Professional Documents
Culture Documents
International Business
International Business
KEYUR D VASAVA..
Module 1
1. GLOBALIZATION AND INTERNATIONAL BUSINESS
Definition of Globalization
The broadening set of interdependent relationships among people from different
parts of a world that happens to be divided into nations
Expanding sales
Acquiring resources
Minimizing risk
WHAT
Global Economy
Resources, markets and competition are worldwide in scope.
Globalization
The process of growing interdependence among elements of the global
economy.
Global Sourcing
Firms purchase products and services from around the world for local
use.
International Business
Conducting commercial transactions across national boundaries
Exporting
Local products are sold abroad
Importing
The process of acquiring products abroad and selling them in domestic
markets.
Licensing
one firm pays a fee for rights to make or sell another companys products.
Franchising
a firm pays a fee for rights to use another companys name and operating
methods.
Joint Venture
A firm operates in a foreign country through co-ownership with local
parties.
Strategic Alliance
Each partner hopes to achieve through cooperation things they couldnt
do alone.
Foreign Subsidiary
A local operation completely owned by a foreign firm.
FOREIGN MARKET ENTRY MODES
The decision of how to enter a foreign market can have a significant impact on the
results. Expansion into foreign markets can be achieved via the following four
mechanisms:
Exporting
Licensing
Joint Venture
Direct Investment
Exporting
Exporting is the marketing and direct sale of domestically-produced goods in another
country. Exporting is a traditional and well-established method of reaching foreign
markets. Since exporting does not require that the goods be produced in the target
country, no investment in foreign production facilities is required. Most of the costs
associated with exporting take the form of marketing expenses.
Exporting commonly requires coordination among four players:
Exporter
Importer
Transport provider
Government
Licensing
Licensing essentially permits a company in the target country to use the property of the
licensor. Such property usually is intangible, such as trademarks, patents, and
production techniques. The licensee pays a fee in exchange for the rights to use the
intangible property and possibly for technical assistance.
Because little investment on the part of the licensor is required, licensing has the
potential to provide a very large ROI. However, because the licensee produces and
markets the product, potential returns from manufacturing and marketing activities may
be lost.
Joint Venture
There are five common objectives in a joint venture: market entry, risk/reward sharing,
technology sharing and joint product development, and conforming to government
regulations. Other benefits include political connections and distribution channel
access that may depend on relationships.
Such alliances often are favorable when:
the partners' strategic goals converge while their competitive goals diverge;
the partners' size, market power, and resources are small compared to the
industry leaders; and
Partners' are able to learn from one another while limiting access to their own
proprietary skills.
The key issues to consider in a joint venture are ownership, control, length of
agreement, pricing, technology transfer, local firm capabilities and resources, and
government intentions.
Potential problems include:
cultural clashes
Strategic imperative: the partners want to maximize the advantage gained for
the joint venture, but they also want to maximize their own competitive position.
The joint venture attempts to develop shared resources, but each firm wants to
develop and protect its own proprietary resources.
The joint venture is controlled through negotiations and coordination processes,
while each firm would like to have hierarchical control.
Conditions Favoring
this Mode
Advantages
Disadvantages
tariffs add to
costs.
Transport costs
Lack of control
Minimizes risk and
over use of assets.
investment.
Speed of entry
Able to circumvent
trade barriers
Knowledge spillovers
High ROI
License period is
limited
Overcomes
ownership
Large cultural distance
restrictions and
Assets cannot be fairly priced cultural distance
High sales potential
Difficult to
manage
Dilution of control
Combines resources of
Greater risk than
2 companies.
exporting a & licensing
Potential for learning
Government restrictions on
Knowledge spillovers
foreign ownership
Viewed as insider
Partner may become a
Local company can provide Less investment
competitor.
skills, resources, distribution required
network, brand name, etc.
Joint
Ventures Some political risk
Greater
Higher risk than
knowledge of local
market
Small cultural distance
nt
WHICH
other modes
Requires more
resources and
commitment
May be difficult to
manage the local
resources.
b) Technological Forces
MULTINATIONAL CORPORATIONS
Multinational corporations do substantial business in several countries.
Multinational corporations can be controversial at home and abroad.
Multinational corporations face a variety of ethical challenges.
Planning and Controlling are complicated in multinational corporations.
