IBT Semis meeting 4

INTL BUSINESS

- One of the drivers of globalization and vice versa (globalization owes much from
multinational business for the accelerated growth that they achieve)
- Business where their transactions came from their head offices ex. AMERICA add cost
border to other countries; for goods and services.
- Business can be called MULTINATIONAL COMPANIES if they engage on businesses in
other countries

The need for Intl business; specially that make World Trade Org and Intl Trade possible

Ideas, services, products became accessible throughout the world --- because of this consumer
saw other products that they do not have, in diff. levels and variety other countries have.

Culture the way of life cables and satellite afforded the consumers to see, movies before its
only movies enable if we cannot travel to other places like Europe its movies that enable us,
now CNN and other news org were able to see the way of life there. Even here in Asia the kpop
products and culture of Korea became popular but before it is western culture such as
American life and the products that they use.

Of course wide variety of product and then factor of production became accessible with the
GATT; formation of GATT and multi org – where barriers are slowly being relaxed and lifted

Employment specially benefitting us; because we have endowment of labor a factor of

production

Multinational companies can reallocate just like the BPOs that have provided us with over a
million jobs; allocation of resources from diff intl companies. 2 countries to take the
opportunities like this factors of production to be more efficient like Avida where majority of
their shoes are made in a labor intensive country —China and Vietnam

Types of Intl Business

Export- import trade

Foreign direct investment- investment made by foreigners, ex. In the PH we need and invite FDI
becoz we have a constraint, the need for capital, the factor endowment that we have s labor
and some lands, natural resources but we have a constraint the need for capital; one way of
addressing this constraint is by inviting FDI.
 - We are attracting FDI bewcoz we are removing barriers itself like some non-tariff
barriers laws from barring foreigner for owning businesses, they can only own certain
percentage not majority; there have certain industries that foreigners are allowed to
own; it will encourage investment if they will not run the business being a minority.
Other Chinese tried to skip this law by having dummies.
- Two types; is Foreigner investing in Building New Business (construct new) or they buy
some existing business; preferable if they construct new and give opportunities and
employment. More beneficial establishing new factories: ex. PESA and industrial parks
(plenty in CALABARZON specially Batangas, Laguna, Cavite while Quezon has no
industrial park) more accessible for FDI.
- FDI stands for Foreign Direct Investment, a component of a country's national financial
accounts. Foreign direct investment is investment of foreign assets into domestic
structures, equipment, and organizations. It does not include foreign investment into
the stock markets. Foreign direct investment is thought to be more useful to a country
than investments in the equity of its companies because equity investments are
potentially "hot money" which can leave at the first sign of trouble, whereas FDI is
durable and generally useful whether things go well or badly.
-

Licensing – permission from head office enables companies from other country for example to
manufacture their products or specified payment

- Growing ur business without actually operating it like franchising, giving trademarks or

copyrights and intellectual property right to other pipol will do it for u. the beauty of
franchise is dat if u require the products to be bought specially if is a local franchise like
mcdoor in 7/11, the franchisor can continue to sell its product ; franchisees growth the
more their product or the faster the turnover of their product. The requirement is the
franchisee to buy product from franchisor( good way growing the business without
actually doing it)
- Ex. Clothing Calvin Klein they grant license for undergarments, jeans, perfumes and
other product
- A business arrangement in which one company gives another company permission to
manufacture its product for a specified payment.
- There are few faster or more profitable ways to grow your business than by licensing
patents, trademarks, copyrights, designs, and other intellectual property to others.

Management Contract - an agreement for providing expertise parang franchise pero

management or services
Franchising – ex. McDo, general franchisee to deal and cover all franchise here in the PH,
George T. Yang; altho if u will franchise McDo just like in Talipan, Pagbilao u have to allocate at
least 1 million dollars, u have to have time for some introductory and seminars, learnings in
America at least 2 weeks or more; it will take time before they approve the franchise’ for 1 st yr
of operation the franchisee wll have to pay at least 5 to 6 officers from MCDo to supervise the
operation for 6 months to 1yr; franchisee will provide the land and all related to building are
already included except as u operate specially the payment to officers who will operate the
branch initially

• Franchising refers to the methods of practicing and using another person's business
philosophy. The franchisor grants the independent operator the right to distribute its products,
techniques, and trademarks for a percentage of gross monthly sales and a royalty fee. Various
tangibles and intangibles such as national or international advertising, training, and other
support services are commonly made available by the franchisor. Agreements typically last
from five to thirty years, with premature cancellations or terminations of most contracts
bearing serious consequences for franchisees.

Business who will qualify for franchising

Good track record and profitability like when u have unique or unusual concept, if u have
geographic appeal like MCdo it’s a food aand becoz of globalization hamburgers and chcken
became popular across cultures it can be operated by others(relative easy to operate),
inexpensive to operate and maintain, can be easily duplicated. Other categories can also be
franchises like supermarts, drugstores, convenience stores.

