Prof.

Purshottam Patil

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University Assessment 100 Marks 1. Overview of the International Business Process 2. PEST factors affecting International Business 3. Government influence on trade 4. International Trade Theories 5. FDI 6. Country Evaluation and Selection 7. Collaborative Strategies 8. International Marketing 9. International Trade Agreements 10. International Trade Organizations 11. International HR Strategies . 12. International Diplomacy - .
International Business Prof Purshottam Patil 2013 2

Course Content

Reference Text
 1. International Business - Daniels & Radebouqh
 2. International Business – Sundaram & Black  3. International Business — Roebuck & Simon  4. International Business – Charles Hill  5. International Business— Subba Rao

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 1. Overview of the International Business Process  Differentiate between exports & IB

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Exports vs. International Business
 International Business Includes
investments manufacturing & transfer of technology movements of services

physical movements of goods (Exports)
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Exports vs. International Business
IB has wider spectrum unlike exports, include 1. Indian Companies acquire/ take over Companies abroad. 2. They invest huge amounts to find right location for cost effective production base. 3. They are on a look out for a precise JV partner overseas.

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Emerging Economies  What are motives of Companies for IB? International Business Prof Purshottam Patil 2013 7 .Definition : International Business  Any commercial transaction taking place across the boundary lines of a sovereign (self governing) entity.”  Discuss E-Merck. It may take place between two Companies (for profit/prosperity) or Nations (for goodwill/economic growth)  Export or Perish” is now “Globalize or Perish.

Kumar Birla 4. Coca Cola. Bharat Heavy Electricals.g. Adventurous younger generation: L N Mittal . & Dr Reddy. e. PLC Management. Sun Pharma 3. L & T 8 International Business Prof Purshottam Patil 2013 . Technological Advantage: Core Competencies>Global Advantage. decline phase in one nation > replicate whole process in other (Enfield India. Ranbaxy. Kelloggs 5. look new overseas markets. Gharda Chemicals. Infosys/TCS.Motives of Companies for International Business 1.. Thermax. Ion Exchange. Corporate Ambition: Multi-national operations will make-up losses in one nation. Suzuki 800cc. Cipla. Geographical Expansions : A growth strategy Doing well at home country. Apollo Tyres. Jain Irrigation. Tata Motors/ Tea. HP Laptops:) 2. Bicon.

CIS nations. handicraft. handlooms. Samsung. wood work. carpet weaving. Aditya Birla group in Thailand & Indonesia. New business opportunities : untapped Latin America. Govt Incentives : Fiscal. 6. LG 8. Sub-Saharan Africa. Diamond. International Business Prof Purshottam Patil 2013 9 . Labor Advantage: Indian Manu. Corporate Image Building : First built image > generate revenues. AEZ's : new dimension to IB. leather industry.Motives of Companies for International Business contd. EOUs. cashew process. & sea food industry 9. units perform well due to ^ly productive workforce. 10. embroidery. & infrastructural incentive by host nation. & China 7. Emergence of SEZ'..

 What are motives of Nations for IB? International Business Prof Purshottam Patil 2013 10 .

If exports certain nations have survive on its >imports= surplus of BOP. Diplomatic Relations: National embassies & high 5. IT & catalysts promote trade & investts. y of nations: No balance payments for imports. Core Competency of nations: commissions. techno. etc than nations_ crude others. Wool # Australia. Comparative Advantage single nation e. tea > < Gulf BOP infrastru. world over. are Rubber products # Malaysia. medical Advantage indicate resources to equipments.g. India imports crude oil. 3. Rice # e. oil 4. Knitwear # India . India_ rice. International Business Prof Purshottam Patil 2013 11 . & Competitive possess all defense equipment .g. Diplomats in Latin America to promote India Inc. Earn foreign exchange: Absolute Advantage. Trade Theories: of Interdependenc 1. If resources advantage as own. exports <imports= adverse in labor. etc . remarkable job done by Indian Thailand.Motives of Nations for International Business 2.

8. ITU. contd. Investt for Infrastru : Heavy investt of nations in infrastru as airports. Mauritius. Malta & Cyprus 9. ISO.g. India (import control order in 1947). IMF. Singapore. National Targets: By 2015: India Aims 1% > 2% global market share 7. WTO & Global Agencies : WTO. Foreign Trade Policy & Targets: Developing nations draft road map & implement trade policies . IMO. e. Made in India. ICAO promote inter-national trade.Motives of Nations for International Business. World Bank. e. National Image: Conquering nations by trade. seaports. Have to ^ trade activities to recover these amounts. Made in Japan bring credentials to respective nations. economic zones & inland container terminals.ppc 10. Hong Kong.g. 12 International Business Prof Purshottam Patil 2013 . 6.

Legal Aspects. Plan & Strategy. Research. Competitive forces. International Business Discuss differences wrt Environment. Logistics cost. Distribution Channels. International Business Prof Purshottam Patil 2013 13 . Pricing Strategy.Similarities: Domestic vs. Promotion. currency movements. HR.

impact on business. Fluctuations in cross currency movements & related risks common. may be carried to long term International Business not fully known 3. competitive are known Short term_ workable. Price. Volatility has min. Business risks . Competitive forces & their intensity 4. International Business Dimension 1. Revenue & Margins computed in local currency. Comparatively. one can Difficult to predict & risk International Business Prof Purshottam Patil 2013 14 predict future risks & shocks may crop up at any time 5. legal. multiple strategies required movement of domestic difficult to understand competitive forces are visible movement of global competitive forces Cost. Various currency transactions. Plan & Strategy Domestic Business PEST.Currencies movements only long term will work.Evironment 2.Differences : Domestic vs.

geographical influence may be on vision & objective As per need of domestic customers affordability.Differences : Domestic vs. Subject to regulations. Cultural. with a steady growth. Research Domestic Business Easier. individual a profit centre & accountable 7. Product & usage Established reputation help business survive even if HR have min. no uniformity in output & findings. Multi-lingual/cultural HR. Nation specific. Corporate vision & objective 9. Min. beliefs. culture & buying behavior Local regulations fully apply. 15 International Business Prof Purshottam Patil 2013 . Human Resources 8. 10. International Business Dimension 6. legal aspects Global & host nation regulations apply. skills & knowledge Narrowed down to a single nation Covers nations. adherence to global regulations. difficult. values. reliable International Business Expensive.