Organizing is complicated in multinational corporations.
Leading is complicated in multinational corporations.
Multinational Corporation (MNC)
A business with extensive foreign operations in more than one county.
Transnational Corporation
A MNC that operates worldwide on a borderless basis.
6. DaimlerChrysler
2. BP
7. Toyota Motor
3. Exxon Mobil
8. General Electric
9. Total
5. General Motors
10. Chevron
MNC ISSUES
Protectionism
A call for tariffs and special treatment to protect domestic firms from
foreign competition.
Corruption
Illegal practices to further ones business interests.
Transparency International gives these countries its poorest corruption scores:
Indonesia
Nigeria
Tajikistan
Bangladesh
Haiti
Paraguay
Myanmar
Currency Risk
The possible loss of profits because of fluctuating exchange rates.
EFFECTS
OF GLOBALIZATION
Industrial
Financial
Economic
Informational
Competition
Survival in the new global business market calls for improved productivity
and increased competition. Due to the market becoming worldwide,
companies in various industries have to upgrade their products and use
technology skillfully in order to face increased competition.
Political
Ecological
Language
- the most popular language is English.
About 35% of the world's mail, telexes, and cables are in English.
desire to increase one's standard of living and enjoy foreign products and
ideas
loss of languages
Social
Legal/Ethical
ADVANTAGES
AND
CHALLENGES OF GLOBALIZATION
Productivity:
Globalization allows the benefits of productivity developments in one
nation to move more quickly to other nations
A downside to this transfer is that individuals and companies must adjust
to compete
Consumers
Consumers benefit from globalization through their ability to choose from
a greater variety of products and services and to buy from cheaper
production locations
A potential problem is the consumers weaker control over supplies from
foreign countries
Employment
Critics of globalization contend that the quality, as well as the quantity, of
jobs should be considered
The Environment
Many of the most desired resources are in the poorest areas of the world
where people can benefit economically from exploiting these resources
On the other hand, concern is high over the depletion of finite resources,
potential climatic changes, and destruction of the environment
Sovereignty
Globalization may undermine sovereignty in two ways:
Contact with other countries creates more cultural borrowing
Countries are concerned that important decisions may be made
abroad that will undermine their national well-being
International business will grow primarily along regional rather than global lines.
Forces working against further globalization and international business will slow
down both trends.
2.
The Nation as a Point of Reference The basic similarity amongst people within
countries is both a cause and an effect of national boundaries. National identity is
perpetuated through the rites and symbols of a country and a common perception of
history. Subcultures may link groups from different nations more closely than certain
groups within nations.
Cultural Formation and Change Societal values and customs constantly evolve in
response to changing realities. Cultural imperialism is brought about by the imposition
of one culture upon that of another. Certain elements introduced from outside a culture
may be known as creolization, indigenization, or cultural diffusion.
Language as a Cultural Stabilizer Isolation from other groups, especially because of
language, tends to stabilize cultures. Some countries see language as being so important
that they regulate the inclusion of foreign words and/or mandate the use of the countrys
official language for business purposes.
OR
When people from different areas speak the same language, culture spreads more easily
Among nations that share a same language, commerce is easier
Isolation from other groups, especially because of language, tends to stabilize cultures.
Some countries see language as being so important that they regulate the inclusion of
foreign words and/or mandate the use of the countrys official language for business
purposes.
Religion as a Cultural Stabilizer Religion is a major source of both cultural imperatives
and cultural taboos. Major religions include: -Buddhism -Christianity -Hinduism -Islam
Judaism
OR
Social Stratification Systems Ascribed group memberships are defined at birth; they
may include gender, family, age, caste, and ethnic or national origin. Acquired group
memberships are based on ones choice of affiliation, such as political party, religion,
and social and professional organizations. Social stratification affects both business
strategy and operational practices.
Factors Affecting Work Ethics The desire for material wealth vs. the desire for leisure
(Protestant Ethic) The expectation of success and reward Assertiveness (Hofstedes
masculinity vs. femininity index) Needs satisfaction (Maslows Hierarchy) Motivated
employees are normally more productive, and higher productivity leads to lower costs.
