Global ChallengesFor International Business By:

Khurram Shahzad +923417922447 ur_sawan@hotmail.com ICMAP (Islamabad Campus)

Globalization is the growing integration of the world’s economy.

It is suggested that economic decision taken in one part of the world will affect other parts of the worlds

Business need decision-making on what is happening in the world market rather than the national market.

What Is Globalization?

Factors Causing globalization• technological change,

• the reduction of production overhead costs,

• the consumer taste changes,

• and the growth of new market and competition…

Future Global Markets• 2013 2050• USA China• China India• Japan USA

What is a multinational company?A multinational company is an

organization which owns or controls production or services facilities outside the country in which it is based. This means that they do not just export their products abroad, but actually produce their products in other countries.

What is a multinational

company?It is commonly understood that a company is called a multinational company provided it operates in more than four countries.

Examples of multinational companies are :

1. Coca Cola, 2. Toyota3. Honda4. McDonald etc.

What is International

Business?International business consists

of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

Need for International Business?

NEFTA

EU

Asia

Need for International Business?

–The flow of ideas, services, and capital across the world

–Offers consumers new choices

–Permits the acquisition of a wider variety of products

Need for International Business?

–Facilitates the mobility of labor, capital, and technology

–Provides challenging employment opportunities

–Reallocates resources and shifts activities to a global level

Types of International Business

Foreign Trade:-Export-TradeImport –TradeEntre port-Trade

Foreign direct investment

Licensing

FranchisingManagement contracts:-Strategic AllianceJoint Venture

Import Trade

When the businessman/Govt. of one country buys commodities from foreign market.

Petroleum ProductsCanola FertilizersAutomobiles

Import TradeBranded Commodities

(Costumes, Cosmetics, IT items and Automobile etc.)

Export TradeWhen the businessman/Govt. of

one country sells commodities to foreign market.

Textile Products (Faisalabad)Fruits/Vegetables/Rice/Wheat

(Sindh,Punjab)Sea Food/Dry Food.Surgical/Cutlery .(Wazirabad,

Gujraat, Gujranwala)Sports Items (Sailkot).Furniture Wooden Craft

(Chiniot, Silanwali)

Enter port TradeWhen the businessman/Govt. of

one country import some goods from another country, and export the same goods to third one.England South Africa

European Countries

Importing Goods

Exporting G

oods

Strategic AlliancePartnership between different

organizations to pool the resources, information and expertise to develop new product or production facilities.

Common reason for entering into a strategic alliance is to obtain the advantage of another company's innovations without having to invest in new research and development.

Strategic alliance is more cost-effective.

Successful Strategic Alliances

Strategic Alliance (Revenue)

Starbucks

Starbucks is the leading brand of Coffee .

In 1993 with Baranes and Nobel Bookstores for In-house Coffee Shops.In 1996 with PEPSI to distribute and sell the coffee based drink “Frappacino” in bottles In 1998 with United Airlines to Sell coffee on flights with logo on the cups. In 2000 with Kraft Foods to sell and marketed coffee beans in grocery stores. In 2006 with NAACP to achieve the and social and economic goals.

Strategic Alliance (R&D)

ELI-LILLY

Lilly, world‘s pharmaceutical giant believe power in partnership and .

Belgium based Company Galapagos to develop treatment for Osteoporosis.Canada Base Company BioMS to develop treatment for multiple Sclerosis.Japan Based Company Kyowa Hakko Kogayo for Cancer Treatment.Working with certain Asian Companies

Strategic Alliance (Miscellaneous)1. In 2012, LG Electronics (LG) and

Intel entered into a strategic alliance to adopt and jointly promote Intel Wireless Display (WiDi) technology. Intel WiDi will be embedded into next year’s LG Cinema 3D Smart TVs, making them the first in the TV industry to feature Intel WiDi technology.

2. Some airlines within these alliances have gone further and combine flight operations while dividing marketing and so on.

Joint Venture

Joint ventures are business agreements in which parties agree to develop a new entity and new assets by contributing equity for a finite time.

Sony-Ericson mobile between Sony & Ericson

Entrepreneurial Joint Venture (Google)

While graduate students at Stanford University, Larry Page and Sergey Brin came up with a novel idea for a search engine. They quit graduate school and founded Google in 1998. Their entrepreneurial venture paid off big time—

Joint Venture

Mitsubishi Group(Engineering & Manufacturing)

Caterpillars(Tractor Manufacturers)

Brog-Warner(Land Mover & Industrial

Refrigeration Marketing Co.)

Heavy Industries

thus benefited from its

partners' expertise in marketing and after-

sales service

Now Mitsubishi having been formed into a separate company.But Before……

Franchising

Franchises offer the opportunity to own a small business without reinventing the wheel.

Small-business owners pay companies for the rights to use their trademarks, services and products in return for support and company guidelines on how to run their particular businesses.

FranchisingMcDonalds Corporation

Dick and Mac two brothers opened McDonald, a chain of their restaurants in 1955.

Currently international quick-service restaurant company.

Symbol of quick-service

hamburgers, fries, chicken, breakfast items, salads and milkshakes.

