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objectives of the organisations on global business opportunities and threats. International business defined as global trade of goods/services or investment. More comprehensive view does not focus on the “firm” but on the exchange process Free Trade occurs when a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country. The Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country. The Pattern of International Trade displays patterns that are are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods). Others are not so easy to understand (Japan and cars). Nature of International Business 1. 2. 3. 4. 5. Accurate Information Information not only accurate but should be timely The size of the international business should be large Market segmentation based on geographic segmentation International markets have more potential than domestic markets
Scope of International Business 1. 2. 3. 4. International Marketing International Finance and Investments Global HR Foreign Exchange
Need for International Business 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. To achieve higher rate of profits Expanding the production capacity beyond the demand of the domestic country Severe competition in the home country Limited home market Political conditions Availability of technology and managerial competence Cost of manpower, transportation Nearness to raw material Liberalisation, Privatisation and Globalisation (LPG) To increase market share Increase in cross border business is due to falling trade barriers (WTO), decreasing costs in telecommunications and transportation; and freer capital markets Reasons for Recent International Business Growth 1. Expansion of technology 2. Business is becoming more global because •Transportation is quicker •Communications enable control from afar •Transportation and communications costs are more conducive for international operations 3. Liberalization of cross-border movements 4. Lower Governmental barriers to the movement of goods, services, and resources enable Companies to take better advantage of international opportunities International Business operations and influences
Problems in International Business 1. Political factors 2. High foreign investments and high cost 3. Exchange instability 4. Entry requirements 5. Tariffs, quota etc. 6. Corruption and bureaucracy 7. Technological policy Theories of International Business Mercantilism: mid-16th century A nation’s wealth depends on accumulated treasure Gold and silver are the currency of trade. Theory says you should have a trade surplus. Maximize exports through subsidies. Minimize imports through tariffs and quotas. Flaw: “Zero sum game”. David Hume - 1752 Increased exports leads to inflation and higher prices. Increased imports lead to lower prices. Result: Country A sells less because of high prices and Country B sells more because of lower prices. In the long run, no one can keep a trade surplus.
Theory of Absolute Advantage Adam Smith: Wealth of Nations (1776). Capability of one country to produce more of a product with the same amount of input than another country. Produce only goods where you are most efficient, trade for those where you are not efficient. Trade between countries is, therefore, beneficial. Assumes there is an absolute advantage balance among nations. Ghana/cocoa. Comparative Cost Theory David Ricardo developed this theory in the year 1817. The theory says that the 1817. countries which are having cost advantage will export goods to the countries with cost disadvantage Assumptions of Comparative cost theory: 1. The only element of cost of production is labour 2. Production is subject to the law of constant returns 3. There are no trade barriers 4. Trade is free from cost of transportation Opportunity Cost Theory Developed by Gottfried Haberler in 1959 The opportunity cost is the value of alternatives, which have to be foregone in order to obtain a particular thing. Modern Theory of Factor Endowments Developed by Berlin Ohlin and Heli Heckscher This theory explains the reasons for comparative cost differences. There are different prevailing endowments of the factors of production. Different factors of production are to be used in different degrees of intensity for producing different products.
Assumptions of Factor Endowments theory 1. Perfect competition is in existence for both product and factors in both countries 2. Factors of production are perfectly mobile within each country only 3. Factors supplies are fixed in each country 4. Factors of production are of equal quality in both the countries 5. Factors endowments vary from country to another country 6. Factors of production have full employment in both the countries 7. Business between two countries is free from all barriers 8. There is no cost of transportation 9. Production in both the countries is subject to law of returns 10. Factor intensity varies between goods The Leontief Paradox, 1953 Disputes Heckscher-Olin in some instances. Factor endowments can be impacted by government policy - minimum wage. US tends to export labour-intensive products, but is regarded as a capital intensive country Product Life-Cycle Theory (Raymond Vernon, 1966) As products mature, both location of sales and optimal production changes. Affects the direction and flow of imports and exports. Globalization and integration of the economy makes this theory less valid. The New Trade Theory Began to be recognized in the 1970s. Deals with the returns on specialization where substantial economies of scale are present. Specialization increases output, ability to enhance economies of scale increase. Porter’s Diamond (Harvard Business School, 1990)
Implications for Business Location implications: makes sense to disperse production activities to countries where they can be performed most efficiently. advantage. Ways of Globalisation Globalisation may take place in four ways. Thought existing theories didn’t go far enough. many firms promote open markets. HR etc. They are 1. Policy implications: promoting free trade is generally in the best interests of the home country. Even though. Domestic company directly exports 3. Domestic company exports to foreign countries through the dealers and distributors. or early-mover. Being full-fledged company like R& D. Looked at 100 industries in 10 nations. (Indirect exporting) 2. Globalisation and Multi National Business Globalisation Process 1. Globalisation of Markets Globalisation of markets refers to the process of integrating and merging of the distinct world markets into one single market. 5. Features of Globalisation of Markets . Domestic company becomes a multi national company by establishing production and marketing. The Competitive Advantage of Nations. First-mover implications: It pays to invest substantial financial resources in building a first-mover. Becomes the true foreign company by satisfying the needs. 4. although not always in the best interests of the firm.
Availability of quality raw material 3. FDI occurs when a firm directly in new facilities to produce or market in a foreign country. It also known as ‘Foreign Direct Investment (FDI)’. E. 2. Globalisation of Investments Globalisation of investments refers to investment of capital in any part of the world. Rapid increase in volume of trade . Most of the foreign markets are for non – consumer products. Thus opted for global markets. The companies found domestic market is very small. Globalisation of Production The facilities for production may be cheap in the host country than home country. The Size of the company needs not to be large to create a global market. Reasons for Globalisation of Investment 1.g. Pepsi and Coke Reasons for Globalisation of markets 1. Facility of exporting the neighbouring countries 3. 34 countries have 85 changes in 1991 regarding investment. Government of India is allowing 51% of FDI in India. To increase profits 4. 11. Facility of transportation and cost 6. (E. The failure of domestic companies 2. Large-scale industrialisation enabled mass production. Adverse business environment in the home country 5. The global business firms compete with each other frequently in different national markets including home market.8. Import restrictions 2. China is the international workshop due to cheap labour) Reasons for Globalisation of Production 1. Cheap labour 4. Liberal labour laws 5. The distinctions of national markets are still prevailing even after the globalisation 10. To diversify risk 3.g. 9.