Accommodation
Cultural distance
Culture shock
Company and Management orientations
polycentric
ethnocentric
geocentric
Value systems
Cost/benefits of change
Resistance to too much change
Participation
Reward sharing
Opinion leadership
Timing
Learning abroad
Political Ideology
The system of ideas that expresses the goals, theories, and aims of a
sociopolitical program
Democracy
Five types:
Parliamentary
Liberal
Multiparty
Representative
Social
Totalitarianism
Types:
Authoritarianism
Fascism
Secular totalitarianism
Theocratic totalitarianism
Engines of democracy:
The risk that political decisions or events in a country negatively affect the
profitability or sustainability of an investment
Types:
Procedural
Distributive
Catastrophic
Subcontract
Employment of Nationals
Promotes goodwill
Shared ownership
JV, partnership
Political neutrality
DEFINITION
OF A
LEGAL SYSTEM
The mechanism for creating, interpreting, and enforcing the laws in a specified
jurisdiction
Types:
Common law
Civil law
Theocratic law
Customary law
Mixed systems
Code laws
Common law
Theocratic law
Intellectual property
Intellectual property rights refer to the right to control and derive the benefits
from writing, inventions, processes and identifiers
Different business cultures, legal environments and languages increase the risk of confusion
when you trade internationally. It's important to have a clear contract.
With trade in goods, attention often focuses on responsibilities for delivery, set out using
internationally recognized Incoterms. Other issues, such as what is being supplied, are usually
relatively straightforward.
For trade in services, it's almost the opposite. It can be difficult to
specify exactly what services are to be provided, to what standards. It
can be helpful to focus on what the desired outcomes are - i.e. what
the service should achieve. This can be part of a service level
agreement in the contract
You need to sort out payment issues such as choice of currency and
protection against the risk of non-payment. See the page in this guide
on payment for international trade in services.
Module 2
1. THE E CONOMIC ENVIRONMENTS FACING BUSINESS
operate.
Totality of economic factors, such as employment, income, inflation,
interest rates, productivity, and wealth, that influence the buying
behavior of consumers and firms.
Economic..
Level of development
Inter-sectoral linkages
Economic Conditions
Income levels
Distribution of income
Price trends
Economic Policies
Industrial policy
Trade policy
Monetary policy
Fiscal policy
Global linkages
Developed economies
Replacement demand
Developing economies
Increase in income
OR
Objectives
Gross domestic product (GDP): the total value of all goods and services
produced within a nations borders over one year, no matter whether
domestic or foreign-owned companies make the product.
Adjustments to GNI
Growth rate
Economic sustainability
Inflation
Unemployment
Debt
Income distribution
Poverty
Labor costs
Productivity
Balance of payments
Types:
Market economy
Command economy
Mixed economy
Countries with the freest economies have had the highest annual
growth and a greater degree of wealth creation.
Business freedom
Trade freedom
Monetary freedom
Fiscal freedom
Property rights
Investment freedom
Financial freedom
Labor freedom
Privatization
Deregulation
Antitrust legislation
Learning Objectives
To discuss some key issues in the social activities and consequences of globalized
business
MNEs and countries need to understand the impact of FDI in home and host countries
Need to consider relationship between those who make foreign investments (MNEs) and
possible effects on receiving countries
Areas to consider:
Stakeholder trade-offs
Cause-and-effect relationships
Balance-of-Payments effects:
Net import effect
Home-country losses
Host-country gains
Host-country losses
Relativism vs. Normativism: do truths depend on the values of the groups or are there
universal standards
Negotiating between evils
Legal justification for ethical behavior may not be sufficient because not everything that
is unethical is illegal
The law is a good basis because it embodies local cultural values
Industry Initiatives
Sustainability
Global Warming and The Kyoto Protocol
Company-Specific Initiatives
ETHICAL
DILEMMAS
Ethical dilemmas, also known as moral dilemmas, have been a problem for ethical
theorists as far back as Plato. An ethical dilemma is a situation wherein moral precepts or ethical
obligations conflict in such a way that any possible resolution to the dilemma is morally
intolerable. In other words, an ethical dilemma is any situation in which guiding moral
principles cannot determine which course of action is right or wrong.
*Personal self-interest
* Company profit
* Operating efficiency
* Individual friendships
* Team interests
* Social responsibility
* Personal morality
* Rules and standard procedures
* Laws and professional codes
OR
Globalization is not new, but the present era has distinctive features.
