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In today's economy, most economic boundaries have already disappeared and those remaining will continue to diminish. This phenomenon is partially due to the proliferation of electronic communication, which allows instantaneous information transfer for sales, marketing, manufacturing and outsourcing. Furthermore, growing distribution networks, supply chains, and transportation hubs simplify the movement of products. And, the broad networks of worldwide financial institutions reduce currency issues. Thus, businesses operating in the Midwest can service the needs of customers around the world. Ultimately, most business professionals will in some way be impacted by international influences. All individuals planning a career in business must understand the intricacies of doing business with partners from other countries—whether the business is conducted in the United States or outside our borders. Culture, language, political systems, geography, and socio-economic factors all influence a person's business practices. Knowing that you need to research not only the company you wish to do business with but, also, the culture, tradition, and business practices of those you will be working with is vital to business success in this global marketplace. In order to be prepared for a career in any facet of the business world (accounting, finance, marketing, information technology, law, healthcare, etc.), knowledge and understanding of global issues is critical. Thus, you should study international business to be prepared for diverse business opportunities, knowing in advance that respect for and knowledge of your counterparts can give you a competitive advantage.
International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics,and transportation) that take place between two or more nations. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. It refers to all those business activities which involves cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc. A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food companies such as McDonald's and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national markets. Areas of study within this topic include differences in legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local culture, corporate culture, foreign exchange market, tariffs, import and export regulations, trade agreements, climate, education and many more topics. Each of these factors requires significant changes in how individual business units operate from one country to the next.
An understanding helps you make better career decisions. licensing and franchising. Number and comparative capabilities of competitors Competitive differences by country Technology is expanding. Most companies are either international or compete with international companies. management contracts. . Competition has become more global. resource acquisition. tourism and transportation. Institutions provide services to ease the conduct of international business. Functions: marketing. human resources Overlaying alternatives: choice of countries. An understanding helps you decide what governmental policies to support. direct investment and portfolio investments. accounting. risk minimization Modes: importing and exporting. global manufacturing and supply chain management. finance. or other factors. Consumers know about and want foreign goods and services. innovation. marketing. The best way of conducting business may differ by country. Governments are removing international business restrictions. turnkey operations. organization and control mechanisms Political policies and legal practices Cultural factors Economic forces Geographical influences Major advantage in price. The operations affect and are affected by the physical and societal factors and the competitive environment. Cross-national cooperation and agreements. Means • • • • • • • • • • • • • • • • • • • • • • • Physical and societal factors Competitive factors There has been growth in globalization in recent decades due to the following eight factors: Studying international business is important because: Managers in international business must understand social science disciplines and how they affect all functional business fields. Modes of operation may differ from those used domestically. Operations • Objectives: sales expansion. Countries cooperate more on transnational issues. especially in transportation and communications. Political relationships have improved among some major economic powers.The conduct of international operations depends on companies' objectives and the means with which they carry them out.
Make the most of new security measures. 2. uses the Six Tenets when giving advice on how to globalize one's business. You and your brand are inseparable. Go to the source. Participate in the process. Forge ethical strategic partnerships. and international trade and customs consultant. Secure your data. Become involved with the international business self-regulation movement. You must be vigilant in enforcing your IP rights. Address your particular circumstances. You must be vigilant in protecting your intellectual property both at home and abroad. Keep the home office operational.Tom Travis. Take advantage of trade agreements: think outside the border ○ ○ ○ ○ ○ ○ ○ ○ Familiarize yourself with preference programs and trade agreements. Strong ethics translate into good business. the managing partner of Sandler. Stay secure in an insecure world 5. Maintain high ethical standards ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4. The unexpected will happen. Keep communications open. Expect the Unexpected 6. Participate in trade-government partnerships. Appoint a leader. Memorialize your company's code of ethics and compliance practices in writing. Seize opportunities when they arise. Protect your worldwide reputation by strict adherence to labor and human rights standards. Travis & Rosenberg. Do your research now. Keep your personnel secure. All global business is personal . Develop compliance protocols for import and export operations. Security requires transparency throughout the supply chain. Protect your brand at all costs 3. Read the fine print. PA. The Six Tenets are as follows: 1. Understand corporate accountability laws.
