International Business Global Perspective By Prof Srikanth Venkataswamy

Marketing In the new Millennium. Challenges and Issues 1. Seamless Global society 2. Basis For competitive advantage 3. Business at the speed of thought 4. Virtual Enterprises 5. Customer: Co-producer of products and services. 6. Customer: A warehouse of information 7. The Death of business and consumer marketing 2

Marketing In the new Millennium. Challenges and Issues, Contd… 8. The role Of Distribution Channels 9. The Poor as Market Segment 10. Environment Protection 11. Diversity and Convergence Coexist 3

Marketing In the new Millennium. Challenges and Issues 1. Seamless Global society The physical Distance, information and Knowledge, has now become redundant. Emergence Of global Society and universal values. Universal value relates to concept of time. Which is an indicator of opportunity. By this More and more customers are willing to accept global products and services. Further, emergences of these values has altered concept of space, time and Location. 4

Marketing In the new Millennium. Challenges and Issues 2. Basis For competitive advantage Technological changes has lead to significant shifts in Competitive leadership. The present Day environment, Knowledge management has become crucial armour for competitive survival. 5

A = Your point of differentiation. Some questions to consider: How sustainable is this? Is this really as large as we’d like it to be? How can we make it larger and more sustainable? B = Points of parity. Some questions to consider: What do we want to do with these? C = Competitors’ points of differentiation. Some questions to consider: Is this area growing? How difficult would it be for us to move these to B or A? D = Opportunity. Some questions to consider: How do we go after this so we move it into A and not B? How do we prevent our competitors from moving it to B or C? Why is this space so large and A so small? The only way to do this analysis in a useful way is to get the information from your target market. Don’t 6

Marketing In the new Millennium. Challenges and Issues 3. Business at the speed of thought The marketing Challenges Lies In enabling Customers To overcome their resistance to change. The Product Life Cycles will Be far shorter. Interactive technologies will eliminate several roles in marketing of products and services. Products will be further standardized and hence the opportunities to differentiate will no longer exists. 7

Marketing In the new Millennium. Challenges and Issues 4. Virtual Enterprises In this era of Digital Darwinism and virtual reality, size and location of an enterprise will have a very little or no role to play. A Virtual Enterprise (VE) is a temporary alliance of enterprises that come together to share skills or core competencies and resources in order to better respond to business opportunities, and whose cooperation is supported by computer networks. It is a manifestation of collaborative networks The enterprise is more of an action, rather than an institution. 8

Marketing In the new Millennium. Challenges and Issues 5. Customer: Co-producer of products and services. The Producer will take the product up to certain level in the value chain and then leave it for the buyer to customize it to his or her requirements. Ex- Asian Paints Shade Bay. Mc. Donald: Customers not only collects the order but also cleans up after the food is consumed. Color Worlds are altering the manner in which products are distributed and sold. 9

Marketing In the new Millennium. Challenges and Issues 6. Customer: A warehouse of information In this internet and speed age, the customers has access to huge bank of information from various national and global sources. Hence the era of standardization is today replaced by mass customization. 11

Marketing In the new Millennium. Challenges and Issues 7. The Death of business and consumer marketing The differentiation between business and consumer marketing, urban & rural marketing and domestic & global marketing will get more blurred. The physical difference between the product & services will cease to exist. 12

Marketing In the new Millennium. Challenges and Issues 8. The role Of Distribution Channels The conventional dealer and distributors will no longer Viable. Service and customized will be the order of the day. Global SCM will emerge and converge. 13

Marketing In the new Millennium. Challenges and Issues 9. The Poor as Market Segment Globalization has widened the gap between the rich and the poor. Poor people world wide are now a large segment which get not be ignored. This segment offers more attractive opportunity than the rich segment. 14

Globalization Of The Economy Depends on: • • The role of human migration, International trade, Movement of capital, and Integration of financial markets 15