Shrinking space, shrinking time and disappearing borders are linking
people's lives more deeply, more intensely, more immediately than ever
before. Globalization is a complex process which changes as well as has the
potential to change the various events in the world at multiple levels. And
globalization is a process of integrating not just the economy but culture,
technology and governance. This era of globalization is opening many
opportunities for millions of people around the world. Global markets, global
technology, global ideas and global solidarity can enrich the lives of people
everywhere, greatly expanding their choices. The growing interdependence
of people's lives calls for shared values and a shared commitment to the
human development of all people.
Globalization, although often described as the cause of much turbulence
and change, is in fact the umbrella term for the collective effect, the change
itself. The challenge of globalization in the new century is not to stop the
expansion of global markets. The challenge is to find the rules and
institutions for stronger governancelocal, national, regional and globalto
preserve the advantages of global markets and competition, but also to
provide enough space for human, community and environmental people
not just for profits. Globalization is thus related with:
Ethics less violation of human rights, not more.
Equity less disparity within and between nations, not more.
Inclusion less marginalization of people and countries, not more.
Human security less instability of societies and less vulnerability of
people, not more.
Sustainability less environmental destruction, not more.
Development less poverty and deprivation, not more.
Indeed, there is a need for a recommitment to bring together of all the
world's peoples around an agenda that does not seek to stifle the very
productive and revolutionary innovations. However, it is essential that in so
doing we do not forget basic and fundamental obligations that have been
recognized and honored for decades as essential to a wholesome human
existence.
Module 3
1. INTERNATIONAL TRADE
AND
FACTOR-MOBILITY THEORY .
Chapter Objectives
To explain the relationship between foreign trade and international factor mobility
Country size
Factor proportions
Country similarity
Trade competitiveness:
1)Mercantilism
2)Absolute Advantage
views trade as a positive sum game countries will benefit from trade if
they have an absolute advantage in one product
3)Comparative Advantage
proposed by Ricardo
Full employment
Perfect competition
Mobility of resources
Theories of Specialization
full employment
economic efficiency
division of gains
transport costs
services
production networks
mobility
How much a country will depend on trade if it follows a free trade policy
Countries with large land areas are apt to have varied climates and natural
resources
Large countries production and market centers are more likely to be located at a
greater distance from other countries, raising the transport costs of foreign trade
Factor-Proportions Theory
A countrys relative endowments of land, labor, and capital will determine the
relative costs of these factors
Factor costs will determine which goods the country can produce most efficiently
Country-similarity Theory
Most trade today occurs among high-income countries because they share
similar market segments and because they produce and consume so much
more than emerging economies
Companies will manufacture products first in the countries in which they were
researched and developed, almost always developed countries
Over the products life cycle, production will shift to foreign locations, especially
to developing economies as the product reaches the stages of maturity and
decline
demand conditions
factor conditions
Production factors and finished goods are only partially mobile internationally
The cost and feasibility of transferring production factors rather than exporting
finished goods internationally will determine which alternative is better
Capital and labor move internationally to gain more income and flee adverse
political situations
2. GOVERNMENT INFLUENCE
ON
TRADE.
Chapter Objectives
To explain the rationales for governmental policies that enhance and restrict
trade
Protecting Infant-Industries
Trade controls are used to improve economic relations with other countries
payments
preventing potential enemies from gaining goods that would help them
achieve their objectives
Governments give aid and credits to, and encourage imports from, countries that
join a political alliance or vote a preferred way within international bodies.
To sustain this collective identity that sets their citizens apart from those in other
nations, countries limit foreign products and services in certain sectors.
Trade controls that directly affect price and indirectly affect quantity include:
tariffs
subsidies
customs-valuation methods
special fees
Trade controls that directly affect quantity and indirectly affect price include:
quotas
licensing arrangements
administrative delays
reciprocal requirements
restrictions on services
Move abroad
Chapter Objectives
To discuss the pros and cons of global, bilateral, and regional integration
To describe the static and dynamic impact of trade agreements on trade and
investment flows
To compare and contrast different regional trading groups, including but not
exclusively the European Union (EU), the North American Free Trade
To describe other forms of global cooperation, such as the United Nations and
the Organization of Petroleum Exporting Countries (OPEC)
GATT
The General Agreement on Tariffs and Trade (GATT), begun in 1947, created a
continuing means for countries to negotiate the reduction and elimination of
trade barriers and to agree on simplified mechanisms for the conduct of
international trade
WTO
Chapters Objectives
Foreign Exchange
The Bank for International Settlements divides the foreign exchange market into
reporting dealers (also known as dealer banks or money center banks), other
financial institutions, and nonfinancial institutions.