Cash & carry.Differences : Domestic vs. Pricing strategy Domestic Business Start: Min.Logistics . Domestic players are involved in all Advanced technology & activities. advertisements restricted through a strict legal for liquor. without Govt. Promotion 15. Advertising./market practice governs restrictions. investt. Individual ability & repayment terms determine funding. & sourcing 12. shopping malls & mailorder services popular in IB. transfer pricing or competitive pricing to succeed. personal selling & other Restrictions are nation promotional methods are not specific. Majorly Cos use cost-plus margin or competitive pricing. Any channel can be used. cigarettes not framework. if socially acceptable permitted in some nations. invest. E. International Business Except exports all overseas operations need huge investts. Campaigns using female models banned in others. Cos use marginal cost pricing. International Business Dimension 11.g. distribution channel. cost Business very high locally Patil 2013systems reduce Cost International Prof Purshottam 16 13. Distribution Channels 14.

3 Export or physical movement of goods and services alone can’t justify international business. UEQ.2012. Explain briefly. 10 marks International Business Prof Purshottam Patil 2013 17 .

3.22nd Governor of RBI ……………………. a premium of 34% over the market price though it was not getting control. The top 15 Indian TNCs (Transnational Companies. Chief Executive… Full Form UNCTAD: …………………… Full form FIPB: ………………………… ………………………. Richard Branson. founder of Virgin Atlantic. Vodafone India. Federal Reserve. Foreign Investment Promotion Board... under which the Middle East carrier agreed to buy 24 % of Jet for about $ 600 million. Virgin Mobile International Business Prof Purshottam Patil 2013 18 . Forever 21. 7.. Ben S Bernanke.IB Quiz No. held …% of their total assets overseas & employed 20% of their total workforce abroad. Ajit Singh. 1            ………. especially the powers in the agreement giving Etihad the power to approve a number of transactions. Duvvuri Subbarao 6. 75 & 57. plans to invest $ 50 million in Indian Market. Author of the book: ‘Screw Business as Usual’ is ………………………. United Nations Conference on Trade and Development 4. India. 2. MNCs).Union Civil Aviation Minister Jet.Etihad stuck a landmark agreement in April 2013. US apparel retailer: ……………having partnership with DLF Brands Ltd. 8. SEBI (Securities & Exchange Board of India). 10. the Central Bank of US Martin Pieters. earned …% of their total revenues from global operations.Chairman. …………………was first government agency to question the Jet-Etihad deal. with assets of $ 500 million or more. 9. Ans: 1. 5.

TakeOvers Modes of Entry for International Business 4. Contract Manufactur ing 10. Mergers & Acquisitions 9. Foreign Direct Investment 5. Ventur Collaborat e 2013 ion International Business Prof Purshottam Patil . International Licensing 3. Franchising 11.Methods of Entry In International Business 13. Management Contracts 19 7. Joint 8. Contract Marketing 6. Counter Trade 12. Turn-Key Projects 1. Export s 2.

farmers. Partnership 2. Multiple Product Exporter 1. Exports Classification of Exporters Exporter Involvement 1.Indirect: lack expertize. Proprietory 1. Pvt Ltd 4. Large exporters 1Single Product Exporter 2. Direct: exports by exporter's own name 2. Public Ltd International Business Prof Purshottam Patil 2013 20 . Multi Destination 1. Occassional 2. etc Product lines Business size Legal status Destination Frequency 1. artisans. small exporters 2. supply goods to direct exporters.1. overseas contacts & manpower. Dynamic 3. Single Destination 2.

International Licensing International Business Prof Purshottam Patil 2013 21 .2.

Franchising International Business Prof Purshottam Patil 2013 22 .3.

Contract Manufacturing International Business Prof Purshottam Patil 2013 23 .4.

Contract Marketing International Business Prof Purshottam Patil 2013 24 .5.

Air France offer services in developing areas. in return of proper monetory compensation. % of sales or profit sharing. lump-sum fee. Management Contracts Agreements between 2 cos. as flat.g.g.2 Exxon operates in oil exploration in the Gulf region. e.6. provides managerial & technical assistance. e. where 1 co.1 Delta Airlines. International Business Prof Purshottam Patil 2013 25 .

investment & regulations in operating nations.g. Joint Venture Binding contract between 2 venture partners to set up a project. Taj group of Hotels had JV in Russia. either in home / host / 3rd nation. Both parties committed to joint risk-taking & joint profit sharing.1 In 1980s. International Business Prof Purshottam Patil 2013 26 .g. by both partners is crucial. with brand name Logan. may fail due to functional level grievances & issues.7. promising excellent opportunities initially to both partners. E. JVs. Hence understanding all aspects of management. e.2 Mahindra & Mahindra JV with Renault to manufacture cars. For setting up 5 star hotels.

