INTERNATIONAL BUSINESS MANAGEMENT

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Nature and Importance of International Business Theories of IB International Business Environment The role of Multinationals in IBM Assessment of International markets International Marketing Research Strategic Planning Management of International Operations Human Resources Management International Marketing Management

1.Nature and Importance of IBM

Definition IB versus Domestic Business Forms of IB International Business Mgt Process Internationalization Decisions Importance of IB

1.1 Definition of IBM

IBM involves Conception, analysis, planning, Implementing and Controlling of business operations across and outside national borders. More than one nation is involved in IBM

1.2 IB Versus Domestic Business

New Culture New Language New Currency New Political Environment Economic barriers such as tariffs Different Business Practices More risk More cost More experience and managerial competency are needed

1.3 Forms of IB
Export/Import Business Foreign Business/Foreign Subsidiary Joint Ventures Management Contracts Licensing Franchising Contract Manufacturing Assembly Operations Foreign Direct Investments (Multinational and Global Businesses)

1.3.1 Licensing
Under licensing agreement one firm, the licensor, grant to another firm, the licensee the right to use any kind of expertise, such as manufacturing processes, marketing procedures, and trademarks for one or more of the licensors products for a fee or a royalty of from 2% to 5 % of sales over the life of the contract

1.3.2 Franchising
Is a new kind of licensing which permits the franchisee to sell products or services under a highly publicized brand name and a well proven set of procedures and a carefully developed and controlled marketing strategy. Examples of franchisors are hotels (Hilton, Holiday in) and soft drinks (Coca-cola)

1.3.3 Contract Manufacturing

The firm contracts with a local manufacturer to produce products for it according to its specifications.

1.4 International Business Mgt Process

Identification of IB Opportunities Analysis of IB Environment Assessing and selecting foreign markets Identification and selection of the appropriate strategies Implementation and control of the selected strategies

1.5 Internationalization Decisions

Whether to internationalize Where to internationalize How to internationalize How to market products How to organize international operations

1.6.1 Significance of IB based on aggressiveness

Opening up new markets More profitability Acquiring products for home market Satisfying managements desire for expansion

1.6.2 Significance of IB based on Defensiveness

Protection of Domestic Market Protection of Foreign Market To get foreign exchange Guarantee Supply of Raw Materials Acquiring technological and managerial know-how Geographic diversification Political Stability

1.6.3 Significance of IB based on other reasons

Extension of PLC Existence of excess capacity Enhancement of the business image

REVIEW QUESTIONS
1. (a.) What is International Business? (b.) How does it differ from Domestic Business? (c.) Discuss the role of International Business in Tanzanian business organizations. 2. With reference to Tanzania, discuss the rationale and the main challenges faced in operating across national borders. 3. Discuss the role and determinants of the nature and evolution of international business in Tanzania

Class Reflections (31st March 09

Differences between Joint Ventures and Alliances Differences between Licensing and Contract Manufacturing Why licensees produces products of less quality than original manufacturers? Answer (1.): Quality Control Problem (2.)The need to maintain reputation Whether a bank such as CRDB has any alliance with other banks: Answer is that there are correspondent banks in other countries.

2.0 THEORIES OF INTERNATIONAL TRADE

Theory of Absolute Advantage Theory of Comparative Advantage Opportunity Cost Theory Theory of Factor Endowments International Product Life Cycle

2.1 Theory of Absolute Advantage

It was developed by Adam Smith (1776) He used examples of two countries: England and France He considered two products: Wine and Machinery

2.1.1 The quantities of factor inputs for each product

England France Machinery 100 30 Wine 40 120

England has absolute advantage in the production of Machinery and France has absolute advantage in the production of wine. Without specialization volume of production is Machinery 50+15=65 and Wine 20+60=80. With Specialization volume of production is Machinery 100 and Wine 120

2.1.2 Weaknesses of The Theory of Absolute Advantage

It consider only two countries It consider only two products It consider free trade

2.2 Theory of Comparative Advantage

It was developed by David Ricardo (1817) According to it there is also gains from trade when one country has an absolute advantage in producing both products He considered England and Portugal Products considered are Cloth and Wine

2.2.1 Factor Inputs

Wine England Portugal 80 120 Cloth 90 100

Portugal has absolute advantage in producing both products. Relative superiority is computed as follows: Wine 120/80=1.5; Cloth 100/90=1.1 Thus Portugal has relative superiority in production of wine and England has relative superiority in production of cloth

2.1.2 Advantages of Specialization

Without Specialization volume of wine is 40+60=100 and Volume of Cloth is 45+50=95. The Total volume of Trade is 195 With Specialization volume of wine is 120 and cloth is 90. The total volume of Trade is 210. Thus there is gains from specialization based on comparative advantages

2.1.3 Weaknesses of the Theory of Comparative Advantage

Only two countries are considered Only two commodities are considered It is based on labor theory of value Labor was thought to be completely mobile nationally and incompletely immobile internationally Discretion of income within the nation is not affected by trade There is no technological change Constant cost of production, Zero transportation cost and Barter trade only

