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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.
finance. Countries cooperate more on transnational issues. global manufacturing and supply chain management. Operations • Objectives: sales expansion. . tourism and transportation. management contracts. Consumers know about and want foreign goods and services. Competition has become more global. 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. Number and comparative capabilities of competitors Competitive differences by country Technology is expanding. Cross-national cooperation and agreements. An understanding helps you make better career decisions. licensing and franchising. Functions: marketing. human resources Overlaying alternatives: choice of countries. turnkey operations. Modes of operation may differ from those used domestically. The operations affect and are affected by the physical and societal factors and the competitive environment. Most companies are either international or compete with international companies. accounting. resource acquisition. innovation. marketing. organization and control mechanisms Political policies and legal practices Cultural factors Economic forces Geographical influences Major advantage in price. Governments are removing international business restrictions. 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. An understanding helps you decide what governmental policies to support. especially in transportation and communications. risk minimization Modes: importing and exporting. Institutions provide services to ease the conduct of international business. or other factors. direct investment and portfolio investments. The best way of conducting business may differ by country.
Appoint a leader. Go to the source. Understand corporate accountability laws. Make the most of new security measures. Participate in trade-government partnerships. Maintain high ethical standards ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4. Security requires transparency throughout the supply chain. uses the Six Tenets when giving advice on how to globalize one's business. You must be vigilant in protecting your intellectual property both at home and abroad. Seize opportunities when they arise. You must be vigilant in enforcing your IP rights. Develop compliance protocols for import and export operations. Do your research now. 2. Memorialize your company's code of ethics and compliance practices in writing. and international trade and customs consultant. Take advantage of trade agreements: think outside the border ○ ○ ○ ○ ○ ○ ○ ○ Familiarize yourself with preference programs and trade agreements. Protect your brand at all costs 3. Stay secure in an insecure world 5. The unexpected will happen. Keep your personnel secure. Secure your data. the managing partner of Sandler. You and your brand are inseparable. Keep the home office operational. Strong ethics translate into good business. Participate in the process. PA. Keep communications open. All global business is personal . Travis & Rosenberg. Protect your worldwide reputation by strict adherence to labor and human rights standards. Forge ethical strategic partnerships.Tom Travis. Read the fine print. Expect the Unexpected 6. Become involved with the international business self-regulation movement. Address your particular circumstances. The Six Tenets are as follows: 1.
000 Approximately one billion people Base of the Pyramid Per capita GDP/GNI < $2.000 Approximately four billion people Modes of ib The oldest mode of international business is foreign trade. this mode requires less time or depth of involvement in foreign markets. no overseas manufacturing is involved The other mode of international business is licensing. patent. An international company may acquire existing operations in a foreign country in order to penetrate the foreign market. When a firm lacks capital and detailed knowledge about a foreign market. Strategy & Business. Relate to offshore associates on a personal level.K. 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.000-$20.○ ○ ○ Fly the flag at your overseas locations. The greatest benefit of this mode is that the acquiring company does not have to begin operations from scratch. Be available to overseas clients and customers 24/7. 111). 26: 54-67. A firm imports its necessary inputs from the cheapest source.000 Approximately one billion people Second Tier: Per capita GDP/GNI $2. Joint ventures are the fourth mode. According to C. 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. Top Tier: Per capita GDP/GNI > $20. and so . Naturally. Capitalism at the Crossroads (p. As compared to export. trade mark and other proprietary advantages to be used for a fee by a licensee or technology importing firm. The third mode is known as management contracting. The fortune at the bottom of the pyramid. the joint venture allows the two firms to apply their respective comparative advantages in a given project. like management skills.2002. Philadelphia: Wharton School Publishing. and (2) S. This method is also used when the host government put restrictions on the inflow of foreign capital investment. In this mode. Prahalad & S. 2005. the company sells abroad a particular resource. it allows its technology. while its exports its output to different countries in order to earn maximum amount of foreign exchange. They represent a partnership agreement in which the venture is owned jointly by the international company and a company of the host country. Hart. In this case.Hart.
