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In today's economy, most economic boundaries have already disappeared and those remaining will continue to diminish. This phenomenon is partially due to the proliferation of electronic communication, which allows instantaneous information transfer for sales, marketing, manufacturing and outsourcing. Furthermore, growing distribution networks, supply chains, and transportation hubs simplify the movement of products. And, the broad networks of worldwide financial institutions reduce currency issues. Thus, businesses operating in the Midwest can service the needs of customers around the world. Ultimately, most business professionals will in some way be impacted by international influences. All individuals planning a career in business must understand the intricacies of doing business with partners from other countries—whether the business is conducted in the United States or outside our borders. Culture, language, political systems, geography, and socio-economic factors all influence a person's business practices. Knowing that you need to research not only the company you wish to do business with but, also, the culture, tradition, and business practices of those you will be working with is vital to business success in this global marketplace. In order to be prepared for a career in any facet of the business world (accounting, finance, marketing, information technology, law, healthcare, etc.), knowledge and understanding of global issues is critical. Thus, you should study international business to be prepared for diverse business opportunities, knowing in advance that respect for and knowledge of your counterparts can give you a competitive advantage.
International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics,and transportation) that take place between two or more nations. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. It refers to all those business activities which involves cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc. A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food companies such as McDonald's and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national markets. Areas of study within this topic include differences in legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local culture, corporate culture, foreign exchange market, tariffs, import and export regulations, trade agreements, climate, education and many more topics. Each of these factors requires significant changes in how individual business units operate from one country to the next.
turnkey operations. finance. marketing. The operations affect and are affected by the physical and societal factors and the competitive environment. innovation. organization and control mechanisms Political policies and legal practices Cultural factors Economic forces Geographical influences Major advantage in price. An understanding helps you make better career decisions. Number and comparative capabilities of competitors Competitive differences by country Technology is expanding. Consumers know about and want foreign goods and services. Political relationships have improved among some major economic powers. risk minimization Modes: importing and exporting. An understanding helps you decide what governmental policies to support. Countries cooperate more on transnational issues. Institutions provide services to ease the conduct of international business. Operations • Objectives: sales expansion. human resources Overlaying alternatives: choice of countries. or other factors. direct investment and portfolio investments. Modes of operation may differ from those used domestically. especially in transportation and communications. management contracts. The best way of conducting business may differ by country. resource acquisition. tourism and transportation. Governments are removing international business restrictions. . Competition has become more global. Most companies are either international or compete with international companies. Cross-national cooperation and agreements. Functions: marketing. licensing and franchising. Means • • • • • • • • • • • • • • • • • • • • • • • Physical and societal factors Competitive factors There has been growth in globalization in recent decades due to the following eight factors: Studying international business is important because: Managers in international business must understand social science disciplines and how they affect all functional business fields.The conduct of international operations depends on companies' objectives and the means with which they carry them out. accounting. global manufacturing and supply chain management.
All global business is personal . Go to the source. Protect your brand at all costs 3. The unexpected will happen. Security requires transparency throughout the supply chain. Make the most of new security measures. 2. Address your particular circumstances. and international trade and customs consultant. Develop compliance protocols for import and export operations. You and your brand are inseparable. Protect your worldwide reputation by strict adherence to labor and human rights standards. Participate in trade-government partnerships. Strong ethics translate into good business. Become involved with the international business self-regulation movement. Memorialize your company's code of ethics and compliance practices in writing. Appoint a leader. Take advantage of trade agreements: think outside the border ○ ○ ○ ○ ○ ○ ○ ○ Familiarize yourself with preference programs and trade agreements. Secure your data. Keep the home office operational. Read the fine print. Understand corporate accountability laws. Maintain high ethical standards ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4. Keep your personnel secure. Do your research now. Participate in the process.Tom Travis. Seize opportunities when they arise. Stay secure in an insecure world 5. You must be vigilant in enforcing your IP rights. Keep communications open. The Six Tenets are as follows: 1. PA. Expect the Unexpected 6. You must be vigilant in protecting your intellectual property both at home and abroad. Travis & Rosenberg. the managing partner of Sandler. uses the Six Tenets when giving advice on how to globalize one's business. Forge ethical strategic partnerships.