2.3 Opportunity Cost Theory

It is an extension of the theory of comparative advantage. Accordingly the cost of the commodity is the amount of a second commodity that must be given up in order to release just enough factors of production or resources to be able to produce one additional unit of the first commodity. A nation with low opportunity for a commodity has a comparative advantage on that commodity and a comparative disadvantage on the other commodity. Thus a nation should specialize on the production of that commodity in which it has lower opportunity cost

2.4 Heckscher-Ohlin Theory of Factor Endowments

Trade between nations is caused by a difference in their technologies, factor endowments and taste. If each nation concentrates on producing the goods that require a large amount of its relatively abundant factor those goods ought to have lower production costs and thus can be sold for less in the international market. Taiwan having a relatively abundance of labor as compared to capital should concentrate on producing labor intensive goods. Germany on the other hand having relatively more capital than labor should specialize in capital intensive products and then trade with Taiwan.

2.5 International Product Life Cycle

Developed by Wells (1968) According to the theory the products pass through four stages with reference to United States. In stage 1 United States exports with its export strength based on product development and inventions In stage 2 foreign production begins In stage 3 foreign producers become competitive in export markets In Stage 4 Import competition begins. Foreign producers have cost savings and economies of scale and they gain sufficient economies of scale to allow them to export where the product originated.

REVIEW QUESTIONS
1. Compare competitive advantage, comparative advantage and the international product life cycle as explanations of Foreign Direct Investment. How are these three theories related? 2. How does the theory of international trade assist in explaining the current trends and patterns of World Trade? 3. Discuss David Ricardos comparative advantage theory of international trade comparing it with the modern theory of international trade by Hecksher-Ohlin.

Class Reflections 01/04/09

What are the weaknesses of other theories? Is the theory of International PLC applicable today? Even in Agriculture capital is needed In Tanzania we have a lot of Tanzanite but we perform less compared to South Africa. Why? How taste is the basis of trade between nations? How about China which has both labor and capital? Jews and Singapore people are entrepreneurs. The lecturer praised the class for been active.

3.0 INTERNATIONAL BUSINESS ENVIRONMENT

International Cultural Environment International Political Environment International Legal Environment International Economic Environment

3.1 International Cultural Environment

Definition and elements of Culture Material Culture Social Institutions Humans and Universe Aesthetics Language Cultural Dimensions

3.1.1 Definition and elements of Culture

Culture is the human made part of human environment-the sum total of knowledge, beliefs, art, morals, laws, customs and any other capabilities and habits acquired by humans as members of society. The elements of culture include: Material culture, Social Institutions, Humans and Universe, Aesthetics, Language, Legal Characteristics and Political Structures

3.1.2 Material Culture

Technology: Techniques used in the creation of material goods: In countries with high level of technology, the general population has a broad understanding that allows them to adapt and learn new technology more easily. Economics: The manner in which people employ their capabilities and the resulting benefits Material culture affect the level of demand, the quality and types of product demanded and the means of production and distribution of these goods.

3.1.3 Social Institutions

Social Organization: The position of men and women in society, the family social classes, group behavior and age groups. In cultures where the social organizations result in closeknit family units it is more effective to aim a promotion campaign at the family unit than at individual family members Education: Knowledge of literacy rate help in deciding types of media, advertisement labels, point of purchase displays and owners manuals.

3.1.4 Human and Universe

Religion: Impact peoples habit and product choice Attitudes: Towards time, towards change and towards work and achievement Values: Basic convictions regarding what is right and wrong, good and bad Perceptions: A persons view of reality Stereotypes: The tendency to perceive another person as belonging to a single class or category

3.1.5 Aesthetics
Pertaining to cultures sense of beauty, and good taste and it is expressed in the art, drama, music folklore and dances. Art: Color mean different things to different cultures Music: Tastes vary on the basis of culture Folklore: Slogans

3.1.6 Language
The successful international business manager must achieve expert communication. This requires a thorough understanding of the language as well as the ability to speak it.

3.1.7 Four Cultural Dimensions

Power Distance: The extent to which less powerful members accept that power is distributed unequally. Uncertainty Avoidance: The extent to which people feel threatened by ambiguous situations Individualism: The tendency of people to look after themselves Masculinity: The situation in which the dominant values in society are success, money and things. The opposite of masculinity is Faminine

Cultural Dimensions Matrix

Power Distance High Japan Arab Countries Brazil South Korea France Italy Low Uncertainty Avoidance Japan Germany Arab Countries Brazil South Korea Italy Individualism Masculinity U.S.A Germany Great Britain France Italy Japan U.S.A Germany Great Britain Italy

U.S.A U.S.A Japan Great Britain Great Britain Arab Countries Brazil

Brazil South Korea France

REVIEW QUESTIONS
1. With reference to relevant Tanzanian examples discuss the influence of SocioCultural factors on internationalization process. 2. Explain giving relevant examples how do attitudes toward time, attitudes toward change and attitudes toward achievement and work affect the various functional areas of international business such as personnel and marketing 3. What are the relevance of understanding cultural dimensions in international arena?

