Module 1

M a n a g e m e n tInternational Business

Module 1Introduction to international business

Local, regional, national, international, and global business

Management orientation of overseas business ethno centric,poly centric,region centric, and geo centric orientation

Reasons for internationalization of business

factors restricting internationalization of business

major global companies in the world

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International Business

Present scenario of business

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What is

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International business consists of

transactions that are devised and carried out

across national borders to satisfy the objectives of individuals, companies,

and organizations.

Definitions1) IB field is concerned with the issues facing international companies and governments in dealing with all types of crossborder Transactions.

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Definitions2) IB involves all business transactions that involve two or more Countries.

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Definitions3) IB consists of transactions that are devised and carried out across borders to satisfy the objectives of individuals and Organizations.

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Definitions4) IB consists of those

activities private and public enterprises

that involve the movement across

national boundaries of goods and services,

resources, knowledge or skills.

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International business:causes the flow of ideas, services, and capital across the worldoffers consumers new choicespermits the acquisition of a wider variety of productsfacilitates the mobility of labor, capital, and technologyprovides challenging employment opportunitiesreallocates resources, makes preferential choices, and shifts activities to a global level

Need for International Business

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Types of International Business

Export-import trade

Foreign direct investment

Licensing

Franchising

Management contracts

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b u s i n e s s

How will an idea, good, or service fit into the international

market?Should trade or investment be

used to enter a foreign market?Should supplies be obtained

domestically or abroad?What product adjustments are necessary to be responsive to

local conditions?What are the threats from global competitors, and how can these

threats be counteracted?

q u e s ti o n sInternational

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Types

Importing and Exporting

Selling and buying goods and services with organizations in other countries

Multinational Enterprise (MNE)

An organization with operating units located in foreign countries.

Global Organization

An organization having corporate units in a number of countries integrated to operate worldwide.

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I n t e r n a ti o n a l

business

are related but not same

trademarketing

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International trade

as it indicates pertains to only bilateral

or multilateral trade activities

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Trade activities between two or more countries can be understood both at

macro level , ie country level,

micro level ie firm or company

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International business

International trade

Macro level Micro level

International marketing

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International and national business

Three fundamental difference are in terms of

market, competition

currency

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factor international national

Business horizon global National

competition global Local /regional/ national

Regional formation / segmentation

Trade blocks / agreement

Free access

currency Foregin excahange (unstable)

Local currency (stable)

Risk and uncertainity

unpredictable More predictable

Role of agent Primary can be a catalyst

More predictable Secondary

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Orientation of management: Perlmutter (1967) identified distinctive "orientations" of management of international organisations.

His "EPRG" scheme identified four types of attitudes or orientations associated with successive stages in the evolution of international operations.

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ETHNOCENTRIC MANAGEMENT ORIENTATION home country is superior to any other country in the world regardless of any evidence to the contrary.

“since a product or a service performed well at home, it should also perform well abroad. Since this is so obvious, no further research is necessary on foreign markets and no adaptations need to be made to the products or services to tailor them to global customer preferences and needs.”

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· Ethnocentrism - home country orientation exporting surplus

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POLYCENTRIC MANAGEMENT ORIENTATIONeach country is unique and therefore it allows its

subsidiaries to have more control in developing strategies that will work in a particular country.

“Since each country is so unique, complete control should be given to local managers since they obviously know what

is best for the company in that country.” As long as these subsidiaries are profitable, headquarters is apt to leave them alone. “Let the Romans do it their way. We really

don’t understand what is going on here, but we have to have confidence in them. As long as they earn a profit, we

want to remain in the background” (Perlmutter, 2001).

Though an improvement over a purely ethnocentric view, a purely polycentric one has its flaw in that headquarters and

subsidiaries are somewhat cut off from one another.

the polycentric viewpoint often leads to ethnocentricity within each region where the company operates

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· Polycentrism - host country orientation subsidiary operation

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·Regiocentrism - regional orientation world market strategies

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GEOCENTRIC MANAGEMENT ORIENTATIONgeocentric orientation believes that the entire world is a potential market and strives to develop strategies that will work in every market.

In geocentrically oriented companies, authority is not simply placed with headquarters at home or with subsidiaries abroad, but rather a is dispersed more equally between the two so that a collaboration is formed. Also, a view of superiority is not based on nationality.

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·Geocentrism - world orientation world market strategies

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The four stages are as follows:

1. Stage one: domestic in focus, with all activity concentrated in

the home market. Whilst many organisations can survive like this, for example raw milk marketing, solely domestically oriented organisations are probably doomed to long term failure..

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2. Stage two:

home focus, but with exports (ethnocentric). Probably believes only in home values, but creates an export division. Usually ripe for the taking by stage four organisations.

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3. Stage three: stage two organisations which realise that they must adapt their marketing mixes to overseas operations. The focus switches to multinational (polycentric) and adaption becomes paramount.

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4. Stage four:

global organisations which create value by extending products and programmes and focus on serving emerging global markets (geocentric).