Investors in US. E. Collaboration JV : deals with complete project in financial terms & proportionate partnership commitments. E.g1 Technological collaboration of Bajaj Auto with Kawasaki Japan. Germany.8. Collaboration (=Tie-ups) deals with only some functions. & UK offer technical expertise to developing nations. Kinetic & Hero with Honda. Hyderabad. Japan.g2 Kellogg Business School collaborated with Indian School of Business(ISB). International Business Prof Purshottam Patil 2013 27 .

9. Brazil & Argentina attracting huge foreign investments. Coca Cola & Hyatt groups willing to invest even if profits expected after long gestation period International Business Prof Purshottam Patil 2013 28 . Disadvantages: lack of clarity regarding repatriation (send back/ doubts). E. Yesteryears: funds flow was amongst developed nations only. India. Pepsi. Argentina victims to the dominant overseas investors Kellogg.s Indonesia. mining. Foreign Direct Investments (FDI) Direct investment contributes to optimization of resources in host nation. elimination of SMEs. imposition of restrictions by host nation. generating employment & enhancing its standard of living. Investments in infrastructure.g. marine technology & agro-processing beneficial to both host & investor nation. Today: China.

The foreign Co acquires the control of ownership. . e. Host nations may impose restrictions on acquisitions. especially in developing nations.g1 P & G entered Mexico & became a leader in 5 years by acquiring Loreto.g2 Steel Magnet L. Labor issues is a big challenge for acquisitions. Cross Border Acquisitions Volume growing at a rapid rate for 2 decades: 2001: M & As accounted for approx. e. 78% FDI inflows Disadvantages: 1. in the non-ferrous International Business Prof Purshottam Patil 2013 29 category. Mergers & Acquisitions Company in the host country selects a foreign company & merges itself with it. N. Mittal first acquired a steel mill in Indonesia.g3 The acquisition of Novelis strengthened Hindalco. 2. Kazakhstan. followed by those in Trinidad. lawyers.10. an Aditya Birla Co’s production synergy & market access globally. Complex task involving banks. Cos strengthen their international manufacturing facilities & marketing networks. bureaucrats & politicians. etc. e. Hungary. where unemployment is a critical issue. 3.

E.10. 1990_ 70:30 JV with IBM Interbold. US. generating known revenue & profits) seem less risky than Green-Field Ventures (build subsidiary from start_ uncertain revenue & profits_ although gives firm greater ability to build kind of subsidiary co. into ATM machines.g2 German automobile Co. it wants) International Business Prof Purshottam Patil 2013 30 . Preempt Competition: The largest acquisition ever in 1999_ British Co. M & As: Advantages 1. Chrysler to form Daimler-Chrysler 2. Acquisitions(buy tangible & intangible assets. Holland’s Getronics. opened manufacturing JVs in China. France’s Groupe Bull. Ohio. international sales accounted for 37% of $ 1. Vodafone’s $ 60 Billion acquisition of Air touch Communications in US. Daimler-Benz growth in US > acquired #3 US Co. Result_ 2002: Presence in 80 nations. E. 3.g1 Diebold: 144 years old. based Co. Quick to execute: Acquire established enterprise> rapid presence in target foreign market..94 Billion. 1999: acquired Brazil’s Procomp AIE. 1997: Acquired remaining 30%.

Study2: KPMG. 17% successful. Findings: 50% eroded share holder value.10. 31% destroyed value & others had little impact.. 33% created marginal returns. study of 700 large acquisitions (period 1996-98). Findings: 30% created value. M & As: Limitations Study1: Mercer Management Consulting study of 150 acquisitions (period 1990-95) worth more than $ 500 Million each. International Business Prof Purshottam Patil 2013 31 . accounting & management consulting Co.

This took place at end of multi year boom in US auto sales & paid a large premium over Chrysler’s market value just before demand slumped. 40% over Chrysler’s market value before bid. e. 3. ii)Hubris Hypothesis : Top managers have exaggerated sense of their own capabilities.post acquisition due to cultural & working differences. M&As: Reasons for Failure 1. . Acquiring firm overpay for assets of acquired Co. 2.10. In cross border acquisition. 1st year post merger: Chrysler executives disliked dominant Daimler’s German managers’ decisionsGermans resented the 2-3 times pay to Chrysler’s American counterparts.g. acquiring firm fails to understand target firm’s national culture & International Business Prof Purshottam Patil 2013 32 business system. Many sr. Acquiring – Acquired firms cultural clash: high management turnovercausing loss of local knowledge. managers left Chrysler. due to: i) price bid up by multiple firms. Daimler acquired Chrysler in 1998 @ $ 40 Billion. Inadequate Pre-acquisition screening: absence of potential benefit-cost analysis pr-acquisition.

takeovers cost more than acquisitions. a healthy unit with a strong brand name & network. to be the leader in given segment.11. Takeover maybe for product. Multiple parties aspiring to takeover may generate competition. Only one party wins & may hence withstand hostilities. brand.g. Take-over Co. International Business Prof Purshottam Patil 2013 33 . identifies & brings under its management. business & co. Inevitably. Hinduja’s takeover of Ashok Leyland. Unilever takeover of Lipton & Brooke Bond (enhanced its position as a leader in Tea industry in India). Hence ‘hostile takeover’ & winner as ‘takeover tycoon’ e. but the probability is high.

Depending on involvement & obligations terms are: BOT ( Build. railway lines. International Business Prof Purshottam Patil 2013 34 Hyundai. E. Operate & Transfer) & BOOT (Build. Turn Key Projects Contract under which Co. Own. Bechtel.12. petroleum/ metal refineries. L& T& Deawoo . infrastructure projects as power plants. Profitability increases as there is enhancement in cost cutting on material & manpower. Mitsubishi. International Turnkey contractors e. airports. Operate & Transfer) Turn key project contractors either get a fixed fee/ the cost plus profits are collected over a period of time. fully involved from Concept to Completion. highways & dams. A means of exporting process technology to other nations. finances or speed of completion.g.g. Brown Bovery.