Class Reflections 02/04/09

Various aspects were discussed with religion No difference between Tanzanians and Kenyans with regard to attitudes towards work. Kenyans are more conversant with language. Tanzanians value relations Moven Pick Hotel uses different colors according national festival days of other countries. Kenyans stereotype us as people of low profile

3.2 International Political Environment

Political Stability Level of political risk Encouragement of foreign investment Level of political vulnerability

3.2.1 Political Stability

Continuity of the set of rules regardless of which government is in power Knowledge of the philosophies of all major political parties within the country Economic nationalism: An intense feeling of national pride and unity, and awakening of a nations people to pride in their country.

3.2.2 Political risks

Confiscation: Seizing a companys assets without payment Expropriation: requires some reimbursement for the seized investment Domestication: Transfer of foreign investment to national control and ownership through series of government decrees. Other risks: Exchange controls, local content laws, import restrictions, tax controls, price controls and labor problems.

3.2.3 Encouragement of Foreign Investment

An increasing number of countries are encouraging foreign investment with specific guidelines aimed toward economic goals. An international firm may be expected to create local employment, transfer technology, generate export sales, stimulate growth and development of local industry and/or conserve foreign exchange as requirement for market concessions. For instance in India Pepsi was restricted to a minority position of 40% in a joint venture.

3.2.4 Level of Political Vulnerability

Vulnerability is exposure to danger or unfavorable treatment Some products appear to be more politically valuable than others, in that they receive special government attention. This special attention may result in positive actions toward the company or in negative attention depending on the desirability of the product.

Strategies to reduce political vulnerability

Good Corporate Citizenship Joint Ventures Expanding the investment base Controlling distribution in world markets Licensing Planned domestication

3.3 International Legal Environment

Jurisdiction in International Legal Disputes Legal recourses Protection of Intellectual property rights Commercial laws Green marketing Others

3.3.1 Jurisdiction in International Legal Disputes

The issue is whose legal system has jurisdiction when commercial disputes arise. Generally is determined in one of 3 ways: 1. Jurisdiction clauses included in contracts 2. Where the contract was entered into 3. Where the provisions of the contract were performed

3.3.2 Legal recourses

Legal recourses in resolving international disputes include: Conciliation Arbitration Litigation However international commercial disputes often are resolved by arbitration rather than litigation (law suits)

3.3.3 Protection of International Property Rights

a) Registration b) Participation in international conventions designed for mutual recognition and protection of intellectual property rights such as: i. Paris Convention ii. Inter-American Convention iii. The Madrid Arrangement which established the bureau for international registration of Trade Marks

3.3.4 Commercial Laws within Countries

All countries have laws regulating marketing activities such as promotion, product development, labeling, pricing and channels of distribution The various laws concerning product comparison, a natural and effective means of expression are other major stumbling block

3.3.5 Green Marketing Legislation

International firms are facing a growing variety of legislations designed to address environmental issues. Global concern for the environment extends beyond industrial pollution, hazards, waste disposals and rampant deforestation to include issues that focus directly on consumer products. Green marketing laws focus on product packaging and its effect on solid waste management and environmentally friendly products

3.3.6 Other Laws

Foreign Corrupt Practices Act which prohibits to pay bribes to foreign officials, candidates or political parties National Security Laws Anti-trust laws Anti-boycott laws

3.4 International Economic Environment

Population Income The economy Balance of Payment Position Cost of Production Cost of Capital Infrastructure Level of Urbanization Inflation Fiscal policies

3.4.1 Population
Population is one of primary indicator of the market size 10 largest countries in terms of population are: China, India, U.S.A, Indonesia, Brazil, Pakistan, Russia, Bangladesh, Japan and Nigeria 10 largest Cities are: Mexico City, New York, Sao Paulo, Lagos, Bombay, Shanghai, Tokyo, Buenos Aires, Paris and Seoul Population factors include population size, population density, population growth and population distribution

3.4.2 Income
Markets are people with money. Thus income figures on a country are necessary for market evaluation 6 countries with the highest GNP are: U.S.A, Japan, Germany, France, Italy and UK. 6 countries with the largest GNP per capita are Luxembourg, Switzerland, Japan, Denmark, Norway, and U.S.A Specific factors: Income size, income per capita, income distribution, income growth and level of private investment

3.4.3 Nature of the economy

Physical Endowment Level of economic development Infrastructure Degree of Urbanization Inflation

3.4.4 Balance of Payments Position

BOP is a summary statement of all the economic transactions between one country and all other countries over a period of time usually one year. It is often broken into current account and capital account. It is an indicator of the international economic health of the country. If there are more payments than receipts we have a balance of payment deficit. If it is the other round we have balance of payment surplus.

REVIEW QUESTIONS
1. Discuss the influence of international business environment and competitive factors on internationalization process. 2. With reference to relevant Tanzanian examples, discuss the influence of political and socio-cultural factors on internationalization process.