Acquisition 2. Technological collaboration 2. Joint venture 3. In order to have control over MNC in marketing and manufacturing they invest 7. Long term loans 4. Joint ventures and mergers Stages of Internationalisation 1. Small and medium size companies have started investing in various countries 5. In order to avoid restrictions on exports Modes of Globalisation of Investment 1. International company The company will open a branch in foreign country. It will follow the strategies of domestic company. Limitations of exporting and licensing for the domestic companies to invest in foreign countries 6. Global company . Many countries provided more congenial environment for investment 3. 3. Globalisation of technology can be done in the following ways: 1. Globalisation of Technology Companies with the latest technology produce goods with high quality at low cost. Multinational company Multi domestic companies responding to the specific needs of different countries 4. Domestic company The company whose market and manufacturing activities are limited to the national boundary 2. Licensing and royalty 3. GDRs 4. Significant amount of FDI is directed to the developing countries in Asia and Easter Europe 4.2. Issuing equity shares and debentures 5.
These companies will do production in home country and marketing in more countries or production in several countries and marketing in one country. 5. Transnational company These companies will do production in several countries and marketing in more countries. Cost drivers. Competitive drivers and other drivers . Government drivers. What is driving globalisation? Market drivers.
Pro s .Market drivers Per capita income converging Cost drivers among Continuing push for economies of scale Accelerating technological innovation Advances in transportation industrialised nations Convergence of lifestyles and tastes Organisations beginning to behave as global Emergence of newly industrialised countries customers with productive capability and low labour Increasing travel creating global consumers Growth of global and regional channels Establishment of world brands Push to develop global advertising Government drivers Reduction of tariff barriers Reduction of non-tariff barriers Creation of blocs Decline in role of governments as producers and customers Privatisation in previously state-dominated economies Shift to open market economies from closed communist systems in eastern Europe Increasing participation of China and India in the global economy Other drivers Revolution in information and communication Competitive drivers Continuing increases in the level of world trade Increased ownership of corporations by foreign acquirors Rise of new competitors intent upon costs. Increasing cost of product development relative to market life becoming global competitors Growth of global networks making countries interdependent in particular industries More companies becoming globally centred rather than nationally centred Increased formation of global strategic alliances Globalisation of financial markets Improvements in business travel Globalization .
advanced countries. Creates jobs. Loss of sovereignty. Differences between International and Domestic Businesses Countries are different. The need to convert into different currencies. Increase in consumer income. . Economic growth stimulation. The intervention of governments that may limit international trade and investment. The ranges of problems are wider and more complex. Globalization – Cons Destroys manufacturing jobs in wealthy. Wage rates of unskilled workers in advanced countries declines. Lower prices for goods and services. Companies move to countries with fewer labor and environment regulations. Countries specialize in production of goods and services that are produced most efficiently.
human relations. Organisational structure 2. Suppliers of Raw material 6. R&D External Micro Environment 1. marriage. Bankers and financial institutions 4. Family . HRM & HRD 6. The features of culture are 1. social responsibilities etc. Finance 4. Culture is learned not inherited genetically Social environment 1. family. ethics. Creditors 3. Share holders 2. Market intermediaries 7. Socio cultural environment This part deals with attitude of the people to work. Culture facilitates communication 4. Marketing 5. wealth. religion. Customers External Macro Environment 1. It is socially shared 3. Culture is based on perspective 2. Religion 2.Unit II International Business Environment Internal Environment 1. Production 3. Culture is derived mostly from the climatic conditions of the geographical regime and economic conditions of the country. education. Competitors 5.
Fax. If the technology is not compatible then select the appropriate technology for the host country 5. Study the mode of technology transfer 7. Trading (e. Establishing the subsidiaries in the developing countries 2. Study the technology with culture. India Technology transfer 1. Learning (e – learning) 6. The level of technology of the industry in the host country 3. Japan 3. Hong Kong 6. Technological environment Influence of Technology 1.commerce) 5. Technological transfer for royalty Procedure for scanning technological environment 1. Mergers 5. Singapore 2. Compatibility of the home country technology in the host country 4. Establishing joint ventures 3. 6. Acquisition 4. getting information (e – governance) Ranking of Asian countries based on technology 1. Communication (Telephone. The level of technology of the industry in the home country 2. South Korea 4.2. taste. Mobiles etc) 4. The way we drink water (Filtered mineral water) 3. Government regulations etc. Malaysia & Taiwan 5. Indonesia 7. Email. Paying tax. Study the impact on technology environment . The way we cook (Electric rice cooker) 2.
Low literacy rates 5. Socialism 3. Domestic markets are dominated by the products like Clothing. Technological backwardness 9. Pose threat to rest of the world in labour intensive products due to cheap labour 3. 2. Low income countries (Per capita Income Less than US $ 400) Features 1. Excessive unemployment 8. Under utilisation of natural resources 10. batteries. Excessive dependency of population on agriculture 3. Mixed Economy Based on the economic conditions the countries are classified as 1. High birth rates 4. Political instability and unrest 7. Upper middle income countries (Per capita Income US $ 2000 – 12000) . Expansion of consumer products market 3. Economic system 1. Economic environment International business is mostly and directly influenced by the economic environment of various countries. Location of production of standardised nature products like clothing for exports 6. Heavy reliance on foreign aid 6. Limited industrialisation. Early stages of industrialisation 2. tires 5. Availability of cheap labour and motivated human resources 4.3. Excessive dependency on imports 2. Lower middle income countries (Per capita Income US $ 400 -2000) Features 1. Capitalism 2.
The countries face the problems like pollution. Absolutist Government .Egypt 4. Two Party system – USA & UK 2. Less dependency on agriculture 2. High exports and rapid economic development 4. Increase in literacy and wage rates 5. Emphasis on future plans 7. Oil rich countries are excluded from this category 2.India 3.Features 1. Parliamentary system . Development of information and service sectors 4.Ruling the Government like a dictator Government may also be classified as 1.People are allowed to take part in the decision making process 2.India Political risk . excessive urbanisation. Occupational mobility of the people from agriculture to industry 3. Development of technology 5. People migrate from rural to urban areas which results in increased urbanisation 4. One party dominated System . Domination of professionals and scientists 6. Single party System . High income countries (Per capita Income More than US $ 12000) Features 1. Political environment Types of Political system 1. Countries developed through industrial growth 3. increase in aged population etc. Multiparty System . Formidable competition 6. 4.