Firm entering into turnkey deal have no long term interest in foreign nation. 2. Western firms that sold oil refining technology to Gulf nation firms now compete with them in global oil market. Turn Key Projects Advantages: Turnkey strategy less risky than FDI. then selling this technology through turnkey project may be unfavorable.g. International Business Prof Purshottam Patil 2013 35 .g.12. Firm entering turnkey deal may create own competitor. E. In political/ economic unstable nation. long term investments not feasible (e. 3. risk of nationalization /economic collapse) Disadvantages: 1. If firm’s process technology is competitive advantage.

Counter Trade International Business Prof Purshottam Patil 2013 36 .13.

Counter Purchase (Exchange of goods in various nations until forex is found) International Business Prof Purshottam Patil 2013 37 . Counter Trade Types Counter Trade i.13. Pure Barter (product-toproduct exchange) ii. Buy Back (buy end product from host partner) iii.

In return India supplied tea. medicines & tobacco to Russia.i. at comparatively low prices. International Business Prof Purshottam Patil 2013 38 .g.13. Pure Barter Goods / services mutually exchanged between 2 nations depending on the surplus available & their bargaining strength E. Russia supplied newsprint & crude oil to India for decades. garments.

which could be marketed in home country or even to third country to maximize profit. Home country representative purchases end product of same project at relatively low price. sets up project in host country. Advantages to Home nation: Buy back arrangements popular as many turnkey project contractors reap better benefits by marketing end product globally at higher margin.g. 2.ii.having sufficient forex to fully pay the supplier.13. Advantages to Host nation: 1. It need not pay the full sum of money needed for the project. Buy Back : Home country Co. The project is located & owned by it. markets them in other nations including India for higher margins International Business Prof Purshottam Patil 2013 39 . Project amount is partially paid in forex & remaining in kind. E. BHEL (Bharat Heavy Electricals Ltd) sets up projects in other countries for equipments.

40 . Thus: purchasing takes place against supply until nation D with adequate forex is found for the International Business Prof Purshottam Patil 2013 transaction.Counter Purchase Company A (Country A)supplies product X… to country B (having surplus product Y) Country B compensates by supplying product Y to company A company A finds a market for product Y in country C Country C sells product Z to Country D…country D having sufficient forex & pays country C Country C pays to A…country A pays to company B.13.iii.

the Co conducts routine functions.  Due to counter purchase mechanism.  By appointing one employee. From S Africa it procures steel equivalent to the rice amount & supplies it to Ghana. International Business Prof Purshottam Patil 2013 41 .Counter Purchase Pepsi International supplies rice to S Africa from India. possessing adequate forex reserves. From Ghana it procures coffee & cocoa equivalent to steel imports & sells them to Canada.iii. very few nations with sufficient forex reserves can comfortably contribute to world trade transactions.13.

Foreign Entry Decision Exploit competitive advantage through entry abroad Produce at Home & Export Produce Abroad Maintain Control over assets abroad Joint Venture Licensing/ Management Contracts Majority / Wholly owned affiliate Build from Scratch Acquire / Merge / Takeover 42 International Business Prof Purshottam Patil 2013 .

2008Dec.UEQ.2 Why do Companies & Countries enter into International Business when the opportunities exist into domestic market (10 marks) International Business Prof Purshottam Patil 2013 43 .

 E. manufactures & markets dental care. Procter & Gamble. hair care & skin care products in more than 120 nations. either by manufacturing or/& marketing.g4. health care.g2. operates in more than 150 nations International Business Prof Purshottam Patil 2013 44 . based in Cincinnati (US) with similar product lines. Manhattan (US) based Co.g1 1600: British East India Company. Also called MNEs (Multi National Enterprises)  Business unit which operates simultaneously in different parts of the world.MNCs  MNCs ( Multi National Corporations). E. 1602: Dutch East India Co.  e. Colgate Palmolive Inc.

6 Billion). Kenya ( US $ 11. In 2005: Sales of General Motors: $ 195 Billion.1 Billion) International Business Prof Purshottam Patil 2013 45 .MNCs Few MNCs total turnover > GDP of many small / Less developed nations.g. GDPs: Poland (US $ 149 Billion). e. Algeria (US $ 29.

MNC Influence on Economies Globally Political Technology Power Power Mangerial Power Muscle Power Money Power International Business Prof Purshottam Patil 2013 46 .

Specific Product based MNCs created by Nations International Business Prof Purshottam Patil 2013 47 .

Typical MNC HQ : Key Roles International Business Prof Purshottam Patil 2013 48 .

Sony Walkmans & Xerox faced various Chartered Bank. Hence investment overseas to licensing/ franchising PLC: Further growth in home Building Reputations: MNC nation dries up. e.g. banks as Citibank.g. attract business/ deposits. e.Reasons for Growth of MNCs Non Transferable Knowledge: MNC having process / product patent makes ^er profit by venturing overseas itself. HSBC. unlike just selling patents Secrecy Protection : Licensee will protect patent rights. Protecting Reputations: inferior job of foreign licensee > hits MNC reputation. markets overseas may have less investment > builds reputation > competition & penetration. Standard Gillette. etc PLC in home nation 49 International Business Prof Purshottam Patil 2013 . however may be less conscious than original owner. HP laptops.