Drivers of Intl Business

Regional developments helping internationalization

1. Emergence of NAFTA(US and Canada; belong to north America shares a border with
Mexico) with America having 320 million markets” Giant American market””; Canada,
Mexico madami dun ay population.
2. GATT(General Agreement of Trade and Tariff) – tariff is continuously being reduced in
some cases eliminated ex. Japan, invested in Asia also there are investment in America
but Japan during the 180s and 90’s they bought business in America and Europe
specially after 1989 when Eastern Eurpe becoame available for free trade when there
have a resolution soviet union, united socialist republic tere are converting Romania
countires in Eastern Europe, we have developing nations duamdami
1) Emergence of NAFTA comprising united states, Canada and Mexico has created a huge north
American market. Movement of goods and services among these countries is easy as all trade
barriers have been removed. The result will be a giant "American market that would parallel
similar development in Asia and Europe

2) The most recent changes of GAAT are stimulating increased world trade. Under the new
agreement, tariffs would be reduced world wide by 38% and in some cases, eliminated
completely.

3 Japan, of late has invested relatively more in Asia than in any part of the world. Japanese
corporations want to take advantage of the underdeveloped but growing Asian market.

4) Export potential is vast in central and eastern Europe, Russia which are converting
themselves into market economies.

5) There is also recent economic progress among less developed economies. For example India
Globalization and liberalization approach toward economy

6) The new economy, a characteristic feature of the present century, itself demands trading
across the globe.

Intl Investment and trade

- Still 80% are from developed countries; remaining can come from developing or
underdeveloped countires like Jabee nagiinvest rin in other countres or Sm. PH is a
recipient of FDI.

Other Reasons of Internationalization

• There is a lot of money in the overseas market. The MNCs from the triad the US, Europe and
Japan - have huge assets than a quarter of these assets are found in foreign market GE of the
US is one of the top MNC with assets of over $ 300 billion in 1997 and nearly a third of its assets
were found in overseas countries. The Dutch /UK firm shell has huge assets and three fifth of
these are located overseas.

. It is being realized that the domestic markets are no longer adequate and rich, Japan flooded
American with automobiles and electronics because domestic market was not large enough to
absorb whatever was produced.

• Companies often set up overseas plant to reduce high transportation cost The higher the ratio
of unit cost to the selling price per unit, the more significant the transportation factor becomes.
• The motivation to go global in high tech industries is slightly different. They spend lot on
research and development for new products. If domestic sales and export do not generate
sufficient cash flow, the company naturally might look to overseas manufacturing plants and
sales branches to generate higher sales and better cash flow.

Labor market also attract companies into international business.

One way companies gain competitive advantage is by locating production facilities in low cost
countries.

Firms go global to avoid protectionist barrier imposed by local government. Government erect
various forms of barriers to entry in their domestic markets by foreign firms

• Companies enter foreign markets because competitors have already done it

Govt. throughout the world offer a variety of incentives to attract MNCs

Mainly when we speak about developed countires like America, Canda and western Europe,
Japan(newly riched country Kore, Singapore, Taiwan and Hongkong)

When we say multi companies majority of income from foreign investors like US the sale of
their products Hollywood Titanic 1-2bdollars if sa America langs;

With the advent of intl busi fasible for companies; not adequate to depend on local market; but
Japan did 80;s their peak flooded American market with their own products such as Sony,
Nissan, the market of Japan cannot accommodate

Setting up BPOs to lessen cost

Silicon Valley; high-tech companies need to have workforce and resources todo research and
development, eventually they did the manufacture overseas.

(PH is beneficiary as we export people not products) Labor market also attract companies; thus
companies locate like BPOs at mga nasa industrial parks avoid protectionist barriers( tariff and
non-tariff) becoz once u relocate to the country u became part of that country. They can
concentrate on what competitors do . PESA, Economic zones they compete to the other
countries so they can be a hos to foreign countries.

Intl vs Domestic Business

Basis Intl business Domestic business
Payment Mostly in foreign currency Dometic currency
Laws and rules Intl laws & regulations Subject to national rules and

Custom & tradition
Legal and eco system
Approach
regulations
Diff customs and traditions Same customs traditions
Have to face diff legal eco Almost the same
and tax rate system
Geocentric approach Follow ethnocentric approach

Globalization

Globalization refers to the shift towards a more integrated and independent world economy.
Globalization has several facets, including the globalization of markets and the globalization of
production.

Globalization of markets: refers to the merging of historically distinct and separate national
markets into one huge global marketplace. Falling barriers to cross border trade have made it
easier to sell internationally.

It has been argued for some time that the taste and preferences of customers in different
nations are beginning to converge on some global norm, thereby helping to create a global
market.

For example consumer products such as coca cola soft drink, Sony play station videogame,
McDonald hamburger are frequently held up as prototypical example of this trend. Sony,
McDonald, coca-cola are more than just benefactors of this trend: they are also facilitator of
this trend. By offering the same basic product world wide they help to create a global market.