4.0 THE ROLE OF MULTINATIONALS IN IBM

Here we consider Competitive Environment The emphasis will be on MNEs The bulk of the value of IB transactions comes from activities of large MNEs In this topic we will consider the definition and various sources of their competitive advantages

4.1 Definition of MNE

A firm with subsidiaries, branches or other controlled affiliates in three or more countries By definition MNEs carry foreign direct investment which is used to set up and expand their overseas affliates Only 1/3 of the total value of exports and imports is transacted by MNE.

4.2 Sources of Competitive Advantages for MNEs Proprietary Technology Other Sources of Competitive Advantages

4.2.1 Proprietary Technology

Methods to protect proprietary technology: 1) The use of trade mark 2) The use of copyright 3) The use of patent law 4) Hiding the technology from the competitors 5) Exploiting the technology quickly

4.2.2 Other Competitive Advantages

Goodwill based on brand or trade name e.g. Coca-Cola Scale Economies in Production e.g. General Motors Scale Economies in Purchasing e.g. Mc Donald Scale Economies in Financing e.g. Large Commercial Banks Scale Economies in Distribution Scale Economies in Advertising Government Protection Human Resources Management Multinational Marketing Capabilities Multinational Diversification Managerial Experience in Several Countries

REVIEW QUESTIONS
1) What are the sources of competitive advantages for an international firm? 2) One of competitive advantages possessed by MNCs is proprietary technology. Explain several methods that a firm can use to protect its proprietary technology. 3) Sometimes the presence of competitors in the market can have favorable consequences for the international firm. Discuss.

5.0 ASSESSMENT OF INTERNATIONAL MARKETS

Selection Procedure Market Assessment Data from Sales Persons Export Market Opportunities for selected Tanzanian Products

5.1 Selection of Foreign Markets

Initial Screening: Basic need potential Second Screening: Economic and financial forces Third Screening: Political and legal forces Fourth Screening: Socio Cultural forces Fifth Screening: Competitive forces Final Selection: Personal visits plus in some cases research in the local market

5.2 Market Assessment Data from Sales Persons

One Sales Person went to one Country to investigate the market for shoes. The summary of the trip report was: NO MARKET HERE, NO ONE WEARS SHOES. Two years later another sales person went to the same country. The summary of this trip was HUGE MARKET HERE, NO ONE WEARS SHOES. Question: Who is right between the two sales persons?

5.3 Export Market Opportunities for Selected Tanzanian Products

Flowers, fish, coffee and spices present opportunities for the U.S market There is growing importance of supermarkets in France and Germany. This may allow the country to export horticultural products directly to these countries. Products with high potential are: Fish fillets, Octopus, Coffee, Black Tea, Raw Sugar, Cut flowers and Kidney beans Minerals Tourist attractions and services

REVIEW QUESTIONS
1. Suppose you have been appointed as an export manager of a company manufacturing automotive tires and tubes and you have been asked by your managing director to locate a few foreign markets holding export prospects for automotive tires and tubes made by your company. Prepare a work plan clearly indicating the steps you would like to take for the purpose. 2. (a.) Define Triad Markets (b.) Explain why the Triad Markets are so important and the marketing strategies that are different in the tackling each Triad Market. 3. Nepal has a GNP per capita 45% greater than Ethiopia. It follows that Nepal is a better market than Ethiopia because its inhabitants are richer. Discuss.

6.0. INTERNATIONAL MARKETING RESEARCH

Breadth and Scope of International Marketing Research Complexity of International Marketing Research International Marketing Research Process Gathering Primary Data in International Markets Secondary Data Research Qualitative and Observational Research Scale Development Sampling in the International Market Presenting the Results

6.1 Breadth and Scope of International Marketing Research

1) A basic difference between domestic and foreign market research is broader scope needed for the latter. In the former the emphasis is placed on specific market information used to make product, promotion, distribution and price decisions and developing marketing plans. Info needed in IMR include info about the country, area or market and info necessary to forecast future marketing requirements by anticipating social, economic and consumer trends within specific markets or countries. 2. Info collected assist in deciding whether to internationalize or not, which market to enter, how to enter target markets, how to market in target markets

Breadth and Scope of International Marketing Research

3.) International research process provides a systematic and orderly approach to the collection and analysis of data. Whether research program is conducted in Mwanza or in New York the research process should follow the same steps. The steps include: a) Determine the research problem and establishing research objectives b) Determine the sources of information c) Gather the relevant data d) Analyze, interpret and present the results

6.2 Defining the Problem

The researcher must be certain the problem definition is sufficiently broad to cover the whole range of response possibilities and not be clouded by his or her self reference criterion. Once the problem is adequately defined and research objectives established, the researcher must determine the availability of the information needed.

6.3 Information Sources for IMR

Dept of commerce of the domestic country Dept of commerce of other countries International Organizations such as UN Business and Trade Associations Service organizations Information for sale Company experience Consulting houses

6.4 Problems in Gathering the Secondary Data

Problems in gathering of secondary data include: less availability, less reliability, lack of comparability, different meanings to the terms, differing degrees of accuracy in data gathering and lastly valuable information gathering agencies are often missing in foreign markets The above problems apply more in developing countries.