Globalization: Globalization refers to increasing global connectivity, integration and interdependence in the economic, social, technological, cultural, political, and ecological spheres. Globalization is an umbrella term and is perhaps best understood as a unitary process inclusive of many sub -processes such as • Enhanced economic • Interdependence, • Increased cultural influence, • Rapid advances of information technology, and • Novel governance and • Geopolitical challenges that are increasingly binding people and • The biosphere more tightly into one global system. 16

Globalization: • Globalisation of the world economy has been especially pronounced after World War II and the Great Depression of the 1930’s in the USA. • The rise in the volume of trade between the developed and the developing countries, • Increase in cross-border transactions, rise in immigration and • Transfer of technology are some of the key issues of globalisation 17

Innovators Percentage of Adopters Early Majority Early Adopters Late Majority 34% Laggards 34% 16% 13. 5% 2. 5% Early Time of Adoption Late 18

Marketing In the new Millennium. Challenges and Issues 10. Environment Protection The biggest Challenge for the new millennium marketer is protection Of environment. Be it in product development , use or disposal, The marketer will have to make a conscious efforts to protect and maintain the environment. This has led To development of eco-friendly Products ex: Hotels, watches, food products, cars , fuels, packaging materials etc 19

Levi’s Eco Jeans Promotes Sustainability 20

Bio Fuels • Biodiesel • Bioethanol 21

Marketing In the new Millennium. Challenges and Issues 11. Diversity and Convergence Coexist Markets are diverse. The diversity is not just Based on Demographic & geographical location of the customers, but also on their response in changes epically to technological changes for which converges of needs is also a fact. It is not only product related but will based on the organization's culture, systems and hence quality. Ex- long term vision , Financial soundness, top-end technological development, Investment , Innovation and new product & market development. 22

Marketing Management Concepts or Philosophies There are Five Marketing Management concepts: 1. Production Orientation Concept 2. Product Orientation Concept 3. Sales Orientation Concept 4. Market Orientation Concept 5. Societal Orientation Concept 23

Global Business An Insight

Benefits 1. 2. 3. 4. 5. 6. Survival Growth in Sales Profits Diversification Price moderation Consumer Benefits 7. National Benefits 25

Challenges

Globalization refers to increasing global connectivity, integration and interdependence in the economic, social, technological, cultural, political, and ecological spheres.

Definition Of Globallsation. : • During the Last few decades, human dynamics, institutional change, political relations and the global environment have become successively more intertwined. • While increased global economic integration, global forms of governance, globally interlinked social and environmental developments are often referred to as globalization, • there is no unanimously-agreed upon definition of globallsation. • It means different things to different people.

Globalization: Globalization is an umbrella term and is perhaps best understood as a unitary process inclusive of many sub-processes such as • Enhanced economic Interdependence, • Reduction In cost & Distance • Increased cultural influence, • Rapid advances of information technology, • Novel governance • Geopolitical challenges that are increasingly binding people • Emergence of Global institutions • The biosphere more tightly into one global system. 29

Globalization Of The Economy Depends on: • The role of human migration, • International trade, • Movement of capital, and • Integration of financial markets 30

THE 3 I’s (eyes) Of International Business: 1. Interdependence 2. Integration 3. Immigration

Need Based Economy – Global Competition – Liberalized Economy – Compete or Perish – Change Agents Needed 32

Research & Product Process Development Design Development Raw Materials Goods Labor Services Technology After-Sale Infrastructure Country A Country B Country C Country D The Global Supply Chain: Intra-Firm Coordination. 33

Distributor Storage with Carrier Delivery Dell inventory Factories Warehouse Storage by Distributor/Retailer Customers Product Flow Information Flow 34

Lead Time Dealing with Product Variety: Mass Customization n o i at iz m to Long Short Mass Customization High Low Co st s u C Low High 35