In this mode. Naturally.000 Approximately four billion people Modes of ib The oldest mode of international business is foreign trade. Relate to offshore associates on a personal level.2002. Philadelphia: Wharton School Publishing. An international company may acquire existing operations in a foreign country in order to penetrate the foreign market. As compared to export. Strategy & Business. A firm imports its necessary inputs from the cheapest source. According to C.000 Approximately one billion people Base of the Pyramid Per capita GDP/GNI < $2. They represent a partnership agreement in which the venture is owned jointly by the international company and a company of the host country. 2005. Be available to overseas clients and customers 24/7. the company sells abroad a particular resource. When a firm lacks capital and detailed knowledge about a foreign market. This method is also used when the host government put restrictions on the inflow of foreign capital investment. it allows its technology. The third mode is known as management contracting. patent.Hart. 111). The contract is meant for a given number of years during which the seller of management skills manages the affaires of the company located in the host country for a specific fee.K. Top Tier: Per capita GDP/GNI > $20. trade mark and other proprietary advantages to be used for a fee by a licensee or technology importing firm. For example technology and marketing ability of German firms and raw material availability of Australia firms have led to joint-venture agreements between the two countries. Hart. while its exports its output to different countries in order to earn maximum amount of foreign exchange.000-$20. and (2) S. Joint ventures are the fourth mode. no overseas manufacturing is involved The other mode of international business is licensing. like management skills. the joint venture allows the two firms to apply their respective comparative advantages in a given project.○ ○ ○ Fly the flag at your overseas locations. Prahalad & S. The fortune at the bottom of the pyramid. this mode requires less time or depth of involvement in foreign markets. In this case. The greatest benefit of this mode is that the acquiring company does not have to begin operations from scratch. and so .000 Approximately one billion people Second Tier: Per capita GDP/GNI $2. 26: 54-67. Capitalism at the Crossroads (p.
IIND as per 2008 The six major modes of international business are imports and exports. licensing and franchising..does not have to labor hard to grab the market. turnkey operations. the benefits begin to appear only when the consumer base is firmly established. The revenue gained . the company evaluates the cash inflow and outflow during his life of the project and makes investments only account foreign exchange risk and the political risk involved. the size of the investment is often lower than in case of acquisition. and direct and portfolio investment.. Whatever the motivation behind foreign investment or foreign manufacturing. or nonproducts. in other words in exchange of useful good or raw materials the exchange is done.. Companies may import and export merchandise... Imports and exports are the most common mode of international business. Some time money is not the only way to do the business. Large companies are more likely to engage in other modes of international business in conjunction with importing and exporting. When a company innovates a specific technology and its product is mature in the markets abroad or when the company wants to reap the location advantage in foreign country.. management contracts. This mode is better than the acquisition inasmuch as the operations can be tailored exactly to the firm's need and what is more. Finally. it sets up an affiliate there. an international company invests in the majority equity shares of the company of the host country. however. While exports and imports apply mainly to goods. the company in the host country becomes a subsidiary of the international company.. Cont. The quantum of investment. This way. particularly in smaller companies even though they are less likely to export. in this case is quite large. they can also apply to services.. The importer of goods has normally to pay for the import in convertible currencies which they buy with their own currency. However. defined as tangible goods brought into or out of (respectively) a country. Most service imports and exports revolve around tourism and transportation. tourism and transportation.
Gloria Vanderbilt has franchised her name out to several clothing companies. Japan. a portfolio investment is a noncontrolling interest in a company that usually involves either taking stock in a company or making loans to a company in the form of bonds. This is most evident in Disney's theme parks in France. Many companies enter into international licensing agreements. or expertise) under contract. For example. For many countries. their income on foreign tourism is more important than their income from exports. The franchisor also assists on a continuing basis in the operation of the business-for example. airlines. copyrights. many companies engage in franchising. forming the Gloria Vanderbilt line. international business occurs within direct and portfolio investments. a mode of business where the franchisor allows the franchisee to use a trademark that is an essential part of the franchisee's business. the investor takes ownership in a foreign property for a financial return. Similarly. and technology. Conversely. allowing other countries around the world to use their assets (ie: trademarks. performed under contract. When a government joins a company in an FDI. and China. management services. A foreign direct investment (the more common of the two) gives the investor a controlling interest in the foreign company. When two or more companies share in an FDI. who earn a considerable amount from foreign shipping. . or notes that the investor purchases. travel agencies. By investing in a foreign company. The same holds true in countries such as Norway and Greece. Portfolio investments are particularly popular with multinational enterprises as they offer a safe means towards short-term financial gain. receiving royalty payments in return. especially in the Caribbean and Southeast Asia. Finally. it becomes a mixed venture. A turnkey operation involves construction of facilities. and shipping companies. by providing components. which is then transferred to the owner when the company is ready to begin operating.from international tourism and transportation is best seen in hotels. bills. Companies also pay fees that may be incurred on an international level for engineering services handled through turnkey operations and management contracts. Management contracts are initiated when one company supplies personnel to perform general or specialized management functions for another company. patents. it is known as a joint venture.
