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International Management

Concept

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Understanding the Concept

• Practice of managing business operations in more than one country

• Familiarity with the language, culture, economic, political environment and business practices of the countries in which multinational firms trade and invest

• Have problem solving skills to formulate effective management strategies and policies

International Business

International Management

• Includes all commercial transactions- private and governmental- between two or more countries

• Transactions include sales, investment, and transportation• Private companies do such transactions for profit

- Daniels, Radebaugh and Sullivan

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Value Add Process (Activities & Resources): Scope of IB

Input Resources- Transfer of resources (Goods, Funds, People)- Services (Accounting, Financial, Legal, Consulting)

Transformational Activities- Relationship of MNE with the host countries- Business Operation

Output- MNE has to grapple with;• Profitability aspect• Accommodate interest of host

and parent country

Transformational Resources- Technology- Know- How (Innovativeness)- Capital- Organizational Skills- Information

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Case Study: IKEA

IKEA Profile• Household furniture and fixtures

Production Path

Purchase & Dried

Norway

Produces Furniture Parts & Assemble

Sweden

Designed

Denmark

Shipping To

USA

Put on Display in Stores

Across USA

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Understanding the Concept

MNEMulti National

Enterprise

•Derives a “substantial” portion of revenues from foreign operations•Operates subsidiaries that share a common strategic vision•Places expatriates at senior management posts•Known as ‘Multi National Corporation’•Example: Intel employees around 140,000 employees in different countries across the globe/ Ernst & Young (Global Accounting and Professional Firm) employees around 120,000 people in more than 100 countries

EMEEarly

Multinational Enterprise

•Are very start up, decides to go international, enjoy the benefits and rise up to the challenges of international operations•High technology enterprise•Example: VKB (low cost virtual interface solutions in communication, computing and entertainment), founded in 2000. Grew its business in USA, Europe, Middle East and Asia by identifying strategic financial and operational partners.

SMIE Small & Mid

sized Enterprise

•Engaged in international business•No facilities that are owned overseas

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Global Focus: SME (Small Medium Enterprise): Diesel Company

Diesel’s Profile• Founded in Italy in the year 1978• Started as an SME and grew into achieving annual sales of more

than US$1 billion, 85% of which comes form abroad• Producing fashion wear jeans, attracting youth of today• Competing with Donna Karan & Tommy Hilfiger

Diesel’s Management

• Sees the world as a borderless macro- culture• Youth designers who travel the globe for inspiration and weave

their impressions into their collections.

Production Strategy

• Focuses on design & marketing• Leaving production of jeans to sub- contractors• Expanded its distribution to over 80 countries through department

stores & retailers• 200 owned stores from Paris to Miami to Tokyo

Advertising Strategy

• Controversial advertising: Sumo wrestlers kissing, a row of chimpanzees giving a fascist salute, “145 cigarettes a day will give you that sexy voice and win new friends”

• High internet presence• 1500 new designs every 6 months

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List of Top 10 Global Fortune 500- Year 2014

S.No. Company Name Profits$ Millions

Country

1 Wal- Mart Stores 16,022 US

2 Royal Dutch Shell 16,371 UK/ Netherlands

3 Sinopec Group 8,932 China

4 China National Petroleum 18,504 China

5 Exxon Mobil 32,580 US

6 BP 23,451 UK

7 State Grid 7,982 China

8 Volkswagen 12,071 German

9 Toyota Motor 187,198 Japan

10 Glencore Switzerland

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Drivers of International Business

Position StrategicallyDiscover Opportunities

Expand Market ShareCompany’s Sales/ Total Sales of the

Industry

Improve Economic Gains

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Phenomena of Globalization

Globalization•Increasing of worldwide integration of market for goods, services and capital

Concurrent with the•Increased role of MNCs in the world economy And, an increased intervention into domestic & regional policies by•International institutions such as the IMF, the WTO, the World Bank and the United Nations.

• The pursuit of classical ‘Free Market’ policies in the world economy• The growing dominance of western and American forms of

political, economic and cultural life• The proliferation of new information technologies (the “Internet

Revolution”)• The notion that the world community is facing the creation of one

single unified community in which major sources of conflict have vanished (“Global Integration”)

Globalization: A Synonym

for one of the Phenomena

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Globalization

Water level sensor(Germany)

Cylinders liners(Germany)

Alternator(France)

Transmission chains (USA)

Windshield windows(United Kingdom)

Door panels(USA)

Tires(Japan)

Fuel lines(USA)

Sales(France)

Instrumental cluster(Germany)

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Drivers of Globalization

Environment (Reduction of barriers to trade, privatization of state owned businesses, technology advancement,)

Market (integration of world financial markets, new business opportunities, existence of different brands, convergence of worldwide consumer expectations & prefereces)

Cost (Increase of International Capital transfers and investment, low wages, transport cost)

Competition (increased competition, strategic international partners, quality & value of goods & services, customer satisfaction, lower prices, )

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Processes to Understand Globalization

- Speeding up of flows of goods, capital, people, ideas across the globe- Increased communication, transportation & technology- Quickening of actions. Example: Email system

- Intensification of links, mode of interaction and flows that inter connect the world- Much more information is shared in less time than ever before- Example: 1940s, for news radio was the only source. Now, any time one can login to their phones and get updated on any news across the globe at any time.

