Chapter 1 – International Business and Globalization

INTRODUCTION

• What is International Business?

• External and Internal environment forces.
• Drivers of the Internationalization of Business.
• Challenges in International Business

INTERNATIONAL COMPANY
• A company with operations in multiple countries.

FOREIGN BUSINESS
• The operations of a company outside its home or domestic market.

INTERNATIONAL BUSINESS
Business that is carried out across national borders. Includes not only international trade and
foreign manufacturing, but also growing service industry in areas such as transportation,
tourism, advertising, consulting, construction, retailing, wholesaling and mass communication

INTERNATIONAL BUSINESS vs DOMESTIC BUSINESS

• International business differs from domestic business in that a company operating
across borders must deal with the following environments: -

a) Domestic environment
b) Foreign environment
c) International environment

DOMESTIC ENVIRONMENT
• All uncontrollable forces originating in the home country that influence the life and
development of the firm.
• These are forces which managers are most familiar.
eg: - if there is shortage of foreign currency, the government may place restrictions
on overseas investment to reduce its outflow.

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 eg: - If there is a labour union strike in a domestic country’s manufacturing
operations , it could cause disruption in the supply of parts to the company’s
assembly activities in another country.

FOREIGN ENVIRONMENT
Refers to all the uncontrollable forces originating outside the home country that influence
the firm.

UNCONTROLLABLE FORCES
(Domestic environment vs Foreign environment)

a) Forces have different values

- Even though they are identical, their values differ and sometimes opposed to one
another. (Trade sanctions)
b) Forces can be difficult to assess.
- Legal and political forces.
c) Forces are inter-related
- Same situation facing a domestic manager and a foreign manager produce
different outcomes.

INTERNATIONAL ENVIRONMENT
• Consists of interactions between domestic environment and foreign environment.
(Cross border trade – Xiaomi’s handphone sold in India)

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DRIVERS OF INTERNATIONALIZATION OF BUSINESS
Five major kinds of drivers: -
a) Political
b) Technological
c) Market
d) Cost
e) Competition

POLITICAL DRIVERS
• Trend toward unification and socialization of the global community.
• Two aspects contributing to the globalization of business operations are: -
a) Progressive reduction of barriers to trade and foreign investment.
b) Privatization of industries in formerly communist countries and opening their
economies to global competition.

TECHNOLOGICAL DRIVERS
a) Advances in computers and communications technology
b) Cable and Satellite TV systems
c) Global communications network.
d) Internet and network computing
e) Internet video conferencing
f) Communications by email via Internet
g) Virtual integration

MARKET DRIVERS
a) Global customers
• People or companies from all around the world who buy products or
services.
• Companies may expand internationally to serve these global customers.
They want to reach more people and grow their business beyond their
home country.
• Eg: When Apple releases a new iPhone model, it is simultaneously
launched in multiple countries to meet the demand of global customers.

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 b) Search for new markets outside home country
• Companies look for new places outside their home country where they can
sell their products or services.
• Companies may seek new markets to increase sales and find growth
opportunities. They want to diversify their customer base and reduce reliance
on one market.
• When Starbucks came to China in 1999, most people there drank tea, not
coffee. But Starbucks introduced the idea of coffee culture to China. With
cafes and clever marketing, they got people interested in drinking coffee
instead of tea. Now, China is one of Starbucks' biggest and fastest-growing
markets. This shows how successful they were in finding new places to sell
their products beyond their home country.
COST DRIVERS
• Relocating activities/production worldwide
• Lower cost of goods sold.
• Reduction in R&D cost per unit. Subsidies for R& D.
• Economies of scale
• Reduced taxes offered by some Governments to attract investment.

COMPETITIVE DRIVERS
• Companies defending home turf by entering competitors market.
• Companies internationalize their operations in order to ensure guarantee of supply
of raw materials.
• Companies invest in downstream markets to protect its exisiting international
business.

CHALLENGES IN INTERNATIONAL BUSINESS

a) Globalization has produced uneven results across nations
• Promise of export led growth has failed to materialize in some countries . Eg: Latin
America.
• Gap between the world’s rich countries and poor countries continue to widen. Eg:
China
• Obstacles such as poor governance and excessive borrowing.

b) Impact of Globalization on labour standards

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• Migration of jobs from developed countries to developing countries with lower
standards and lower costs.
• Easier for countries to divest their interest in one country and move to another.