Policies of the host Government How to minimise political risk? 1. Domestication: No foreign ownership and only local players 5. Confiscation: Process of nationalisation of the property with out compensation e. Democracy Representative Democracy Freedoms: •Expression.g.g. Operational Risk: Imposition of control over foreign business. Mahendra Choudry Vs George Speight in Fiji Island 6. 2. Being civic minded (Social responsibility) 5. Sharing ownership 4. India 1969 3. Enron deal in 1992 Indicators of Political Instability 1.1. Social unrest 2. Political neutrality 6. organization •Media •Regular elections with universal suffrage •Limited terms for elected representatives •Fair and independent court system . Behind the scenes lobby. political and religious unrest e. Employment of local nationals 3.g. General Instability Risk: Due to social. E.g. Attitudes of nations 3. Burma and Poland 4.g. Stimulation of the local economy 2. opinion. China 1949. Expropriation: Process of nationalisation with compensation e. Nationalisation: 100 % role by the Government and no role for private e.
police force and armed service •Relatively free access to state information Trade Policy and Politics Protecting jobs and industries: Emerging industries. Import Quotas and Voluntary Export Restraints of Trade Policy .•Non political bureaucracy. Retaliation. Cash grants Low-interest loans Tax breaks Government equity participation in the company •Airbus Subsidy revenues generated from taxes. National security.oldest form of trade policy -Specific -ad valorem Good for Government Good for producers But reduces efficiency Bad for consumers Subsidies It is a payment to a domestic producer. Increasing exports. International product domination: New trade theory and subsidies. Instruments Tariffs Tariffs .
Administrative Policies Bureaucratic rules designed to make it difficult for imports to enter a country. o Federal Express . Local Content Requirements Requires some specific fraction of a good to be produced domestically. o Remedy: seek imposition of tariffs. typically at the request of the importing country. Developed countries (US) beginning to implement. Voluntary Export Restraint (VER): Quota on trade imposed by exporting country. not consumers. Benefits producers. o Percent of the value of the good. Result of: o Unloading excess production. Japanese ‘masters’ in imposing rules. Initially used by developing countries to help shift from assembly to production of goods. o Selling goods in a foreign market below fair market value. o Tulip bulbs. Antidumping Policies Defined variously as: o Selling goods in a foreign market below production costs. o Predatory behavior. LCR acts the same as an import quota. For component part manufacturer.Import Quota: Restriction on the quantity of some good imported into a country. o Percent of component parts.
Helms-Burton Act. Government intervention may help domestic firms overcome first-mover advantage of foreign firms.wilted when protection eliminated. global capital markets would invest.10th largest . 4. . Protecting jobs and industries VERs. Protecting human rights. Only good if it makes the industry efficient. 6. 5. Strategic trade policy Government helps raise national income if first-mover advantage successful. 3. -MFN. If a good investment.Political Arguments for Intervention 1. Protecting consumers. Defense industries . Economic Arguments for Intervention Infant industry Oldest argument . Retaliation.semiconductors. Protected under the WTO. 1792. Requires government financial assistance. 2. National security.Alexander Hamilton. Brazil auto-makers . Furthering foreign policy objectives.
o Failed charter for the International Trade Organization. • GATT o 23 original members o Now 149 members including the Saudi Arabia • Multilateral agreement: objective is to liberalize trade by eliminating tariffs.Development of the World Trading System • • • Intellectual arguments for free trade: o Adam Smith and David Ricardo. Britain continued free trade policy. o 1948: Havana Conference. etc. import quotas. GATT proposed by US in 1947 as step toward ITO. Free trade as government policy: o Britain’s (1846) repeal of the Corn Laws. subsidies. . o Fear of trade war World War I to World War II (1918 – 1939) • Great Depression -US stock market collapse -Smoot-Hawley (1930) •US had positive trade balance with world •Foreign response was to impose own barriers •US exports tumbled General Agreement on Tariffs and Trade (GATT) • • WWII allies want international organization in trade arena similar to UN in political arena.
. Generalized System of Preferences MFN status Products of LDCs are given duty free access to IDCs.• • • • Used ‘rounds’ to gradually reduce trade barriers.
To raise the standard of living of the people 2. the Director General of GATT submitted a proposal on 20th December 1991 popularly known as Dunkel Proposal which envisages many areas like trade related investment measures (TRIMs). Uruguay Round and Dunkel Proposal Uruguay round of multi national trade negotiations was initiated in September 1993. The WTO is an organisation GATT is a legal agreement. To ensure full employment and steady income 3. The WTO was designed to play the role of ‘Watch Dog’. To administer and implement multilateral trade agreements 2. An arrangement regarding multilateral trading system was finally signed in Marrakesh. Arthur Dunkel. Establishment of WTO In order to implement the final of Uruguay round agreement of GATT the WTO was established on 1st January 1995. To cooperate with other international organisations involved in the global economic policy making . To act as a forum for multilateral trade negotiations 3. Objectives of WTO 1. Trade related intellectual property rights (TRIPs). To ensure better growth of developing and least developed countries] Functions of WTO 1. India is one of the founder members of WTO (Out of 104). To resolve trade disputes 4. Mr. To expand production and international trade Several rounds of negotiations were held since the inception of the GATT.Objectives of GATT 1. To introduce sustainable development 3. To develop the use of resources of the world 4. Morocco on 15th April 1994. The significant round is the Uruguay round of 1986. To raise the standard of living of the people in the world 2. To examine national trade policies 5.
MFN treatment (Most Favoured Nation) 3.) 6. National treatment .NO GATT 1 A set of rules and multilateral agreement 2 Was designed with an attempt to establish international trade organisation 3 It was applied on provisional basis 4 Its rules are applicable to trade in merchandise goods 5 6 WTO A permanent institution It is established to serve its own purpose Its activities are full and permanent Its rules are applicable to trade in merchandise and trade in related aspects of intellectual property GATT was originally a multilateral Its agreements are almost multilateral instrument Its dispute settlement system was Its dispute settlement system is fast and not faster and automatic automatic . To administer trade policy review mechanism Principles of WTO 1. Competition 9. To provide technical assistance and training for developing countries. Free trade principle 5. To maintain trade related database.imported products should be treated on par with the domestic products 4. 8. Dismantling trade barriers (MFAs etc. Treatment for LDCs (Least Developed Countries) 8. 10.6. Rule based trading system 7. To act as a management consultant for world trade 9. Transparency 2. Environment protection GATT Vs WTO S. To act a watchdog of international trade. 7.