Ernst & Young offices even in small nations as Panama. contd. 50 International Business Prof Purshottam Patil 2013 . Hyundai & Honda with techno & money. e. overseas entry of Automobile giants as Fiat. MNCs from US. Japan. Capital Availability: Capital Markets' access to MNCs favors their overseas establishments Strategic Motive: Potential entry of indigenous firms/ overseas MNCs> Threat to MNCs. ship overseas> face T & Qs. Malta & Sri Lanka.g. Volkswagen.. Overseas Investt > Solution for growth e.g. Solution: direct investt in target nation. Europe into India / China.Reasons for Growth of MNCs. Goldman Sachs. Accounting/ Consultants as Templeton.g. Avoid Tariffs & Quotas: Produce goods at home. e. Mauritius. not products Symbiotic Relationship: Firms open offices in nations where clients open subsidiaries.

Problems from Growth of MNCs

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Case 1_ MNCs Controversies: Royalty issues at SmithKline Beecham
 1997: SKB India decided to pay 5% Horlicks sales revenues

to parent Co., towards use of brand name. Horlicks had 80% of Co’s Rs 430 Crores net sales, then. It paid Rs 5 Crores. Estimated annual outgoings: Rs 20 Crores against net profit of Rs 45.6 Crores, that year.  Impact: Feb 1997_ SKB Consumer Healthcare stock plunged by Rs 100, to Rs 365, in 10 days. Loss_ about 27%, Rs 275 Crores in Market Capitalization.  Issue with investors: should royalty payments be made to parent Co.? Though Indian Co. is not brand owner, has spent ^ amount on Horlicks brand promotion since last 4 decades & nearly Rs 175 Crores over past 10 years. The Co. could use this money promote own brand, International to Business Prof Purshottam its Patil 2013 52

Case 2_ MNCs Controversies: Parke-Davis
 Parke-Davis India is 40% subsidiary of Parke-Davis

Inc, USA.  In 1995, the latter set up 100% subsidiary.  It planned to manu. & mkt. confectionary products, where Parke-Davis was already operating.  Bought ‘Halls’ & ‘Chiclets’ brand from Parke-Davis India @ Rs 10 Crores, considerably low price.  Impact : Post transfer, within 17 months from Sept’94, Parke-Davis shares plunged almost 70%- a loss of about Rs 285 Crores in market capitalization.
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g2 In S. many MNCs pulled out of S E Asian nations as Indonesia & Thailand MNCs use infrastructure as roads & ports. Union Carbide > no concern for people in Bhopal. generate revenue. most MNCs. J & J & C-P Misconception: MNCs generate more employment. e. e. Union Carbide severe negligence in Bhopal. Risk anticipation> close business.g. Africa HIV medicines sold at exorbitant price. Unilever. but neglect it. earn high but do not allocate funds for works as hospitals & higher education scholarships Favorable situation> generate profits. e.Criticism: MNCs in Developing Nations Neglect social concerns. During currency crisis. e. International Business Prof Purshottam Patil 2013 54 . Fact: SMEs employ more people than MNCs MNCs in small towns threat to & lead to decline of SMEs MNCs may consider prefer profits to human lives. Unlike Tata & Birla.g1.g.

Take-Over.UEQ. explain various modes of entry into International Business. 20 marks (except M & A.3: By using appropriate examples. Turnkey Projects & Counter Trade) International Business Prof Purshottam Patil 2013 55 .2008.

Brazil Brasilia 3. Argentina Buenos Aires 2. Egypt Cairo 7. Canada Ottawa 4.Switzerland Bern 15. Denmark Copenhagen 6. Arabia Riyadh 14. Seoul 12.               1. Israel Jerusalem1 10.UK London Currency-Capital Test Peso Real Canadian Dollar Yuan Krone Egyptian Pound Rupiah Rial Shekel Yen Won Pakistan Rupee Riyal Swiss Franc Pound Sterling 56 International Business Prof Purshottam Patil 2013 . China Beijing 5. Iran Tehran 9. Indonesia Jakarta 8. Japan Tokyo 11.S.Pakistan Islamabad 13. Korea S.

PEST factors affecting International Business International Business Prof Purshottam Patil 2013 57 .2.

Why to study Environmental Factors? Pilot checks atmosphere prior to take off / landing  Sailor understands water depth sailing  Farmer plants seeds depending on soil/ monsoon  Similar for IB understanding environment of operation is necessary International Business Prof Purshottam Patil 2013 58 .

.Importance of IB Environment study. unlike its success in other nations?  Why did P&G’s American Style of Sales Force Management fail in Japan?  Why did Amway’s multilayer marketing technique fail in South Korea?  Why did KFC & McDonalds fail in Brazil & Tashkent. respectively? International Business Prof Purshottam Patil 2013 59 . Why did Enron fail in India?  What is the hindrance for Kellogg’s success in India?  Why has KFC not made any breakthrough in India.

International Business Prof Purshottam Patil 2013 60 .Which decisions depend upon Environment? Selection of Country Promotion /outlet opening Decisions depending upon Environment Channel Management Product Launches Selection of Plant Location Liason with Govt.

MNCs hire Expert Risk Analysts to Advice Management Political Science Policy Matters Economics Industrial Psychology Sociology 61 International Business Prof Purshottam Patil 2013 .

Political Labor Related Infrastruct -ure Economic Competiti -on Major Risk Analyses Prior to Co’s Entry Exchange Related SocioCultural Technolo-gical Legal Financial International Business Prof Purshottam Patil 2013 62 .

International Business Prof Purshottam Patil 2013 63 .

Home Country Political Environment b. Host Country Political Environment c.Classification of Political Environment Political Environment a. Global Political Environment 64 International Business Prof Purshottam Patil 2013 .