When a firm lacks capital and detailed knowledge about a foreign market. In this case. while its exports its output to different countries in order to earn maximum amount of foreign exchange. the joint venture allows the two firms to apply their respective comparative advantages in a given project. patent. 26: 54-67. Philadelphia: Wharton School Publishing. this mode requires less time or depth of involvement in foreign markets. Be available to overseas clients and customers 24/7. 111). The third mode is known as management contracting. it allows its technology. 2005. The contract is meant for a given number of years during which the seller of management skills manages the affaires of the company located in the host country for a specific fee. Top Tier: Per capita GDP/GNI > $20. The fortune at the bottom of the pyramid.Hart. They represent a partnership agreement in which the venture is owned jointly by the international company and a company of the host country. like management skills. For example technology and marketing ability of German firms and raw material availability of Australia firms have led to joint-venture agreements between the two countries. Prahalad & S. According to C. and (2) S.000 Approximately one billion people Base of the Pyramid Per capita GDP/GNI < $2. and so . Naturally. trade mark and other proprietary advantages to be used for a fee by a licensee or technology importing firm.○ ○ ○ Fly the flag at your overseas locations. Hart. Relate to offshore associates on a personal level.000 Approximately four billion people Modes of ib The oldest mode of international business is foreign trade. A firm imports its necessary inputs from the cheapest source. the company sells abroad a particular resource.2002.K. As compared to export. Joint ventures are the fourth mode.000-$20. This method is also used when the host government put restrictions on the inflow of foreign capital investment.000 Approximately one billion people Second Tier: Per capita GDP/GNI $2. In this mode. An international company may acquire existing operations in a foreign country in order to penetrate the foreign market. no overseas manufacturing is involved The other mode of international business is licensing. The greatest benefit of this mode is that the acquiring company does not have to begin operations from scratch. Capitalism at the Crossroads (p. Strategy & Business.
the size of the investment is often lower than in case of acquisition. The importer of goods has normally to pay for the import in convertible currencies which they buy with their own currency. Finally. the company evaluates the cash inflow and outflow during his life of the project and makes investments only account foreign exchange risk and the political risk involved. particularly in smaller companies even though they are less likely to export. This mode is better than the acquisition inasmuch as the operations can be tailored exactly to the firm's need and what is more..does not have to labor hard to grab the market. in other words in exchange of useful good or raw materials the exchange is done. and direct and portfolio investment. tourism and transportation. This way.. IIND as per 2008 The six major modes of international business are imports and exports. The quantum of investment.. the company in the host country becomes a subsidiary of the international company.. Cont.. Whatever the motivation behind foreign investment or foreign manufacturing. Some time money is not the only way to do the business. Large companies are more likely to engage in other modes of international business in conjunction with importing and exporting. Most service imports and exports revolve around tourism and transportation. it sets up an affiliate there. or nonproducts. defined as tangible goods brought into or out of (respectively) a country. While exports and imports apply mainly to goods.. they can also apply to services.. the benefits begin to appear only when the consumer base is firmly established. When a company innovates a specific technology and its product is mature in the markets abroad or when the company wants to reap the location advantage in foreign country. licensing and franchising.. an international company invests in the majority equity shares of the company of the host country. turnkey operations. Companies may import and export merchandise. however. However. Imports and exports are the most common mode of international business. in this case is quite large. management contracts. The revenue gained .
especially in the Caribbean and Southeast Asia. and China. Many companies enter into international licensing agreements. Finally. forming the Gloria Vanderbilt line. the investor takes ownership in a foreign property for a financial return. Management contracts are initiated when one company supplies personnel to perform general or specialized management functions for another company. a portfolio investment is a noncontrolling interest in a company that usually involves either taking stock in a company or making loans to a company in the form of bonds. it becomes a mixed venture. management services. The franchisor also assists on a continuing basis in the operation of the business-for example. A turnkey operation involves construction of facilities. and technology. by providing components. their income on foreign tourism is more important than their income from exports.from international tourism and transportation is best seen in hotels. performed under contract. When two or more companies share in an FDI. Similarly. This is most evident in Disney's theme parks in France. For many countries. For example. A foreign direct investment (the more common of the two) gives the investor a controlling interest in the foreign company. or expertise) under contract. Japan. many companies engage in franchising. Gloria Vanderbilt has franchised her name out to several clothing companies. receiving royalty payments in return. travel agencies. Portfolio investments are particularly popular with multinational enterprises as they offer a safe means towards short-term financial gain. airlines. Companies also pay fees that may be incurred on an international level for engineering services handled through turnkey operations and management contracts. international business occurs within direct and portfolio investments. and shipping companies. bills. Conversely. . The same holds true in countries such as Norway and Greece. it is known as a joint venture. or notes that the investor purchases. When a government joins a company in an FDI. By investing in a foreign company. a mode of business where the franchisor allows the franchisee to use a trademark that is an essential part of the franchisee's business. copyrights. allowing other countries around the world to use their assets (ie: trademarks. patents. which is then transferred to the owner when the company is ready to begin operating. who earn a considerable amount from foreign shipping.
