UNIT 3: Managing International

Business
 CONTENT
Preparing to go international

Establishing business in another country

International strategic management and

analyzing and entering foreign markets

Design and control of International

organization and small business
 PREPARING TO GO INTERNATIONAL
The size of a business does not determine
its ability to enter global markets, but it
may influence the number and scale of
markets a business can enter.

Having improper strategies, negative

attitudes toward expansión abroad, or
lack of experience may keep business
out of international game, but size does
not have to be a factor.
 Establishing Business in another country
An international business plan should include both market
entrance and exit approaches, because markets that are hard
to leave can drain export sales profits.

Regarding business plan, if conclude proceed with your

expansion in other countries, have five basic choices: exporting,
importing, licensing the product, establishing a joint venture, or
setting up operations in the other country.

As the experienced, visionary and adventurous businessperson,

exists other options which represent an even greater
commitment to global trade (export, import, license, form joint
ventures or strategic alliances or own operations to conduct
business in other countries.
 International Strategic Management

International strategic management is a

comprehensive and ongoing
management planning process aimed
at formulating and implementing
strategies that enable a firm to
compete effectively internationally.
 Strategic Planning
The process of developing a particular international
strategy is often referred to as strategic planning.

Fundamental questions:

1. What products and/or services does the firm

intend to sell?
2. Where and how will it make those products or
services?
3. Where and how will it sell them?
4. Where and how will it acquire the necessary
resources?
5. How does it expect to outperform its competitors?
 Factors Affecting International Strategic
Management

• Financing
• Language • Market research
• Culture • Advertising
• Politics • Money
• Economy • Transportation/
• Governmental interference communication
• Labor • Control
• Labor relations • Contracts
Sources of Competitive Advantage

Global
efficiencies

Multinational
flexibility

Worldwide
learning
Global Efficiencies

Location
efficiencies

Economies Economies
of scale of scope
 Location Efficiencies
Mercedes-Benz has achieved economies of scale
by focusing production of its M-class at its
assembly plant in Vance, Alabama.
Strategic Alternatives

Home replication strategy

Multidomestic strategy

Global strategy

Transnational strategy
Pressures for Global Efficiencies
Strategic Alternatives

Global Strategy Transnational Strategy

Firm views the world as Firm combines benefits
High single marketplace. Goal of global scale
is to create standardized efficiencies with benefits
products. of local responsiveness

Multidomestic Strategy
Low Home Replication
Firm operates as a
Firm uses core
collection of relatively
competency or firm-
independent subsidiaries
specific advantage

Low High
Pressures for Local Responsiveness/Flexibility
Components of International Strategy

Distinctive Scope of
competence operations

Resource
Synergy
deployment
 Distinctive Competence

Answers the question

What do we do exceptionally well,

especially as compared to our competitors?

Represents important resource to the firm

 Scope of Operations

Answers the question

Where are we going to conduct business?

Aspects of scope

Geographical region
 Resource Deployment
Answers the question

Given that we are going to compete in

these markets, how will we allocate our
resources to them?

Resource specifics

Product lines
 Synergy

Answers the question

How can different elements of our business

benefit each other?
Developing International Strategies

Strategy
formulation

Strategy
implementation
Steps in International Strategy Formulation

Develop a mission statement

Perform a SWOT analysis

Set strategic goals

Develop tactical goals and plans

Develop a control framework

 Mission Statements

Clarifies the organization’s purpose, values,

direction

Communicates firm’s strategic direction

Specifies firm’s target customers and

markets, principal products, geographical
domain, core technologies, concerns for
survival, plans for growth and profitability,
basic philosophy, and desired public image
The Value Chain
Levels of International Strategy
Business Strategy

Differentiation

Overall cost leadership

Focus
Functional Strategies

Financial

Human
Marketing
resources

R&D Operations
 Analyzing and Entering Foreign Market
Regardless of their strategies, most international
business have the fundamental goals of expanding
market share, revenues, and profits.