Dealers can trade currency by telephone or electronically, especially through
Reuters, EBS, or Bloomberg
The foreign exchange market is divided into the over-the-counter market (OTC)
and the exchange-traded market
Spot transactions involve the exchange of currency on the second day after the
date on which the two dealers agree to the transaction
Outright forward transactions involve the exchange of currency three or more
days after the date on which the dealers agree to the transaction
An FX swap is a simultaneous spot and forward transaction
bond), and they involve the exchange of principal and interest payments.
Options are the right but not the obligation to trade foreign currency in the future.
Foreign exchange dealers quote bid (buy) and offer (sell) rates on foreign
exchange
If the quote is in American terms, the dealer quotes the foreign currency as the
number of dollars and cents per unit of the foreign currency
If the quote is in European terms, the dealer quotes the number of units of the
foreign currency per dollar
The numerator is called the terms currency and the denominator the base
currency.
market than in the spot market), the currency is selling at a premium. If the
Futures
The major institutions that trade foreign exchange are the large commercial and
Companies use foreign exchange to settle transactions involving the imports and
exports of goods and services, for foreign investments, and to earn money
through arbitrage or speculation
Chapter Objectives
To describe the International Monetary Fund and its role in the determination of
exchange rates
To explain how the European Monetary System works and how the euro came
into being as the currency of the euro zone
IMF History
The Bretton Woods Agreement set a fixed exchange rate against gold & the US
dollar
The Jamaica Agreement (1976) eliminated par values against gold and the US
The Special Drawing Right (SDR) is a special asset the IMF created to increase
international reserves
The value of the SDR is based upon the weighted average of a basket of four
currencies: the U.S. dollar, the euro, the Japanese yen, and the British pound.
EXCHANGE RATES
control
Anyone involved in international business needs to understand how the
exchange rates of countries with which they do business are determined
The Euro
of 1992
European Monetary Union (EMU): a formal arrangement linking many but not
all of the currencies of the EU
Africa
Currencies that float freely respond to supply and demand conditions free from
government intervention
The demand for a countrys currency is a function of the demand for its goods
and services and the demand for financial assets denominated in its currency
Fixed exchange rates do not automatically change in value due to supply and
demand conditions but are regulated by their Central Banks
Central Banks
Central banks are the key institutions in countries that intervene in foreign-
bankers bank.
It facilitates communication and transactions among the worlds central banks
A central bank intervenes in money markets by increasing a supply of its
countrys currency when it wants to push the value of the currency down and by
stimulating demand for the currency when it wants the currencys value to rise
Many countries that strictly control and regulate the convertibility of their
currency have a black market that maintains an exchange rate that is more
indicative of supply and demand than is the official rate
Foreign-Exchange Convertibility
Fully convertible currencies, often called hard currencies, are those that the
government allows both residents and nonresidents to purchase in unlimited
amounts
Currencies that are not fully convertible are often called soft currencies, or weak
currencies
They tend to be the currencies of developing countries
Exchange Controls
purchasing-power parity
differences in real interest rates
confidence in the governments ability to manage the political and economic
environment
certain technical factors that result from trading
Factors to Monitor
Major factors that managers should monitor when trying to predict the timing,
magnitude, and direction of an exchange-rate change include
the institutional setting
fundamental analysis
confidence factors
events
technical analysis
Module 4
1.THE STRATEGY OF INTERNATIONAL BUSINESS
Chapter Objectives
To examine the idea of industry structure, firm strategy, and value creation
To profile the features and functions of the value chain framework
To appreciate how managers configure and coordinate a value chain
To identify the dimensions that shape how managers develop strategy
To profile the types of strategies firms use in international business
markets in ways that sustain the companys boost its profitability and growth
Strategy is defined as the efforts of managers to build and strengthen the
companys competitive position within its industry in order to create superior
value
Competitors moves.
Government policies.
