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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.
Modes of operation may differ from those used domestically. An understanding helps you decide what governmental policies to support. marketing. turnkey operations. Institutions provide services to ease the conduct of international business. direct investment and portfolio investments. human resources Overlaying alternatives: choice of countries. management contracts. or other factors. Consumers know about and want foreign goods and services. Political relationships have improved among some major economic powers. Countries cooperate more on transnational issues. organization and control mechanisms Political policies and legal practices Cultural factors Economic forces Geographical influences Major advantage in price. The operations affect and are affected by the physical and societal factors and the competitive environment. Most companies are either international or compete with international companies. Cross-national cooperation and agreements. Competition has become more global.The conduct of international operations depends on companies' objectives and the means with which they carry them out. risk minimization Modes: importing and exporting. especially in transportation and communications. innovation. . accounting. Number and comparative capabilities of competitors Competitive differences by country Technology is expanding. resource acquisition. licensing and franchising. The best way of conducting business may differ by country. Governments are removing international business restrictions. Operations • Objectives: sales expansion. finance. Means • • • • • • • • • • • • • • • • • • • • • • • Physical and societal factors Competitive factors There has been growth in globalization in recent decades due to the following eight factors: Studying international business is important because: Managers in international business must understand social science disciplines and how they affect all functional business fields. An understanding helps you make better career decisions. tourism and transportation. Functions: marketing. global manufacturing and supply chain management.
Participate in the process. Take advantage of trade agreements: think outside the border ○ ○ ○ ○ ○ ○ ○ ○ Familiarize yourself with preference programs and trade agreements. Address your particular circumstances. Keep communications open. Travis & Rosenberg. and international trade and customs consultant. The unexpected will happen. Participate in trade-government partnerships. Keep your personnel secure. Protect your worldwide reputation by strict adherence to labor and human rights standards. uses the Six Tenets when giving advice on how to globalize one's business. Make the most of new security measures. The Six Tenets are as follows: 1. Strong ethics translate into good business. Develop compliance protocols for import and export operations. the managing partner of Sandler. Read the fine print. Maintain high ethical standards ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4. Forge ethical strategic partnerships. Secure your data. Keep the home office operational. You must be vigilant in protecting your intellectual property both at home and abroad. Do your research now. Become involved with the international business self-regulation movement. Appoint a leader. Protect your brand at all costs 3. Understand corporate accountability laws. Security requires transparency throughout the supply chain. Go to the source. You and your brand are inseparable.Tom Travis. Memorialize your company's code of ethics and compliance practices in writing. All global business is personal . You must be vigilant in enforcing your IP rights. Seize opportunities when they arise. Expect the Unexpected 6. Stay secure in an insecure world 5. PA. 2.
As compared to export. Top Tier: Per capita GDP/GNI > $20. no overseas manufacturing is involved The other mode of international business is licensing. like management skills.000 Approximately four billion people Modes of ib The oldest mode of international business is foreign trade. Naturally. An international company may acquire existing operations in a foreign country in order to penetrate the foreign market. Relate to offshore associates on a personal level. In this case. while its exports its output to different countries in order to earn maximum amount of foreign exchange. and so . it allows its technology. In this mode. this mode requires less time or depth of involvement in foreign markets.2002. Capitalism at the Crossroads (p. They represent a partnership agreement in which the venture is owned jointly by the international company and a company of the host country. According to C. The greatest benefit of this mode is that the acquiring company does not have to begin operations from scratch. Hart. The fortune at the bottom of the pyramid.Hart. This method is also used when the host government put restrictions on the inflow of foreign capital investment. trade mark and other proprietary advantages to be used for a fee by a licensee or technology importing firm.K. 111). The third mode is known as management contracting. the company sells abroad a particular resource. 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. 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. 2005. Joint ventures are the fourth mode. Strategy & Business.000-$20. Philadelphia: Wharton School Publishing.○ ○ ○ Fly the flag at your overseas locations. 26: 54-67.000 Approximately one billion people Base of the Pyramid Per capita GDP/GNI < $2. When a firm lacks capital and detailed knowledge about a foreign market. patent. Prahalad & S. A firm imports its necessary inputs from the cheapest source. and (2) S. Be available to overseas clients and customers 24/7. the joint venture allows the two firms to apply their respective comparative advantages in a given project.000 Approximately one billion people Second Tier: Per capita GDP/GNI $2.