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GLOBALIZATION
ARGUMENTS SUPPORTING GLOBALIZATION
• Free trade is the best strategy for advancing world’s economic development.
• Definitive link between liberalization of trade and economic growth
• Free trade creates more and better jobs.
• Manage the costs of trade adjustments and support transition of workers to more
competitive employment.
• Significant decline in the proportion and absolute number of destitute people

ARGUMENTS AGAINST GLOBALIZATION

• Globalization has produced uneven results across nations.
• Huge gap between world’s rich and poor and globalization has caused this gap to
increase.
• Deleterious effects on labor and labor standards.
• Jobs migrate to developing nations where standards are lower.
• Developing nations view the imposition of more demanding labor standards as a
barrier to free trade

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Chapter 2 - Global Marketing and eBusiness

Topics

1. Marketing Strategy
2. Product and Brand Strategy
3. Price/Pricing Strategy
4. Distribution (Place/Placing) Strategy
5. Communication (Promotion) Strategy

MARKETING STRATEGY

Marketing Mix (a.k.a. 4 Ps)

• Set of strategy decisions made about the product and its promotion, pricing and
distribution in order to satisfy the needs and desires of customers in a target market.
• Domestic market – established marketing mix.
• Can we standardize worldwide, should we make changes or to formulate a
completely different marketing mix?

Standardize, Adapt or Start from Scratch

• Standardization can produce significant cost savings. Management would prefer to

standardize the marketing mix globally using the same marketing mix in all the firm’s
market.
i. Longer production runs, lower manufacturing costs and economies of scale.
ii. Longer learning curve, create new economies.
iii. Standardized advertising - CORPORATE VISUAL IDENTITY (CVI)

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 Corporate Visual Identify (‘CVI’)

• A firm’s name, logo, slogan with graphics, colour and typeface that help to identify
the firm to consumers and other interested constituents.
• Project a consistent image worldwide.
• Standardized pricing strategies worldwide.
• Jingles, music and even odours can be standardized.

PRODUCT and BRAND STRATEGY

Product or service is the central focus of the marketing mix.

• Total Product

Includes what the customer buys, the physical product, brand name, accessories,
after-sales service, warranty, instructions for use, company image and package.

• Product adaptation
i. Less expensive and easier than changing the product’s physical
characteristics.
ii. Different package sizes, different promotional messages create a total new
product for a distinct market.

Types of Products: -

1. Industrial products
▪ Can be sold unchanged worldwide.
▪ Adaptations necessary to meet local requirements.

Examples:
Memory chips, nuts and bolts.

2. Consumer products
▪ Generally, the products require modifications to meet local market requirements.
▪ The deeper the immediate market penetration, the greater the product
modification.
▪ Different packaging size, or different packaging colour, change in brand name or
new positioning. Does not mean the product must be changed.

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 3. Services
▪ Marketing of services is less complex than that of consumer products.
▪ Laws and customs require providers to alter their services.
▪ Accounting firms operating globally need to make local adaptations to conform to
local laws and regulations.

PRICE/PRICING STRATEGY
PRICING STRATEGIES
• Pricing decisions affect the firm’s gross revenue and its profits.
• To take into account cultural differences of a country where buying decisions are
based on relationships.
• Perceived price – quality relationships.
eg: sales promotion in USA to gain market share as opposed to in less advanced
countries sales are attributed to sale of low quality products.

STANDARDIZING PRICES
There are 2 types of pricing for overseas market: -
a) FOREIGN NATIONAL PRICING

• Policy that sets local pricing based on the market forces in another country.

• Prices have to be taken into account on cost differentials at opposite sides of

the border.

Eg: Levy of import duties on imported materials, labor costs and competition
among local suppliers.

• Price skimming strategy – setting a high price to quickly recover development

costs is usually adopted when introducing a product into a new market.

Eg: Apple.

• Penetration price strategy – price set very low in order to establish the
product in a new market.

Eg: HDTV.

b) INTERNATIONAL PRICING

• Policy that sets prices of goods produced in one country and sold in another.

