SM 3.01.3 Lecture-1

7/28/2019 SM 3.01.3 Lecture-1

http://slidepdf.com/reader/full/sm-3013-lecture-1 1/54

S A V Dr. G. NairSDC

OHT 1

SWISS-AIT-VIETNAM

MANAGEMENT DEVELOPMENTPROGRAMME 6

COURSE: SM 3.01 INTERNATIONAL BUSINESS

MANAGEMENT

TERM : 3/2000 (10 Jan to 21 April 2000)

LECTURER: Dr Godwin Nair

7/28/2019 SM 3.01.3 Lecture-1



OHT 2

SYNOPSIS

• This course aims to introduce students to thenature of the international systems impacting

upon business.

• It adopts an historical and thematic approach that

traces the development of dominant factors over time, regions, and industries.

• Specific issues include the nature and extent of

globalisation; the changing world economy;

politics and international business; the culturalchallenge; regional economic integration; and

global strategy.

7/28/2019 SM 3.01.3 Lecture-1



OHT 3

COURSE OBJECTIVES

This course introduces students to the role and

importance of international business to

contemporary business. It aims for students to be

able to:

understand the nature of international business

and the dimensions of the international

business environment and their effect on

marketing and international business decisions;

7/28/2019 SM 3.01.3 Lecture-1



OHT 4

understand the basic terms and conceptsnecessary for an indepth understanding of

international business management and shows

the relevant trends;

have a practical understanding of the evolvinginstitutions and patterns of international

production, trade, and finance and the impacts

of these upon firms operating internationally;

understand the ways in which firms arechanging in response to changes in the global

economy;

7/28/2019 SM 3.01.3 Lecture-1



OHT 5

• be familiar with the important institutions and

developments within the global economy and be

better equipped to analyse firm level issues

within this context;

• present concise and logically argued reports andparticipate in debates on international business

issues.

7/28/2019 SM 3.01.3 Lecture-1



OHT 6

LECTURE SCHEDULE

• Refer to page 3 of course outline

TUTORIAL ACTIVITIES SCHEDULE

• Refer to page 4 of course

outline

IN-CLASS EXERCISE

SCHEDULE

• Refer to page 5 of course

outline

7/28/2019 SM 3.01.3 Lecture-1



OHT 7

COURSE ASSESSMENT

Description Due Date Marks

Continuous assessment 50%

Class participation - 5%

Case Study Analysis and

Presentation As per tutorial schedule 10%

Mid-Term Exam 8/03/2000 (Wk 7) 10%

International Business

Project 5/04/2000 (Wk 11) 25%

Final examination 50%

______

100%

7/28/2019 SM 3.01.3 Lecture-1



OHT 8

GROUP WORK

Some assessment and learning exercise are builtaround group work. The reasons for this are

threefold:

• In the modern business world, no one person has the

all the skills for operating a successful business. Most

successful companies have a strong team working

behind the scenes.

• Group work discussion sensitises you to a wider

range of practical and theoretical issues, and give

you some ‘hands-on’ appreciation of what is it reallylike in the international business scene.

7/28/2019 SM 3.01.3 Lecture-1



OHT 9

• There is so much to do in foreign market entry that a

good and effective foreign market development plan

is difficult if only one person does it.

Case Study Analysis and Presentation

• Case analysis is useful in providing students withpractical experience in dealing with international

business problems faced in the real world.

• The importance of this type of applied experience

is vital in developing a fuller understanding of international business management.

7/28/2019 SM 3.01.3 Lecture-1



OHT 10

• This assignment will be carried out in groups of six.

• Each group will get the assigned case study

two(2) weeks before their presentation date as

per the tutorial schedule.• It is expected that the students can present their

solution with a high degree of professionalism.

• Submit a 5 to 6 page report of the case analysis

along with the presentation slides, and s softcopy (floppy disk).

7/28/2019 SM 3.01.3 Lecture-1



OHT 11

Case Study Analysis and Presentation Schedule

• Week 3 Group 6

• Week 5 Group 1• Week 6 Group 4

• Week 8 Group 3

• Week 9 Group 2

• Week 11 Group 5

7/28/2019 SM 3.01.3 Lecture-1



OHT 12

Class Participation for Weeks 4, 7 and 10 (Tutorial

Activities)

ACTIVITY:

• Select an International Business occurrence from a

recent newspaper or business magazine and

discuss the implications for Vietnam.

• Each group will select a different article each and

analyse it and present the findings to the class.

• Submit a two (2) page summary of the discussion

along with the presentation slides.