The revenue gained . the company in the host country becomes a subsidiary of the international company. an international company invests in the majority equity shares of the company of the host country. the benefits begin to appear only when the consumer base is firmly established. in other words in exchange of useful good or raw materials the exchange is done. When a company innovates a specific technology and its product is mature in the markets abroad or when the company wants to reap the location advantage in foreign country. The quantum of investment. particularly in smaller companies even though they are less likely to export.. Most service imports and exports revolve around tourism and transportation... turnkey operations. the size of the investment is often lower than in case of acquisition. Finally.. Cont. This way.. or nonproducts. Whatever the motivation behind foreign investment or foreign manufacturing. The importer of goods has normally to pay for the import in convertible currencies which they buy with their own currency. management contracts. Companies may import and export merchandise. in this case is quite large. it sets up an affiliate there. however.does not have to labor hard to grab the market. 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. IIND as per 2008 The six major modes of international business are imports and exports. tourism and transportation. licensing and franchising. Imports and exports are the most common mode of international business. defined as tangible goods brought into or out of (respectively) a country.. and direct and portfolio investment... they can also apply to services. While exports and imports apply mainly to goods. 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. However. This mode is better than the acquisition inasmuch as the operations can be tailored exactly to the firm's need and what is more.
The franchisor also assists on a continuing basis in the operation of the business-for example. Portfolio investments are particularly popular with multinational enterprises as they offer a safe means towards short-term financial gain. When two or more companies share in an FDI. . This is most evident in Disney's theme parks in France. travel agencies. Finally. Gloria Vanderbilt has franchised her name out to several clothing companies. and technology. especially in the Caribbean and Southeast Asia.from international tourism and transportation is best seen in hotels. and China. 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. A turnkey operation involves construction of facilities. Similarly. allowing other countries around the world to use their assets (ie: trademarks. a mode of business where the franchisor allows the franchisee to use a trademark that is an essential part of the franchisee's business. For example. it becomes a mixed venture. or notes that the investor purchases. Management contracts are initiated when one company supplies personnel to perform general or specialized management functions for another company. it is known as a joint venture. forming the Gloria Vanderbilt line. copyrights. receiving royalty payments in return. the investor takes ownership in a foreign property for a financial return. By investing in a foreign company. A foreign direct investment (the more common of the two) gives the investor a controlling interest in the foreign company. airlines. patents. For many countries. and shipping companies. Conversely. performed under contract. The same holds true in countries such as Norway and Greece. When a government joins a company in an FDI. international business occurs within direct and portfolio investments. or expertise) under contract. many companies engage in franchising. their income on foreign tourism is more important than their income from exports. by providing components. which is then transferred to the owner when the company is ready to begin operating. bills. Japan. Many companies enter into international licensing agreements. who earn a considerable amount from foreign shipping. management services. Companies also pay fees that may be incurred on an international level for engineering services handled through turnkey operations and management contracts.