licensing and franchising. the company in the host country becomes a subsidiary of the international company. Most service imports and exports revolve around tourism and transportation. However... the size of the investment is often lower than in case of acquisition. particularly in smaller companies even though they are less likely to export.. This way. an international company invests in the majority equity shares of the company of the host country. 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. The quantum of investment. 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. While exports and imports apply mainly to goods. Finally.. Some time money is not the only way to do the business. The importer of goods has normally to pay for the import in convertible currencies which they buy with their own currency. Cont. and direct and portfolio investment. Imports and exports are the most common mode of international business.. they can also apply to services. it sets up an affiliate there. Whatever the motivation behind foreign investment or foreign manufacturing.does not have to labor hard to grab the market. This mode is better than the acquisition inasmuch as the operations can be tailored exactly to the firm's need and what is more. turnkey operations. Companies may import and export merchandise. tourism and transportation. The revenue gained . in this case is quite large. Large companies are more likely to engage in other modes of international business in conjunction with importing and exporting. defined as tangible goods brought into or out of (respectively) a country.. however. IIND as per 2008 The six major modes of international business are imports and exports. or nonproducts. the benefits begin to appear only when the consumer base is firmly established.. in other words in exchange of useful good or raw materials the exchange is done.. management contracts.
copyrights. Management contracts are initiated when one company supplies personnel to perform general or specialized management functions for another company.from international tourism and transportation is best seen in hotels. and shipping companies. many companies engage in franchising. Japan. Companies also pay fees that may be incurred on an international level for engineering services handled through turnkey operations and management contracts. Gloria Vanderbilt has franchised her name out to several clothing companies. performed under contract. who earn a considerable amount from foreign shipping. The franchisor also assists on a continuing basis in the operation of the business-for example. especially in the Caribbean and Southeast Asia. For many countries. it becomes a mixed venture. a mode of business where the franchisor allows the franchisee to use a trademark that is an essential part of the franchisee's business. . bills. A foreign direct investment (the more common of the two) gives the investor a controlling interest in the foreign company. by providing components. When a government joins a company in an FDI. travel agencies. international business occurs within direct and portfolio investments. 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. When two or more companies share in an FDI. Similarly. By investing in a foreign company. it is known as a joint venture. the investor takes ownership in a foreign property for a financial return. This is most evident in Disney's theme parks in France. Many companies enter into international licensing agreements. or notes that the investor purchases. Conversely. Finally. and technology. which is then transferred to the owner when the company is ready to begin operating. their income on foreign tourism is more important than their income from exports. allowing other countries around the world to use their assets (ie: trademarks. receiving royalty payments in return. Portfolio investments are particularly popular with multinational enterprises as they offer a safe means towards short-term financial gain. and China. The same holds true in countries such as Norway and Greece. forming the Gloria Vanderbilt line. or expertise) under contract. airlines. patents. management services. A turnkey operation involves construction of facilities. For example.
For others the Internet has provided the opportunity for a new online company. Direct exporting is straightforward.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. International Distributors. some see franchising as a stand alone mode. Essentially the organization makes a commitment to market overseas on its own behalf. as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. This lesson considers a number of key alternatives. always clarify your tutor's preferred view. For example. Finally we consider the Stages of Internationalization. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed. If in doubt. Licensing. Examples of indirect exporting include: • • Piggybacking whereby your new product uses the existing distribution and logistics of another business.e. an exporting company from your country . but recognizes that alteratives are many and diverse. whilst others see franchising as part of licensing. More Exporting There are direct and indirect approaches to exporting to other nations. On the other hand. Exporting. over an above indirect exporting. The Internet The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. In reality. Here you will be consider modes of entry into international markets such as the Internet. Joint Ventures. Export Management Houses (EMHs) that act as a bolt on export department for your company. if you were to employ a home country agency (i. This gives it greater control over its brand and operations overseas. They offer a whole range of bespoke or a la carte services to exporting organizations. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). the most important point is that you consider all useful modes of entry into international markets . International Agents.which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly. Strategic Alliances. It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. .over and above which pigeon-hole it fits into.
Examples include Dominos Pizza. the British. brand and/or expertise. Of course you need to set targets since you never know the level of commitment of your agent. retain and train. 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. • Licensing Licensing includes franchising. Distributors are similar to agents. Put simply. agents are individuals or organizations that are contracted to your business. Sometimes the relationships are between competitors. make sure that your contract allows you to regain direct control of product. You would not own the plant once it is handed over. but low-control option.g. Otherwise pros and cons are similar to those of international agents. Agents usually represent more than one organization. and market on your behalf in a particular country.for example. Turnkey contracts are major strategies to build large plants. There are many examples including: • • • • Shared manufacturing e. Distribution alliances e. Franchising involves the organization (franchiser) providing branding. Agents might also represent your competitors . They often include a the training and development of key employees where skills are sparse . Agents are a low-cost. Turnkey contracts and contract manufacturing. Marketing agreements.g. They tend to be expensive to recruit. or sometimes unrelated products in international markets. Research and Development (R&D) arrangements. Turkey. French.• Consortia are groups of small or medium-sized organizations that group together to market related. • International Agents and International Distributors Agents are often an early step into international marketing. If you intend to globalize. Strategic Alliances (SA) Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally. Toyota's car plant in Adapazari. concepts. Spanish and Portuguese colonies. and infact most facets that are needed to operate in an overseas market. to the franchisee. Toyota Ayago is also marketed as a Citroen and a Peugeot. Coffee Republic and McDonald's Restaurants. iPhone was initially marketed by O2 in the United Kingdom. Therefore they have an incentive to market products and to make a profit from them.g. with the main difference that distributors take ownership of the goods. They rarely take ownership of products. Management tends to be controlled by the franchiser. They date back to an imperialist past that some nations might prefer to forget e. expertise.so beware conflicts of interest. . • • 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.