- Stretching out of social, cultural, political and economic practices across the globe- Practices & decisions made in one part of the world may have consequences on any other

part of the world. Example: N. Korea began testing nuclear weapons, had a huge political and social impact on the rest of the world- Interdependency of local & global landscape. Example: Consumption of sugar, can have a significant impact on the people of Brazil as it produces the sugar we consume.

- We are getting away from ‘Euro- centrism’ Values, goods and culture are inter mixed, shared across the globe. Example: Many of the medicines used in the USA come from natural treatments & resources found in other countries. - People now customize their own ideas, values and lifestyles.

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Globalization and Business

Business Ecosystem

Implications

•Origin of headquarter locations become unknown & irrelevant: Example: Procter & Gamble Corporation is based in Cincinnati, Ohio, CNN’s office is in Atlanta, Georgia along with headquarters of

Coca Cola Co.•Diffusion of new services: Example: Proliferation of HSBC (Hong Kong and Shanghai Banking Corporation) with connectivity to branches around N. America and the world. This proliferation means that if one takes a loan from HSBC bank from Boston Area, the Dollars are actually originated from deposits made in England and Singapore.•Producer/ Provider of Goods & Services: Facilities involved may be based anywhere in the world & the location may be selected based on least cost and best quality.

Global Markets

Global Resources

Global Production

Global Supply Chain

Global Management

Skills

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Globalization and Business… cont…

Implications

•Investment Funds Manager Or Corporate Executive: Globalization means that capital required for investment & operations may be raised in a number of stock markets that compete for their businesses. It allows corporations to acquire ownership in overseas

markets•Cost of Labor: - Flow of worker is heavily controlled - The world price of capital may be set in USA and for Oil set in Saudi Arabia, but there is no such ting as a world price for labor.•Supply Chain Activities: The term used to describe the network of suppliers dispersed across continents is a ‘global supply chain’.•Value Chain Activities: A value chain is the whole series of activities that create and build value at every step. The total value delivered by the company is the sum total of the value built up all throughout the company.

R&DProcurement

Manufacturing

Marketing

Distributio

n

After Sales Service & Support

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Globalization and Business… cont…

R&DProcurement

Manufacturing

Marketing

Distributio

n

After Sales Service & Support

E- Bay, the internet merchandise & re-seller, executes its development work in Israel, California and India

Alcatel- Lucent, the French telecommunication equipment maker is outsourcing its IT globally

Whirlpool Corp, the goods manufacturer has plants in USA, Mexico and China

HSBC the global financial giant, operates braches in most urban centers to be close to the customers, including London, New York. Paris and Hong Kong

Florsheim, the maker of footwear is using an international network of corporate owned and franchised stores to reach its customers in Australia, USA, Canada etc.

Schneider Electric , European based MNC specializes in energy management with its operations and after sales services in more than 100 countries

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Landscape of Global EconomyAsian Financial Crisis of 1997

• Crisis started in Thailand with the financial collapse of the Thai Baht• Govt. of Thailand was forced to float the Baht due to lack of foreign

currency to support its fixed exchange rates• Financial crisis spread to East Asia, devalued stock markets and rise

in private debt• Indonesia, South Korea and Thailand were the countries most

affected . Hong Kong, Malaysia, Laos and Philippines were also impacted by the crisis.

• IMF stepped in to initiate a $40 billion to stabilize the economies.

Emergence of BRICS

• Association of Brazil, Russia, India, China and South Africa (joined in 2010)

• 40% of the world’s population, combined GDP of 21% of global volume, 20% of global trade, 11% of accumulated investment

• Creation of BRICS bank with an authorized capital of $100 billion. It will be open for other countries to join

• WB & IMF created after II World War, shaped the global political economy for many decades

Recession of 2008

http://www.rediff.com/news/column/how-brics-bank-can-affect-world-economics-and-politics/20140718.htm

http://rt.com/op-edge/174344-ten-outcomes-brics-summit/

• Worst global recession since II World War- IMF• US mortgage-backed securities, as they offered higher yields than

U.S. government bonds• Investment and commercial banks in the United States and Europe

suffered huge losses and even faced bankruptcy

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Landscape of Global Economy

Recession of 2008

• Stimulus Package 2009: $787 Billion stimulus package was approved by USA govt.

• Package was designed to quickly jump-start economic growth, and save between 900,000 to 2.3 million jobs

• As of October 30, 2009, it saved 640,329 jobs

http://www.indianmba.com/Faculty_Column/FC1269/fc1269.html

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Globalization and Society

No Geographical Boundaries

•Advances in telecommunication•Dependence on digital computer•Video conferencing•Execution of commercial transaction over internet

Social Interconnected

ness

•Socially inter connected•No existing political & geographical boundaries•Example: UN makes reports based on facts & figures collected globally which then affect events in a particular community, country or region

Speed of Activity

•Fast paced work•Easy movements of human resources, information, capital goods and services