• Transfer pricing – common among large companies that want their

subsidiaries to specialize in the manufacture of some products and import
others. The imports may be components that are assembled into the end
products.

Eg: computer chips

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DISTRIBUTION STRATEGY
Marketing managers are concerned with 2 functions: -
a) Getting the products to foreign markets
b) Distributing the products within each foreign market
• Interdependent with other marketing mix variables
Eg: If product requires after sales service, it would require dealers with facilities, staff
training, and capital to purchase spare parts.
• Distribution channel decisions are critical, long term decisions, less easy to change if
compared to price, product and promotion.

COMMUNICATION AND PROMOTION STRATEGY

PROMOTION
• Any form of communication between a firm and the public including advertising, public
relations, sales promotion, events and experiences to yield purchases in the short term
and confidence in the long run.
• Directed not only at the consumer but also includes the retailers and other members
of the distribution channel.

PROMOTION OPTIONS
• Market the same physical product everywhere
• Adapt the physical product for foreign markets
• Design a different physical product with: -
a) Same message
b) Adapted message
c) Different message

PROMOTION STRATEGIES
• Same product –same message
When target market vary little with respect to product use and consumer attitudes,
offer the same product and use the same promotional appeals in all markets.
Eg: Avon

• Same product – different message

The same product satisfies a different need or used differently elsewhere. Product to
be left unchanged but require different message.
Eg: Honda.

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• Product Adaptation – same message
The product serves the same function but must be adapted to different conditions.
Eg: Lever Brothers – Lux soap in fancy boxes as gifts.

• Product Adaptation – message adaptation

Both the product and the promotional message must be modified in foreign markets.
Eg: Tang in Latin America vs Philippines.

• Different product – same message

Companies produce a distinct product for these markets but performs the same
functions. Occurs when customers cannot afford the product as manufactured for
developed markets.
Eg: Plastic squeeze bottle for an aerosol can.

• Different product for same use – different message.

Different products require different message. Governments of developing countries
might emphasize labor intensive processes to reduce unemployment.
Eg: Low tech welding torches

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Chapter 3 – Assessing International Markets

TOPICS

Market Screening
• Country Screening
• Segment Screening

Market Entry Modes/Methods

• Non-equity Modes of Entry

• Equity Modes of Entry

Market Screening

• A modified version of environmental scanning in which the firm identifies desirable

markets by eliminating the less desirable ones.
• The firm reviews markets based on the market’s basic need potential and the
external environmental forces in the market, such as: Political, Economic (financial),
Sociocultural (culture), Technology, Legal and Environment (P.E.S.T.L.E.) conditions.

The 2 levels of market screening: -

a) Country Screening
- A screening that uses countries as basis of market selection.

b) Segment Screening
- A screening that uses market segments, within a country analysis of group of
consumers as basis for market selection.

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Country Screening

i. Initial Screening – Basic needs potential

• Dependent on various physical forces such as climate, topography and natural

resources.
• Basic need potential of some goods sometimes easy to assess.
Eg:
Specialized industrial equipment, such as snow removal equipment.
• With less specialized products, widely consumed, to assess the basic needs is more
challenging, as we are addressing desires rather than needs.
Eg:
Chocolates, 8K TV, posh cars, etc.

ii. Second Screening - Financial and Economic Forces

Major areas of concerns are: -

a) Inflation
b) Credit availability (Loan facility)
c) Paying habits of customers
d) Rates of return on similar investments (ROI)

Two measures of market demand based on economic data are: -

1. Market Indicators
• Economic data used to measure relative market strength of countries or
geographical areas.

2. Market Factors
• Economic data that correlate highly with market demand for a product. (Trend
analysis, Cluster analysis)

Trend Analysis
Statistical technique used to estimate future values by successive observations of a variable
at regular intervals that suggest patterns.

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 Cluster Analysis
Statistical technique that divides objects (market areas, individuals, customers and other
variable) into groups based on similarity

iii. Third Screening – Political and Legal forces.