Changes in economics.
value
Value is the measure of a firms ability to sell what it makes for more than the
cost it incurred to make it
Creating Value
Interpreting the firm within the context of the value chain provides a strong tool to
improve the accuracy of strategic analyses and decisions
WHAT IS A VALUE CHAIN ?
The value chain lets managers deconstruct the general idea of create value
Profit margin reports the difference between the total revenue generated by
sales and the total cost of the activities that led to those sales.
Orientationnamely, whether the particular activity takes place upstream or
downstream.
Configuration is the way that managers arrange the activities of the value chain.
Coordination is the way that managers connect the activities of the value chain.
Firms pay close attention to location economics when configuring their value
chain
Devising a way to coordinate value chain activities must be in ways that leverage
a firms core competencies
Types of Strategy
The firm entering and competing in foreign markets can adopt either an:
international
multidomestic
global
transnational strategy
Often, firms use a mix of these four types due to company, industry, and
environmental situations
2. COUNTRY EVALUATION
AND
SELECTION.
Chapter Objectives
Location
Companies lack resources to take advantage of all international opportunities.
Companies need to:
Determine the order of country entry.
Set the rates of resource allocation among countries.
In choosing geographic sites, a company must decide:
Where to sell.
Where to produce
Scanning
Opportunities:
Companies often evaluate entry to a country without comparing that country with
other countries
This is because they may need to react quickly to proposals, to respond to
competitive threats, and because multiple feasibility studies seldom are finished
simultaneously
3. EXPORT
AND I MPORT
STRATEGIES.
Chapter Objectives
Advantages of Exporting
Characteristics of Exporters
Pitfalls of Exporting
Companies new to exporting (and also some experienced exporters) often make
many mistakes
Types of importers
Those looking for any product around the world to import and sell.
Those looking for foreign sourcing to get their products at the cheapest price.
Those using foreign sourcing as part of their global supply chain.
Types of imports
Specialization of Labor
Global Rivalry
Local Unavailability
Diversification of Operating Risks
Customs Agencies
Customs agencies assess and collect duties, as well as ensure that import
regulations are adhered to
A custom broker helps by valuing products to qualify for:
more favorable duty treatment
qualifying products for duty refunds through drawback provisions
deferring duties by using bonded warehouses and foreign trade zones
limiting liability by properly marking an imports country of origin
Direct: goods and services are sold to an independent party outside of the
exporters home country.
Indirect exports: goods and services are sold to an intermediary in the domestic
market, which then sells the goods in the export market.
Indirect Selling
Direct Selling
Through distributors who usually deal with retailers instead of end users
To retailers and end users
Internet marketing is a new form of direct exporting that is allowing many smalland medium-sized companies to access export markets as never before
Export Documentation
Export Assistance
Trading companies can perform many of the functions for which manufacturers
lack the expertise
Exporters can use the services of other specialists, such as freight forwarders,
to facilitate exporting
These specialists can help an exporter with the complex documentation that
accompanies exports
Government agencies in some countries, such as the Ex-Im Bank in the United
States, provide assistance in:
terms of direct loans to importers
bank guarantees to fund an exporters working capital needs
insurance against commercial and political risk
Countertrade
Countertrade is when goods and services are traded for each other. It is used
when a firm exports to a country whose currency creates barriers to efficient
trade
Common types are: barter, buyback, offset, switch trading, and counter
purchase
Chapter Objectives
To clarify why companies may need to use modes other than exporting to
operate effectively in international business
The idea of denying rivals access to resources (capital, patents, trademarks, and
management know-how) is called the appropriability theory
When a company has a wholly owned foreign operation, it may more easily have
that operation participate in a global strategy.
