International Business Crossborder motivations and mentalities Why study

International Business: Cross-border motivations and mentalities

Why study International Business? Pervasive nature of International Business Need for better managers overseas Need for better managers at home

Pervasive nature of International Business

Pervasive nature of international business

Need for better managers overseas 20 – 30 percent failure rate for expatriate managers 25 – 50 percent of the expatriate managers who complete their assignment are considered marginally effective or ineffective by their organizations

Need for better managers at home Regardless of their size, All businesses All businesses are challenged at home by overseas must consider sourcing materials overseas must consider offshore production must consider attractive markets overseas Hence the need for managers who understand international business even if they are working in their home country

Management Education in the Future Prediction: All classes will be required to have an international component. For example, you won’t be able to study human resource management without a component that looks at expatriate manager issues

What types of companies will we be concerned with in this class? Multinational Corporations (MNCs) Substantial direct investment in foreign markets Actively engaged in managing overseas operations

How large are these companies? Corporate revenues GM = $168 B Ford = $146 B Mitsui = $144 B GNPs Denmark = $168 B HK = $153 B Norway = $151 B

What’s different about multinational management? – Multiple operating environments – Diverse pattern of consumer preferences, distribution channels, legal frameworks, cultural characteristics, and financial infrastructures – Political demands and risks – Mesh corporate strategy with host country industrial development policies—always the potential for conflict

What’s different (cont. )? – Global competitive game – Multiple market access and various global scale economics allow companies new competitive strategic options. – Currency fluctuation risks – Economic performance is measured in multiple currencies which result in accounting and economic exposure – Organization complexity and diversity – Need to manage these complex and diverse demands across barriers of distance, time, language, and culture.

Evolving theory of FDI International Capital Theories FDI driven by profit potential, portfolio diversification Location Theories FDI driven by countries’ comparative advantage Product Cycle Theory FDI driven by firms’ management of the product life cycle • Exploit innovations, protect markets, develop sourcing Oligopolistic Behavior Theories FDI driven by firms ‘ search for or defense of competitive advantage

Theory to strategy: Investment triggers at the managerial level New Triggers Classic Triggers Global Scanning • Resource alternatives • Market trends • Technology • Competitive behavior Market Seeking • Fill capacity • Protect exports • Develop scale IB Resource Seeking • Secure Supplies • Exploit factor cost differences Competitive positioning • Preempt markets or resources • Match competitive advantages (follow leader) • Develop positional strength

Underlying motivations To exploit competitive capability (Product Cycle Theory) To defend competitive capability (Oligopolistic Behavior Theory) Oligopoly – market in which the actions of an individual firm materially affect the industry price level To build competitive capability (Location and Oligopolistic Theories) Note that the competitive capability a company builds, defends and exploits will depend in part on the international environment in which it expands.

Strategic perspectives in MNCs International perspective Domestic companies with foreign appendages Opportunistic approach to FDI Portfolio approach to management of foreign operations

Strategic perspectives in MNCs (cont. ) Multi-national perspective AKA: Multidomestic Increased realization of importance of international markets Manage overseas operations as a federation of independent companies

Strategic perspectives in MNCs (cont. ) Global perspective Growing concern about international competition and inefficiencies of multi-national response Drive for cost competitiveness through product standardization and organizational centralization Manage worldwide operations as a single entity

Evolving motivations: Changing perspectives High Global Transnational International Multinational Global Coordination Integration Low Local Responsiveness High

Management philosophies (Perlmutter): Ethnocentrism Domestic and International Polycentrism Regiocentrism Geocentrism

Ethnocentric-Domestic expansion only S H A Y I don’t care Junior. We are staying at home.

Ethnocentric-International Foreign expansion viewed as an appendage to domestic operations; same strategies are utilized in all countries. HQ You see…our way works best around the world.

Polycentrism Activities and functions are planned and managed, often by local nationals, on a country-by-country basis (e. g. , HRM is decentralized by country) HQ Would you look at this? The GMs do understand the local markets

Regiocentrism Operations are geared towards a particular continental region with similar economies and cultures HQ Alphaland Betaminor Betaland

Geocentrism Products are functional, reliable, and standardized low-cost products (e. g. , HRM managed on a global basis) I can see the whole world from here. HQ

The Global Marketplace

Global Marketing into the Twenty. First Century The world is shrinking rapidly with the advent of faster communication, transportation, and financial flows. International trade is booming and now accounts for a quarter of the United States’ GDP. Between 1996 and 2006, U. S. exports are expected to increase 51%. Global competition is intensifying and few U. S. industries are now safe from foreign competition.