6.5 Gathering of the Primary Data

If research questions are still not adequately answered, the researcher must collect primary data. The researcher may question the firms sales force, distributors, middlemen and or customers. Problems of gathering primary data include: Willingness to respond, Ability to communicate opinions, Sampling problem and Language

6.6 Sampling in the International Market

1) The greatest problem of sampling in field surveys stems from the lack of adequate demographic data and available lists from which to draw meaningful samples. If current, reliable lists are not available, sampling becomes more complex and generally less reliable. 2. The kinds of problems encountered in drawing a random sample in Saudi Arabia are: a) Not officially recognized census of population b) No other listings that can serve as sampling frames c) Incomplete and out of date telephone directories d) No accurate maps of population centers Further, door to door interviewing in Saudi Arabia is illegal.

6.7 Qualitative and Quantitative Research

Qualitative research is open ended, in-depth which seeks unstructured responses that reflect the persons thoughts and feelings on the subject. The most often used form of qualitative questioning is the focus group interview. In quantitative research the respondent is asked to reply either verbally or in writing to structured questions using a specific response such as yes or no or to select a response from a set of choices. Questions are designed to get a specific response to aspects of their behavior, intentions, motives and demographic characteristics. The structured responses received in survey can be summarized in percentages, averages, or other statistics.

6.8 Responsibilities for conducting IMR

Outside foreign based agency Domestic Company with a branch within the country in question Using own facilities Combination of own research force with the assistance of an outside agency

REVIEW QUESTIONS
1. In international marketing research, what methods are used to collect primary and secondary data? Indicate the sources of marketing research information and the information you could require as a marketing manager to support your marketing decisions. 2. Discuss the challenges that one can face in designing a sampling plan for a developing country market

7.0 STRATEGIC PLANNING IN IB

The Meaning of Strategic Planning The need for Strategic Planning Environmental Scanning Internal Resource Analysis Goal Setting Strategy formulation Strategy Implementation?

7.1 The Meaning of Strategic Planning

Strategic Planning is the process of determining an organizations basic mission and long term objectives and then implementing a plan of action for attaining these goals

7.2 The need for Strategic Planning

To keep track of increasingly diversified operations The need to co-ordinate and integrate diverse operations with a unified and agreed upon focus The need to meet emerging international challenges It helps an international firm to deal with political risk problems, competition and currency instability Attainment of higher performance

7.3 Environmental Scanning

Conducting a forecast of Macro economic performance dealing with factors such as markets for specific product, per capita income and availability of labor and raw materials Forecasting monetary exchange rates, exchange controls, balance of payments and inflation rates Forecast of the companys potential market share Other considerations include political stability, government pressures, nationalism and related areas of political risk

7.4 Internal Resource Analysis

IRA helps the firm evaluate its current managerial, technical, material and financial strengths and weaknesses An internal analysis identifies the key factors for success (KFS) that dictate how well the firm is likely to do. A key factor for success (KFS) is a factor necessary for a firm to compete effectively in a market. For example a KFS for an international airline is price. In the automobile industry, quality has emerged as the number one KFS in world markets. Toyota and Honda provide examples.

7.5 Goal Setting for Strategy Formulation

General goals concerning the philosophy of going international precede the first two steps. However more specific goals for the strategic plan come out of the above two steps The most common goals include profitability, marketing, production, finance and personnel goals Profitability and marketing goals almost always dominate the strategic plan of todays MNCs

7.6 Strategy Formulation

Approaches Predisposition Entry Strategies Market/Competitive Strategies

7.6.1 Strategy Formulation Approaches

Economic imperative: Employment of worldwide strategy based on cost leadership, differentiation and segmentation Political imperative: Firms focusing on this approach are country responsive Administrative Co-ordination: Here strategic decisions are made on the basis of the merits of individual situation rather than using a predetermined economic or political strategy. This approach is the most flexible of the three.

7.6.2 Strategic Predispositions

Ethnocentric: Values and interests of the parent company guide the strategic decisions Polycentric: Strategic decisions are tailored to suit local cultures Region centric: Blend own interests with those of its subsidiaries regional wise Geocentric: Integrate a global system approach to decision making

7.6.3 Entry Strategies

Indirect Exporting? Direct Exporting Whole Owned Subsidiary Joint Venture Licensing Franchising Management Contracts Contract Manufacturing Assembly Operations Abroad Foreign Direct Investment

7.6.4 Market/Competitive Strategies

Broad-line Global Competition: Production of a wide range of products and compete world wide Global Focus: Global focus targets a particular industry for competition world wide National Focus: When important market differences limit the global focus strategy, a national focus may be superior Protected Niche: This strategy depends totally on ability to obtain government protection on a continuing basis.