This lesson considers a number of key alternatives. In reality. Examples of indirect exporting include: • • Piggybacking whereby your new product uses the existing distribution and logistics of another business.e.over and above which pigeon-hole it fits into. if you were to employ a home country agency (i. but recognizes that alteratives are many and diverse. They offer a whole range of bespoke or a la carte services to exporting organizations. Strategic Alliances. . Licensing. On the other hand. For example. Direct exporting is straightforward. The Internet The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. the most important point is that you consider all useful modes of entry into international markets . some see franchising as a stand alone mode. over an above indirect exporting. For others the Internet has provided the opportunity for a new online company. Essentially the organization makes a commitment to market overseas on its own behalf. It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. If in doubt. Here you will be consider modes of entry into international markets such as the Internet. Export Management Houses (EMHs) that act as a bolt on export department for your company. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). International Distributors. as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. International Agents. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed. Joint Ventures. an exporting company from your country . This gives it greater control over its brand and operations overseas. whilst others see franchising as part of licensing. Finally we consider the Stages of Internationalization. always clarify your tutor's preferred view.which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly. Exporting.Modes of Entry into International Markets (Place) How does an organization enter an overseas market? Background A mode of entry into an international market is the channel which your organization employs to gain entry to a new international market. Overseas Manufacture and International Sales Subsidiaries. More Exporting There are direct and indirect approaches to exporting to other nations.
You would not own the plant once it is handed over. Franchising involves the organization (franchiser) providing branding. but low-control option. Toyota Ayago is also marketed as a Citroen and a Peugeot. Marketing agreements. Distributors are similar to agents. make sure that your contract allows you to regain direct control of product. Of course you need to set targets since you never know the level of commitment of your agent. or sometimes unrelated products in international markets. and market on your behalf in a particular country. Otherwise pros and cons are similar to those of international agents. Sometimes the relationships are between competitors. Agents usually represent more than one organization.g. Agents are a low-cost. • Licensing Licensing includes franchising. with the main difference that distributors take ownership of the goods. and infact most facets that are needed to operate in an overseas market. Agents might also represent your competitors . Put simply. Strategic Alliances (SA) Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally. Spanish and Portuguese colonies. .so beware conflicts of interest. expertise. agents are individuals or organizations that are contracted to your business. Management tends to be controlled by the franchiser.g. Toyota's car plant in Adapazari. retain and train. Distribution alliances e. They tend to be expensive to recruit. They rarely take ownership of products. Examples include Dominos Pizza. They date back to an imperialist past that some nations might prefer to forget e. concepts.g. French. Coffee Republic and McDonald's Restaurants. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage. and more commonly take a commission on goods sold. the British. brand and/or expertise. Therefore they have an incentive to market products and to make a profit from them. to the franchisee. iPhone was initially marketed by O2 in the United Kingdom. There are many examples including: • • • • Shared manufacturing e. Turnkey contracts and contract manufacturing. Research and Development (R&D) arrangements. If you intend to globalize. • • Licensing is where your own organization charges a fee and/or royalty for the use of its technology. Trading companies were started when some nations decided that they wished to have overseas colonies. • International Agents and International Distributors Agents are often an early step into international marketing. Turnkey contracts are major strategies to build large plants.• Consortia are groups of small or medium-sized organizations that group together to market related. They often include a the training and development of key employees where skills are sparse .for example. Turkey.
Of course you could assemble products in the new plant. Others will start at a later or even final stage. any business wishing to enter China needs to source local Chinese partners. This can be a new-build. manufacturing and R&D are most common forms of Joint Venture. This is also known as Foreign Direct Investment (FDI). companies remain independent and separate.e. Internationalization Stages So having considered the key modes of entry into international markets. the organization invests in plant. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market: • • • Access to technology. core competences or management skills. Overseas Manufacture or International Sales Subsidiary A business may decide that none of the other options are as viable as actually owning an overseas manufacturing plant i. Joint Ventures (JV) Joint Ventures tend to be equity-based i.e. The downside is that you take on the risk associated with the local domestic market. and simply export components from the home market (or another country). Strategic Alliances are non-equity based agreements i. Of course some will go through each stage as summarized now: • • • • • Indirect exporting or licensing Direct exporting via a local distributor Your own foreign presences Home manufacture. To gain entry to a foreign market. The key benefit is that your business becomes localized you manufacture for customers in the market in which you are trading. it acts more like a distributor that is owned by your own company.e. Honda's relationship with Rover in the 1980's. reducing the element of risk. For example. You also will gain local market knowledge and be able to adapt products and services to the needs of local consumers. and foreign assembly Foreign manufacture . Access to distribution channels. machinery and labor in the overseas market. However. we conclude by considering the Stages of Internationalization. An International Sales Subsidiary would be similar. a new company is set up with parties owning a proportion of the new business. For example.Essentially. and have the same key benefit of course. Some companies will never trade overseas and so do not go through a single stage. or the company might acquire a current business that has suitable plant etc.