Benefits Of International Business

Benefits 1. 2. 3. 4. 5. 6. 7. 8. 9. Survival Growth in Markets Sales & Profits Diversification Inflation & Price moderation Standard of living Immigration & Employment Consumer Benefits National Benefits 37

Benefits of Competitiveness Increased standard of living Reduction trade deficit More and better jobs Stronger national security Decreased budget deficit Increased competitiveness in world market Improved domestic performance Human resources Technology Capital High productivity of resources What the customer wants in products and services START HERE 38

Driving Forces Of International Business 1. Growth 2. Profits 3. Market Needs 4. Technology 5. Cost 6. Quality 7. Communications and Transportation 8. Leverage 39

A. B. C. D. E. Systems Experience Scale Resources Utilizations Global Strategy

WHAT MAKES INTERNATIONAL Business CHALLENGING? OPERATIONS IN A MULTI-COUNTRY CONTEXT l Different Environments 0 Economic/Financial 0 Political/Legal 0 Social/Cultural l Differences in Customer Behavior/Market Segments l Differences in Competition l Different Marketing Infrastructures 0 Media 0 Distribution 0 Logistics NEED TO: l Adjust to These Differences 41

The International Business Task Foreign environment (uncontrollable) Political/legal forces Economic forces Domestic environment (uncontrollable) Cultural forces Political/ legal forces Marketing (controllable) Price Promotion Competitive structure Forces Product Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Level of Technology Structure of distribution Environmental uncontrollables country market B Environmental uncontrollables country market C 42 ll

The International Business Task Foreign environment (uncontrollable) The international Business Political/legal Economic must deal with two levels of forces uncontrollable uncertainty Domestic environment (uncontrollable) Cultural forces Political/ legal forces Marketing (controllable) Price Promotion Competitive structure Forces Product Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Level of Technology Structure of distribution Environmental uncontrollables country market B Environmental uncontrollables country market C 43 ll

The International Business Task Foreign environment (uncontrollable) The international marketer Political/legal Economic must deal with two levels of forces uncontrollable uncertainty Domestic environment (uncontrollable) Cultural forces Political/ legal forces Marketing (controllable) Price Promotion Product Each foreign country in which a company operates Competitive structure adds. Forces its own unique set of uncontrollables Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Level of Technology Structure of distribution Environmental uncontrollables country market B Environmental uncontrollables country market C 44 ll

The International Business Task Foreign environment (uncontrollable) Political/legal forces Economic forces Domestic environment (uncontrollable) Marketing controllable Cultural forces Political/ legal forces Price Promotion Geography and Infrastructure Competitive structure Forces Product Channels of Channels distribution of Distribution Economic climate Structure of distribution Level of Technology Environmental uncontrollables country market A Environmental uncontrollables country market B Environmental uncontrollables country market C 45

The International Marketing Task Foreign environment (uncontrollable) Political/legal forces Economic forces Domestic uncontrollables Political/ legal Political/legal Cultural forces Marketing (controllable) Price Promotion Product Competitive structure Forces Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Structure of distribution Level of Technology Environmental uncontrollables country market B Environmental uncontrollables country market C 46

The International Business Task Foreign environment Foreign uncontrollable (uncontrollable) Political/legal forces Domestic environment (uncontrollable) Cultural forces Political/ legal forces Marketing (controllable) Price Promotion Geography and Infrastructure Economic forces Competitive structure Forces Product forces Channels of distribution Environmental uncontrollables country market A Economic climate Structure ofof distribution Level of Technology Environmental uncontrollables country market B Environmental uncontrollables country market C 47

Domestic VS International Business Domestic Business Global Business 1. One nation, same language and culture. Transport cost is one of the major expenses. One currency 1. Market is relatively homogeneous. Political environments and factors are the same. 4. 2. 3. 4. 5. 6. No problem of exchange control and tariffs 2. 3. 5. 6. Many nations, Many languages and cultures Transport cost influences to some extent. Different currencies in different countries. Markets are diverse and highly heterogeneous. Different political environments and factors in different countries and are vital. There are problem of exchange controls and tariffs. 48