9 of 10 disputes satisfactorily settled. in the year 2001. India’s textile and clothing exports will increase due to the removal of Multi Fiber Arrangements (MFA) by 2005. Represents 90% of world trade. 3. The . Impact of GATT & WTO to India Benefits to India 1. 2. Greater security in international trade 4. The GATT secretariat estimated that largest increase in the level in goods in will be in the areas of clothing (60%). The trade in services has particularly increased in developing countries. The reduction of agricultural subsidies will increase agricultural exports. Tariff reduction from 40% to 5%. foresting and fishery (20%) and processed foods and beverages (19%). GATS (General Agreements on Trade in Services) It is a known fact that trade in services is the rapidly growing field in the global scenario. Service sector like insurance. Therefore inclusion of trade in services is detrimental to interest of India. banking.Impact of GATT & WTO • • • • • Currently there are 149 members. 6. telecommunications. services constituted about 60% of the world’s output (in GDP). 2. According to WTO. Application of TRIM will affect the growth of local products. Only process patents can be granted under this. TRIPs provides also product patents. Disadvantages to India 1. India has competitive advantage in these fields. agriculture. transports are backward in India compared to the developed countries. Market access to a number of advanced countries 5. Patents has been extended to large area of micro organizations 5. 4. The duration of patents is 20 years under TRIPs. It will hike prices in Pharmaceuticals sector. Plant breeding and seed production will be affected severely 3. TRIPs (Trade Related Intellectual Property Rights) is against Indian Patent Act 1970. Trade volume of manufactured goods has increased 20 times.
total trade in services occupied more than 50% in the exports of the developing countries.g. Internet banking etc. 3. People can have access to world-class services. Tourism) 3. All member countries are considered as MFNs (Most Favoured Nations) i. 4. Actress or construction worker) Benefits of Services Liberalisation: 1. insurance and transport supply strategically important inputs for all sectors. banking. Banking) 4. The rapid growth and change has prompted the members of the WTO to bring in changes in rules and regulations on trade in services and GATS was introduced on 1st January 1995. which it wished to guarantee access to foreign suppliers. 2. Services such as telecommunications. Consumers from one country making use of another country (e. The GATS defines that trade in services can be made in four ways. International telephone calls) 2. A company from one country setting up subsidiaries or branch to provide services in another country (e.g. Services supplied from one country to another (e. Now WTO has 148 member countries. telecommunications. ATM. . 5.g. This makes possible for the people to make their investments in service sector.g. Greater transparency and predictability benefit is there for customers. This is one of the important agreements of WTO which contains two main parts: the frame work of agreement containing rules and regulations and the schedule of Nations who gave the commitment on access to their domestic markets by foreign suppliers. Trade liberalisation in services leads to low cost. Each WTO member lists in its national schedule those services. Individual travelling from their own country to supply services in other country (e.e. An efficient services infrastructure provides a base for economic success.g. Faster innovation takes place with liberalised services e. Coverage of GATS: The GATS covers all internationally traded services with two exceptions: services provided by the Government and services in Air transport sector.g. they are: 1. all commitments apply on non – discriminatory basis to all member countries. Phone banking. The best e.
Service sector in India: In the line with the global trend. Trade Related Investment Measures (TRIMs) It refers to certain condition or restrictions imposed by a Government in respect of foreign investment in the country. the services sector in India is growing rapidly and the contribution of services in India’s GDP increased to 54. Granting of permission of without restrictions to import raw material and other components 6. The importance in service sectors in India are telecommunications. No restrictions on any area of investment 4. Offering equal rights to the foreign investor on par with the domestic investor 3.6. India has permitted 100% FDI in IT and ITES and more than 51% in telecommunications.2% in 2000-01 from 51. No force on the foreign investors to use the total products and or materials 7. BPO and Banking and financial services.3% in the total world trade in services. It include . The total trade in services from India is accounting to 1. Abolition of restriction imposed on foreign capital 2.5% in 1998-99. Restriction on repatriation of dividend interest and royalty will be removed 9. The TRIM text provides that the foreign capital would not be discriminated by the member Governments. IPR have been characterised as a composite of “ideas and creative expression”. More FDIs are attracted in the countries. Plus “ the public willingness to bestow the status of property. Export of the part of the final product will not be mandatory 8. ITES. which will bring the new skills and technologies into the country. Phased manufacturing programming will be introduced to increase the domestic content of manufacturer Trade Related Intellectual Property Rights (TRIPs) Intellectual property rights may be defined as “Information with commercial value”. India exhibits a strong revealed comparative advantage in services related goods. No limitation or ceiling on the quantum of foreign investment 5. The domestic employees can learn the new skills from the MNCs. Features of TRIMs 1. IT.
North America and Asia. Trademarks f. The share of intra – regional trade in the total world trade increased in the 1980 in Western Europe. intra – regional trade in goods accounted for 61 % of the total trade in goods of the European community The countries which had something in common with respect to trade started joining together and formed the economic unions for their mutual benefit. Protection of patent b. In 1990. Trade secrets g. Forms of Economic Integration Economic integration is a general term which covers several kinds of agreements by which two or more countries agree to draw their economies closer either in part or total. Layout design (topographies of integral circuits) Regional Trade Blocks & Intra – Regional Trade The growth of intra – regional trade is an important trend in international trade. Forms: 1. Industrial design d. Copyright c.a. The free trade area abolishes all restrictions on trade among the members but each member is left free to determine its own commercial policy with non-members 2. Such economic unions are called Trade Blocks which will get additional advantageous terms especially for the import of raw material from the developing countries. Customs Union . They discriminate against the other countries which are not parties to the agreement through tariffs. they also discriminate against the goods produced by other countries. Intraregional trade has been fostered by the economic integration schemes of trading blocks. Geographical indication e. Free trade area A free trade area is a grouping of countries to bring about free trade between them. They maintain the cohesiveness among or between the countries through tariffs.
