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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.
. Institutions provide services to ease the conduct of international business. The best way of conducting business may differ by country. An understanding helps you decide what governmental policies to support. Consumers know about and want foreign goods and services. or other factors. human resources Overlaying alternatives: choice of countries. Competition has become more global. Most companies are either international or compete with international companies. turnkey operations. Operations • Objectives: sales expansion. risk minimization Modes: importing and exporting. especially in transportation and communications. finance. An understanding helps you make better career decisions. innovation. management contracts. resource acquisition. Cross-national cooperation and agreements. marketing. Modes of operation may differ from those used domestically. organization and control mechanisms Political policies and legal practices Cultural factors Economic forces Geographical influences Major advantage in price. Governments are removing international business restrictions. accounting. tourism and transportation. global manufacturing and supply chain management. The operations affect and are affected by the physical and societal factors and the competitive environment. Political relationships have improved among some major economic powers.The conduct of international operations depends on companies' objectives and the means with which they carry them out. licensing and franchising. direct investment and portfolio investments. 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. Functions: marketing. Countries cooperate more on transnational issues. Number and comparative capabilities of competitors Competitive differences by country Technology is expanding.
You and your brand are inseparable. Forge ethical strategic partnerships. Participate in trade-government partnerships. You must be vigilant in protecting your intellectual property both at home and abroad. Participate in the process. Memorialize your company's code of ethics and compliance practices in writing. Make the most of new security measures. Understand corporate accountability laws. Keep your personnel secure. Protect your worldwide reputation by strict adherence to labor and human rights standards. Do your research now. PA. Expect the Unexpected 6. Stay secure in an insecure world 5. The unexpected will happen. Appoint a leader. uses the Six Tenets when giving advice on how to globalize one's business. Travis & Rosenberg. and international trade and customs consultant. 2. the managing partner of Sandler. The Six Tenets are as follows: 1. Secure your data. Keep the home office operational. Protect your brand at all costs 3. Address your particular circumstances. Develop compliance protocols for import and export operations. All global business is personal . Security requires transparency throughout the supply chain. Become involved with the international business self-regulation movement. Maintain high ethical standards ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4.Tom Travis. Read the fine print. Keep communications open. Seize opportunities when they arise. You must be vigilant in enforcing your IP rights. Go to the source. Take advantage of trade agreements: think outside the border ○ ○ ○ ○ ○ ○ ○ ○ Familiarize yourself with preference programs and trade agreements. Strong ethics translate into good business.
Philadelphia: Wharton School Publishing. 26: 54-67.2002.000 Approximately one billion people Base of the Pyramid Per capita GDP/GNI < $2. In this mode. the joint venture allows the two firms to apply their respective comparative advantages in a given project. the company sells abroad a particular resource. trade mark and other proprietary advantages to be used for a fee by a licensee or technology importing firm.K. When a firm lacks capital and detailed knowledge about a foreign market. Hart.○ ○ ○ Fly the flag at your overseas locations. A firm imports its necessary inputs from the cheapest source. In this case. This method is also used when the host government put restrictions on the inflow of foreign capital investment. Relate to offshore associates on a personal level. and so . 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. like management skills. 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. no overseas manufacturing is involved The other mode of international business is licensing.000 Approximately one billion people Second Tier: Per capita GDP/GNI $2. Be available to overseas clients and customers 24/7. The fortune at the bottom of the pyramid. As compared to export.Hart. Joint ventures are the fourth mode.000-$20. The greatest benefit of this mode is that the acquiring company does not have to begin operations from scratch. Top Tier: Per capita GDP/GNI > $20. The third mode is known as management contracting. this mode requires less time or depth of involvement in foreign markets. 111).000 Approximately four billion people Modes of ib The oldest mode of international business is foreign trade. patent. An international company may acquire existing operations in a foreign country in order to penetrate the foreign market. Naturally. Prahalad & S. 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. while its exports its output to different countries in order to earn maximum amount of foreign exchange. Strategy & Business. it allows its technology. 2005. Capitalism at the Crossroads (p. and (2) S.
Cont. Companies may import and export merchandise. The quantum of investment. The revenue gained . tourism and transportation. While exports and imports apply mainly to goods. However. IIND as per 2008 The six major modes of international business are imports and exports. 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. Whatever the motivation behind foreign investment or foreign manufacturing. in this case is quite large.. The importer of goods has normally to pay for the import in convertible currencies which they buy with their own currency. or nonproducts. Imports and exports are the most common mode of international business. Some time money is not the only way to do the business. Finally.does not have to labor hard to grab the market. it sets up an affiliate there. defined as tangible goods brought into or out of (respectively) a country... Large companies are more likely to engage in other modes of international business in conjunction with importing and exporting. 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. turnkey operations. the company in the host country becomes a subsidiary of the international company... This way... and direct and portfolio investment. licensing and franchising. This mode is better than the acquisition inasmuch as the operations can be tailored exactly to the firm's need and what is more.. management contracts. in other words in exchange of useful good or raw materials the exchange is done. Most service imports and exports revolve around tourism and transportation. however. the benefits begin to appear only when the consumer base is firmly established. an international company invests in the majority equity shares of the company of the host country. they can also apply to services. the size of the investment is often lower than in case of acquisition.