Domestic VS International (contd…. ) Domestic Business Global Business 7. 8. Data Collection relatively easy, accurate and at less cost. Relative freedom from Govt. Interferences. 9. Individual company has little effect on environment. 10. Relatively stable business Environment. 11. Chauvinism helps. 12. Uniform Financial climate Data Collection a formidable task, requiring significantly higher budgets and personnel allocation. 8. Govt. influences business decisions. 9. “Gravitational” distortion by Large companies. 10. Multiple environments, many of which are highly unstable. 11. Chauvinism hinders. 12. Variety of financial climates , procedures. to wildly inflationary. 49

Domestic VS International Business (contd…. ) Domestic Business Global Business 13. No major Legal & taxation issues 14. No major constrains in advertisements & promotions (messages, language, costs, medium etc. . ) 15. Marketing costs: is minimal, Traveling, communication, Presentations 16. Business “rules of the game” mature and understood 13. Legal & taxation issues not relatively Smooth. 14. Advertisements & promotions have to be carefully handled. (messages, language, costs, medium etc. . ) 15. Marketing costs: is a Variable, 16. Rules diverse, varied, changeablean d unclear sometimes. 50

The process (stages) of Internationalization

Stages 1. Domestic 2. Export 3. International 4. Multinational 5. Global/Transnational 52

Stages 53

ALTERNATIVE STRATEGIES Global Co-ordination Integration High Low Global Trans. National International Multi. National Low National differentiation, Responsiveness High 54

Multinational corporation: • A corporation that has its facilities and other assets in at least one country other than its home country. • Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management. • Very large multinationals have budgets that exceed those of many small countries. Sometimes referred to as a "transnational corporation".

Multinational corporation: 1. Having operations, subsidiaries, or investments in more than two countries: a multinational corporation. 2. Of or involving more than two countries: a multinational research project. n. A company or corporation operating in more than two countries.

The formal division of the organization intosubunits such as product divisions, national operations, and functions (Horizontal differentiation)II. The location of decision making responsibilitieswithin that structure (centralized ordecentralized) – Vertical Differentiation. III. The establishment of integrating mechanismsto coordinate the activities of subunits includingcross-functional teams and or pan-regionalcommittees – integrating mechanisms

Types of Multinational corporations: There are four types of multinational corporations: 1. Decentralized in management nature+ strong home country presence example: metro cash & carry 2. Centralized + economies of scale ; example: nestle 3. A company which open up in deferential regions with same technology as in parent company. i. e, 4. Transnational alliances: combination of the above three types; example: KFC, Pizza Hut, Mac. Donald

Stages 59

Management Orientation and Global Marketing • Different Management Orientations in the Global Arena – EPRG Framework Polycentric Ethnocentric Regiocentric Geocentric 60

Managerial Orientation q q Ethnocentricity – Orientation to home country Polycentricity – Orientation to host country Regiocentricity – Orientation to a region Geocentricity – Orientation to the whole world. 61

Theories of International Trade 63

The Theory of Absolute Advantage -Adam Smith • Different countries produce some goods more efficiently. This may due to differences in factors such as climate, quality of land, natural resources, labour, technology, capital or entrepreneurship. • If each country specializes in the product for which it has absolute advantage, each can use its recourses more effectively.

