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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.
The conduct of international operations depends on companies' objectives and the means with which they carry them out. Modes of operation may differ from those used domestically. Institutions provide services to ease the conduct of international business. Operations • Objectives: sales expansion. innovation. . An understanding helps you make better career decisions. Functions: marketing. The best way of conducting business may differ by country. global manufacturing and supply chain management. Consumers know about and want foreign goods and services. Most companies are either international or compete with international companies. Governments are removing international business restrictions. An understanding helps you decide what governmental policies to support. human resources Overlaying alternatives: choice of countries. tourism and transportation. resource acquisition. or other factors. Countries cooperate more on transnational issues. Competition has become more global. direct investment and portfolio investments. finance. Political relationships have improved among some major economic powers. 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. marketing. turnkey operations. Cross-national cooperation and agreements. The operations affect and are affected by the physical and societal factors and the competitive environment. especially in transportation and communications. management contracts. accounting. licensing and franchising. organization and control mechanisms Political policies and legal practices Cultural factors Economic forces Geographical influences Major advantage in price. Number and comparative capabilities of competitors Competitive differences by country Technology is expanding. risk minimization Modes: importing and exporting.
Security requires transparency throughout the supply chain.Tom Travis. Strong ethics translate into good business. Memorialize your company's code of ethics and compliance practices in writing. Forge ethical strategic partnerships. Seize opportunities when they arise. Protect your brand at all costs 3. Go to the source. Stay secure in an insecure world 5. Do your research now. You must be vigilant in enforcing your IP rights. Secure your data. Make the most of new security measures. Develop compliance protocols for import and export operations. The unexpected will happen. Understand corporate accountability laws. Address your particular circumstances. You must be vigilant in protecting your intellectual property both at home and abroad. Become involved with the international business self-regulation movement. The Six Tenets are as follows: 1. Appoint a leader. PA. Travis & Rosenberg. and international trade and customs consultant. Maintain high ethical standards ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4. You and your brand are inseparable. Protect your worldwide reputation by strict adherence to labor and human rights standards. Take advantage of trade agreements: think outside the border ○ ○ ○ ○ ○ ○ ○ ○ Familiarize yourself with preference programs and trade agreements. Keep communications open. Read the fine print. Participate in trade-government partnerships. All global business is personal . uses the Six Tenets when giving advice on how to globalize one's business. Participate in the process. 2. Keep the home office operational. Expect the Unexpected 6. Keep your personnel secure. the managing partner of Sandler.
and (2) S. like management skills. Prahalad & S. In this mode.2002. The third mode is known as management contracting. Naturally. Philadelphia: Wharton School Publishing. it allows its technology. Joint ventures are the fourth mode. When a firm lacks capital and detailed knowledge about a foreign market. Hart. Be available to overseas clients and customers 24/7. 111). Strategy & Business. As compared to export.000 Approximately four billion people Modes of ib The oldest mode of international business is foreign trade. This method is also used when the host government put restrictions on the inflow of foreign capital investment. trade mark and other proprietary advantages to be used for a fee by a licensee or technology importing firm. Relate to offshore associates on a personal level. They represent a partnership agreement in which the venture is owned jointly by the international company and a company of the host country. According to C.K. In this case. Capitalism at the Crossroads (p.000-$20. An international company may acquire existing operations in a foreign country in order to penetrate the foreign market. 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 Approximately one billion people Second Tier: Per capita GDP/GNI $2. the joint venture allows the two firms to apply their respective comparative advantages in a given project. 2005. 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. this mode requires less time or depth of involvement in foreign markets. the company sells abroad a particular resource. A firm imports its necessary inputs from the cheapest source. no overseas manufacturing is involved The other mode of international business is licensing. patent. while its exports its output to different countries in order to earn maximum amount of foreign exchange.Hart. 26: 54-67. and so . The greatest benefit of this mode is that the acquiring company does not have to begin operations from scratch.○ ○ ○ Fly the flag at your overseas locations. The fortune at the bottom of the pyramid. Top Tier: Per capita GDP/GNI > $20.000 Approximately one billion people Base of the Pyramid Per capita GDP/GNI < $2.
however. Some time money is not the only way to do the business.. Companies may import and export merchandise. particularly in smaller companies even though they are less likely to export. in other words in exchange of useful good or raw materials the exchange is done.. IIND as per 2008 The six major modes of international business are imports and exports.. it sets up an affiliate there. Cont. 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. licensing and franchising. This mode is better than the acquisition inasmuch as the operations can be tailored exactly to the firm's need and what is more.. the benefits begin to appear only when the consumer base is firmly established. turnkey operations. This way. and direct and portfolio investment. or nonproducts... they can also apply to services. the company in the host country becomes a subsidiary of the international company. The quantum of investment. Whatever the motivation behind foreign investment or foreign manufacturing. 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. The importer of goods has normally to pay for the import in convertible currencies which they buy with their own currency.does not have to labor hard to grab the market. management contracts. Finally.. tourism and transportation. Imports and exports are the most common mode of international business. 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. defined as tangible goods brought into or out of (respectively) a country. While exports and imports apply mainly to goods. However. the size of the investment is often lower than in case of acquisition. Most service imports and exports revolve around tourism and transportation.