a new company is set up with parties owning a proportion of the new business. and have the same key benefit of course. the organization invests in plant. Joint Ventures (JV) Joint Ventures tend to be equity-based i. This is also known as Foreign Direct Investment (FDI). The key benefit is that your business becomes localized you manufacture for customers in the market in which you are trading. manufacturing and R&D are most common forms of Joint Venture.e. For example. However.e. Some companies will never trade overseas and so do not go through a single stage. reducing the element of risk. 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. core competences or management skills. any business wishing to enter China needs to source local Chinese partners. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market: • • • Access to technology. we conclude by considering the Stages of Internationalization. it acts more like a distributor that is owned by your own company. An International Sales Subsidiary would be similar. and foreign assembly Foreign manufacture . For example. or the company might acquire a current business that has suitable plant etc. machinery and labor in the overseas market. Internationalization Stages So having considered the key modes of entry into international markets. The downside is that you take on the risk associated with the local domestic market. companies remain independent and separate. 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. This can be a new-build. Access to distribution channels. Of course you could assemble products in the new plant.e. To gain entry to a foreign market. Honda's relationship with Rover in the 1980's. Others will start at a later or even final stage. Strategic Alliances are non-equity based agreements i. and simply export components from the home market (or another country). You also will gain local market knowledge and be able to adapt products and services to the needs of local consumers.Essentially.
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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. when to enter those markets.so that they can drive them out of market. 2. And late when it enters after other international businesses. and on what scale.Size of market (in terms of demographics) . Disadvantage: 1. it’s the ability to prevent rivals and capture demand by establishing a strong brand name. Timing of entry:It is important to consider the timing of entry. 3. Which foreign markets? -The choice based on nation’s long run profit potential. 2. Ability to create customer relationship.firm has to devote effort.The present wealth of consumer markets (purchasing power) .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) . -Long run benefits of doing business in a country depends on following factors: . The advantage is when firms enters early in the foreign market commonly known as firstmover advantages First mover advantage. Ability to build sales volume in that country. -Look in detail at economic and political factors which influence foreign markets.Nature of competition By considering such factors firm can rank countries in terms of their attractiveness and long-run profit. time and expense to learning the rules of the country.1. Entry is early when an international business enters a foreign market before other foreign firms.
Need for limited finance. 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.investment etc.Exporting: It means the sale abroad of an item produced . Exporting 2. Licensing 3.stored or processed in the supplying firm’s home country.Licensing : In this mode of entry . Acquisitions & Mergers 8. copy rights . Passive exporting occurs when a firm receives canvassed them.the domestic manufacturer leases the right to use its intellectual property (ie) technology . b.managerial . Advantages Of Exporting: a. . Mergers & Acquisitions: 6. Less Risks. The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership . Turnkey Project 5. Proactive motivations are opportunities available in the host country. Wholly Owned Subsidiary 1.Modes of entry:-1. Advantages. customer and the market of the host country gradually. Exporting involves less risk as the company understand the culture . It is a convenient method to increase the sales. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export fuctions and for procuring foreign sales. Franchising 4.brand name etc to a manufacturer in a foreign country for a fee. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign is called licensee. 2. c. Motivation for exporting: Motivation for exporting are proactive and reactive. 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. Joint Venture 7. The cost of entering market through this mode is less costly. Later after understanding the host country the company can enter on a full scale.
Low investment on the part of licensor. Product reoutation 4. Licensee may develop his reputation 6. Licensor can investigate the foreign market without much efforts on his part. 2. Low investment and low risk 2. It may be more complicating than domestic franchising. employee training . Operating System 3. Trade marks 2. Franchisor learns more from the experience of the franchisees. 5. Licensee escapes himself from the risk of product failure. Chance for leakages of the trade secrets of the licensor. Franchisee escapes from the risk of product failure. customs and environment of the host country. It is difficult to control the international franchisee. Therefore one party can affect the other through their improper acts. Chance for misunderstanding between the parties.1. Licensee gets the benefits with less investment on research and development 5.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. 4. Franchisee get the benefits of R& D with low cost. Low financial risk to the licensor 3. Disadvantages: 1. Continuous support system like advertising . The franchisor provides the following services to the franchisee. 3. Both parties have to maintain the product quality and promote the product . 1. Franchisor can get the information regarding the market culture. . It reduces market opportunities for both 2. 4. Licensee may sell the product outside the agreed territory and after the expiry of the contract. 5. 3. 2. Disadvantages: 1. Advantages: 1. 3. reservation services quality assurances program etc. 4.