Portfolio investments are particularly popular with multinational enterprises as they offer a safe means towards short-term financial gain. the investor takes ownership in a foreign property for a financial return.from international tourism and transportation is best seen in hotels. airlines. especially in the Caribbean and Southeast Asia. allowing other countries around the world to use their assets (ie: trademarks. management services. many companies engage in franchising. Management contracts are initiated when one company supplies personnel to perform general or specialized management functions for another company. When a government joins a company in an FDI. a mode of business where the franchisor allows the franchisee to use a trademark that is an essential part of the franchisee's business. or notes that the investor purchases. performed under contract. bills. By investing in a foreign company. and China. who earn a considerable amount from foreign shipping. international business occurs within direct and portfolio investments. or expertise) under contract. travel agencies. The same holds true in countries such as Norway and Greece. patents. and shipping companies. Finally. Gloria Vanderbilt has franchised her name out to several clothing companies. Similarly. it becomes a mixed venture. A turnkey operation involves construction of facilities. Many companies enter into international licensing agreements. copyrights. their income on foreign tourism is more important than their income from exports. Companies also pay fees that may be incurred on an international level for engineering services handled through turnkey operations and management contracts. it is known as a joint venture. This is most evident in Disney's theme parks in France. by providing components. For many countries. . and technology. Conversely. which is then transferred to the owner when the company is ready to begin operating. The franchisor also assists on a continuing basis in the operation of the business-for example. Japan. forming the Gloria Vanderbilt line. A foreign direct investment (the more common of the two) gives the investor a controlling interest in the foreign company. receiving royalty payments in return. For example. When two or more companies share in an FDI. 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.
as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. Export Management Houses (EMHs) that act as a bolt on export department for your company. It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. over an above indirect exporting.over and above which pigeon-hole it fits into. some see franchising as a stand alone mode. More Exporting There are direct and indirect approaches to exporting to other nations. For example.which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). On the other hand. The Internet The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. Essentially the organization makes a commitment to market overseas on its own behalf. Direct exporting is straightforward. . always clarify your tutor's preferred view. Here you will be consider modes of entry into international markets such as the Internet. For others the Internet has provided the opportunity for a new online company. Exporting. whilst others see franchising as part of licensing. International Agents.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. an exporting company from your country . The eMarketing space consists of new Internet companies that have emerged as the Internet has developed. if you were to employ a home country agency (i. This lesson considers a number of key alternatives. In reality. Strategic Alliances. International Distributors. but recognizes that alteratives are many and diverse. If in doubt. This gives it greater control over its brand and operations overseas. the most important point is that you consider all useful modes of entry into international markets . Joint Ventures. Licensing. Examples of indirect exporting include: • • Piggybacking whereby your new product uses the existing distribution and logistics of another business. Finally we consider the Stages of Internationalization. Overseas Manufacture and International Sales Subsidiaries. They offer a whole range of bespoke or a la carte services to exporting organizations.e.
for example. They rarely take ownership of products. the British. Turkey. Trading companies were started when some nations decided that they wished to have overseas colonies. Research and Development (R&D) arrangements. • Licensing Licensing includes franchising.• Consortia are groups of small or medium-sized organizations that group together to market related. Franchising involves the organization (franchiser) providing branding.so beware conflicts of interest. agents are individuals or organizations that are contracted to your business. to the franchisee. Otherwise pros and cons are similar to those of international agents. • • Licensing is where your own organization charges a fee and/or royalty for the use of its technology. Marketing agreements. Put simply. Distributors are similar to agents. Strategic Alliances (SA) Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally. make sure that your contract allows you to regain direct control of product. Agents might also represent your competitors . and more commonly take a commission on goods sold. French. but low-control option. iPhone was initially marketed by O2 in the United Kingdom. Turnkey contracts are major strategies to build large plants. or sometimes unrelated products in international markets. retain and train. Management tends to be controlled by the franchiser. Therefore they have an incentive to market products and to make a profit from them. .g. They often include a the training and development of key employees where skills are sparse . You would not own the plant once it is handed over. If you intend to globalize. Agents usually represent more than one organization. • International Agents and International Distributors Agents are often an early step into international marketing. brand and/or expertise. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage. Turnkey contracts and contract manufacturing. Toyota's car plant in Adapazari. Coffee Republic and McDonald's Restaurants. with the main difference that distributors take ownership of the goods.g. and infact most facets that are needed to operate in an overseas market. and market on your behalf in a particular country. concepts. expertise. Distribution alliances e. Sometimes the relationships are between competitors.g. Spanish and Portuguese colonies. There are many examples including: • • • • Shared manufacturing e. Toyota Ayago is also marketed as a Citroen and a Peugeot. Agents are a low-cost. They tend to be expensive to recruit. Examples include Dominos Pizza. They date back to an imperialist past that some nations might prefer to forget e. Of course you need to set targets since you never know the level of commitment of your agent.