Licensing. In reality. For example.over and above which pigeon-hole it fits into. Direct exporting is straightforward. Strategic Alliances. always clarify your tutor's preferred view. The Internet The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. Joint Ventures. This lesson considers a number of key alternatives. over an above indirect exporting. Here you will be consider modes of entry into international markets such as the Internet. It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. This gives it greater control over its brand and operations overseas. Overseas Manufacture and International Sales Subsidiaries. but recognizes that alteratives are many and diverse. International Distributors. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). Examples of indirect exporting include: • • Piggybacking whereby your new product uses the existing distribution and logistics of another business. If in doubt. For others the Internet has provided the opportunity for a new online company. They offer a whole range of bespoke or a la carte services to exporting organizations.e. More Exporting There are direct and indirect approaches to exporting to other nations. some see franchising as a stand alone mode. an exporting company from your country .Modes of Entry into International Markets (Place) How does an organization enter an overseas market? Background A mode of entry into an international market is the channel which your organization employs to gain entry to a new international market. . Export Management Houses (EMHs) that act as a bolt on export department for your company. Finally we consider the Stages of Internationalization. if you were to employ a home country agency (i. as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. International Agents. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed. Exporting. whilst others see franchising as part of licensing. Essentially the organization makes a commitment to market overseas on its own behalf.which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly. On the other hand. the most important point is that you consider all useful modes of entry into international markets .
make sure that your contract allows you to regain direct control of product. Distribution alliances e.• Consortia are groups of small or medium-sized organizations that group together to market related.g. or sometimes unrelated products in international markets. Research and Development (R&D) arrangements. expertise. Trading companies were started when some nations decided that they wished to have overseas colonies. Spanish and Portuguese colonies. Therefore they have an incentive to market products and to make a profit from them. and market on your behalf in a particular country. Turkey. Toyota Ayago is also marketed as a Citroen and a Peugeot. Turnkey contracts and contract manufacturing.g. Strategic Alliances (SA) Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally. Distributors are similar to agents. and infact most facets that are needed to operate in an overseas market. They tend to be expensive to recruit.for example. concepts. Otherwise pros and cons are similar to those of international agents. Agents might also represent your competitors . Agents are a low-cost. They date back to an imperialist past that some nations might prefer to forget e.so beware conflicts of interest. Marketing agreements. to the franchisee. brand and/or expertise. retain and train. the British. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage. Of course you need to set targets since you never know the level of commitment of your agent. Coffee Republic and McDonald's Restaurants. Sometimes the relationships are between competitors. • Licensing Licensing includes franchising. They often include a the training and development of key employees where skills are sparse . iPhone was initially marketed by O2 in the United Kingdom. • International Agents and International Distributors Agents are often an early step into international marketing. Toyota's car plant in Adapazari. Franchising involves the organization (franchiser) providing branding. Turnkey contracts are major strategies to build large plants. You would not own the plant once it is handed over. agents are individuals or organizations that are contracted to your business. .g. Examples include Dominos Pizza. Management tends to be controlled by the franchiser. They rarely take ownership of products. Agents usually represent more than one organization. and more commonly take a commission on goods sold. If you intend to globalize. but low-control option. • • Licensing is where your own organization charges a fee and/or royalty for the use of its technology. with the main difference that distributors take ownership of the goods. Put simply. French. There are many examples including: • • • • Shared manufacturing e.
This can be a new-build. However. You also will gain local market knowledge and be able to adapt products and services to the needs of local consumers. or the company might acquire a current business that has suitable plant etc.e. An International Sales Subsidiary would be similar. and have the same key benefit of course.e. The key benefit is that your business becomes localized you manufacture for customers in the market in which you are trading. reducing the element of risk. companies remain independent and separate. a new company is set up with parties owning a proportion of the new business. Some companies will never trade overseas and so do not go through a single stage. Others will start at a later or even final stage.Essentially. Honda's relationship with Rover in the 1980's.e. The downside is that you take on the risk associated with the local domestic market. Of course some will go through each stage as summarized now: • • • • • Indirect exporting or licensing Direct exporting via a local distributor Your own foreign presences Home manufacture. manufacturing and R&D are most common forms of Joint Venture. Overseas Manufacture or International Sales Subsidiary A business may decide that none of the other options are as viable as actually owning an overseas manufacturing plant i. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market: • • • Access to technology. core competences or management skills. machinery and labor in the overseas market. the organization invests in plant. This is also known as Foreign Direct Investment (FDI). we conclude by considering the Stages of Internationalization. Access to distribution channels. it acts more like a distributor that is owned by your own company. and foreign assembly Foreign manufacture . any business wishing to enter China needs to source local Chinese partners. For example. Joint Ventures (JV) Joint Ventures tend to be equity-based i. and simply export components from the home market (or another country). Of course you could assemble products in the new plant. Internationalization Stages So having considered the key modes of entry into international markets. To gain entry to a foreign market. For example. Strategic Alliances are non-equity based agreements i.