This involves recognising that markets around the world consist of similarities and differences and that it is possible to develop a global strategy based on similarities to obtain scale economies, but also recognises and responds to cost effective differences. Its strategies are a combination of extension, adaptation and creation. It is unpredictable in behaviour and always alert to opportunities.There is no time limit on the evolution process. In some industries, like horticulture, the process can be very quick.

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Management emphasis

Stage one Domestic

Stage two International

Stage three Multinational

Stage four Global

Focus Domestic Ethnocentric Polycentric Geocentric

Marketing strategy

Domestic Extension Adaption Extension

Structure Domestic International Worldwide area

Adaption creation matrix/mixed

Management style

Domestic Centralised top down

Decentralised bottom up

Integrated

Manufacturing stance

Mainly domestic

Mainly domestic

Host country Lowest cost worldwide

Investment policy

Domestic Domestic used worldwide

Mainly in each host country

Cross subsidization

Performance evaluation

Domestic market share

Against home country market share

Each host country market share

Worldwide

Stages of domestic to global evolution

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View of the world

Model orientation Strategy

1 Domestic Home country Controlled federation

Ethnocentric domestic

2 International Extension market

Coordinated federation

Ethnocentric International

3 Multinational National market

Decentralised federation

polycentric Multidomestic

4 Global Global market or resources

Centralized hub

geocentric Global

5 transnational Global markets Integrated network

geocentric transnational

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STAGE 2

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STAGE 3

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STAGE 4

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STAGE 5

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Pressure for local responsiveness

Cost

pre

ssur

e

high

low

low high

GLOBAL STRATEGY

INTERNATIONAL STRATEGY

TRANSNATIONAL STRATEGY

MULTIDOMESTIC STRATEGY

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When Coca-Cola has an increase of

2% in sales, it might well translate

into 500,000 additional cases for the month

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The old adage Think Global, Act Local is fine for businesses selling nationally distributed consumer products and services

majority of small business

Think Local, Act Local. For example, why would a locally-owned real-estate agency need to spend money on internet Search Optimization?

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1) Minority Supplier CommitmentsFoster a climate of entrepreneurial opportunity through targeted minority supplier identification and a new supplier mentoring program.

2) Urban Economic PartnershipsA commitment to strengthen local economies through urban economic partnerships and

increased marketing investments with local retailers and entrepreneurs.3) Opportunities for Minority Financial Institutions4) Task Force to Review Value Chain5) Increased Community Contributions and Support

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ITC IBD( International Business Division) is the country’s second largest exporter of agri products

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In the year 1990, the company leveraged its agri – sourcing competency & thus set up the agri business division for export of agri-commodities. The Division is today one of India's largest exporters. ITC's unique and now widely acknowledged e-Choupal initiative began in 2000

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E-Choupal services todaymore than 4 million farmerswide range of crops soabean, coffee, wheat, rice, shrimp tc

Over 40,000 villages7000 kiosks across nine statesMP, Haryana, Utharanchal, Karnataka, AP, Up, Maharashra, Rajasthan and kerala

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How to analyse a case

theory are tools. One one needs to know which tool to be selected and how it can be used.

Only some of the tools or a small portion of the theory is applicable here.

One needs to have creativity and analytical skill to translate the theory to the real life situation

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According to Raymond, the analyst should try to seek answers to following questions:

1. What’s actual problem involved in the case2. What are the relevant facts3. What are the crucial unknown aspects of

the scene4. What are the major critical questions

related to each specific event5. In what ways can logic and reasoning be

used lo determine crucial inferences, connections and relationships

6. In what manner can contradictory facts and arguments be weighed in making decisions7. What should be the proper timing of

decisions8. In what ways can those decisions be best

executed

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Schnell’s ten-point model

1. Identification of the problem.2. Determination of facts.3. Ascertainment of alternative courses of action.4. Analysis of advantages and disadvantages of the alternatives.5. Assessment of advantages and disadvantages of the

alternatives.6. Prediction of concurrent advantages and disadvantages.7. Selection of best alternative.8. Execution of the decision.9. Filing the problem solution. ‘10. Comparing expected results with the actual results of

the decision.

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Coco cola Third stage company multinationalITC Stage two, evaluation is based on home countryBajaj Third stage adapted to local situation

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Coco cola fourth stage company using local resurcesItc stage two, concentraing hiome marketBajaj stage three Suggestion eco frindly, bajaj global resources, itc poly centric

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Coco cola geo centric adapting to market , give more importance CSR, efluent treatment plant,

ITC diversfy d product, awareness at all level to b improved

Bajaj geocentric orientation

3

Coca Cola now poly centric, earlier geo centric ITC ethnocentric, Bajaj Geo centric, From scooter to bike, moving to

developing countries

4

Coca cola MNC polycentric funny ad with local stars, Multi domestic strategyITC international, ethnocentric Bajaj international company, monopoly???????

5

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How a multinational company strives for business / market expansion with local strategy

Focuses mostly on exports of agri-products

Direct exports of two and three wheelers. Joint ventures and strategic alliances

Module 1

Documents

Transcript of Module 1