7.7 Strategy Implementation

Structure: Co-ordination, Departmentalization, Delegation, Span of Control, Unity of Command etc Culture: We mean organizational culture Resources: Human Resources, Technological Resources, Material Resources, Financial Resources and Reputation

REVIEW QUESTIONS
1. Franchising has grown significantly in recent years. Describe what franchising is and give examples of a particular product groups suitable for franchising internationally. 2. In the course of IB Multinationals employ specific strategies and structures in reaching international markets worldwide. Name the strategies employed and the structures used. Show with examples the strategy-structure linkage for the two strategies: (i.) The strategy of exploiting a technological lead (ii.) The strategy of exploiting a strong trade name

REVIEW QUESTIONS
3. While most firms pay close attention to the importance of external factors as they internationalize, many firms fail to consider internal factors adequately. What are these internal factors and how important are they to the firm in international markets?

8.0 MANAGEMENT OF INTERNATIONAL OPERATIONS

Decision Making Controlling Organizing Management of Political Risk International Negotiation

8.1 Decision Making

Definition: Choosing the course of action among alternatives Types Trends Factors

8.1.1 Types of Decision Making

Centralized: France due to lack of confidence Decentralized: British due to lack of technical know how Fairly Decentralized (Participative): Germany due to Co-determination policy Consensus (Ringisei): Both Centralized and Decentralized. This is Japanese model Fairly Decentralized: U.S.A Model Trends: Towards Centralization

8.1.2 Factors which determine Decision Making and Control

Company Size Size of Capital Investment Relative importance of a Subsidiary to MNC Stability of the environment Volume to unit-cost relationship The level of technology sophistication Importance attached to brand name and patent rights Product diversification

Other factors
Homogeneity of product lines Geographic Distance between Head Office and Subsidiary Degree of interdependence between the units Availability of Competent Managers International Experience

8.2 Controlling
Definition: Evaluating results in relation to Plans Types Approaches Performance measures used for Control

8.2.1 Types of Controlling

Direct Control: Face to face or personal meetings for monitoring operations. Ways: Meetings, Visits, Staffing practices and Organization Structure itself. Indirect Control: Reports and other written forms of communication to control operations. They include monthly operating reports and financial statements

8.2.2 Approaches to Controlling

British approach German Approach French Approach U.S.A Approach Japanese Approach

British Approach
Heavy emphasis on financial controls Attention focused on major problems Use of control for general guidance than for surveillance Large amount of autonomy to operating units

German Approach
Very detailed Control Attention on all variances More emphasis on production and operational efficiency Centralized type Used as policy and surveillance instrument

French Approach
Close to German approach but less systematic and sophisticated.

U.S.A Approach
More quantitative More precise plans and budgets rather than high level of companywide understanding and agreement regarding what constitutes appropriate behavior More centralized than European Approach Thus Europeans rely more on socio-emotional control systems and the Americans opt for task oriented objective control systems

Japanese Approach
Less participative Longer term planning horizons Budgets viewed more as communication device than a controlling tool. More slack in their budgets than Americans

8.2.3 Performance Measures used for Control

Financial Performance (ROI) Quality Performance: Japanese model is outstanding-quality circles Personnel performance

8.3 Management of Political Risk

Political Risk is like hood that a businesss foreign investment will be constrained by a host governments policies. The frame work for management of political risk is provided in the following slide.

8.3.1 Frame work for management of Political Risk

Macro political risk analysis: Review of major political decisions that are likely to affect all enterprises Micro political risk analysis: Directed toward government policies and actions that influence selected sectors Schmidts three dimensional framework Quantifying the variables Formulating appropriate responses

8.3.2 Schmidts three dimensional framework

Types of Political Risks: Transfer, Operational and Ownership control risks General Nature of Investment: Conglomerate, Vertical, Horizontal Special Nature of Investment: Primary sector, Industrial sector and Service sector

8.3.3 Quantifying the variables

Identify the factors Give each factor a maximum and a minimum score Determine the score for each factor Add up the individual scores to get a total risk score for a particular market area. This will enable you to identify how risky a venture is in Argentina versus in Australia

8.3.4 Formulating appropriate responses

Maintaining stronger bargaining power than the host country-proprietary technology Integrative techniques: Making overseas operations part of host countrys infrastructure. These will be discussed in the next slide. Protective and defensive techniques: These will be discussed in the next slides.

Integrative techniques
Good relationship with political leaders Producing as much of the product locally as possible Hiring local people to manage the operations Effective labor management relations

Protective and defensive techniques

Doing little local manufacturing as possible Conducting all research and development outside Limiting the responsibility of local personnel Raising capital from local banks and host government Diversifying production among countries

8.4 Managing International Negotiations

Is the process of bargaining with one or more parties for the purpose of arriving at a solution that is acceptable to all. It often follows assessing the political risk, in order to secure the best arrangements Areas include hiring practices, direct financial investment, Taxes and ownership control The process is described in the next slide

8.4.1 Negotiation Process

Planning phase Interpersonal relationship building Exchanging task related information Persuasion Agreement

8.4.2 Planning Phase

Identifying the objectives to be attained Explore possible options Considering areas of common ground Setting of limits on each objective Dividing issues into short and long term considerations Determining the sequence of discussing various issues

8.5 Organizing international operations

Types: Functional Organization Geographical organization Product Organization Market Combination Factors: -Will be discussed accordingly