This strategy adds no capacity to the industry. lawyers regulation. 2. There is a problem of leakage of trade secrets. Labour problem of the host country’s companies are also transferred to the acquired company. employee. This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. Both the parties have the responsibilities to maintain product quality and product promotion. Hence they are multiyear project. Disadvantages: 1. 3. national highways . The company can formulate international strategy and generate more revenues.oil refinery .3. It provides immediate access to international manufacturing facilities and marketing network. It reduce the market opportunities for both 4. Alternatively the domestic company may purchase the foreign company and acquires it ownership and control. 2. The company immediately gets the ownership and control over the acquired firm’s factories. 3. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country. railway line etc. Eg nuclear power plants .Turnkey Project: A turnkey project is a contract under which a firm agrees to fully design . mergers and acquisition specialists from the two countries.brand name and distribution networks. 5. Acquiring a firm in a foreign country is a complex task involving bankers.Mergers & Acquistions: A domestic company selects a foreign company and merger itself with foreign company in order to enter international business. . 5. technology . 4. Advantages: 1. 4. airports. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies. This strategy helps the host country. payment on cost plus basis. 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 .
Latest technology required human talent etc. Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength. Then the operations become unresponsive and inefficient. It spread the risk between or among partners. 5. 5. Disadvantages: 1. 7.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. This act improves the local image in the host country and also satisfies the governmental joint venture. Partner delay the decision making once the dispute arises. Motives for acquisitions: . Advantages: 1. Joint venture provide large capital funds suitable for major projects. Life cycle of a joint venture is hindered by many causes of collapse. 4. It provide skills like technical skills. It synergy due to combined efforts of varied parties. It provides strength in terms of required capital.6. 3. expertise . 2. Various environmental factors like social . marketing skills. and enable the companies to share the risk in the foreign markets.Joint Venture Two or more firm join together to create a new business entity that is legally separate and distinct from its parents. It involves shared ownership. human skills . 3. technological economic and political encourage the formation of joint ventures. 4. Conflict may arise 2. The decision making is slowed down in joint ventures due to the involvement of a number of parties. technology. It make large projects and turn key projects feasible and possible.
9. or limited liability company. 8. The reason for this distinction is that a lone company cannot be a subsidiary of any organization. only an entity representing a legal fiction as a separate entity can be a subsidiary. 5. Economies of scale possibly made through more extensive operations. 10. This Subsidiary or individual body as per their own generates revenue. There are no branches here.1. may have subsidiaries of their own. Acquisition of land. The desire to acquire business already trading in certain markets & possessing certain specialist employees & equipments. A subsidiary may itself have subsidiaries. They give their own rent. Expert use of resources. corporation.Wholly Owned Subsidiary Subsidiary means individual body under parent body. The most common way that control of a subsidiary is achieved is through the ownership ofshar es in the subsidiary by the parent. Only the certain percentage of the profit will be given to the parent body. A subsidiary. 8. salary to employees. and these. building & other fixed asset that can be profitably sold off. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. and the controlling entity is called its parent (or the parent company). 7. Desire to become involved with new technologies & management method particularly in high risk industries. There are. 4. Obtaining patents. The ability to control supplies of raw materials. 3. Tax consideration. however. 6. Removal of competitor 2. is an entity that is controlled by a bigger and more powerful entity. Reduction of the Co failure through spreading risk over a wider range of activities. license & intellectual property. in business matters. a business entity can only act through its directors. etc. officers and employees. But policies and trademark will be implemented from the Parent body. A parent and all its subsidiaries together are . This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. in turn. 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). The controlled entity is called a company. While individuals have the capacity to act on their own initiative.
Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way. and not legally or otherwise distinct from it. although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership. or Citigroup as well as more focused companies such asI BM.called a group. . or Xerox Corporation. distinctlegal entities for the purposes oftaxation andr egulation. Subsidiaries are separate. they differ fromdivisions. organize their businesses into national or functional subsidiaries. sometimes with multiple levels of subsidiaries. Examples includeholding companies such as Berkshire Hathaway. For this reason. These. which are businesses fully integrated within the main company. and others. Time Warner.
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