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and on what scale. it’s the ability to prevent rivals and capture demand by establishing a strong brand name. -Look in detail at economic and political factors which influence foreign markets. 3. Entry is early when an international business enters a foreign market before other foreign firms.1 • • Start on page: Scroll Preview View: <a title="Vie More share options Add to Collections Auto-hide: on Modes of entry into an International Business:There are some basic decisions that the firm must take befor forien expansion like: which markets to enter. -Long run benefits of doing business in a country depends on following factors: . time and expense to learning the rules of the country. The advantage is when firms enters early in the foreign market commonly known as firstmover advantages First mover advantage. Which foreign markets? -The choice based on nation’s long run profit potential. Timing of entry:It is important to consider the timing of entry. Ability to create customer relationship.risk is high for business failure(probability increases if business enters a national market after several other firms they can learn from other early firms mistakes) . 2. when to enter those markets. Disadvantage: 1.The present wealth of consumer markets (purchasing power) .1.Nature of competition By considering such factors firm can rank countries in terms of their attractiveness and long-run profit.Size of market (in terms of demographics) .firm has to devote effort. Ability to build sales volume in that country.so that they can drive them out of market. 2. And late when it enters after other international businesses.
Passive exporting occurs when a firm receives canvassed them. Franchising 4. Advantages Of Exporting: a. It is a convenient method to increase the sales. The cost of entering market through this mode is less costly. copy rights . Later after understanding the host country the company can enter on a full scale. Reactive motivators are those efforts taken by the company to export the product to a foreign country due to the decline in demand for its product in the home country. Proactive motivations are opportunities available in the host country. If the company selects a company in the host country to distribute the company can enter international market with no or less financial resources but this amount would be quite less compared to that would be necessary under other modes.managerial . . Mergers & Acquisitions: 6. Motivation for exporting: Motivation for exporting are proactive and reactive. Exporting 2. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export fuctions and for procuring foreign sales. 2.investment etc.Exporting: It means the sale abroad of an item produced . Less Risks.brand name etc to a manufacturer in a foreign country for a fee. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign is called licensee. Turnkey Project 5. Advantages. The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership . Licensing 3. b. Wholly Owned Subsidiary 1. customer and the market of the host country gradually. Joint Venture 7.Licensing : In this mode of entry .the domestic manufacturer leases the right to use its intellectual property (ie) technology .stored or processed in the supplying firm’s home country.Modes of entry:-1. Exporting involves less risk as the company understand the culture . c. Acquisitions & Mergers 8. Need for limited finance.
It reduces market opportunities for both 2. Franchisee get the benefits of R& D with low cost. Licensee gets the benefits with less investment on research and development 5. 5. reservation services quality assurances program etc. 3. Advantages: 1. Disadvantages: 1. . employee training . 4. Operating System 3. Franchisee escapes from the risk of product failure. The franchisor provides the following services to the franchisee. Licensee escapes himself from the risk of product failure. Both parties have to maintain the product quality and promote the product . Licensee may sell the product outside the agreed territory and after the expiry of the contract. Trade marks 2. It may be more complicating than domestic franchising. 4. Low investment on the part of licensor. Product reoutation 4. Chance for misunderstanding between the parties. Therefore one party can affect the other through their improper acts. Franchisor can get the information regarding the market culture. 5. Low investment and low risk 2. 3.Franchising Under franchising an independent organization called the franchisee operates the business under the name of another company called the franchisor under this agreement the franchisee pays a fee to the franchisor. Disadvantages: 1. Franchisor learns more from the experience of the franchisees. 1. Continuous support system like advertising . Licensor can investigate the foreign market without much efforts on his part. Licensee may develop his reputation 6. It is difficult to control the international franchisee. 2. 2.1. customs and environment of the host country. 3. 4. Chance for leakages of the trade secrets of the licensor. Low financial risk to the licensor 3.