1 Political Environment International Business Prof Purshottam Patil 2013 65 .2.

1 Political Environment International Business Prof Purshottam Patil 2013 66 .2.

2.1 Political Environment International Business Prof Purshottam Patil 2013 67 .

Host Country Economy International Business Prof Purshottam Patil 2013 c.Classification of Economic Environment Economic Environment a. Home Country Economy b. Global Level Economy 68 .

2.1 Economic Policies Impact of National Economic Policies International Business Prof Purshottam Patil 2013 69 .a.

Global Cos incentivized to set operations in home nation e.2. Thailand & Brazil extend facilities in home nation International Business Prof Purshottam Patil 2013 for same 70 .2 Trade & Commercial Policies: process Ministry of Commerce & Industry announces Trade Policy Foreign Trade Target is fixed Promotions gear up to reach target. Indonesia.g.a.

2.a. Cyprus & Mauritius transformed into foreign trade economies due to conducive promotional & regulatory measures International Business Prof Purshottam Patil 2013 71 .3 Promotional & Regulatory Measures Restrictions & Bureaucratic Hurdles Imposed Exchange Control Restrictions & Draconian Codes of Business Eliminated Risk Averse Business Community Favorable Foreign Trade Small nations as Malta.

keen to enter L. HP & Samsung consider India future destination. SSA (Sub Saharan Africa) depend on EU. Market Size: MNCs enter potential EMs as BRICS & MIKT (Mexico. Industrialization: Developing nations keen to enter US. 4. US & far east nations due to their efficient banking services. Banking: Crucial IB remittance channel. Thailand. America. Argentina.2. & Chile due to industrialization 2. Pepsi. GDP: ^GDP ^attractive IB market. EU. Indonesia. South Korea & Turkey). Indian Cos. Brazil. Coca Cola. 3.b Host Nation Economy 1. 72 International Business Prof Purshottam Patil 2013 . Malaysia & Indonesia attractive in 1990s due to ^ GDP growth rate.

b Host Nation Economy contd.2. International Business Prof Purshottam Patil 2013 73 ..

c Global Level Economy International Business Prof Purshottam Patil 2013 74 .2.

Social Environment International Business Prof Purshottam Patil 2013 75 .3.

unlike Western nations 76 International Business Prof Purshottam Patil 2013 . • White: Bridal Dress color> Europe. widely used in banners. • Green: Favorite >Muslim nations. though communism is not prevalent. Koreans learnt Indian languages • Customize Brand names & slogans. Death > China & Korea. Feminine > Holland. • Red: Favourite> Russia. Hyundai & LG operations in India> S. Values & Beliefs • Blue: Masculine > Sweden. National Taste • Thailand: People prefer Black Shampoo • Nestle brews variety of coffee as per different nations' taste • Arab Nations: Green is favourite color • Russia: Red. etc 2. In Japan. as illness> Muslim nation Malaysia. Danger> Many nations. General Motors' 'Body by Fisher'= 'Corpse by Fisher' & Pepsi's 'Come Alive'= 'Come out of Grave' 3. • Swastika: Sacred> India. hoardings. posters.Importance of Social Environment in IB 1. Language • Language skills imperative.

with technical • Apple's iPod ^record services support revenues due to women • ^ Literacy Rate: customers Lesser training • Women ^ contributors: required for staff India_ IT.Importance of Social Environment in IB contd. Female Workforce • China.. 5. Literacy Rate 6. as it • ^ Literacy rates: was felt that they have std'ized goods aesthetic taste for colors. 4. family size. handicrafts. Demograp hy • Age. Russia. China_ Soft toys. sex ratio. Better Std of • Dulux: Campaigns directed Living to women in Europe. paper77 International Business Prof Purshottam Patil 2013 work . Indonesia_ garments. occupation > influence buisness • Barbie> ^ revenue through children segment. ceramics. Indonesia & Thailand > Women • ^ Literacy rates: contribute higher to GDP.

. International Business Prof Purshottam Patil 2013 78 .Importance of Social Environment in IB contd.

Hoffkins. Technology leaders encash on price skimming strategies where margins are huge. S. In 20th century. Asian Tigers. Singapore & Taiwan achieved ^ success due to efficient technology policy. Hong Kong. Nations as Japan in electronics equipment. Pfizer invest ^ in R&D. Cos invest millions in R&D.g. as sure on ROI over period. Japan. able to maintain & enhance technological activities remain competitive. Nokia & LG successful as they manufactured cell Business phones International Prof Purshottam Patil 2013 79 . will take at least 5 years more to enter Africa. Cos. Motorola.g. Germany in medical equipment & US for pharma are leaders since decades. Korea. despite less projected revenue.4. Technological Environment Multimedia using Pentium 4 chips common in DMs. e. e. Eriksson.

How should French Co.2001. is not willing to specially formulate their offerings for the Asian skin. wants to sell cosmetics in Asia. go about their entry into Asia? (20 marks) International Business Prof Purshottam Patil 2013 80 . However.UEQ. The Co.3 A French Co. Asian skin reacts differently to cosmetics compared to Europeans.

Cultural Environment Cultural Environment for International Business refers to material & psychologi cal developme nt of nation primary influence on lifestyle. attitude & behaviors of consumer International Business Prof Purshottam Patil 2013 81 .5.

but Africans perceive them as being very expensive. International Business Prof Purshottam Patil 2013 82 . e.g.5.2 Branded products move fast in EU & US.1 when Toshiba gained 100% ownership of RankToshiba in Plymouth. all managers in charge learnt British style of working. also means to match culture of organization & nation. e. Cultural Environment: Crucial Task in International Business Identify relevant similarities & differences among nations.g.