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1.Size of market (in terms of demographics) . 3.The present wealth of consumer markets (purchasing power) .Nature of competition By considering such factors firm can rank countries in terms of their attractiveness and long-run profit. and on what scale.risk is high for business failure(probability increases if business enters a national market after several other firms they can learn from other early firms mistakes) . it’s the ability to prevent rivals and capture demand by establishing a strong brand name. Entry is early when an international business enters a foreign market before other foreign firms.1 • • Start on page: Scroll Preview View: <a title="Vie More share options Add to Collections Auto-hide: on Modes of entry into an International Business:There are some basic decisions that the firm must take befor forien expansion like: which markets to enter. 2. 2. Disadvantage: 1. Ability to create customer relationship. The advantage is when firms enters early in the foreign market commonly known as firstmover advantages First mover advantage. when to enter those markets. Which foreign markets? -The choice based on nation’s long run profit potential. -Look in detail at economic and political factors which influence foreign markets. -Long run benefits of doing business in a country depends on following factors: . Ability to build sales volume in that country.so that they can drive them out of market. And late when it enters after other international businesses.firm has to devote effort. time and expense to learning the rules of the country. Timing of entry:It is important to consider the timing of entry.
managerial .Modes of entry:-1. Advantages Of Exporting: a. If the company selects a company in the host country to distribute the company can enter international market with no or less financial resources but this amount would be quite less compared to that would be necessary under other modes. The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership . Franchising 4. Exporting involves less risk as the company understand the culture .stored or processed in the supplying firm’s home country. c. Acquisitions & Mergers 8. Advantages.the domestic manufacturer leases the right to use its intellectual property (ie) technology . It is a convenient method to increase the sales. Passive exporting occurs when a firm receives canvassed them. Proactive motivations are opportunities available in the host country.brand name etc to a manufacturer in a foreign country for a fee. Mergers & Acquisitions: 6.Exporting: It means the sale abroad of an item produced . Licensing 3. 2. Exporting 2. Joint Venture 7. Motivation for exporting: Motivation for exporting are proactive and reactive. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export fuctions and for procuring foreign sales. b. copy rights . . Less Risks. Later after understanding the host country the company can enter on a full scale.Licensing : In this mode of entry .investment etc. customer and the market of the host country gradually. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign is called licensee. The cost of entering market through this mode is less costly. Reactive motivators are those efforts taken by the company to export the product to a foreign country due to the decline in demand for its product in the home country. Turnkey Project 5. Need for limited finance. Wholly Owned Subsidiary 1.
customs and environment of the host country. 3. It is difficult to control the international franchisee. Advantages: 1. Licensee may sell the product outside the agreed territory and after the expiry of the contract. Both parties have to maintain the product quality and promote the product . Disadvantages: 1. Continuous support system like advertising . Franchisee get the benefits of R& D with low cost. Low financial risk to the licensor 3. Chance for misunderstanding between the parties.Franchising Under franchising an independent organization called the franchisee operates the business under the name of another company called the franchisor under this agreement the franchisee pays a fee to the franchisor. 3. 4. The franchisor provides the following services to the franchisee. employee training . Licensee may develop his reputation 6. 4. Chance for leakages of the trade secrets of the licensor. 5. Licensee gets the benefits with less investment on research and development 5. Operating System 3. Product reoutation 4. Low investment and low risk 2. Disadvantages: 1. reservation services quality assurances program etc. 1. Low investment on the part of licensor. Franchisor learns more from the experience of the franchisees. It reduces market opportunities for both 2. Franchisee escapes from the risk of product failure. Franchisor can get the information regarding the market culture. Licensee escapes himself from the risk of product failure. It may be more complicating than domestic franchising. Trade marks 2. 3. 4. Therefore one party can affect the other through their improper acts.1. 2. . 2. Licensor can investigate the foreign market without much efforts on his part. 5.