7/28/2019 SM 3.01.3 Lecture-1



OHT 13

Presentation Schedule for the Newspaper or

Business Magazine Article

• Week 4 Groups 2 and 4• Week 7 Groups 5 and 6

• Week 10 Groups 1 and 3

7/28/2019 SM 3.01.3 Lecture-1



OHT 14

INTERNATIONAL BUSINESS PROJECT

(FOREIGN MARKET DEVELOPMENT)

• This project requires research, imagination, and

logic in applying the content of this course.

• The main goal of this international businessproject is for project members to gain a first hand

learning experience to extend classroom learning.

• A special feature of this course will involve the

students working in groups of six on thepreparation of a foreign market entry development

plan.

7/28/2019 SM 3.01.3 Lecture-1



OHT 15

• It is expected that each member of the team will

contribute equally to the project.

• A two (2) page executive summary describingyour project to be submitted by week 3 (26 Jan

2000)

• Refer to handout for detail instructions of the

international business project

CONSULTATION HOURS

• Wednesday 2.30pm to 3.30pm

• Friday 1.30pm to 3.30pm

7/28/2019 SM 3.01.3 Lecture-1



OHT 16

REFERENCE TEXT

Hill, C.W. 1998, Global Business Today, McGraw-Hill,

Burr Ridge, Illinois.

ADDITIONAL REFERENCES• International Business Resources on the World

Wide Web - Refer to Course Outline (pp 9 & 10)

SUPPLEMENTARY READING• Refer to page 10 of course outline

7/28/2019 SM 3.01.3 Lecture-1



OHT 17 SM 3.01 INTERNATIONAL BUSINESS

MANAGEMENT

January 2000

Lecture 1AN OVERVIEW OF INTERNATIONAL BUSINESS

• Definitions

• Differences between Domestic and International

Business

• Motives for Going International

• Means of Internationalising

• Growth of International Business

• Globalisation

7/28/2019 SM 3.01.3 Lecture-1



OHT 18

1. DEFINITIONS

What is International Business?

International Business refers to all business transactions

both private and governmental that involve participantsfrom two or more countries.

3 important terms

• An international business is any firm that engages ininternational trade or investment

7/28/2019 SM 3.01.3 Lecture-1



OHT 19

• International trade occurs when a firm exports goods

or services to consumers in another country

• International investment occurs when a firm invests

resources in business activities outside its home country

Griffin and Pustay (1996, p. 8) argue that „any business

transaction between parties from more than one country

is part of international business’.

7/28/2019 SM 3.01.3 Lecture-1



OHT 20

The examples they list of such transactions include:

• buying raw materials or inputs in one country andshipping them to another country for processing

or assembly

• shipping finished products from one country to

another for retail sale• building a plant in a foreign country to capitalise

on lower labour costs

• borrowing money from a bank in one country to

finance operations in another.

7/28/2019 SM 3.01.3 Lecture-1



OHT 21

There are several terms which are used to describe

companies which do business in more than one country.

These are:

• Multinational Company or Enterprise (MNC or MNE)

- refers to large firms with extensive operations in many

countries (owns relatively autonomous subsidiaries in

various host countries).

• Global Company (GC) - describes an organisation that

attempts to standardise operations world-wide in all

functional areas.

7/28/2019 SM 3.01.3 Lecture-1



OHT 22

• Transnational Corporation (TNC) - term used by

UN and some others to connote organisationsvariously called multinational, global, or worldwide

companies.

2. DIFFERENCE BETWEEN DOMESTIC ANDINTERNATIONAL BUSINESS

• In simple terms, international business transactions

cross national boundaries while domestic businessactivities take place within the boundaries of a single

country.

7/28/2019 SM 3.01.3 Lecture-1



OHT 23

Managing an international business is different from

managing a domestic business for at least four (4)

reasons:

1. Countries are different (countries differ in their

cultures, political systems, economic systems, legal

systems, and levels of economic development)

2. Greater complexity of managing an international

business (the range of problems confronted by a

manager in an international business is wider and theproblems themselves more complex)

7/28/2019 SM 3.01.3 Lecture-1



OHT 24

3. International business must operate within the

framework of the international trading andinvestment system (must understand the rules

governing this framework)

4. International transactions involve convertingmoney into different currencies (must develop

policies for dealing with exchange rate movements)

7/28/2019 SM 3.01.3 Lecture-1



OHT 25

3. MOTIVES FOR GOING INTERNATIONAL

1. Push and Pull FactorsCompanies engage in international business for several

factors. These factors may push or pull a business

into the international arena.