Many companies enter into international licensing agreements. Companies also pay fees that may be incurred on an international level for engineering services handled through turnkey operations and management contracts. and technology. especially in the Caribbean and Southeast Asia. who earn a considerable amount from foreign shipping. The same holds true in countries such as Norway and Greece. bills. 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. many companies engage in franchising. performed under contract. by providing components. it is known as a joint venture. When a government joins a company in an FDI. allowing other countries around the world to use their assets (ie: trademarks. which is then transferred to the owner when the company is ready to begin operating. airlines. the investor takes ownership in a foreign property for a financial return. The franchisor also assists on a continuing basis in the operation of the business-for example. Finally. and shipping companies. When two or more companies share in an FDI. By investing in a foreign company. patents. This is most evident in Disney's theme parks in France. it becomes a mixed venture. Management contracts are initiated when one company supplies personnel to perform general or specialized management functions for another company. A foreign direct investment (the more common of the two) gives the investor a controlling interest in the foreign company. travel agencies. Japan. or expertise) under contract. receiving royalty payments in return. For example. a mode of business where the franchisor allows the franchisee to use a trademark that is an essential part of the franchisee's business. Similarly. Portfolio investments are particularly popular with multinational enterprises as they offer a safe means towards short-term financial gain. management services.from international tourism and transportation is best seen in hotels. forming the Gloria Vanderbilt line. Conversely. international business occurs within direct and portfolio investments. copyrights. their income on foreign tourism is more important than their income from exports. . or notes that the investor purchases. Gloria Vanderbilt has franchised her name out to several clothing companies. and China. For many countries. A turnkey operation involves construction of facilities.
Strategic Alliances. More Exporting There are direct and indirect approaches to exporting to other nations.over and above which pigeon-hole it fits into. Joint Ventures. Examples of indirect exporting include: • • Piggybacking whereby your new product uses the existing distribution and logistics of another business. an exporting company from your country . as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. Licensing.which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly. the most important point is that you consider all useful modes of entry into international markets . over an above indirect exporting. They offer a whole range of bespoke or a la carte services to exporting organizations. The Internet The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. For example. This lesson considers a number of key alternatives. On the other hand. International Distributors. always clarify your tutor's preferred view. Export Management Houses (EMHs) that act as a bolt on export department for your company. Exporting. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). International Agents. whilst others see franchising as part of licensing. but recognizes that alteratives are many and diverse. For others the Internet has provided the opportunity for a new online company. some see franchising as a stand alone mode. Direct exporting is straightforward. Overseas Manufacture and International Sales Subsidiaries. In reality. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed. This gives it greater control over its brand and operations overseas. If in doubt. Essentially the organization makes a commitment to market overseas on its own behalf. if you were to employ a home country agency (i. Here you will be consider modes of entry into international markets such as the Internet.e. . Finally we consider the Stages of Internationalization.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.
concepts. and market on your behalf in a particular country. There are many examples including: • • • • Shared manufacturing e. Otherwise pros and cons are similar to those of international agents.so beware conflicts of interest. brand and/or expertise. make sure that your contract allows you to regain direct control of product. Toyota's car plant in Adapazari. Agents might also represent your competitors . They date back to an imperialist past that some nations might prefer to forget e. and more commonly take a commission on goods sold. agents are individuals or organizations that are contracted to your business. Distribution alliances e. Coffee Republic and McDonald's Restaurants. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage. Sometimes the relationships are between competitors. or sometimes unrelated products in international markets. • • Licensing is where your own organization charges a fee and/or royalty for the use of its technology. Put simply. Research and Development (R&D) arrangements. Therefore they have an incentive to market products and to make a profit from them. expertise. Examples include Dominos Pizza. Distributors are similar to agents. to the franchisee.g.• Consortia are groups of small or medium-sized organizations that group together to market related. Agents are a low-cost. retain and train. Turnkey contracts are major strategies to build large plants.g. the British. • Licensing Licensing includes franchising. Franchising involves the organization (franchiser) providing branding. Agents usually represent more than one organization. with the main difference that distributors take ownership of the goods. • International Agents and International Distributors Agents are often an early step into international marketing. They often include a the training and development of key employees where skills are sparse .g. Spanish and Portuguese colonies. Marketing agreements. They rarely take ownership of products. Turkey. Toyota Ayago is also marketed as a Citroen and a Peugeot. If you intend to globalize. Trading companies were started when some nations decided that they wished to have overseas colonies. . You would not own the plant once it is handed over. Strategic Alliances (SA) Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally. iPhone was initially marketed by O2 in the United Kingdom. Of course you need to set targets since you never know the level of commitment of your agent. and infact most facets that are needed to operate in an overseas market. Management tends to be controlled by the franchiser. Turnkey contracts and contract manufacturing. French. They tend to be expensive to recruit.for example. but low-control option.