It help in sourcing of market from one country to another country 3. Economic integration enables the group of countries to pool required financial resources for the large – scale operations 7. Economic Union A still more advanced level of integration is the economic union. namely. European Economic Community (EEC) It is a powerful block comprising the developed countries of Western Europe It is also known as ECM (European Common Market) It was established by a treaty of Rome in 1957 It came into operation in 1959 . It not only eliminates all restriction on trade among members but also adopts a uniform commercial policy against non .The customs union is a more advanced level of economic integration than the free trade area. A common market allows free movement of a labour and capital within the common market. It enables to reduce monopoly in the production of certain goods and services and increase competition. The main trade blocks are 1. Common Market The common market is a step ahead of the customs union. Consumer get the advantage of having the product at less prices 5. It eliminates or reduces the tariffs and a barrier reduces the import duties and thereby reduces the prices of the products or services 4. free trade among members and a uniform tariff policy towards outsiders.members 3. It includes more trade among member countries 2. besides having the two characteristics of the customs union. Advantages of Integration 1. 4. the economic union achieves some degree of harmonization of economic policies such as monetary policy. fiscal policy etc. Rapid technological innovation and development and consequent large size operations demand heavy investment 6. Apart from satisfying the conditions of the common market.
Italy. Belgium. West Germany. Portugal. Yugoslavia. Finland is an associate member The main aim of EFTA is to promote trade among the member countries in a o Free and fair atmosphere o To achieve full employment o To have optimum use of resources o To have equitable distribution of raw materials The protective import duties and other barriers were removed 3. In 1973 UK joined the community. Sweden and Switzerland. Rumania. European Free Trade Association (EFTA) It was established in 1960 with the member countries like Austria. Denmark. Hungary. Bulgaria and Czechoslovakia. Aims and objectives of COMECON To attain economic integration among member countries To have the coordinative five year plan . Features & Functions of EEE To coordinate the efforts of all member countries Separate tariff schedules for import from the member countries were abandoned The member countries enjoy free movement of all goods and services Sometimes factors of production like labour and capital have free movement The problems faced by the member countries related to balance of payments were settled Though it is a political union it has worked as an economic union 2. East Germany. The founder members are France. The Netherlands and Luxemburg Greece and Turkey are associate members. Poland. Council for Mutual Economic Assistance (COMECON) It was started by USSR as against EEC with the member countries Russia. Norway. Iceland.
Peru and Venezuela. investment opportunities increased Protects intellectual property Applies national environmental standards . Andean Group It is the union framed by a smaller group of countries The member countries are Bolivia. Chile. Argentina. Mexico. Columbia. Chile. NTBs reduced iii. Venezuela The purpose was to create South American common market. Unlike the other unions the Andean Group has successfully eliminated the restriction on trade and achieved the free trade among the member countries 7. Attempts were made to have integration raw materials processing. Association of South East Asian Nations (ASEAN) The member countries are five South East Asian Nations. Singapore. 6. tariffs reduced (99% of goods traded) ii. mining and energy. To pool the resources with regard to technical skill and raw materials supply. namely Malaysia. Chile has come out later. North American Free Trade Agreement Became law: January 1. COM-ECON discourages exports to capitalists countries in Western Europe and North America 4. Equator. Latin American Free Trade Association (LAFTA) It was established in the year 1960 with the member countries like Uruguay. Brazil. 5. Indonesia and Philippines It is an economic union The main aim of the union is to get concessions and favourable terms from the other countries for their exports particularly from developed ones Like other unions it is also aiming at better understanding. Thailand.1994 Over 15 year period: i.
incomes and living standard of people of the region gave impetus for the formation of the South Asian Association for Regional Cooperation (SAARC). the Asian countries formed the AFTA in September 1994 Objectives To encourage inflow of foreign investment into this region To establish free trade area in the member countries To reduce tariff of the products produce in ASEAN counties. SAARC and the introduction of Euro. Objectives To improve the quality of life and welfare of the people of the member countries To develop the region economically. NAFTA and other trade blocks in the economic development of the member countries and in the process of improving employment opportunities. South Asian Association for Regional Cooperation (SAARC) The successful performance of EEC. Sri Lanka. Pakistan and Maldives adopted a declaration on SAARC in August 1983. ASEAN Free Trade Association (AFTA) The ASEAN countries are vigilant of the developments in the international environment like the formation of NAFTA. Bangladesh. 9. Special treatment for many industries 8. In the view of these developments. Bhutan. India. socially and culturally To provide opportunity to the people of the region to line in dignity and to exploit the potentialities To enhance the self-reliance of the member countries To provide conducive climate for creating and enhancing mutual trust and understanding and applications of one another’s issue To enhance the cooperation with other developing economies To extend cooperation with other trade blocks .
Factors considered for growth of MNE 1.g. Hyundai Industry activity fully accelerated Knowledge of foreign culture Favourable balance of payments Advantages of MNE to Home country . employment level and income level will increase Level of industrial and economic development Level of technology Level of management techniques More competition R&D Foreign culture Reduction in imports and increase in exports Foreign exchange Marketing of home country products in the entire world Employment opportunities both home and abroad e. Expansion of market territory 2. Product innovation Advantages of MNE to Host country Investment level. Market superiorities Up to date information Market reputation Less difficulties in marketing Effective advertising 3. Financial superiorities 4. Technological superiorities 5.Unit III Multinational Enterprise (MNE) MNE is an organisation doing business in more than one country.
Parle products taken over by coke) The national resources will be exploited quickly Payment of dividends and royalty to MNEs o Economic structure will be affected It will invest in high profit sectors only Political interference Technology transfer and implications o Not relevant to host country Disadvantages of MNE to Home country MNEs transfer capital from home country to other countries MNEs neglect the industrial and economic development of home country MNEs may bring foreign culture which may be detrimental to the culture of the country Organisation Design and Structure of MNEs Organisations are usually framed to satisfy objectives that can be collectively met Vertical Differentiation Concerned with where decisions are made.Disadvantages of MNE to Host country Functioning of host country Government will be affected I It won’t operate with in national boundary) MNE will kill domestic products (e. Consistency of decisions.g. o Where is decision-making power concentrated? Two Approaches o Centralization o Decentralization Centralization -Pros: Facilitate coordination. Argyris .
Transnational . Decentralization permits flexibility. Decentralization can increase control. Centralization -Cons: Overburdened top management. Easier to make changes.centralization. Decentralization lets decisions be made closer to the information source. International firms . Multi-domestic firms .centralize for core competencies (R&D) and decentralize for operating decisions.use both.decentralization. Steps in designing organisation structure Analysis of present and future circumstances and environmental factors External environment Over all aims and purpose of the enterprise Objectives (Specific aim) Activities (Functions and how to achieve the objectives) Decisions Relationship Organisation structure and climate Management style (leadership) HR . Motivational research favors decentralization. Avoids duplication. Strategy and Centralization Global strategy .