e. Export Management Houses (EMHs) that act as a bolt on export department for your company. This lesson considers a number of key alternatives. Overseas Manufacture and International Sales Subsidiaries.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. some see franchising as a stand alone mode. . if you were to employ a home country agency (i. This gives it greater control over its brand and operations overseas. More Exporting There are direct and indirect approaches to exporting to other nations. International Distributors. Examples of indirect exporting include: • • Piggybacking whereby your new product uses the existing distribution and logistics of another business. Here you will be consider modes of entry into international markets such as the Internet. an exporting company from your country . In reality. Licensing. Joint Ventures. the most important point is that you consider all useful modes of entry into international markets . Essentially the organization makes a commitment to market overseas on its own behalf. International Agents. Exporting. as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. For example. The Internet The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. Strategic Alliances. For others the Internet has provided the opportunity for a new online company.over and above which pigeon-hole it fits into. If in doubt. Direct exporting is straightforward. On the other hand. always clarify your tutor's preferred view. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed. Finally we consider the Stages of Internationalization. They offer a whole range of bespoke or a la carte services to exporting organizations. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). but recognizes that alteratives are many and diverse. whilst others see franchising as part of licensing. over an above indirect exporting.which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly.
French.g. Research and Development (R&D) arrangements. make sure that your contract allows you to regain direct control of product. Turnkey contracts are major strategies to build large plants. Strategic Alliances (SA) Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally. with the main difference that distributors take ownership of the goods. Sometimes the relationships are between competitors. Distributors are similar to agents. Toyota's car plant in Adapazari. They tend to be expensive to recruit.g. They often include a the training and development of key employees where skills are sparse . . expertise. Agents usually represent more than one organization. and more commonly take a commission on goods sold. Marketing agreements. Agents are a low-cost. and market on your behalf in a particular country. Of course you need to set targets since you never know the level of commitment of your agent. Franchising involves the organization (franchiser) providing branding. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage. Turnkey contracts and contract manufacturing. and infact most facets that are needed to operate in an overseas market. agents are individuals or organizations that are contracted to your business. concepts. brand and/or expertise. or sometimes unrelated products in international markets. Examples include Dominos Pizza. Turkey. They rarely take ownership of products. There are many examples including: • • • • Shared manufacturing e.• Consortia are groups of small or medium-sized organizations that group together to market related. Trading companies were started when some nations decided that they wished to have overseas colonies. to the franchisee. iPhone was initially marketed by O2 in the United Kingdom. Spanish and Portuguese colonies. Distribution alliances e. Management tends to be controlled by the franchiser. They date back to an imperialist past that some nations might prefer to forget e. Toyota Ayago is also marketed as a Citroen and a Peugeot. but low-control option. • International Agents and International Distributors Agents are often an early step into international marketing.so beware conflicts of interest. If you intend to globalize.g. retain and train. • • Licensing is where your own organization charges a fee and/or royalty for the use of its technology. Put simply. Otherwise pros and cons are similar to those of international agents. the British.for example. You would not own the plant once it is handed over. Therefore they have an incentive to market products and to make a profit from them. • Licensing Licensing includes franchising. Agents might also represent your competitors . Coffee Republic and McDonald's Restaurants.
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. and foreign assembly Foreign manufacture . or the company might acquire a current business that has suitable plant etc.e. any business wishing to enter China needs to source local Chinese partners.Essentially. You also will gain local market knowledge and be able to adapt products and services to the needs of local consumers. we conclude by considering the Stages of Internationalization. Strategic Alliances are non-equity based agreements i. The downside is that you take on the risk associated with the local domestic market.e. reducing the element of risk. Some companies will never trade overseas and so do not go through a single stage. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market: • • • Access to technology. manufacturing and R&D are most common forms of Joint Venture. it acts more like a distributor that is owned by your own company. 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. However. machinery and labor in the overseas market.e. Of course you could assemble products in the new plant. An International Sales Subsidiary would be similar. Honda's relationship with Rover in the 1980's. and simply export components from the home market (or another country). a new company is set up with parties owning a proportion of the new business. core competences or management skills. Joint Ventures (JV) Joint Ventures tend to be equity-based i. Others will start at a later or even final stage. To gain entry to a foreign market. This can be a new-build. and have the same key benefit of course. the organization invests in plant. Internationalization Stages So having considered the key modes of entry into international markets. This is also known as Foreign Direct Investment (FDI). companies remain independent and separate. For example. For example. Access to distribution channels. The key benefit is that your business becomes localized you manufacture for customers in the market in which you are trading.