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. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market: • • • Access to technology.e. the organization invests in plant. An International Sales Subsidiary would be similar. The key benefit is that your business becomes localized you manufacture for customers in the market in which you are trading. we conclude by considering the Stages of Internationalization. The downside is that you take on the risk associated with the local domestic market. Others will start at a later or even final stage.e. For example. Honda's relationship with Rover in the 1980's. 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. companies remain independent and separate. core competences or management skills. and simply export components from the home market (or another country). Of course you could assemble products in the new plant. any business wishing to enter China needs to source local Chinese partners.Essentially. and foreign assembly Foreign manufacture . Some companies will never trade overseas and so do not go through a single stage. This can be a new-build. Strategic Alliances are non-equity based agreements i. You also will gain local market knowledge and be able to adapt products and services to the needs of local consumers. Internationalization Stages So having considered the key modes of entry into international markets. machinery and labor in the overseas market. manufacturing and R&D are most common forms of Joint Venture. Joint Ventures (JV) Joint Ventures tend to be equity-based i.e. a new company is set up with parties owning a proportion of the new business. Access to distribution channels. reducing the element of risk. To gain entry to a foreign market. This is also known as Foreign Direct Investment (FDI). However. or the company might acquire a current business that has suitable plant etc. and have the same key benefit of course. it acts more like a distributor that is owned by your own company. For example.
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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) .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. 3. Disadvantage: 1. Ability to build sales volume in that country. Timing of entry:It is important to consider the timing of entry.so that they can drive them out of market. Ability to create customer relationship. -Look in detail at economic and political factors which influence foreign markets.firm has to devote effort. time and expense to learning the rules of the country.Nature of competition By considering such factors firm can rank countries in terms of their attractiveness and long-run profit.The present wealth of consumer markets (purchasing power) . -Long run benefits of doing business in a country depends on following factors: .Size of market (in terms of demographics) . And late when it enters after other international businesses. Which foreign markets? -The choice based on nation’s long run profit potential.1. 2. when to enter those markets. The advantage is when firms enters early in the foreign market commonly known as firstmover advantages First mover advantage. 2. and on what scale. Entry is early when an international business enters a foreign market before other foreign firms. it’s the ability to prevent rivals and capture demand by establishing a strong brand name.
brand name etc to a manufacturer in a foreign country for a fee. copy rights . 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.Modes of entry:-1. It is a convenient method to increase the sales.investment etc. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export fuctions and for procuring foreign sales. c.Exporting: It means the sale abroad of an item produced . Wholly Owned Subsidiary 1.Licensing : In this mode of entry . Licensing 3. Turnkey Project 5. Less Risks. customer and the market of the host country gradually. Need for limited finance.managerial . 2. b. 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. Mergers & Acquisitions: 6. Motivation for exporting: Motivation for exporting are proactive and reactive. Acquisitions & Mergers 8. The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership . The cost of entering market through this mode is less costly. Exporting involves less risk as the company understand the culture .the domestic manufacturer leases the right to use its intellectual property (ie) technology . Advantages. Passive exporting occurs when a firm receives canvassed them. Proactive motivations are opportunities available in the host country. Exporting 2. Joint Venture 7. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign is called licensee. Franchising 4.stored or processed in the supplying firm’s home country. . Later after understanding the host country the company can enter on a full scale. Advantages Of Exporting: a.