Companies have a wider choice of operating form when there is less likelihood
of competition
Internal handling of foreign operations usually means more control and no
sharing of profits
MNEs want returns from their intangible assets
Licensing
Franchising
Management Contracts
Management contracts are used primarily when the foreign company can
manage better than the owners
Turnkey Operations
Joint Ventures
Equity Alliances
Negotiating Process
In technology agreements:
seller does not want to give information without assurance of payment
buyer does not want to pay without evaluating information
Performance Assessment
Chapter Objectives
Vertical Differentiation
Horizontal Differentiation
Horizontal differentiation describes how the company designs its formal structure
to perform three functions:
Specify the total set of organizational tasks
Divide those tasks into jobs, departments, subsidiaries, and divisions so
the work gets done
Assign authority and authority relationships to make sure work gets done
in ways that support the companys strategy
Contemporary structures
Contemporary structures, like the network or virtual formats, arrange work roles,
responsibilities, and relationships in ways that eliminate the horizontal, vertical,
or external boundaries that block the development of knowledge-generating and
decision-making relationships
No matter what sort of structure the MNE uses, it needs to develop coordination
and control mechanisms to prevent duplication of efforts, to ensure that
headquarters managers do not withhold the best resources from the
international operations, and to include insights from anywhere in the
organization
Coordination Systems
Coordination can take place via standardization, plans, and mutual adjustment
Standardization relies on specifying standard operating procedures:
planning relies on general goals and detailed objectives
mutual adjustment relies on frequent interaction among related parties
Approaches to Coordination
Coordination by standardization:
Sets universal rules and procedures that apply to units worldwide.
Enforces consistency in performance of activities in geographically
dispersed units.
Coordination by plan requires interdependent units to meet common deadlines
and objectives.
Coordination by mutual adjustment requires managers to interact personally with
counterparts.
Control Methods
standards.
Bureaucratic control emphasizes organizational authority and relies on
Control Mechanisms
Reports
Visits to Subsidiaries
Management Performance Evaluations
Cost and Accounting Comparisons
Evaluative Measurements
Information Systems
Organization Culture
The set of fundamental assumptions about the organization and its goals and
practices that members of the company share
A system of shared values about what is important and beliefs about how the
world works.
Importance of Culture
Managers from different countries often have values that differ from those
endorsed by the company
People in an MNE often have slight exposure to the values held by senior
managers
Evidence suggests that mixing national cultures on teams does not necessarily
improve performance
Module 5
1. MARKETING GLOBALLY .
Chapter Objectives
To perceive why and how emphasis in the marketing mix may vary
among countries
Marketing Orientations
Production
Sales
Customer
Strategic marketing
Societal marketing
Production Orientation
Commodity sales
Passive exports
Other Orientations
Sales orientation: a company tries to sell abroad what it can sell domestically
and in the same manner on the assumption that consumers are sufficiently
similar globally.
By country
By global segment
By multiple criteria
Government intervention
Market diversity
For each product in each country, a company must determine its promotional
budget as well as the mix between push and pull
Translation
Legality
Message needs
Branding Strategies
language differences
expansion by acquisition
nationality images
Distribution Strategies
Distribution is the course - physical path or legal title - that goods take between
production and consumption.
It is difficult to change.
When there is a need to deal directly with the customer because of the
nature of the product.
Financial capability.
Other resources.
Trustworthiness.
Although the Internet offers new opportunities to sell internationally, using the
Internet does not negate companies needs to develop sound programs within
their marketing mix
The difference between total market potential and companies sales is due to
gaps:
Coverage.
Chapter Objectives
Supply chain - the coordination of materials, information, and funds from the
initial raw material supplier to the ultimate customer.
Logistics
Logistics, or materials management, is that part of the supply chain process that
plans, implements, and controls the efficient, effective flow and storage of
goods, services, and related information from the point of origin to the point of
consumption in order to meet customers requirements
Compatibility
Manufacturing Configuration
centralized facility
regional facilities
multidomestic facilities
Information Technology
Quality
Supplier Networks
Outsourcing
Under the make or buy decision, companies have to decide if they will make
their own parts or buy them from an independent company
Companies go through different purchasing phases as they become more
committed to global sourcing
Supplier Relations
When a company sources parts from suppliers around the world, distance, time,
and the uncertainty of the international political and economic environment can
make it difficult for managers to manage inventory flows accurately
Transportation Networks
Chapter Objectives
Accounting Objectives
Financial Statements
Investor orientation.
Global integration of capital markets.
MNEs need for foreign capital.
Regional political and economic harmonization.
MNEs desire to reduce accounting and reporting costs.
Convergence efforts of standards-setting bodies.
The EU and other countries have agreed to require IFRS for publicly listed
companies.
FASB and IASB are trying to converge their standards through a variety of
different activities.
Enforcement of IFRS is a major concern.
The SEC may soon allow U.S.-listed firms to report financial results using IFRS.
Translation Methods
Corporate Governance
The external and internal factors designed to safeguard the assets of a company
and protect the rights of shareholders.