A co does not have to be the size of these multination giant to facilitate and benefit from the
globalization of market. For example firms with less than 500 employee accounted for 97% of
all US exporters and almost 30% of all the export value in Germany co with less than 500
employees account for about 30% of the Nation import

It is important to note that to push too far the view that national markets are giving way to the
global market. Very significant differences still exist among national markets including
consumer taste and preferences, distribution channel, value system, business system and legal
regulation.

These differences frequently require that marketing strategies, product features and operating
practices be customized to best match conditions in the country

• Many companies need to vary aspects of their product mix and operations from country to
country depending on local taste and preferences

Global market for industrial goods and material that serve a universal need the world over for
example aluminum, oil and wheat.
In many global markets the same firms frequently confront each other as competitors in nation
after nation for example Pepsi and coca cola is a global one.

If one firm moves into a nation that is not currently served by rivals. those rivals are sure to
follow to prevent their competitors from gaining an advantage.

As firms follow each other they bring with them many of the assets. that served them well in
other national market including their products, market strategies and brand image- creating
homogeneity across market.

In an increasing no of industries it is no longer meaningful to talk about the local market for
many firms there is only the global market.

Adidas create shoes not on their host country but in India and China:lessening barrier allows
company to operate in countries they wish to operate; easier to sell. Eben tho they have
challenges becoz of ….ss

Multi companies adjusted diff facets like operations,logistiscs and legal regulations. Marketing
strategies can be customized t meet the conditions of particular country.

Product mix- customize, ater to meet diff taste of locals

But here are products that are standardized like oil, milk, mineral

Ex. Coke and Peps they transferred their area of competition, from US to PH, Middles East,
Africa, Europe becoz competitors follow each other. Other ex KFC and MCDo ---- they are freign
direct investment to diff countries ; as much as possible carry the same mssg and brand image
—homogeneity. However local products such as movies pinakamalaki na 400m-500m like Vice
GAndas movies, if globalized pede umabot billion dollars and that should be the aim.

Globalization of Production

Globalization of production refers to the sourcing of goods and services from locations around
the globe to take the advantage of national difference in the cost and quality of factor of
production. By doing this companies hope to lower their overall cost structure or improve the
quality or functionality of their product offering, thereby allowing them to compete more
effectively.

For example- IBM ThinkPad X31 laptop computer. The product was designed in the united
states by IBM engineers because IBM believed that was the best location in the world to do the
design work. The case keyboard and hard drive were made in Thailand, display screen and
memory were in south Korea, the built in wireless card in Malaysia, and the microprocessor was
manufactured in US. In each these components were manufactured in the optimal location
given an assessment of production cost and transportation cost.

Emergence of Global Institutions

• As markets globalize and as increasing proportion of business activity transcends national

border, institutions are needed to help manage regulate and police the global market place and
to promote the establishment of multinational treaties to govern the global business system.

• The world trade organization is primarily responsible for policing the world trading system
and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO
members.

• WTO has promoted the lowering the barriers to cross border trade and investment. Without
an institution such as WTO the globalization of market and production is unlikely to have
proceeded as far as it has

IMF and World Bank

• The task of IMF is to maintain order in the international monetary system and that of the
world bank is to promote economic development. It has focused n making low interest loan to
cash strapped governments in poor nations that wish to undertake significant infrastructure
investment.

• IMF is often seen as the lender of last resort to nation states whose economies are in turmoil
and currencies are losing value against those of other nations.

• The IMF loan come with strings attached; in return for loans, the IMF requires nation-states to
adopt specific economic policies aimed at returning their troubled economies to stability and
growth.

Drivers of Globalization

Two macro factors seem to underlie the trend toward greater globalization: • Decline in
barriers to the free flow of goods and services and capital. • Technological change

• Declining Trade and Investment Barriers • After the formation of WTO, many talks were
scheduled to cutting tariffs on industrial goods, services and agricultural products, phasing out
subsidies to agricultural producers; reducing barriers to cross border investment and limiting
the use of antidumping laws.

• Many countries have also been progressively removing restrictions to FDI. According the UN
some 94% of the 1885 changes made worldwide between 1991 and 2003 in the laws governing
FDI created a more favorable environment

• The lowering of trade and investment barriers also allows firms to base production at the
optimal location for that activity. Thus a firm might design a product in one country, produce
components parts in to other countries, assemble the product in yet another country and then
export the finished product around the world.

• According to WTO data the volume of world merchandise trade has grown faster than the
world economy since 1950. From 1970-2004 the volume of world merchandise trade expanded
almost 26 fold. outstripping the world production which grew about 7,5 times in real terms.

• Value of international trade in services grew robustly. Trade in services now account for
almost20% of the value of all the international trade This increase is due to advances in
communication which allow co to outsource service activities to different locations around the
world