reservation services quality assurances program etc. Product reoutation 4. Therefore one party can affect the other through their improper acts. 2. 4. Low investment and low risk 2. Franchisee get the benefits of R& D with low cost. 5. The franchisor provides the following services to the franchisee. 4. customs and environment of the host country. It is difficult to control the international franchisee. Low investment on the part of licensor. . Licensee escapes himself from the risk of product failure. It may be more complicating than domestic franchising. 3. Disadvantages: 1. Licensee may develop his reputation 6. 1. 3. Low financial risk to the licensor 3. employee training . Chance for misunderstanding between the parties. Franchisee escapes from the risk of product failure. Disadvantages: 1.1. It reduces market opportunities for both 2. Franchisor can get the information regarding the market culture. 5. Licensee gets the benefits with less investment on research and development 5. Advantages: 1. Licensor can investigate the foreign market without much efforts on his part. 2. Trade marks 2. Continuous support system like advertising .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. Chance for leakages of the trade secrets of the licensor. Both parties have to maintain the product quality and promote the product . Licensee may sell the product outside the agreed territory and after the expiry of the contract. Operating System 3. Franchisor learns more from the experience of the franchisees. 4. 3.
This strategy adds no capacity to the industry. Disadvantages: 1. Advantages: 1.Mergers & Acquistions: A domestic company selects a foreign company and merger itself with foreign company in order to enter international business. Alternatively the domestic company may purchase the foreign company and acquires it ownership and control. railway line etc. . airports. 2. 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 . technology . lawyers regulation. Both the parties have the responsibilities to maintain product quality and product promotion. There is a problem of leakage of trade secrets. Eg nuclear power plants .3. This strategy helps the host country. Labour problem of the host country’s companies are also transferred to the acquired company. payment on cost plus basis. The company can formulate international strategy and generate more revenues. Acquiring a firm in a foreign country is a complex task involving bankers. 5. national highways .brand name and distribution networks. Hence they are multiyear project. The company immediately gets the ownership and control over the acquired firm’s factories. 2. It provides immediate access to international manufacturing facilities and marketing network.Turnkey Project: A turnkey project is a contract under which a firm agrees to fully design . employee. 4. 3. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies.oil refinery . This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. 5. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country. mergers and acquisition specialists from the two countries. It reduce the market opportunities for both 4. 4. 3.
Advantages: 1. Conflict may arise 2. 5. 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. Disadvantages: 1. technology.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. expertise . It involves shared ownership. It synergy due to combined efforts of varied parties. It provides strength in terms of required capital. Latest technology required human talent etc. It spread the risk between or among partners. 3. It provide skills like technical skills. This act improves the local image in the host country and also satisfies the governmental joint venture. It make large projects and turn key projects feasible and possible. 5. marketing skills. 4. 7. 3. Various environmental factors like social . Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength. Life cycle of a joint venture is hindered by many causes of collapse. Motives for acquisitions: . Joint venture provide large capital funds suitable for major projects.6. human skills . 2. Partner delay the decision making once the dispute arises. 4. technological economic and political encourage the formation of joint ventures. The decision making is slowed down in joint ventures due to the involvement of a number of parties. Then the operations become unresponsive and inefficient.
Economies of scale possibly made through more extensive operations. There are. officers and employees. Reduction of the Co failure through spreading risk over a wider range of activities. 10. 9. Obtaining patents. This Subsidiary or individual body as per their own generates revenue. 3. and the controlling entity is called its parent (or the parent company). Removal of competitor 2. A parent and all its subsidiaries together are . 6. license & intellectual property. But policies and trademark will be implemented from the Parent body. is an entity that is controlled by a bigger and more powerful entity. Desire to become involved with new technologies & management method particularly in high risk industries.1.Wholly Owned Subsidiary Subsidiary means individual body under parent body. Acquisition of land. While individuals have the capacity to act on their own initiative. 7. Expert use of resources. a business entity can only act through its directors. in turn. 4. 8. 5. or limited liability company. may have subsidiaries of their own. salary to employees. The ability to control supplies of raw materials. The desire to acquire business already trading in certain markets & possessing certain specialist employees & equipments. The most common way that control of a subsidiary is achieved is through the ownership ofshar es in the subsidiary by the parent. They give their own rent. in business matters. and these. 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. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. Only the certain percentage of the profit will be given to the parent body. A subsidiary may itself have subsidiaries. however. 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. building & other fixed asset that can be profitably sold off. etc. 8. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. There are no branches here. corporation. A subsidiary. Tax consideration.
For this reason. and not legally or otherwise distinct from it. and others. Examples includeholding companies such as Berkshire Hathaway. Subsidiaries are separate. . they differ fromdivisions. or Citigroup as well as more focused companies such asI BM. Time Warner. Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way. or Xerox Corporation. although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership. distinctlegal entities for the purposes oftaxation andr egulation. which are businesses fully integrated within the main company. These. organize their businesses into national or functional subsidiaries.called a group. sometimes with multiple levels of subsidiaries.
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