Global Marketing into the Twenty. First Century To compete, many companies are continuously improving their products, expanding into foreign markets, and becoming global firms. Global firms face several major problems: High debt, inflation, and unemployment have resulted in highly unstable governments & currencies, Governments placing more regulations on foreign firms, Protectionist tariffs and trade barriers, Corruption.

Major Decisions in International Marketing Looking at the global marketing environment Deciding whether to go international Deciding which markets to enter Deciding how to enter the market Deciding on the global marketing program Deciding on the global marketing organization

Looking at the Global Marketing Environment The International Trade System i. e. Tariff, Quota, Embargo, Exchange Control, and Nontariff Trade Barriers The World Trade Organization and GATT Treaty designed to promote world trade by reducing tariffs and other international trade barriers Regional Free Trade Zones Group of nations organized to work toward common goals in the regulation of international trade

Economic Environment Subsistence Economies Industrial Economies Types of Industrial Structure Industrializing Economies Raw Material Exporting Economies

Political-Legal Environment At Least Four Political-Legal Factors Should be Considered in Deciding Whether to do Business in a Given Country: Attitudes Toward International Buying Government Bureaucracy Monetary Regulations Political Stability

Cultural Environment Sellers Must Examine the Following Before Planning a Marketing Program Within a Given Country. Business Norms and Behavior How Customers Think About and Use Products Cultural Traditions, Preferences, and Behaviors

Deciding Whether to Go International Reasons companies might consider international expansion: Global competitors attacking the domestic market, Foreign markets might offer higher profit opportunities, Domestic markets might be shrinking, Need an enlarged customer base to achieve economies of scale, Reduce dependency on any one market, Customers might be expanding abroad. Most companies do not act until some situation or event thrusts them into the international market.

Deciding Which Markets to Enter Define Organization’s Marketing Objectives and Policies What Volume of Foreign Sales is Desired? How Many Countries Should the Firm Go Into? What Types of Countries Should be Entered? Rank by Market Size & Growth, Cost of Doing Business, Competitive Advantage, & Risk Level.

Discussion Connections Assess China as a market for Mc. Donald’s. What factors make it attractive? What factors make it less attractive? Assess Canada as a market for Mc. Donald’s. In what ways is Canada more attractive than China? In what ways is it less attractive? If Mc. Donald’s could operate in only one of these countries, which one would you choose and why?

Deciding How to Enter the Market Exporting • Indirect • Direct Joint venturing Direct investment • Licensing • Contract manufacturing • Management Contracting • Joint Ownership • Assembly facilities • Manufacturing facilities

Analysis of Global DEMAND SIDE Convenience, Flexibility, Value-added Customer services Quality orientation More product features, choices Products tailored to individual needs Changing perception of need Reduced loyalty to brands Customers require: ALL THIS AT LOWEST POSSIBLE PRICE

Analysis of Global SUPPLY SIDE Global Operations Increased competition Power of Branding Competitive requirements Pro-active approach Develop diversified products with more features IT embedded products Change, Flexibility & Agility Importance of Information Customization Focus on customer service Focus on quality Outsourcing of biz activities Alliances, Mergers, Acquisitions Customer retention Mass customization

TECHNOLOGY & International Business BPOs Call Centers Outsourcing MOOREs LAW Metcalfe's law

E commerce Introduction to E-commerce EDI E-tailing or Virtual store front Fax, Internet Telephony How Can we benefit From a business point of view From a consumer point of view Types of E-commerce B 2 B B 2 C C 2 B C 2 C The Concept of Web portals Payment Mechanism Traditional methods Virtual money/ Electronic Cash Merchant Accounts

E comm Contd. . Security SET Cyber crimes Credit cards misuse Steps to start E-Commerce Planning the E-commerce Selecting the Product/Service Creating the web site Web hosting Online Payments Delivery of the goods Characteristics of Internet economy Future of E-commerce Reasons for lack of E commerce in Pakistan Impact of E commrce on Global Economy Ethical dimensions of E commerce ( Social Informatics)

Cyber Marketing Introduction to Cyber marketing Use of Meta tags Use of graphics Techniques of Web advertisement Direct marketing Using communities Banner Advertising Opt in email advertising Advertising in Ezines Pay per sale affiliate program Search Engines Link swapping

Cyber Marketing Contd. . Identify target market on the web News group Cyber Laws Universal Cyber laws