is now
familiar to banks: they could not get credit. The government set up the
Air Transport Stabilization Board to provide up to $10bn (£5.66bn) in
loan guarantees. The government received shares in the airlines in return
for guaranteeing loans to them and also charged fees for participating in
the scheme.
"The bottom line is that the programme did its job," says Professor
Leighton Vaughan Williams from Nottingham Business School.
"Taxpayers eventually made a profit of $300m," he adds. It was not an
easy time for airlines and several such as United Airlines were forced to
seek bankruptcy protection, but most of them survived.
THE BRITISH EXPERIENCE 1970s
• Bailing out or nationalising big manufacturers is not as popular as it
once was. Advocates of bail-outs arged that if "a company had a
strong future but was experiencing temporary difficulties, that would
be solved by an injection of taxpayers' money," says Professor Naresh
Pandit from Norwich Business School. "The idea was that the
government could later withdraw, but it never did as planned."
Bailing out banks is certainly not a new idea, with the first US bank
bail-out taking place in 1792. William Duer tried to corner the market
in government bonds and depress the share price of the Bank of New
York. His plan went wrong, causing market panic.
The collapse of the bank was one of the causes of the Panic of 1837
in which the next president, Martin van Buren, refused to involve
the government. Milton Friedman described the depression that
followed as the only one comparable with the Great Depression of
the 1930s.
What do market moves
mean for you
• Traders are not the only ones worried about the falls. The
fluctuations of share prices affect all of us - often in a more direct
way than consumers realise.
• At the start of trading on Friday the FTSE 100 share index plunged
about 10%, falling below 4,000 points for the first time in five years.
• As well as traders becoming less wealthy and so less likely to buy homes, the
shrinking possibility of borrowing and less job security also slows down the
housing market.
• In recent years, employees might have been paid bonuses in shares. People
might have held onto shares handed out to customers when building societies
demutualised in the late 1990s.
• Any share-based investments such as shares ISAs or endowment policies will have
been cut in value. There are worries for people who use endowment policies to pay
off their mortgage.
• It is always worth remembering that investments are very different from savings in a
bank account - they can go down in value as well as up, especially in the short-term.
• Perhaps most affected by this latest slump are those who are set to retire soon.
What about pensions?
• The latest you can leave it to buy an annuity is the age of 75. The government says it may
consider a temporary suspension of this deadline so people of that age can wait for their
funds to recover.
• Others have pensions in a final salary scheme. They are safe because their employer covers
the risk.
• But over the long-term, if the markets continue to struggle, employers may be quicker to
close down these schemes to new members.
Any other long-term effects?
• These funds, which began operating in April 2005, will now probably be
worth less than they were if they haven't been topped up by parents. But
youngsters cannot get their hands on them until they are 18, and so by
then they may have grown in value.
Is that the same with all investments?
• Financial advisers always say that investments should be for the long term even though, as Dane
Halling says "we do not know what is on the other side of the valley". Most people's funds are spread
across a series of stocks in order to protect them if one plunges further than others.
• Jason Butler says that people can "rebalance" where these funds are invested, but ultimately they will
recover if investments are left for a number of years. He points to the experiences of the late 1970s.
If somebody invested £100 in shares on the London Stock Exchange in 1973, it would have only
been worth £34 by the end of 1974.
• But around four years later it would have been back in positive territory and by 1982, it would have
been worth £300. "It is the fool who jumps," says Mr Butler.