8.5.1 Functional Organization

Marketing Specialists reporting to marketing vice president who co-ordinates all their activities. Advantages: Administratively simple Disadvantages: Looses effectiveness as the products and markets of the company grow due to (i.) inadequate planning for specific products and markets and (ii.) functional group competition Functional Organization structure is suitable for limited or narrow product lines. Thus weak product may not get enough attention

8.5.2 Geographical Organization

This is organization according to geographical regions or market segments It make sense where there are differences between markets

8.5.3 Product Management Organization

It is :appropriate for companies producing a variety of products and/or brands. Advantages: 1. Product manager harmonizes the marketing mix for the product, 2. Product manager may react more quickly to problems in the market, 3. Smaller brands are less neglected. Disadvantages: High cost

8.5.4 Market Organization

Appropriate in highly diverse set of markets The strongest advantage of this type is that the market is organized to meet the needs of distinct customer groups rather than focusing on marketing functions, regions or products

8.5.5 Matrix Organization

This combines the features of product management with those of market management to result into a two or three dimensional matrix. It is the most desirable in a multiple product, multiple market company. The system is expensive and un clarity on where to rest authority and responsibility

8.5.6 Factors to be considered in Organizing

Size of the business Number of the markets Level of involvement in foreign markets Company goals for international business Companys international experience Nature of the product-technical complexity and service needs Width and diversity of its product line Nature of marketing task

REVIEW QUESTIONS
1.(a.) What types of political risks do you think are of concern to the manager of an international firm (b.) Suggest a way which could assist in managing political risks associated with a firms international operations. 2. With reference to European, American and Japanese managers, discuss how decision making and controlling philosophies and practices differ worldwide.

9.0 INTERNATIONAL HUMAN RESOURSE MANAGEMENT

Personnel Selection and Repatriation Training Organizational Development Labor relations and industrial democracy

9.1 Personnel Selection and Repatriation

Sources of international human resources Selection Criteria Selection Procedure Repatriation of expatriates

9.1.1 Sources of International Human Resources

Home Country nationals Host Country nationals Third Country Nationals

Reasons for Using Home Country Managers

Launching a new venture Necessary technical expertise More promising managers with international experience Unavailability of managerial talent in the host country Foreign operation viewed as short lived Host country multi-racial population Conviction on the need for maintaining foreign image

Reasons for Using Host Country Managers

Familiar with culture They know the language Less expensive Good public relations

Reasons for Using Third Country Managers

They have necessary expertise Best ones for the job

9.1.2 Selection Criteria for International Assignments

U.S.A: Technical considerations. Japan: both technical and behavioral/relationship skills. Specific criteria are: Adaptability to cultural change Interdependence and Self Reliance Physical and emotional health Age, Experience and Education Language Training Motivation for foreign assignment Spouses and dependants Leadership ability

9.1.3 International Personnel Selection Procedure

Tests: Not extremely popular Interviewing: More popular Both tests and interviewing: This is for small percentages of firms

9.1.4 Repatriation of expatriates: Reasons

The agreed time is up Children to be educated in home country Not happy in their overseas assignment Failure to do good job

9.2 Training
Definition Importance Types of Training Programmes

9.2.1 Definition of Training

Training is the process of altering employees behavior and attitudes in a way that increases the probability of good attainment of goals. Is the process of imparting knowledge to the employees so that they may contribute more to attainment of goals

9.2.2 Importance of Training

To help overcome ethnocentrism To improve the flow of communication To improve the overall management style To help minimize problems of lack of politeness, punctuality, tactfulness, orderliness, sensitivity, reliability, tolerance and empathy

9.2.3 Types of Training Programmes

Standardized Training Programs: Use of specific decision making tools such as quantitative analysis. It is more appropriate for small firms Tailor Made Training Programs: Created for specific needs to provide new set of skills for a new culture. They are conducted before leaving for overseas assignment or after.

Six Major Types of Cross Cultural Tailor Made Training Programs

Environmental Briefing Cultural Orientation Cultural Assimilators Language Training Sensitivity Training: Designed to develop attitudinal flexibility Field Experience

Cultural Assimilator
A cultural assimilator is a programmed learning technique that is designed to expose members of one culture to some of the basic concepts, attitudes, role perceptions, customs and values of another culture. Example: If three Tanzanian managers are transferred to Singapore a cultural assimilator should be developed to familiarize the managers with Singapore customs and cultures.

9.3 Organizational Development

Definition Nature of OD Interventions OD in International Settings

9.3.1 Definition and Nature of OD

OD is the deliberate and reasoned introduction, establishment, reinforcement and spread of change for the purpose of improving an organizational effectiveness and health. The purpose: To reconcile individual-grouporganization differences Reasons: Individual/Group Conflicts or the organization is introducing changes eg new technology It need an individual skilled in behavioral sciences

9.3.2 OD Interventions
Structural activity in which targeted individuals, groups, or units engage in accomplishing task goals that are related to organization development. Specific interventions include: Team building, Management by objectives, Confrontation meetings, Third party peace-making and survey feedback.