• Market expansion

- to expand their markets by entering new markets

- many companies faced by a saturated, mature

domestic market find this option attractive

- especially when the new markets have a rising

GNP per capita

7/28/2019 SM 3.01.3 Lecture-1



OHT 26

- where the economy of that country is growing faster than

that of their own domestic market

- access to larger international markets allows firms toexploit economies of scale

- improved communication and transportation systems may

also be considered a viable reason for going into new

markets

• Acquire resources

- global sourcing of raw materials and scarce commodities

may result in timely delivery and reduced costs (somanufacturers and distributors seek out products, services

and components produced in foreign countries)

7/28/2019 SM 3.01.3 Lecture-1



OHT 27

- companies also look for foreign capital and technology

that they can use at home

• Location advantage

- relocation of production facilities to a foreign location

may keep a firm internationally competitive and make

it more profitable to serve markets, including the

domestic market from the foreign location

• Competitive advantage and limited domestic

opportunity

There are many sources of competitive advantage:

- product or process technology held by the firm;

7/28/2019 SM 3.01.3 Lecture-1



OHT 28

- established brand names and reputations;

- economies of scale in production and marketing;

- exclusive access to inputs;

- management skills and experience;

- preferential treatment by governments

• To protect their markets

- to protect their domestic market companies may follow

their large customers as they expand to prevent

competitors from gaining access to those accounts

- domestic market share can also be protected by using

cheaper foreign production locations as a basis for

exporting back to the domestic market

7/28/2019 SM 3.01.3 Lecture-1



OHT 29

• Risk reduction

- multiple sources of essential raw materials and access toseveral markets reduce political risks associated

generally with political instability

- economic risks associated with downturn in economic

activity are reduced (economies are at differing stagesin their economic cycle of boom and recession)

• Government incentives

- host government and home government policies andregulations can act as either pull and push factors for

international business

7/28/2019 SM 3.01.3 Lecture-1



OHT 30

- host governments, for example, might offer incentives

to attract foreign investments

2. Motives of Australian firms going abroad (An

Example)

A study by the Australian Bureau of Industry Economics(1995) identified 5 categories of reasons for

Australian firms going abroad.

5 categories are:• Cost-based - where firms sought the most

productive and lowest cost inputs

7/28/2019 SM 3.01.3 Lecture-1



OHT 31

• Market-based - where firms sought access to as

many markets and customers as possible• Natural resource based - where firms sought

natural resources

• Australian government policies - where firms felt

that they were being pushed abroad by domesticpolicies that encouraged internationalisation

• Host government policies - where firms were

attracted abroad by foreign policies that improved

their competitiveness or profitability

7/28/2019 SM 3.01.3 Lecture-1



OHT 32

Note: Some conclusions of the study

• Among the 5 reasons, market-based were

considered the most important.

• Market growth potential was the most important

specific market-based reason.

• Lower input costs and more reliable supply lines was

the most important cost-based reasons.

• Political stability was the most important policy-

related concern of host government policies.

7/28/2019 SM 3.01.3 Lecture-1



OHT 33

4. MEANS OF INTERNATIONALISING

There are a number of ways that a business canchoose to go international.

The different means or forms of international

business activity include the following:

• Exporting

• Contractual forms

• Foreign direct investment (FDI)

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 34

1. Exporting

• a very common form of international businessactivity

• it involves the production of goods and services

from facilities at home for sale to a foreign market

• it is usually the first option that a firm chooses asit is the least complicated and requires less

commitment by the firm of its scarce and costly

financial and managerial resources

Exporting can be either direct or indirect

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 35

• Direct exporting - it involves the firm selling its

product directly to foreign customers through its own

in-house sales department or through foreign salesrepresentatives and distributors.

- the firm arranges or provides all the services

needed for exporting (for example, transportation,

conformity to regulatory requirements, documentationand financing).

• Indirect exporting - involves the engagement of a

domestically based export agent to handle the exportof the firm’s product.

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 36

- the agent acts as an intermediary between the firm

and the foreign customer

2. Contractual forms

• these are usually long-term binding agreements

between firms that allow or obligate one firm to

produce or provide the service of another firm.

There are a variety of contractual forms:

• Licensing - international licensing is a contractual

agreement whereby one firm (the licensor) sells theright to use its ‘proprietary advantages’ to another

firm (the licensee) for a fee.

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 37

- proprietary advantages include patents, trademarks,

copyrights, process and production technologies.

- under a license agreement, a firm can supply a foreignmarket using a licensed local producer, thereby

avoiding the costs and barriers of exporting.

• Franchising

- franchising is a form of licensing

- under a franchise agreement, one firm (the franchisor)

allows another firm (the franchisee) the right to use

its name and conduct a business in a prescribed

manner in return for a fee.

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 38

- compared with licensing, franchising usually involves

more active involvement by the franchisor in thedevelopment and control of the franchisee’s business

operation.

• Contract manufacturing- under contract manufacturing a firm contracts out the

production of its goods to an established foreign

producer.

- the initiating firm can retain the responsibilities for marketing and distribution.

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 39

• Management contracting- international management contracting occurs when

one firm provides the necessary managerial or

technical expertise to operate another firm in a

foreign country.