Product Organisation Structure CMD / CEO Head Quarters level managers Product A Advantages Product B Product C Product D Product E Product F a.Approaches to Organisation structure in MNE 1. More appropriate than functional organisation b. Coordination is good c. Some decisions like pay. Inter developmental conflicts regarding sharing of resources . No specialisation (decentralised) c. No involvement of top management and no delay d. promotion. product quality may be inconsistent (no uniformity) d. Unnecessary duplication b. Responsibility and accountability are clearly fixed Disadvantages a.
To adopt varying legal systems e. To pinpoint the responsibility for profit and loss Disadvantages a.2. Coordination of company wide activities would be difficult d. No uniformity e. More functional personnel are required b. Products and services are better designed based on culture and climate b. Opportunity to serve the customers in a better way d. Duplication of equipments and facilities c. Another layer of geographic units . A geographical structure allows the firm to respond to the technical needs of different areas c. Geographical Organisation structure CMD / CEO Head Quarters level managers Africa Asia Europe North America South America Australia Production Advantages Sales a.
Decentralised Business Unit Structure CMD / CEO Chief Manager X Chief Manager Y Chief Manger Z Product A Product B Product C Product D Product E Product F FM Advantages MM PM HRM R&D SM a. Lack of coordination b. No control . Each unit is managed by entrepreneurially oriented General Manager c. Each business unit operates as stand alone profit centre Disadvantages a.3. Diversification generally managed by decentralisation b.
Reduction of corporate head quarters span of control b. Corporate portfolio analysis is complicated in this structure . Helps to allocate corporate resources e. strategic mission etc. Strategic management at all levels d. Strategic Business Unit Structure CMD Head Quarters level functional managers Group Manager SBU I Strategically related Business Unit Group Manager SBU II Group Manger SBU III A strategic business unit is a grouping of business subsidiaries based on some strategic elements common to each. The common elements may be overlapping set of competitors. Disadvantages a. More distance between head quarters and the division b. Better coordination c.4. Business units are organised based on strategically relevant method. Advantages a. Conflicts between strategic business unit managers c.
Realize location economies by dispersing value creation activities to locations where they can be performed most efficiently. Consider trade barriers and transportation costs. Strategic Significance: o Moving down the experience curve allows a firm to reduce its cost of creating value. which reduce the cost of value creation. The Experience Curve Unit Costs B A . Assess political and economic risks When making location decisions: Experience Curve Economies Learning Effects: o Labour productivity increases over time as individuals learn the most efficient ways to perform particular tasks. Economies of Scale: o Reductions in unit cost achieved by producing a large volume of a product. Realize greater experience curve economies.Strategies in International Business Profiting from Global Expansion International firms can: Earn a greater return from distinctive skills or core competencies.
Finally. o Products serving universal needs. int’l competition creates price pressures. Local Responsiveness Government demands. Global strategy. Different infrastructure and practice.Accumulated Output Note: Moving down the curve reduces the cost of creating value Firms Face Two Conflicting Concepts (Pressures) Overseas Reduce costs. Cost Reduction Desire to reduce costs by Mass production .Product standardization. Strategic Choice . I. Multidomestic strategy. o Also hard where competition is in low cost producing location.Optimal location production.Four basic strategies: . . II. Be responsive to local needs. Different consumer tastes and preferences. III. Differences in distribution channels. Hard to do with commodity-type products. International strategy.
Products developed at home (centralization). Multi-domestic Strategy Maximize local responsiveness. 2. Good for high local responsiveness and low cost reduction pressures. Skill and product transfer. Global Strategy Best use of the experience curve and location economies. 3.IV. Transnational Strategy Christopher Bartlett and Sumantra Ghoshal Core competencies can develop in any of the firm’s worldwide operations. Makes sense where there is pressure for both cost reduction and local responsiveness. Makes sense where low skills. Manufacturing and marketing in each location. competition. Little adaptation. International strategy. Transfer all value-creation activities. o Customize the product and marketing strategy to national demands. Transnational strategy. Not good where local responsiveness demand is high. Advantages and disadvantages of Four Strategies Strategy Global Advantage Exploit experience curve effects Disadvantage Lack of local responsiveness . Flow of skills and product offerings occurs throughout the firm . and costs exist. This is the low cost strategy. Go where locals don’t have your skills.not only from home firm to foreign subsidiary (global learning). 4. Utilize product standardization. 1. no experience curve rewards.
stored or proposed in the supplying firm’s home country. It is a convenient method to increase the sales.g. HLL and Unilever of UK Advantages of Exporting 1.International Lack of local responsiveness In ability to realize location economies Failure to exploit experience curve effects Multidomestic Customise product offerings and Inability to realise location economies Marketing in accordance with Failure to exploit experience curve local responsiveness effects Failure to distinctive competencies to the foreign market Transnational Exploit experience curve effects Difficult to implement due to Exploit location economies organisational problems Customise product offerings and Marketing in accordance with local responsiveness Reap benefits of global learning Exploit location economies Transfer distinctive Competencies to Foreign Markets Market Entry Strategies 1. Exporting It means the sale abroad of an item produced. Licensing . Motivation for exporting 2. Passive exporting occurs when a firm receives canvassed them. Types of exports a. Direct exports c. Less risks 3. Active exporting controversy results from a strategic decision to establish proper systems for organising the export functions and for procuring foreign sales. Need only limited finance 2. Intra – corporate transfers e. Indirect exports b.
The franchiser provides following services to the franchisee a. Therefore one party can affect the other party through their improper acts 3. copyrights. Franchising Under franchising an independent organisation called the franchisee operates the business under the name of the franchiser under the agreement and the franchisee pays the fee to the franchiser for franchise. 4. Licensee gets the benefits with less investment on research and development 5. managerial. Both the parties have to maintain the product quality and promote the product. brand name to a manufacturer in a foreign country for a fee. Licensee escapes himself from the risk of product failure Disadvantages 1. Product reputations d. Trade marks b. Low investment on the part of the licensor 2. The domestic company can choose any international location and enjoy the advantages without incurring any obligations of ownership. Advantages 1. Operating system c. It reduces market opportunities for both 2. Chance for misunderstanding between parties 4. employee training. Licensor can investigate the foreign market without many efforts on his part. investment etc. quality assurance etc. Continuous support system like advertising. Chance for leakages of the trade secrets of the licensor 5. . The cost of entering market through this mode is less costly. Licensee may sell the product outside the agreed territory and after the expiry of the contract 3.In this mode of entry the domestic manufacturer leases the right to use his intellectual property. Low financial risk to the licensor 3. Licensee may develop his reputation 6. Here the manufacturer in the domestic country is called licensor and the manufacturer in the foreign country is called licensee.