For example. The downside is that you take on the risk associated with the local domestic market. or the company might acquire a current business that has suitable plant etc. Internationalization Stages So having considered the key modes of entry into international markets. and foreign assembly Foreign manufacture . Of course you could assemble products in the new plant. Strategic Alliances are non-equity based agreements i. Honda's relationship with Rover in the 1980's. Access to distribution channels. This can be a new-build. a new company is set up with parties owning a proportion of the new business. For example.e. the organization invests in plant. we conclude by considering the Stages of Internationalization. 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. The key benefit is that your business becomes localized you manufacture for customers in the market in which you are trading. machinery and labor in the overseas market. core competences or management skills. it acts more like a distributor that is owned by your own company. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market: • • • Access to technology. reducing the element of risk.e. Joint Ventures (JV) Joint Ventures tend to be equity-based i. Others will start at a later or even final stage. 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. manufacturing and R&D are most common forms of Joint Venture. any business wishing to enter China needs to source local Chinese partners. This is also known as Foreign Direct Investment (FDI).Essentially. To gain entry to a foreign market. An International Sales Subsidiary would be similar. You also will gain local market knowledge and be able to adapt products and services to the needs of local consumers. and have the same key benefit of course. and simply export components from the home market (or another country).e. Some companies will never trade overseas and so do not go through a single stage. companies remain independent and separate.
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Disadvantage: 1. Timing of entry:It is important to consider the timing of entry. And late when it enters after other international businesses.so that they can drive them out of market. -Look in detail at economic and political factors which influence foreign markets. Ability to build sales volume in that country. 2.Nature of competition By considering such factors firm can rank countries in terms of their attractiveness and long-run profit. -Long run benefits of doing business in a country depends on following factors: .The present wealth of consumer markets (purchasing power) . Which foreign markets? -The choice based on nation’s long run profit potential. time and expense to learning the rules of the country. it’s the ability to prevent rivals and capture demand by establishing a strong brand name.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.firm has to devote effort. when to enter those markets.1. Entry is early when an international business enters a foreign market before other foreign firms.Size of market (in terms of demographics) . 2. The advantage is when firms enters early in the foreign market commonly known as firstmover advantages First mover advantage.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) . 3. and on what scale. Ability to create customer relationship.
Exporting involves less risk as the company understand the culture . c. customer and the market of the host country gradually. Later after understanding the host country the company can enter on a full scale. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export fuctions and for procuring foreign sales. Less Risks. Mergers & Acquisitions: 6. 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. The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership . Proactive motivations are opportunities available in the host country.brand name etc to a manufacturer in a foreign country for a fee. Wholly Owned Subsidiary 1. copy rights . The cost of entering market through this mode is less costly.investment etc. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign is called licensee. Exporting 2.Exporting: It means the sale abroad of an item produced .the domestic manufacturer leases the right to use its intellectual property (ie) technology . b. . It is a convenient method to increase the sales. Advantages. Franchising 4.stored or processed in the supplying firm’s home country. Acquisitions & Mergers 8. 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. Turnkey Project 5.Licensing : In this mode of entry . Joint Venture 7. Motivation for exporting: Motivation for exporting are proactive and reactive. Passive exporting occurs when a firm receives canvassed them.managerial . 2. Advantages Of Exporting: a. Need for limited finance.Modes of entry:-1. Licensing 3.
3. The franchisor provides the following services to the franchisee. Licensor can investigate the foreign market without much efforts on his part. Product reoutation 4. 2. It reduces market opportunities for both 2. Chance for misunderstanding between the parties. customs and environment of the host country. Low financial risk to the licensor 3. Licensee gets the benefits with less investment on research and development 5. . Therefore one party can affect the other through their improper acts.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. 5. 4. Chance for leakages of the trade secrets of the licensor. Franchisee escapes from the risk of product failure. 3. Operating System 3. Trade marks 2. reservation services quality assurances program etc. Franchisee get the benefits of R& D with low cost. Low investment and low risk 2. employee training . 5. It is difficult to control the international franchisee. 4. 1. Licensee escapes himself from the risk of product failure. Licensee may develop his reputation 6. Licensee may sell the product outside the agreed territory and after the expiry of the contract. Advantages: 1. 2. Disadvantages: 1.1. Continuous support system like advertising . Disadvantages: 1. It may be more complicating than domestic franchising. Both parties have to maintain the product quality and promote the product . Franchisor learns more from the experience of the franchisees. Franchisor can get the information regarding the market culture. 3. 4. Low investment on the part of licensor.