Barriers to entry imposed by host government

• Import restrictions (either positive or negative)
• Export or set up foreign plant (foreign ownership vs. local participation)
• Local content restrictions
• Transfer of technology to local companies
• Restrictions on repatriation of earnings
• Foreign exchange restrictions for profit remittances
• Stability and continuity of Government policy

iv. Fourth Screening – Cultural Forces

▪ Fairly subjective, often rely on the perceptions and opinions of others.
▪ Data difficult to assemble.

v. Fifth Screening – Competitive Forces

▪ The number, size and financial strength of the competitors

▪ Their market shares
▪ Their marketing strategies.
▪ The apparent effectiveness of their promotional programmes
▪ The quality levels of their product lines
▪ The source of their products- imported or locally produced
▪ Their pricing policies
▪ The levels of after sales service
▪ The distribution channels
▪ The coverage of the market

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Segment Screening

• Shared needs and wants of consumers across nationalities.

• The consumer may reside in different countries, speak different languages but have similar
desires for a product or service.
• Age, income and lifestyle essential means to identify market segments
• In order to identify and assess these segments, it is important that they can be: -
a) Definable – able to identify and measure segments, focus on lifestyle differences to
produce accurate results.
b) Large – Segments should be large enough and have potential for future growth.
c) Accessible – To be able to reach target segment for promotional purposes.
d) Actionable – Take account of the 4P’s (Product, Promotion, Place and Price)
e) Capturable – Are the needs of the target segment unmet, or already captured by
competition.

MODES OF MARKET ENTRY

NON-EQUITY BASED MODES OF MARKET ENTRY

1. Exporting
2. Turnkey Project
3. Licensing
4. Franchising
5. Management Contract
6. Contracted Manufacturing

EQUITY BASED MODES OF MARKET ENTRY

1. Wholly owned subsidiary

2. Joint Venture

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NON EQUITY MODES OF MARKET ENTRY

1. Exporting

• Selling some of their production beyond domestic market.

• Requires little investment, relatively free of risks.
• Excellent way to get a feel for international business without committing significant
resources.

2. Turnkey project

• Export of technology, management expertise, capital equipment.

• Contractors agree to design, erect the plant, supply the process technology, provide
production inputs, and train personnel.
• After the trial run, the facility is turned over to purchaser

3. Licensing

• Furnishing technical assistance to firms that have sufficient capital and management
strength.
• Licensor (firm) grant to another firm (licensee) the right to use any kind of expertise
such as manufacturing process, marketing procedures and trademarks for one or
more of licensor’s products.
• Licensee pays a fixed sum upon signing the licensing agreement and a royalty of 2%
to 5% over the life of the contract

4. Franchising

• A form of licensing where one firm contracts with another to operate under
a specific set of rules, permitting the franchisee to sell products or services
under a well-publicized brand name and a well proven set of procedures
and controlled marketing strategy. Eg: Starbucks, Mc Donald’s and KFC

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5. Management Contract

• An arrangement where a company provides management in some or all functional

areas to another company for a fee.
• International companies making such contracts with firms that they have no
ownership.
• Joint ventures and Wholly owned subsidiary

6. Contracted manufacturing

• An arrangement in which one firm contracts with another to produce products to its
specifications in order to enter a foreign market or to subcontract work there.
• Entering a foreign market via contracted manufacturing, does not require investment
in plant facilities.
• Also known as ‘Outsourcing’

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EQUITY BASED MODES OF MARKET ENTRY

1. Wholly Owned Subsidiary

• A company that decides to own a foreign subsidiary may start by building a new plant
(greenfield investment) or acquire a going concern.
• With an acquisition, a company purchase its distributor thus obtaining a distribution
network familiar with its products.
• Preferred choice of international companies making foreign direct investment.
• Access to its distribution network and its market.

2. Joint Venture

• Cooperative effort among two or more organizations that share common interest in a
business undertaking.
• Corporate entity formed by international company and local owners for the purpose of
doing business in a third market.
• Corporate entity formed by 2 international companies for the purpose of doing business
in a third market.
• Corporate entity formed by a Government agency and an international firm.
• Usually large construction jobs such as airports or dams.
• Create strategic alliances – collaboration with competitors, customers, suppliers in
response to global competition, provide faster market entry and start up, gain access
to new products, markets, technologies and share costs, resources and risks.

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