Low investment and low risk 2. Contract Manufacturing Some companies outsource the part of or entire production and concentrate on marketing operations. customs and environment of the host country. develop as most of the production activities take in these units 4. It reduce the market opportunities for both 4. Franchisee escapes from the risk of product failure Disadvantages 1. Franchiser learns more from the experience of franchisees 4. It may be more complicating than domestic franchising 2. 3.Advantages 1. generated by the Host country’s production The international company gets the locational advantages Small and medium industrial units in the host country can also distinctive competence companies with their . Franchiser can get information regarding the market culture. Both the parties have to maintain the product quality and promote the product. It is difficult to control the international franchisee 3. 2. Therefore one party can affect the other party through their improper acts 5. There is a problem of leakage of trade secrets 4. Franchisee gets benefits of R& D with low cost 5. Advantages 1. This practice is called the contract manufacturing or outsourcing. It can focus on the part of the value chain where it has It reduces the cost of production as the host country’s relative cost advantages produce at low cost 3.
The host country companies may leak the secrets of technology 6. This agreement between these two companies is called management contract. 5. This agreement and additional income allows the company to enhance its image among the investors and mobilise funds for expansion 3. hindering the interest of the international company 2. Advantages 1. 3. For the assistance and expertise provided by the foreign company it may charge a fee. Host countries may take up the marketing also. 4. Turnkey project A turnkey project is a contract under which a firm agrees to fully design. Foreign company earns additional income without any additional investment. risks etc. quality standard etc.g. It helps the companies to enter other business areas in the host country. Nuclear power generation projects. Sometimes the companies allow the companies in the host country even to use their trademarks and brand name. design problems etc.Disadvantages 1. . The poor working conditions in the country may affect the image. The host country companies spoil the brand name of the home country companies 2. These factors results in quality problems. Host country’s companies may not strictly adhere to the production design. 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 e. Management contract The companies with low level technology and managerial expertise may seek the assistance of a foreign company. Then the foreign company may agree to provide technical assistance and managerial expertise. The companies act as dealer for the business of the host country business in the home country Disadvantages 1. 2.
lawyers. Disadvantages 1. Advantages 1. This strategy helps the host country. 4. recruitment of human resource and starts the operations and marketing activities. and equipment technology 3. The company has to follow the rules and regulations imposed by the host country’s Government 8. Alternatively the domestic company may purchase the foreign company and acquires the ownership and control it. Acquiring a firm in a foreign country is a complex task involving bankers. If the industry already reached the stage of optimum capacity level or overcapacity level in the host country. The longer gestation period as the successful implementation takes time and patience 2. Advantages 1. This strategy adds no capacity to the industry The company can also have its own policies and styles of HRM It can avoid the cultural shock The company selects the best location from all view points The company can avail the latest models of the building. 2. make or buy decision. 2. The company can formulate international strategy and generate more revenues 3. The company immediately gets the ownership and control over the acquired firm. machinery . Mergers and acquisitions A domestic company selects a foreign company and merge itself with the foreign company in order to enter international business. Some companies may not get the land in the location of its choice 3. It involves market survey.7. Green field strategy It is starting of a company from the scratch in he foreign market. selection of location. Disadvantages 1. It provides immediate manufacturing facilities and marketing network. M&A specialists etc 2. eructing of the organisation.
Risk being spread among all partners 3. Today’s partners may become tomorrow’s competitors 7. political. Changes in business environment may collapse the joint venture 6. thereby making use of optimum opportunities .3. Changes in partners’ style Global Strategic Management It is the process of determining an organisation’s basic mission and long term objectives. implementing a plan of actions for pursuing this mission and attaining these objectives in systematic way. Large capital and other resources 2. Labour problem and political threat 9. Benefits of Strategic Planning • • It helps an MNC to deal with political risk problems. Lifecycle of a joint venture is hindered by many causes of collapse. Delay in decision making when dispute arises 3. Sometimes host countries imposed restrictions on acquisition of local companies by the foreign companies 4. Joint ventures Two or more firm join together to create a new business entity that is legally separate and distinct from the partners. Advantages 1. Hero – Honda. Maruti – Suzuki. various environmental factors like socio-cultural. TVS – Suzuki.g. Provides skills and knowledge development 4. It involves sharing of ownership. It makes large projects and turnkey projects feasible and possible 5. 4. technical and cultural aspects e. competitions and currency instability cannot be downplayed It enables the management to perceive global opportunities and seize them. Entry of new competitors 5. Synergy advantage] Disadvantages 1. Conflict may arise between the partners 2.
Organisation analysis of a global firm 3.• • • • • • • • • • • It helps to monitor growth opportunities in overseas markets which might offer improved horizons for expansion and exploitation of the firm’s existing product lines. Analysis of international environment 4. It leads to better decisions It provides a base for objective based performance evaluation It coordinates the activities It provides the means for improvement of performance More complicated Un expected events will result in failure of plans Inadequate information is a risk Administering the mechanism of planning process is very difficult It can inhibit creativity and lateral thinking Decisions based on past may result in failure Problems of Strategic Planning Strategic Planning Process 1. Analysis of existing mission and goals 2. Formulation of the alternative unit level strategies 6. Differentiation strategy . Retrenchment strategy – Disinvestment and liquidation Business Unit Level Strategies 1. Focus on niche strategy 3. Low cost leadership strategy 2. Strategy implementation 8. Growth strategy – Forward and backward integration 3. Stability strategy 2. Strategy evaluation and control Corporate Level Strategies 1. Selection of the best among the alternatives 7. Formulation of alternative corporate level strategies 5.
4. Defensive strategy Strategy Selection Models 1. . GNL model The strategy with long term industry attractiveness and high business strength is the best strategy 3. Directional model The strategy with high business sector prospects and high competitive abilities of the company is the best. BCG model The strategy with high industry growth rate and high relative market share is the best 2. Offensive strategy 5.