- a local investor in the foreign country provides the

capital while the international firm, in return for a fee,

provides the management.

OHT 40

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 40

• Turnkey project or BOT contract- the turnkey project or build-operate-transfer (BOT)

contract is an extension of management contracting.

- under a turnkey project an international firm agrees todesign, construct, hire and train the personnel, and

manage the initial operation before handing the

completed facility over to a local investor.

OHT 41

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 41

3. Foreign Direct Investment (FDI)

• involves the ownership and control of foreign

firms (these are the key features)

• FDI has become one of the major means of doing

business internationally

• it is major vehicle for the transfer of technology,

intellectual property and managerial skills

• the costs of FDI in terms of the commitment of

financial and managerial resources are higher

than other means of internationalising business

OHT 42

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 42

• FDI can take a number of forms:

- the buying of an existing local business

- greenfield investment in the form of the purchase

or establishment of an entirely new site, plant andequipment

- investment in a joint venture as a partner with

local investors

OHT 43

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 43

5. GROWTH OF INTERNATIONAL BUSINESS

The growth of international business has been facilitatedby various factors.

These factors are known as Drivers of Globalisation.

DRIVERS OF GLOBALISATION There are four main factors which facilitate this growth:

1. Trade Liberalisation

2. Technological Changes

3. Changed World Economic Order

4. Market Friendly Domestic Policies

OHT 44

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 44

1. Trade Liberalisation

- Governments impose barriers to the free flow of trade

and investment for many economic, social andpolitical reasons (for example, tariffs, quotas,

licenses, and limits to the transfers of foreign

exchange).

- less transparent barriers are the government policiesand regulations that can give preferential treatment to

domestic business over foreign business.

- the goal of removing these barriers was enshrined in

the treaty known as the General Agreement onTariffs and Trade (GATT), now succeeded by the

World Trade Organisation (WTO).

-

OHT 45

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 45

- trade and investment liberalisation frees the entry of

international business to potentially large markets.

- the lowering of barriers to international trade enables thefirm to view the world as their market, rather than a

single country.

2. Technological Changes

- dramatic improvements in transport and communication

systems mean that products, capital, people and ideas

can now move faster and more cheaply internationally.

OHT 46

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 46

- the improved communication and informationprocessing systems resulting from convergence of

computer and communication technologies allow an

international business to manage and co-ordinate the

production and marketing activities of its foreign

affiliates more effectively.

- for example, the advent of commercial jet travel, by

reducing the time needed to get from one location to

another, has effectively shrunk the globe.

OHT 47

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 47

THE SHRINKING GLOBE

Refer to T 1

OHT 48

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 48

3. Changed World Economic Order

- the developing countries are a major source of growth

of the world economy.- as they grow richer and the standard of living rises,

these countries represent expanding markets to be

served by international trade and investment.

4. Market Friendly Domestic Policies

- a highly competitive market environment can be

promoted by policies such as anti-monopoly, the

removal of barriers to imports, and the deregulationof professions and of industries such as banking and

aviation.

OHT 49

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 49

6. GLOBALISATION

What is Globalisation?

Globalisation refers to the shift toward a more

integrated and interdependent world economy

Globalisation has two main components:

• Globalisation of Markets

- refers to the merging of historically distinct andseparate national markets into one huge global

marketplace

OHT 50

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 50

- firms such as Coca Cola, McDonald’s, Levi Strauss -

by offering a standardised product worldwide, they are

helping create a global market.

- an important feature of many global markets is that the

same firms frequently confront each other as

competitors in nation after nation.

- for example, Coca-Cola’s rivalry with Pepsi is a global

one; Boeing and Airbus; Caterpillar and Komatsu

OHT 51

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 51

- these multinational enterprises emerge as an

important driver of the convergence of different

national markets into a single, and increasinglyhomogenous, global marketplace.

• Globalisation of Production

- refers to sourcing of goods and services from different

locations around the globe to take advantage of

national differences in the cost and quality of factors

of production.

OHT 52

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 52

- companies hope to lower their overall cost structure

and/or improve the quality or functionality of their product, thereby allowing them to compete more

effectively against their rivals.

- for example, Boeing’s 777 commercial jet airliner contains 132, 500 major component parts, and they

are produced around the world by 545 different

suppliers.

OHT 53

7/28/2019 SM 3.01.3 Lecture-1


S A V Dr. G. Nair

SDC

OHT 53

- the outsourcing of different productive activities to

different suppliers results in the creation of “global

products”

Note: In sum, we are travelling down the road

toward a future characterised by the globalisation

of markets, production, ownership, and

management.

OHT 54

7/28/2019 SM 3.01.3 Lecture-1


Dr G Nair

OHT 54

End of Lecture 1

SM 3.01.3 Lecture-1

Documents

Transcript of SM 3.01.3 Lecture-1