There is a problem of leakage of trade secrets. 5. employee. It reduce the market opportunities for both 4.oil refinery . Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies. 3. technology . construct and equip a manufacturing/ business/services facility and turn the project over to the purchase when it is ready for operation for a remuneration like a fixed price . lawyers regulation. 4. mergers and acquisition specialists from the two countries. 2. Hence they are multiyear project.brand name and distribution networks. payment on cost plus basis. national highways . 4. Alternatively the domestic company may purchase the foreign company and acquires it ownership and control. This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. 5. 2. Disadvantages: 1. The company can formulate international strategy and generate more revenues.Turnkey Project: A turnkey project is a contract under which a firm agrees to fully design . railway line etc.3. airports. 3. The company immediately gets the ownership and control over the acquired firm’s factories. Acquiring a firm in a foreign country is a complex task involving bankers. This strategy helps the host country. Both the parties have the responsibilities to maintain product quality and product promotion. It provides immediate access to international manufacturing facilities and marketing network. Advantages: 1. This strategy adds no capacity to the industry. Eg nuclear power plants . Labour problem of the host country’s companies are also transferred to the acquired company. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country.Mergers & Acquistions: A domestic company selects a foreign company and merger itself with foreign company in order to enter international business. .
It provides strength in terms of required capital.6. 7. expertise . It provide skills like technical skills. and enable the companies to share the risk in the foreign markets. Advantages: 1. This act improves the local image in the host country and also satisfies the governmental joint venture. It spread the risk between or among partners.Acquisitions & Mergers: A mergers is a voluntary and permanent combination of business whereby one or more firms integrate their operations and identities with those of another and henceforth work under a common name and in the interests of the newly formed amalgamations.Joint Venture Two or more firm join together to create a new business entity that is legally separate and distinct from its parents. 3. Joint venture provide large capital funds suitable for major projects. Various environmental factors like social . Partner delay the decision making once the dispute arises. The decision making is slowed down in joint ventures due to the involvement of a number of parties. 3. technological economic and political encourage the formation of joint ventures. Motives for acquisitions: . 5. 4. 5. Disadvantages: 1. human skills . 4. Conflict may arise 2. marketing skills. Latest technology required human talent etc. Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength. Life cycle of a joint venture is hindered by many causes of collapse. It make large projects and turn key projects feasible and possible. Then the operations become unresponsive and inefficient. technology. It involves shared ownership. 2. It synergy due to combined efforts of varied parties.
Wholly Owned Subsidiary Subsidiary means individual body under parent body. 4. The desire to acquire business already trading in certain markets & possessing certain specialist employees & equipments. But policies and trademark will be implemented from the Parent body. 3. and the controlling entity is called its parent (or the parent company). Economies of scale possibly made through more extensive operations. This Subsidiary or individual body as per their own generates revenue. A subsidiary. While individuals have the capacity to act on their own initiative. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. Acquisition of land. 5. Tax consideration. Obtaining patents. officers and employees. and these. only an entity representing a legal fiction as a separate entity can be a subsidiary. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. or limited liability company. in turn. Only the certain percentage of the profit will be given to the parent body. A parent and all its subsidiaries together are . 6. Expert use of resources. The reason for this distinction is that a lone company cannot be a subsidiary of any organization. A subsidiary may itself have subsidiaries. may have subsidiaries of their own.1. license & intellectual property. however. 9. a business entity can only act through its directors. in business matters. The most common way that control of a subsidiary is achieved is through the ownership ofshar es in the subsidiary by the parent. other ways that control can come about and the exact rules both as to what control is needed and how it is achieved can be complex (see below). The ability to control supplies of raw materials. salary to employees. They give their own rent. Reduction of the Co failure through spreading risk over a wider range of activities. There are no branches here. Desire to become involved with new technologies & management method particularly in high risk industries. etc. The controlled entity is called a company. 8. 7. 10. corporation. is an entity that is controlled by a bigger and more powerful entity. There are. 8. Removal of competitor 2. building & other fixed asset that can be profitably sold off.
Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way. they differ fromdivisions. or Citigroup as well as more focused companies such asI BM. distinctlegal entities for the purposes oftaxation andr egulation. sometimes with multiple levels of subsidiaries. . These. and others. or Xerox Corporation. which are businesses fully integrated within the main company.called a group. Subsidiaries are separate. organize their businesses into national or functional subsidiaries. Time Warner. Examples includeholding companies such as Berkshire Hathaway. and not legally or otherwise distinct from it. For this reason. although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership.
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