Compliances need to be secured from subordinates through different means of coordinating specialised and interdependent parts of the organisation. increase predictability and ensure behaviour originating in separate parts of the organisation are compatible and in support of common organisational goals.Unit IV Control of MNEs Control focus on means to verify and correct actions that differ from established plans. Therefore. Direct control It involves face-to-face or personal meeting to monitor operation 3. E. management wants to ensure that there is a market for the goods and services that it is offering. monitoring activities and comparing actual implementing measures to remedy deficiencies. Financial statement 4. control serves as an integrating mechanism. Control are designed to reduce uncertainty. 2. the company first needs to find out what the customer want and be prepared to respond appropriately. Indirect control It uses reports and other written forms of communications to control operations. This requires an external control focus. With in an organisation. Control has three aspects establishing standards and targets. Types of Control 1. At the same time. Internal control From an internal control standpoint. an MNC will focus on the things that it does best.g. Formalised control The elements of a bureaucratic / formalised control system are An internal budget and planning system The functional reporting system Policy manual used to direct functional performance .
Establishing teams from different countries to work in special projects v.5. Job rotation viii. Control in US organisations are highly centralised 2. personal interaction is central. Exercising control With in most corporation different functional areas subjected to different guidelines because. They are . Bringing different people from different countries Control Techniques A number of performance measure are used for control purpose. Control in Europe organisations are highly decentralised 3. Culture controls require an extensive socialisation process to which informal. There are three most important common types are used by the MNCs to control them. Planning international and domestic personnel in closer iii. 4. Cultural control Sometimes MNC emphasise corporate values and culture. they are subject to different constraints. 6. For example marketing function Approaches to control 1. Euro system is socio emotional control system where as Americans follow task oriented objective control system Control Mechanisms 1. Establishing liaisons among them iv.g. Strengthening the corporate staff ii. banning the use of cell phones 2. Corporate culture Maintaining organisation culture e. German organisations favour vertical spans or reporting channels from the foreign subsidiary to responsible positions in the parent. Giving equal importance for all individual units vii. the evaluation based on the extend to which an individual or an entity complies with the norms. Placing the foreign personnel on Board of directors vi. Coordinating mechanism i.
Measuring actual performance 7. Financial performance Financial performance evaluation of a foreign subsidiary us based on profit and return on investment. Locate responsibility 5. Shared ownership 2. 2. Types of subsidiaries Designing an International Control System 1. A quality circle is a group of workers who meet on a regular basis to discuss the ways of improving the quality of work. Some firms use ratio analysis also for measuring financial performance. Change in strategies 3. 3. Comparison of actual and desired performance 8. Profit is the amount remaining after all expenses are deducted from total revenues. Establishing objectives 2. Legal structure 4. Quality performance Quality is an important technique to control the MNCs. Selecting control method 3. The quality performance can be done with the help of quality circles. which is propounded by the Japanese.1. The most common approaches to personnel performance evaluation are the periodic appraisal of work performance. Establishing communication system 6. Taking corrective actions . Setting standards 4. HR performance Besides financial techniques and the emphasis on quality another key area of control is HR performance evaluation. Return on investment through dividing profit by assets. Control in special situations 1. In now a days people are going for 360 Degree evaluation. Evaluating deviations 9.
Nature of firm’s foreign business 4. Location of the foreign operation 5. Size and maturity of firms External factors 1. Mode of operation 3. It avoids inefficient intra – company conflicts ranging from corporate divisions It ensures harmonization and coordination between corporate and subsidiary’s objectives. Nature of functions 7. Political environment Significance of control It provides an insight into the efficacy and effectiveness of the over all plan It also enables the management to judge the suitability of the ongoing strategies It influences the behaviours of events and ensures programmes are confined to plans. It serves as a potent instrument for the purpose of achieving stability and continuity on one hand and adaptation and adjustment on the other It helps the management in making effective use of source and valuable resources of the organisation Problems of the control Language differences can distort communication between the head office and subsidiaries . strategies etc. Nature of commercial environment 2. Nature of technology 6. Corporate philosophy 2.Factors influencing control Internal factors 1.
Local cultural factors may cause the failure in some countries of motivational incentive systems that were enormously at the expenses of the company Host country Government might force the management of a local subsidiary to act in the interests of the host country Managers in the local subsidiaries might have difficulty in understanding the control information requirement imposed by head office The cost of implementing control mechanisms are much higher than for a domestic firm Physical distance separating countries and management Non availability of adequate and accurate information may be a problem Appointment of local nationals in the highest posts will be a problem .
Conflict with in the individuals 2.Unit V Conflict Conflict occurs whenever: • • Disagreements exist in a social situation over issues of substance Emotional antagonisms cause frictions between individuals or groups Types of conflict 1. Conflict between an individual and a group 4. Rising joint ventures 2. Different financial investment 4. Managing conflict successfully • • • Compromise Competition and authoritative command Collaboration and problem solving Negotiation Bargaining with one or more parties for the purpose of arriving at a solution acceptable to all Role of Negotiation 1. In getting the operation of the firm 3. Conflict between the individuals 3. Taxes 6. Conflict between groups 5. Effective solution begins with a diagnosis of the stage to which conflict has developed and recognition of the causes of conflict. Conflict with in organisation 6. Expansion of facilities 8. Conflict between organisations Conflict resolution A situation in which the underlying reasons for a given destructive conflict is eliminated. Additional imports and exports . Ownership control 7. Hiring practices 5.
Exchanging task related information 4. which may result in occasional pause while translator resort to dictionaries. Recapture of profit Process 1. The pauses cause negotiation to take longer than if they were among people from the same country.9.Polycentrism Giving more importance for the culture of the host country 3.Ethnocentrism Giving importance to the culture of home country and discouraging host country’s culture 2. Planning and determination of objectives 2. Non –verbal behaviour Behavioural characteristics affecting Negotiations Cultural factors 1. threats and other behaviours 6. Persuasion 5. Time constraints 3. Agreement Negotiation Tactics 1. Buyer seller relations 4. Impersonal relationship building 3. Bargaining style 5. Selection of location 2. More over negotiation stop while an interpreter translator process takes more time. .Geo-centrism Giving equal importance for the cultures of both the countries Language Factors It may be difficult for negotiations to find words to express their exact meaning in another language. Promises.
Arbitration Arbitration is the process by which parties voluntarily agree to refer a future or a present dispute to an individual or individuals who after hearing submissions from the parties will issue a legally binding decision (“an award”) determining the issues between the parties liability and quantum of damages or giving other specific remedies. Key elements of Arbitration o Enforcement of awards o Party control o Party – nominated Arbitrators o Neutrality o Privacy and confidentiality o Cost –effectiveness and speed .