FranchisingMcDonalds Corporation

Inde-pen-

dently Owened Branches

75%

Company Owned

Branches25%

McDonalds Franchise Statistics

Franchising

Year U.S. Canadian International

Company Owned

2013 12,628 1,135 14,344 6,6272012 12,605 1,152 14,125 6,5982011 12,546 1,125 13,407 6,4392010 12,477 1,097 12,764 6,3992009 12,221 1,070 12,510 6,357

McDonalds Franchise Units

FranchisingStartup Costs, Ongoing Fees and FinancingFranchise Fee: $45,000 (PKR 4770,000)

Term of Franchise Agreement: 20 years, renewable

Financial Requirements

Liquid Cash Available: $750,000 (PKR 79600,000)

FranchisingThis Franchise Supports FranchiseesTraining: Available at headquarters: 1 week. At local McDonald's restaurant : 12-24 months.

Ongoing Support: Newsletter, Meetings, Toll-free phone line, Grand opening, Internet, Security/safety procedures, Field operations/evaluations, Purchasing cooperatives, Lease Negotiation

Marketing Support: Co-op advertising, National media, Regional advertising,

Other marketing support: Restaurant-specific support

Franchising

• Pizza Hut Inc.College students Wichita, Kansas,

Frank and Dan Carney were approached by a family friend with the idea of opening a pizza parlor.

First Pizza Hut opened its doors in 1958.

Pizza Hut has locations throughout the world serving its specialty pizzas.

Pizza Hut is owned by Yum! Brands.

FranchisingPizza Hut.

Inde-pen-

dently Owned

87%

Company Owned

13%

Branches Statistics

FranchisingPizza Hut Franchise Units

Year U.S. Canadian International

Company Owned

2013 7,304 0 5,396 1,6572012 7,121 0 4,791 1,8352011 7,083 0 4,570 1,7792010 6,917 0 4,296 2,0682009 6,535 0 4,221 2,419

FranchisingStartup Costs, Ongoing Fees and FinancingFranchise Fee: $25,000 (PKR 2650,000)

Ongoing Royalty Fee: 6%

Term of Franchise Agreement: 20 years

Financial Requirements

Liquid Cash Available: $350,000 (PKR 37100,000)

LicensingManufacturing organizations that

involves in giving other organization the right to us its brand name technology or product specification.

Procter & Gamble Company

Caterpillar Inc.

Foreign Direct Investment (FDI)

Direct investment in foreign country by setting up a separate and production facility.

Malaysia and China largely contribute in this regard.

Global Challenges

NEW RULES OF COMPETITION

INDUSTRYSTRUCTURE CHANGES

GlobalBUSINESS

NEW COMPETITORS

NEW POLITICAL AGENDAS

NEW TECHNOLOGIES

NEW EMPLOYEESAND NEW VALUES

NEW REGULATORY ENVIRONMENT

EVER INCREASINGCUSTOMER EXPECTATIONS

Global Challenges

Global Business forces cerate challenges which influence the business strategy are following:-

• Political Competition

• Social Finance• Technology HR• Economic Innovation

(R & D)

The Multinational

Corp.

Home Country Stakeholder Pressures

Host Country Stakeholder Pressures

Political Challenges• Political Change – regime change through

coup, violence, etc. Change in government through democratic election can influence future business strategy.– e.g. the opportunities that are now

available in Russia and Eastern Europe following the collapse of communism

• Political Uncertainty – in countries like Zimbabwe, Sudan, Venezuela. Political uncertainty can lead to a fall in investment by businesses and influence decisions on expansion and business ventures

• War/Terrorism – create uncertainty

• Political Doctrine – can affect the ease with which business is conducted

Political Challenges• Politically sensitive products include

those that:1. effect on the environment, 2. exchange rates 3. national and economic security 4. affect public health, e.g., genetically

modified (GM) foods

Economic Challenges• All these factors need to be considered in any

global business :– Tax Systems– Investment Considerations and Allowances– Sophistication of Financial Markets – ease with

which capital can be moved and raised– Commodity Prices – oil, energy, metals– Monetary and Fiscal Policies – interest rates,

tax regimes, government aid– Internal Regulation and Bureaucracy– Exchange Rates– Interest rat– Business cycle phase– Inflation / Deflation Rat– Transportation and Communication System– HR– Capital/Labour Intensive Technique

Economic ChallengesCompetition:-Commodity quality and pricesCompetitiveness of every country’s workforce.Market Capturing / Marketing and advertisement.

Social Challenges• Religious

Considerations – appropriateness of some business ventures – e.g. selling condoms in staunchly Catholic countries

• Impact on local communities of business development – availability of jobs, training, environmental impact for these communities

• Impact on the environment – can impact on the businesses image

• Ethical considerations

• Cultural issues

The impact on the local environment not only affects human communities but can also inflict widespread ecological damage. This imposes social costs on the environment but also can cost the business large sums in legal costs and compensation.

Technological Challenges• Availability and developments in

technology can have a powerful influence on global business strategy:

• e.g.– Access to bandwidth– PC ownership– Technology and sales – processing

payments and sales– Compatibility of technologies in

Business Management – accounting systems, language differences, etc.

– System security & Maintenance.– Availability 24/7.– IT Professionals.

Last Word

• “Follow, Lead or Get Out of the Way”

»Ted Turner