5. Cultural Environment: 3 Characteristics of Culture International Business Prof Purshottam Patil 2013 83 .

g. Products from Western Europe. Arabia.Products launched on basis of perceived or real utility value. advertisements acceptable worldover are not accepted in S. Differences in beliefs. e. pizzas popular in modern than traditional societies 2. International Business Prof Purshottam Patil 2013 84 . Liquor advertisements prohibited in many nations. McDonalds. hamburgers. Cultural Environment: Influence of culture on IB 1.5. Japan & US priced @ premium in developing nations due to better quality perception 3. Culture influences acceptability of advertisements among nations. values & lifestyles among nations > difference in product utility. Fast food as KFC.

International Business Prof Purshottam Patil 2013 85 . Cultural Environment: Influence of culture on IB contd.5..

to avail local legal services related to: labor legislatio ns Taxes distributi on & logistics 86 International Business Prof Purshottam Patil 2013 .6. Legal Environment Pollution environ ment investme nts Contracts Cos.

Legal Environment International Business Prof Purshottam Patil 2013 87 .6.

6. Home Country Laws:  Usually facilitating in nature  Deal with conduct of firm in domestic market Trade with other nations International Business Prof Purshottam Patil 2013 88 . Legal Environment i.

AntiDumping Regulations International Business Prof Purshottam Patil 2013 89 2. Tariffs & Duties . Legal Environment Host Country Laws include 1. Protection of local industries from unfair competition by DMs 3.6. Investment Regulations 4.

Legal Environment Host Country Laws Discourage of imports of non-essential products due to Tariffs & Duties helps to: International Business Prof Purshottam Patil 2013 90 .6.

Prevalent in areas of Patents. E. despite an embargo. Legal Environment iii. Trademarks. International Business Prof Purshottam Patil 2013 91 . to understand broad provisions of UN resolutions & multilateral trade agreements as WTO. sold Nigerian crude oil to S. Cos. conventions & agreements between nations. Africa.g. FDA. as the Co. Nigerian Govt. Protection & Privacy Laws.6. International Laws: Include treaties. having the same standing as laws. nationalized assets of British Petroleum. Health regulations & registration formalities are judiciously implemented in IB.

Competitive Environment  Competition:  Environmental threat that affects. challenges operations of International firm.7.  Reasons for Product related competition: substitutes cost reduction by economies of scale technology International Business Prof Purshottam Patil 2013 low-cost production process 92 . hampers.

Competitive Environment  Competition encountered at various stages in IB: Entry Financial Resources Production HRM International Business Prof Purshottam Patil 2013 93 .7.

the follower became leader.7.g1. Cuba based Havana Club. International Business Prof Purshottam Patil 2013 94 .g2 Late entrant. Competitive Environment  Competition encountered at various stages in IB: E. Nokia focused on fast growing markets as India & China. surpassed leaders as Smirnoff & Bacardi. Hyundai Motors (India). Motorola faced competition from Nokia. E. Honda Motors (Europe) & Tata Motors (S. then. Africa) withstood competition & succeeded.

IB UEQ UEQ.2012. How are they different from domestic companies? How do MNCs take advantage in emerging economies like India & how do they benefit these economies? (20 marks) International Business Prof Purshottam Patil 2013 95 .3 Explain characteristics of MNCs.

Government influence on trade International Business Prof Purshottam Patil 2013 96 .3.

policies. on International Business Profbased Purshottam Patil 2013these govt.g. Russia’s trade policy allows Indian imports. though the price & quality are unfavorable compared to those of other nations.3. Similarly China imports goods from Pakistan on preferential terms like lower rate of tariffs. Government policies aim at 1protecting domestic industry from competition of advanced nations by imposing quotas. also at 2building competencies of domestic companies by providing subsidies. E. MNCs formulate strategies regarding entry & conduct of business in various nations. Government influence on trade In IB. etc. policies of national govts. 97 . are either on equal terms & conditions or on discriminatory term & conditions.

viz. Government influence on trade  Governments influence trade by announcements related to the instruments of the trade policy.3. ii) Subsidies v)Local Content Requireme nts iii) Import Quotas iv) Voluntary Export Restraints 98 International Business Prof Purshottam Patil 2013 . i) Tariffs vi) Administrat ive Policies.

Government influence on trade Tariffs: • Refer to tax imposed on import • Purpose: To protect domestic industry by increasing cost of imported goods. sugar.3. cement & steel. Govt. International Business Prof Purshottam Patil 2013 99 . of India imposed tariffs to protect domestic industries as automobile.

• 2. Ancillary Businesses> servicing.3. etc protected International Business Prof Purshottam Patil 2013 100 . so importing country products explore markets • 3. Industry of Importing country: cost of imported goods will be ^er vis-à-vis domestic goods. Govt. of the importing country> gets revenues in form of import duties. Jobs> in domestic nation saved • 4. Government influence on trade Advantages of Tariffs: • 1.

3. Exporting country> loses demand for its product. Government influence on trade Limitations of Tariffs: • 1. 101 International Business Prof Purshottam Patil 2013 . They pay for inefficiency of domestic industry. as they pay ^er price. • 2. Thus reduce efficiency of world economies & results in inefficient utilization of all kinds of resources. Tariffs enhance efficiency of few nations & curtail growth of most efficient nations. Consumers>of domestic nation lose. • 2. Implication • 1. sales & profit.

Types of Tariffs Based on Origin & Destination. 3 Types: International Business Prof Purshottam Patil 2013 102 .

Based on Quantification. 3 types: Types of Tariffs International Business Prof Purshottam Patil 2013 103 .