There is a problem of leakage of trade secrets.brand name and distribution networks. This strategy adds no capacity to the industry. 2. Alternatively the domestic company may purchase the foreign company and acquires it ownership and control. Labour problem of the host country’s companies are also transferred to the acquired company. national highways . 4. Both the parties have the responsibilities to maintain product quality and product promotion. This strategy helps the host country. The company can formulate international strategy and generate more revenues. It reduce the market opportunities for both 4. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies. Acquiring a firm in a foreign country is a complex task involving bankers. Disadvantages: 1. 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 . It provides immediate access to international manufacturing facilities and marketing network. This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. 3. Hence they are multiyear project.Mergers & Acquistions: A domestic company selects a foreign company and merger itself with foreign company in order to enter international business. airports. payment on cost plus basis. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country. 4. Advantages: 1.Turnkey Project: A turnkey project is a contract under which a firm agrees to fully design . 2.oil refinery . employee. railway line etc. 5. 5. technology . Eg nuclear power plants . The company immediately gets the ownership and control over the acquired firm’s factories.3. lawyers regulation. . mergers and acquisition specialists from the two countries. 3.
Joint venture provide large capital funds suitable for major projects. Various environmental factors like social . Latest technology required human talent etc. Motives for acquisitions: . It provides strength in terms of required capital. Then the operations become unresponsive and inefficient.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. 4. 5. 3. technology. 2. 4. 7. This act improves the local image in the host country and also satisfies the governmental joint venture. 3. The decision making is slowed down in joint ventures due to the involvement of a number of parties.Joint Venture Two or more firm join together to create a new business entity that is legally separate and distinct from its parents. It make large projects and turn key projects feasible and possible. It synergy due to combined efforts of varied parties. technological economic and political encourage the formation of joint ventures. expertise . It involves shared ownership. It spread the risk between or among partners. Life cycle of a joint venture is hindered by many causes of collapse. 5. Conflict may arise 2. Advantages: 1. and enable the companies to share the risk in the foreign markets. human skills . Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength. marketing skills.6. It provide skills like technical skills. Partner delay the decision making once the dispute arises. Disadvantages: 1.
The ability to control supplies of raw materials. They give their own rent. may have subsidiaries of their own. 8. The desire to acquire business already trading in certain markets & possessing certain specialist employees & equipments. officers and employees.1. license & intellectual property.Wholly Owned Subsidiary Subsidiary means individual body under parent body. There are. and the controlling entity is called its parent (or the parent company). 6. Desire to become involved with new technologies & management method particularly in high risk industries. 9. 8. a business entity can only act through its directors. 4. 7. or limited liability company. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. Removal of competitor 2. 10. 3. and these. Acquisition of land. Only the certain percentage of the profit will be given to the parent body. This Subsidiary or individual body as per their own generates revenue. 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). in business matters. A parent and all its subsidiaries together are . The reason for this distinction is that a lone company cannot be a subsidiary of any organization. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. only an entity representing a legal fiction as a separate entity can be a subsidiary. A subsidiary. The most common way that control of a subsidiary is achieved is through the ownership ofshar es in the subsidiary by the parent. 5. Obtaining patents. Reduction of the Co failure through spreading risk over a wider range of activities. The controlled entity is called a company. There are no branches here. in turn. Tax consideration. etc. is an entity that is controlled by a bigger and more powerful entity. While individuals have the capacity to act on their own initiative. building & other fixed asset that can be profitably sold off. But policies and trademark will be implemented from the Parent body. Economies of scale possibly made through more extensive operations. Expert use of resources. salary to employees. corporation. A subsidiary may itself have subsidiaries. however.
distinctlegal entities for the purposes oftaxation andr egulation. Time Warner.called a group. or Xerox Corporation. and not legally or otherwise distinct from it. Subsidiaries are separate. they differ fromdivisions. which are businesses fully integrated within the main company. Examples includeholding companies such as Berkshire Hathaway. For this reason. or Citigroup as well as more focused companies such asI BM. . Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way. sometimes with multiple levels of subsidiaries. and others. although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership. organize their businesses into national or functional subsidiaries. These.