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Entry is early when an international business enters a foreign market before other foreign firms. 2. Which foreign markets? -The choice based on nation’s long run profit potential.firm has to devote effort. Ability to create customer relationship. And late when it enters after other international businesses. it’s the ability to prevent rivals and capture demand by establishing a strong brand name.Size of market (in terms of demographics) .Nature of competition By considering such factors firm can rank countries in terms of their attractiveness and long-run profit. 3.The present wealth of consumer markets (purchasing power) . time and expense to learning the rules of the country.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. 2.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) . Ability to build sales volume in that country. Timing of entry:It is important to consider the timing of entry. and on what scale.1.so that they can drive them out of market. The advantage is when firms enters early in the foreign market commonly known as firstmover advantages First mover advantage. -Look in detail at economic and political factors which influence foreign markets. when to enter those markets. Disadvantage: 1. -Long run benefits of doing business in a country depends on following factors: .
Advantages.the domestic manufacturer leases the right to use its intellectual property (ie) technology .investment etc.managerial . Exporting 2. 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. Mergers & Acquisitions: 6. customer and the market of the host country gradually. Less Risks. 2. It is a convenient method to increase the sales.Exporting: It means the sale abroad of an item produced . Proactive motivations are opportunities available in the host country. 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.Licensing : In this mode of entry . Licensing 3. Passive exporting occurs when a firm receives canvassed them. Exporting involves less risk as the company understand the culture . Franchising 4. copy rights . Turnkey Project 5. b. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export fuctions and for procuring foreign sales. Motivation for exporting: Motivation for exporting are proactive and reactive. . The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership . Acquisitions & Mergers 8. Need for limited finance. Later after understanding the host country the company can enter on a full scale. c.brand name etc to a manufacturer in a foreign country for a fee. The cost of entering market through this mode is less costly. Joint Venture 7. Advantages Of Exporting: a.stored or processed in the supplying firm’s home country. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign is called licensee.Modes of entry:-1. Wholly Owned Subsidiary 1.
Chance for misunderstanding between the parties. Franchisor learns more from the experience of the franchisees. . 2. It may be more complicating than domestic franchising. 4. reservation services quality assurances program etc. Therefore one party can affect the other through their improper acts. 5. 3. 4. Low investment on the part of licensor. Franchisee escapes from the risk of product failure. 5. Licensee may develop his reputation 6. Franchisor can get the information regarding the market culture. Product reoutation 4. It reduces market opportunities for both 2. The franchisor provides the following services to the franchisee. Disadvantages: 1. Licensee may sell the product outside the agreed territory and after the expiry of the contract.Franchising Under franchising an independent organization called the franchisee operates the business under the name of another company called the franchisor under this agreement the franchisee pays a fee to the franchisor. Chance for leakages of the trade secrets of the licensor. 1. 3. 4. Advantages: 1. Trade marks 2. 2. Franchisee get the benefits of R& D with low cost. Disadvantages: 1. Low investment and low risk 2. Both parties have to maintain the product quality and promote the product . customs and environment of the host country. employee training . Low financial risk to the licensor 3. Licensee escapes himself from the risk of product failure. Continuous support system like advertising . It is difficult to control the international franchisee. Licensee gets the benefits with less investment on research and development 5.1. Licensor can investigate the foreign market without much efforts on his part. 3. Operating System 3.