Possible Product Outputs (for certain resources & lab our) 65 Country A Country B Product X 20 10 Product Y 10 20 65

The Theory of Comparative Advantage -- David Ricardo • A country specializes in those products that it can produce most efficiently than other products without regard to absolute advantage. • A country would focus on the product with greatest comparative advantage or a product with the least comparative disadvantage

Possible Product Outputs (for certain resources & labour) Country A Country B 67 Product X 20 10 Situation Product Y 1 10 20 Product X 20 10 Situation Product Y 2 30 20 67

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• • 71 Heckscher-Ohlin Theory of Factor Endowment Argues that comparative advantage arises from differences in Factor Endowment. Extent to which a country is endowed with such resources as Land, labour and capital. Different nations have different factor endowments and different factor endowments explain differences in factor costs. The more abundant a factor, the lower is the cost. 71

Defects in theory • • Unrealistic Assumption of labour Cost. Static nature of theory Neglect of transport costs. Assumption of constant costs. Factors Immobile Internally Unrealistic theory based on assumptions. Inadequate explanation of comparative cost. • Demand conditions ignored. • Complete specialization is impossible. 72 72

Porter’s Diamond of “National Competitive Advantage”

• Although nations are nominally committed to free trade they tend to intervene in international trade to protect the interests of politically important groups or promote the interests of key domestic producers.

• For example, In the United States agricultural subsidies have helped to protect relatively inefficient cotton farmer from being exposed to the full forces of competition in the global marketplace. • The subsidies were put in place due to the political influence that cotton farmers exert on the United States Congress this unfortunate, for these subsidies have stimulated overproduction of cotton in the United States, which has driven down the price of cotton on world markets.

Trade barriers: • Restriction that renders importation of some goods into a country • Trade barriers are government-induced restrictions on international trade barrier • Government imposed restriction on the free international exchange of goods or services.

Types of Barriers: Trade barriers are generally classified as • Tariffs • Non-tariff barriers to trade

Trade Policy Uses Seven Main Instruments 1. 2. 3. 4. 5. 6. 7. Tariffs, Subsidies, Import quotas, Voluntary export restraints, Local content requirements, Administrative policies, and Antidumping law.

TARIFFS – It is a tax levies on goods entering into the market /imports (or exports). Tariffs fall into two categories. 1. Specific tariffs : assessed per unit of import Or example, $3 per barrel of oil. 2. Ad valorem tariffs : Based on value of import /are levied as a proportion of the value of the imported good. 3. Compound Tariffs /Combination of Two: Tariff produces revenues for the government and protect domestic producers.

For example: , • In march 2002 the U. S. government placed an ad valorem tariff of 8% to 30% on imports of foreign steel. • The effect however was to raise the price of steel products in the United States by between 30 and 50 percent. • A number of U. S. steel consumers, ranging fro appliance makers to automobile companies, objected that the steel tariffs would raise their costs of production and make it more difficult for them to compete in the global marketplace.

In general, two conclusions can be derived from economic analysis of the effect o import tariffs: 1. Tariffs are unambiguously pro-producer and anti-consumer while they protect producers from foreign competitors this restriction of supply also raises domestic prices. For example: a study by Japanese economist calculated that tariffs on import of food stuffs, cosmetics, and chemicals into Japan cost the average Japanese consumer about $890 in the form of higher prices.

2) Import tariffs reduce the overall efficiency of the world economy. They reduce efficiency because a protective tariff encourages domestic firms to produce products at home than, in theory, could be produced more efficiently abroad. The consequence is an inefficient utilization of resources. • For example: tariffs on importation of rice into South Korea have led to an increase in rice production in that country; however rice farming is a non-productive per se of land in South Korea. It would make more sense for the South Koreans to purchase their rice from lower cost foreign producers and to utilize the land now employed in rice production.

Tariff on Exports : • Sometimes tariffs are levied on exports of a product from a country. • First, to raise revenue for the government and • second, to reduce exports from a sector often for political reasons. • For example: In 2004, China imposed a tariff on textile exports. The primary objective , it moderates the growth in exports of textiles from China.

NON-TARIFFS:

Types of Barriers: Trade barriers are generally classified as • Tariffs • Non-tariff barriers to trade

Trade Policy Uses Seven Main Instruments 1. 2. 3. 4. 5. 6. 7. Tariffs, Subsidies, Import quotas, Voluntary export restraints, Local content requirements, Administrative policies, and Antidumping law.