9.3.3 OD in International Setting

There is cultural barrier. It needs low power distance and low uncertainty avoidance. Few countries have these two dimensions. Only four countries fit. They include Denmark, Sweden, Ireland and Great Britain.

9.4 Labor relations and industrial democracy

Definition and Importance of Labor Relations Labor relations Approaches Resolving Conflicts Industrial Democracy

9.4.1 Definition and Importance of Labor Relations

Labor relations is the process through which management and workers identify and determine the job relationship that will be in effect at the work place Labor relations determine labor costs, productivity and eventually profits

9.4.2 Labor Relations Approaches

U.S.A: Negotiations at the Union-Management table Great Britain: Labor agreement is not a binding contract Germany: Labor agreement is a binding contract and unions are influential in determining wages, salaries and working conditions Japan: Labor agreements are usually general and vague, although they are legally enforceable

9.4.3 Resolving Conflicts

U.S.A: Grievance Procedure Great Britain: Process is often fragmented and costly; because the system is not designed to deal with such problems Japan: Minimal industrial conflicts because of the way unions are formed.

9.4.4 Industrial Democracy

Industrial democracy refers to the rights that the employees have to participate in significant management decisions e.g. wage rates, bonuses, profit sharing, vacations, work rules, dismissals and plant expansions and closings. Forms of industrial democracy include codetermination, work councils, shop floor participation, collective bargaining e.t.c.

REVIEW QUESTIONS
1. (a.) Make a clear distinction among home country managers, host country managers, and third country managers. (b.) Discuss the main reasons for using (i) home country managers (ii) host country managers (iii) third country managers 2.Define the following terms and briefly explain their significance in international business (a.) Geocentric Strategic Disposition (b.) Cultural Assimilator (c.) Co-determination Policy (d.) Ethnocentric and Polycentric strategic orientations (e.) Industrial Democracy

REVIEW QUESTIONS
3. (a.) Why are training and organizational development important aspects in international business? (b.) Identify six major types of cross cultural training programs which are widely used by managers of large multinational firms.

10.0. INTERNATIONAL MARKETING STRATEGY

Assess the environment and develop the marketing mix

MAIN ISSUES
Nature and Scope of International Marketing Considerations in Developing an International Marketing Strategy Product Strategies Pricing Policies and Strategies Promotion of Products in International Setting Physical Distribution and International Channels Coordinating and Controlling International Marketing Strategy

10.1 Nature and Scope of International Marketing

1) International marketing is the performance of business activities that direct the flow of a companys goods and services to consumers or users in more than one nation for a profit. 2. The universal process of marketing strategy development include: a) Recognition of market opportunities b) Analysis of internal and external environments c) Setting marketing objectives d) Development of Marketing Strategy e) Evaluation of Marketing Strategy

10.2 International Marketing Mix

1. 2. 3. 4. Product Price Place Promotion

10.3 Standardization versus Adaptation of International Marketing Mix

Factors which encourage standardization are: economies of scale in production, economies in research and development, economies in marketing, consumer mobility, the home country image, industrial products and operating via exports Factors encouraging adaptation are: Variations in customer needs, market idiosyncrasies, adaptation which has been done by competitors, if costs are low, local production parameters, government regulations and cultural preferences

10.4 International Product Strategies

Branding and trade mark decisions Country of origin effects on global brands Packaging and labeling Warranty and Service Policies Knowledge of appropriate strategies in each stage of product life cycle Product line management Modification, adaptation and Standardization Quality improvement

10.5 Pricing Strategies

Setting pricing objectives Monitoring price setting behavior by competitors Evaluating consumer ability to buy in various countries Relating price to a firms costs and profit goals Understanding the product specific factors Recognizing differences in the country governing prices in each national market

10.6 Distribution Strategies

The marketer entering a new foreign market may have only very limited choices about how to distribute products in that market. The selection of middlemen in the market may be limited by availability or willingness of existing middlemen to take on a new foreign line. If the exporters foreign experience is limited or if the export business is small, consideration may be given to the use of specialized export or import middlemen to help establish an international marketing channel Differences in local consumption patterns and differences in local role of middlemen may require the use of different channel structures in different markets.

10.7 Promotion Strategy for International Markets

The same promotional inputs are potentially usable in any country, but variations in the local environment and market preferences require adaptation of communication to local needs. The most important promotional tools include advertising and personal selling

REVIEW QUESTIONS
1. An international marketing strategy is based on market considerations and competitive factors. How should the firm analyze and cope with these issues in formulating a strategy for international markets? 2. International product standardization has been called one of the illusions of the international marketer. Discuss. 3. Describe and discuss the main channels of distribution used in exporting a product. Which one would you recommend for the product of a small manufacturer in Tanzania, and why?

11.0 EMERGING ISSUES

Globalization Regional Integration

11.1 Globalization
Globalization has arrived as the major challenge facing management in this millennium. All countries and companies are almost now competing in the global market place. (a.) What does the term globalization really mean? (b.) Discuss the influence of globalization on economic development of a developing country such as Tanzania.

11.2 Regional Integration

1. With reference to African examples discuss the need, problems and future prospects of Regional Integrations.