3. This strategy adds no capacity to the industry. construct and equip a manufacturing/ business/services facility and turn the project over to the purchase when it is ready for operation for a remuneration like a fixed price . technology . 5. Advantages: 1. national highways . This strategy helps the host country. It provides immediate access to international manufacturing facilities and marketing network. 2.Mergers & Acquistions: A domestic company selects a foreign company and merger itself with foreign company in order to enter international business.Turnkey Project: A turnkey project is a contract under which a firm agrees to fully design . Eg nuclear power plants . There is a problem of leakage of trade secrets. 4. The company immediately gets the ownership and control over the acquired firm’s factories. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country. mergers and acquisition specialists from the two countries. 5. employee. Alternatively the domestic company may purchase the foreign company and acquires it ownership and control. Disadvantages: 1.oil refinery . It reduce the market opportunities for both 4. 4. 3. airports. 3. Acquiring a firm in a foreign country is a complex task involving bankers. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies.brand name and distribution networks. lawyers regulation. Hence they are multiyear project. The company can formulate international strategy and generate more revenues. Labour problem of the host country’s companies are also transferred to the acquired company. 2. payment on cost plus basis. Both the parties have the responsibilities to maintain product quality and product promotion. This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. . railway line etc.
Motives for acquisitions: . It make large projects and turn key projects feasible and possible. 2. 7. It provide skills like technical skills. technological economic and political encourage the formation of joint ventures. Conflict may arise 2.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 provide large capital funds suitable for major projects. human skills . It spread the risk between or among partners. 5. Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength. marketing skills. 4. and enable the companies to share the risk in the foreign markets. It involves shared ownership. It provides strength in terms of required capital. Various environmental factors like social . Partner delay the decision making once the dispute arises. Disadvantages: 1. The decision making is slowed down in joint ventures due to the involvement of a number of parties.6.Joint Venture Two or more firm join together to create a new business entity that is legally separate and distinct from its parents. 3. This act improves the local image in the host country and also satisfies the governmental joint venture. 5. technology. Advantages: 1. Latest technology required human talent etc. It synergy due to combined efforts of varied parties. 4. Life cycle of a joint venture is hindered by many causes of collapse. expertise . 3. Then the operations become unresponsive and inefficient.
The most common way that control of a subsidiary is achieved is through the ownership ofshar es in the subsidiary by the parent. 9. Only the certain percentage of the profit will be given to the parent body. Tax consideration. Desire to become involved with new technologies & management method particularly in high risk industries. etc. 8. a business entity can only act through its directors. Economies of scale possibly made through more extensive operations. in turn. They give their own rent. license & intellectual property. While individuals have the capacity to act on their own initiative. may have subsidiaries of their own. Reduction of the Co failure through spreading risk over a wider range of activities. in business matters. This Subsidiary or individual body as per their own generates revenue. The reason for this distinction is that a lone company cannot be a subsidiary of any organization. however. corporation. building & other fixed asset that can be profitably sold off. Acquisition of land. The desire to acquire business already trading in certain markets & possessing certain specialist employees & equipments. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. is an entity that is controlled by a bigger and more powerful entity. Obtaining patents. There are. 7. Removal of competitor 2. 3. There are no branches here. A subsidiary may itself have subsidiaries. and these. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. and the controlling entity is called its parent (or the parent company).Wholly Owned Subsidiary Subsidiary means individual body under parent body. 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).1. only an entity representing a legal fiction as a separate entity can be a subsidiary. 8. 4. officers and employees. But policies and trademark will be implemented from the Parent body. Expert use of resources. The controlled entity is called a company. 6. salary to employees. A parent and all its subsidiaries together are . or limited liability company. A subsidiary. 5. The ability to control supplies of raw materials. 10.
Subsidiaries are separate. Examples includeholding companies such as Berkshire Hathaway. organize their businesses into national or functional subsidiaries. and others.called a group. These. distinctlegal entities for the purposes oftaxation andr egulation. Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way. Time Warner. For this reason. which are businesses fully integrated within the main company. or Xerox Corporation. they differ fromdivisions. or Citigroup as well as more focused companies such asI BM. although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership. sometimes with multiple levels of subsidiaries. . and not legally or otherwise distinct from it.
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