Corporate governance practices worldwide are partly a function of the legal
environment in the countries where companies operate.
The Sarbanes-Oxley Act of 2002 was passed in the United States to improve
financial reporting and strengthen internal controls.
Chapter Objectives
To describe the multinational finance function and how it fits in the MNEs
organizational structure
To show how companies can acquire outside funds for normal operations and
expansion, including offshore debt and equity funds
To explore how offshore financial centers are used to raise funds and manage
cash flows
To explain how companies include international factors in the capital budgeting
process
To discuss the major internal sources of funds available to the MNE and to show
how these funds are managed globally
To describe how companies protect against the major financial risks of inflation
and exchange-rate movements
Two major sources of funds external to the MNEs normal operations are debt
markets and equity markets.
Eurocurrencies
International Bonds
A foreign bond is one sold outside the country of the borrower but denominated
The three largest stock markets in the world are in New York, Tokyo, and
London, with the U.S. markets controlling nearly half of the worlds stock market
capitalization.
Euro equities are shares listed on stock exchanges in countries other than the
home country of the issuing company
Most foreign companies that list on the U.S. stock exchanges do so through
American Depositary Receipts, which are financial documents that represent a
OFCs offer low or zero taxation, moderate or light financial regulation, and
banking secrecy and anonymity.
The OECD is trying to eliminate the harmful tax practices in tax-haven countries.
Capital budgeting is the process whereby MNEs determine which projects and
countries will receive capital investment funds.
Translation exposure arises because the dollar value of the exposed asset or
liability changes as the exchange rate changes.
Transaction exposure arises because the receivable or payable changes in
value as the exchange rate changes.
Economic, or operating, exposure arises from effects of exchange-rate changes
on:
Future cash flows.
The sourcing of parts and components.
The location of investments.
The competitive position of the company in different markets.
Exposure-Management Strategy
In the separate entity approach, governments tax each taxable entity when it
earns income.
An integrated system tries to avoid double taxation of corporate income through
split tax rates or tax credits.
Foreign branch income (or loss) is directly included in the parents taxable
income.
Tax deferral means that income from a subsidiary is not taxed until it is remitted
to the parent company as a dividend.
In a CFC, U.S. shareholders hold more than 50 percent of the voting stock.
Active income is derived from the direct conduct of a trade or business. Passive
income (also called Subpart F income) usually is derived from operations in a
tax-haven country.
Transfer Prices
The IRS allows a tax credit for corporate income tax U.S. companies pay to
another country. A tax credit is a dollar-for-dollar reduction of tax liability and
Chapter Objectives
organization.
HRM is more difficult for the international company than its domestic counterpart
due to:
Environmental differences.
Organizational challenges.
Research and anecdotes show that the MNE whose HRM policies support its
work in another.
A third-country national is an employee who is a citizen of neither the home nor
the host country.
Staffing Policies
Three perspectives describe how companies set about staffing their international
operations, namely the:
ethnocentric - fills management positions with home-country nationals
polycentric - uses host-country nationals to manage local subsidiaries
geocentric approaches - seeks the best people for key jobs throughout
the organization, regardless of their nationality
Companies may use elements of each staffing policy but one type normally
predominates
While executive transferred from headquarters to local operations are more likely
to best understand the companys core competencies, an ethnocentric staffing
can result in a narrow perspective in foreign markets
Selecting Expatriates
Expatriate Failure
of expatriate failure.
A leading cause of expatriate failure is the inability of a spouse to adapt to the
host country.
Training Expatriates
MNEs usually anchor training programs to transfer specific information about the
host country as well as improve the executive's cultural sensitivity.
Compensating Expatriates
Compensation must neither overly reward nor unduly punish a person for
accepting a foreign assignment.
The most common approach to expatriate pay is the balance sheet approach.
MNEs often provide additional compensation or more fringe benefits to
employees who work in remote or dangerous areas.
Companies struggle to determine the proper degree to which they should
equalize pay for the same job done in different countries.
Repatriating Expatriates
Repatriation, the act of returning home from a foreign assignment, has many
difficulties
Repatriation tends to cause dissonance in many areas, most notably
Financial.
Work.
Social.
The principal cause of repatriation frustrations is finding the right job for
someone to return to
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