To successfully increase market share, revenue, and

profits, firms must normally follow three steps:
1.Assess alternative markets
2.Evaluate the respective costs, benefits, and risks of
entering each
3.Select those that hold the most potential for entry
or expansion
 Factors in Assessing New Market Opportunities

• Product-market • Potential target

dimensions
• Major product-market
differences
• Structural characteristics
of national market
• Competitor analysis
markets
• Relevant trends
• Explanation of
change
• Success factors
• Strategic options
 Choosing a Mode of Entry

Decision Factors: Exporting

▪Ownership advantages
▪Location advantages
▪Internalization advantages
International
▪Other factors Licensing
▪Need for control International
▪Resource availability
Franchising
▪Global strategy
Specialized Modes

Foreign Direct
Investment
 Exporting

Advantages Disadvantages
• Relatively low • Vulnerability to tariffs
financial exposure and NTBs
• Permit gradual • Logistical
market entry complexities
• Acquire • Potential conflicts
knowledge about with distributors
local market
• Avoid restrictions
on foreign
investment
Forms of Exporting

Indirect
exporting

Direct Intracorporate
exporting transfers
Additional Considerations for Exporting

Governmental policies

Marketing concerns

Logistical considerations

Distribution issues
 Types of Export Intermediaries

Export management company

Webb-Pomerene association

International trading company

 Export Management Company

An export management company (EMC) is a firm

that acts as its client's export department by
managing the legal, financial, and logistical details
of exporting, and providing advice about consumer
needs and available distribution channels in the
foreign markets the exporter wants to penetrate.
 Licensing
Licensing is when a firm, called the licensor, leases the right
to use its intellectual property—technology, work methods,
patents, copyrights, brand names, or trademarks—to
another firm, called the licensee, in return for a fee.

$$$
Licensor leases the Licensee uses the
rights to use intellectual property
intellectual property to create products

Earns new revenues Pays a royalty

with low investment to licensor
 Basic Issues in International Licensing

• Specifying the boundaries of the

agreement
• Determining compensation
• Establishing rights, privileges, and
constraints
• Specifying the duration of the contract
 Licensing

Advantages Disadvantages
• Low financial risks • Limited market
• Low-cost way to opportunities/profits
assess market • Dependence on
potential
licensee
• Avoid tariffs, NTBs,
restrictions on foreign • Potential conflicts
investment with licensee
• Licensee provides • Possibility of
knowledge of local creating future
markets competitor
 Franchising
A franchising agreement allows an independent
entrepreneur or organization, called the franchisee, to
operate a business under the name of another, called
the franchisor, in return for a fee.

Basic Issues in International Franchising

1. Does a differential advantage exist in domestic
market?
2. Are these success factors transferable to foreign
locations?
3. As franchising been a successful domestic strategy?
 Franchising

Advantages Disadvantages
• Low financial risks • Limited market
• Low-cost way to assess opportunities/profits
market potential • Dependence on
• Avoid tariffs, NTBs, franchisee
restrictions on foreign • Potential conflicts with
investment franchisee
• Maintain more control • Possibility of creating
than with licensing future competitor
• Franchisee provides
knowledge of local
market
Specialized Entry Modes

Contract
manufacturing

Management
contract

Turnkey
project
 Contract Manufacturing

Advantages Disadvantages
• Low financial risks • Reduced control
• Minimize resources (may affect
devoted to quality, delivery
manufacturing schedules, etc.)
• Focus firm’s resources • Reduce learning
on other elements of potential
the value chain • Potential public
relations problems
 Management Contracts

Advantages Disadvantages
• Focus firm’s resources • Potential returns limited
on its area of by contract expertise
contracts • May unintentionally
• Minimal financial transfer proprietary
exposure knowledge and
techniques to
contractee
 Turnkey Projects
Disadvantages
Advantages
• Financial risks
• Focus firm’s
resources on its area – Cost overruns
of expertise • Construction risks
• Avoid all long-term – Delays
operational risks – Problems with
suppliers
 Design and Control
Design and control of international organization and small business.

Organization design is the overall pattern of structural components

and configurations used to manage the total organization.

Four things:

1.Allocates organizational resources

2.Assigns tasks to its employees

3.Informs those employees about the firm´s rules, procedures, and

expectations about the employee’ job performance

4.Collects and transmits information necessary for problem solving,

decision making and effective organizational control