02 3.18 3.62 1.46 4.org) .84 1.37 3.13 4.1 5.2 4.83 5.07 32.3 4.5 13.05 4.09 2.46 3.81 1.98 1.81 4.51 1.91 3.02 26.1 3.84 3.Types of Tariffs Average Tariffs (Ad valorem Method) (source Country Name 1.15 1.81 3.84 54 27.51 1.5 4.93 1.75 4.6 1.05 4.07 3.35 0.85 3.68 1.1 1.98 0.29 4.58 5.09 104 1.84 5.96 4.81 1.05 4.84 International Business Prof Purshottam Patil 2013 3.39 3.05 4.23 1.03 3.56 5.4 13.93 2.46 1.74 14.46 1.81 1.01 5.84 1.03 4.09 1.73 1.worldbank.51 4.51 8.46 1.09 1.02 1.03 10.58 www.97 3.07 0.46 3.5 0.59 1.02 7.

less severe • imposed thru cash assistance / subsidies by foreign nation to its manufacturers to nullify benefits offered to host nation’s cos. ii) Protective Tariff • Aim to protect home industries • usually high. but rate of duty is low. without obstructing flow of imports • Imposed on items of mass consumption. iv) Countervailing Duty • same as antidumping duties. iii) AntiDumping Duty • Dumping: selling goods in foreign markets at price below normal cost to capture foreign market • harmful to less developed nations where cost of production is high. 105 Types of Tariffs International Business Prof Purshottam Patil 2013 . due to shortages as imports may stop. • duties rates proportional to cash assistance/ subsidies granted. 4 types i) Revenue Tariff • Aims to collect substantial revenues for govt.•Based on Purpose. to reduce imports • may hurt consumers.

international & preferential tariffs. fixed rates applicable to all nations. • higher rate for other nations iii) Triple column tariff • 3 rates: general.Types of Tariffs Based on Trade Relations. • lower rates applicable to friendly nation. ii) Double column tariff • 2 rates. 3 types i) Single column tariff • Same. 106 International Business Prof Purshottam Patil 2013 . • First two have minimal difference than the least rate of 3rd .

3. pays to domestic producer by reducing operations costs.g. International Business Prof Purshottam Patil 2013 107 . govt. tax holidays & supply of inputs at lower rates. • E. loans & advances at low rates of interest. Government influence on trade ii) Subsidies • To encourage/ protect domestic producer from foreign producer. Such payments known as subsidies. cash grants.

etc. thereby employment & livelihood for masses. subsidies provide sustainability for agricultural sector & small scale industrial sector. Subsidies in developing nations 1reduce losses & provide 2insurance against crop failure. market fluctuations. International Business Prof Purshottam Patil 2013 108 . output of small scale industries.Subsidies in Developing Nations GOI started withdrawing subsidies on fertilizers. indebtedness & suicides of Indian farmers. prices of agricultural output. shift in customer tastes & technology changes Thus. > led to closure of certain SMEs. pesticides. Also ^ed losses.

Subsidies in Advanced Nations International Business Prof Purshottam Patil 2013 109 .

3) Enhance international competitiveness of domestic industry & can also have the first mover advantage.g1 Dr Reddy’s Lab got the low cost producer & first mover advantage in Asian & African markets. E. International Business Prof Purshottam Patil 2013 110 . 2) Help domestic producer compete with foreign producer in domestic market. 4) Consequently get tax gains & employment to domestic nation. E.g2 US subsidies helped Boeing have first mover advantage. also fixes minimum price.Subsidies: Advantages 1) Domestic producer becomes low cost producer> enjoys ^profit margins.

2)At times. reduce international competitiveness of domestic companies> Protect inefficiency & lethargy of domestic firms> WTO proposed phased withdrawal of subsidies. International Business Prof Purshottam Patil 2013 111 . Thus. subsidies>> national benefit < national cost=national waste.Subsidies: Limitations 1) Subsidies paid by govt. by taxing individuals> national cost.

International Business Prof Purshottam Patil 2013 112 .

International Business Prof Purshottam Patil 2013 113 .

International Business Prof Purshottam Patil 2013 114 .

Uses administrative policies instead. • Japan: Least formal trade barriers as tariffs & quotas. International Business Prof Purshottam Patil 2013 115 . • Governments use formal & informal policies to restrict imports & boost exports. formulated to make it tough for imports to enter country.Administrative Policies • Administrative Policies include bureaucratic rules & processes.

Govt. intervention: Perspectives International Business Prof Purshottam Patil 2013 116 .

Govt. etc) as in US & Japan. S. railways. posts. as it has power & machinery to implement decisions.g. privatization of PSUs. E. can deal with tough approach with foreign firms. to protect domestic industry else foreign competitors can easily kill pvt industries. GOI has reserved these industries for exclusive public sector operation. etc. to be run by govt. • iii) Protecting Jobs: Liberalization of India> Closure of SMEs. outsourcing of employees. intervention: Perspectives Political • i) National Security: Strategic industries (defense. downsizing of MNCs. • iv) Retaliation: Only govt. Healthy SMEs turned sick due to cheap Chinese & East Asian nations’ (Thailand. International Business Prof Purshottam Patil 2013 117 . • ii) Protecting Industries: Govt. Malaysia) products.> reduce jobs. aerospace. Korea.

• ii) Strategic Trade Policy: • Govt. This enhances first mover advantages. • Foreign competing firms may create entry barriers to domestic firms in home nation. International Business Prof Purshottam Patil 2013 118 . intervention. intervention: Perspectives Economic: • i) Infant Industry Argument: Industry in infant stage of life cycle> cannot invest heavily then> it needs protection from foreign competition. as in subsidies to certain domestic firms having competitive advantage is essential.’s role to support domestic firms when Japanese automobile firms created entry barriers. US govt. abroad.Govt. Govt. intervention provides support to firms in domestic market.