mergers and acquisition specialists from the two countries. 2. 4. It reduce the market opportunities for both 4. This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser.brand name and distribution networks. Labour problem of the host country’s companies are also transferred to the acquired company. This strategy helps the host country. This strategy adds no capacity to the industry. payment on cost plus basis. 2. 5. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies. The company can formulate international strategy and generate more revenues. 3.3. . construct and equip a manufacturing/ business/services facility and turn the project over to the purchase when it is ready for operation for a remuneration like a fixed price . airports.Turnkey Project: A turnkey project is a contract under which a firm agrees to fully design . If the industry already reached the stage of optimum capacity level or overcapacity level in the host country.oil refinery . Hence they are multiyear project. 4. Advantages: 1. employee. The company immediately gets the ownership and control over the acquired firm’s factories. technology . Acquiring a firm in a foreign country is a complex task involving bankers. 5. national highways . Alternatively the domestic company may purchase the foreign company and acquires it ownership and control.Mergers & Acquistions: A domestic company selects a foreign company and merger itself with foreign company in order to enter international business. Both the parties have the responsibilities to maintain product quality and product promotion. Eg nuclear power plants . 3. railway line etc. Disadvantages: 1. It provides immediate access to international manufacturing facilities and marketing network. lawyers regulation. There is a problem of leakage of trade secrets.
Partner delay the decision making once the dispute arises. human skills . This act improves the local image in the host country and also satisfies the governmental joint venture. It synergy due to combined efforts of varied parties. 5. 3. It involves shared ownership. 4. It spread the risk between or among partners. Disadvantages: 1. technology. The decision making is slowed down in joint ventures due to the involvement of a number of parties.Joint Venture Two or more firm join together to create a new business entity that is legally separate and distinct from its parents. It provides strength in terms of required capital.Acquisitions & Mergers: A mergers is a voluntary and permanent combination of business whereby one or more firms integrate their operations and identities with those of another and henceforth work under a common name and in the interests of the newly formed amalgamations. Latest technology required human talent etc. 2. Motives for acquisitions: . Conflict may arise 2. expertise .6. It make large projects and turn key projects feasible and possible. 3. Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength. It provide skills like technical skills. 4. 5. Advantages: 1. Then the operations become unresponsive and inefficient. marketing skills. and enable the companies to share the risk in the foreign markets. Joint venture provide large capital funds suitable for major projects. Various environmental factors like social . Life cycle of a joint venture is hindered by many causes of collapse. technological economic and political encourage the formation of joint ventures. 7.
8. a business entity can only act through its directors. Obtaining patents. Only the certain percentage of the profit will be given to the parent body. The desire to acquire business already trading in certain markets & possessing certain specialist employees & equipments. however. 10.Wholly Owned Subsidiary Subsidiary means individual body under parent body. is an entity that is controlled by a bigger and more powerful entity. and the controlling entity is called its parent (or the parent company). But policies and trademark will be implemented from the Parent body. corporation.1. They give their own rent. 8. The reason for this distinction is that a lone company cannot be a subsidiary of any organization. 4. The controlled entity is called a company. and these. There are. salary to employees. Tax consideration. Expert use of resources. Reduction of the Co failure through spreading risk over a wider range of activities. building & other fixed asset that can be profitably sold off. 6. Removal of competitor 2. other ways that control can come about and the exact rules both as to what control is needed and how it is achieved can be complex (see below). 3. may have subsidiaries of their own. Economies of scale possibly made through more extensive operations. in business matters. A parent and all its subsidiaries together are . While individuals have the capacity to act on their own initiative. in turn. only an entity representing a legal fiction as a separate entity can be a subsidiary. Acquisition of land. A subsidiary. etc. officers and employees. Desire to become involved with new technologies & management method particularly in high risk industries. license & intellectual property. A subsidiary may itself have subsidiaries. This Subsidiary or individual body as per their own generates revenue. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. 7. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. The ability to control supplies of raw materials. There are no branches here. or limited liability company. 9. The most common way that control of a subsidiary is achieved is through the ownership ofshar es in the subsidiary by the parent. 5.
or Xerox Corporation. sometimes with multiple levels of subsidiaries. Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way. Time Warner. and others. they differ fromdivisions. although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership. which are businesses fully integrated within the main company. These. . distinctlegal entities for the purposes oftaxation andr egulation.called a group. organize their businesses into national or functional subsidiaries. For this reason. or Citigroup as well as more focused companies such asI BM. Examples includeholding companies such as Berkshire Hathaway. Subsidiaries are separate. and not legally or otherwise distinct from it.
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