International Business Lecture 1 The business enterprise in

International Business Lecture 1: The business enterprise in the international environment: introduction International Business: Challenges in a Changing World

Aims of the lecture To identify key characteristics of international business To appreciate the role of entrepreneurship To gain an understanding of the nature of the company, along with roles within the company To identify the main business functions of the organization in the international context To highlight the role of co-operative arrangements in international business To gain an overview of key players in the international business environment International Business: Challenges in a Changing World

Figure 1. 1: Comparison of the local, national and international business International Business: Challenges in a Changing World

Seeking the Customer s Products. Customers Size Local business Small local firm Local customers Sourced through local suppliers Personal relations for operations and for reaching the customers National International business Countrywide organization with local and regional units Diverse customers within the national environment Organization based in a home country with foreign and regional links Domestic and foreign customers More complex products and distribution Sourcing of products across national borders Use of national Global media to manage media to reach inter-national the customers activities and reach customers International Business: Challenges in a Changing World

Figure 1. 2: Dimensions of the international environment International Business: Challenges in a Changing World

Entrepreneurship • Successful entrepreneurship involves identifying opportunities, pursuing new ideas and securing financial support. • It includes start-up businesses, as well as the re-focusing of existing enterprises. • Levels of entrepreneurial activity differ from country to country, and are influenced by culture. • Governments can encourage (or discourage) entrepreneurs. • The born-global company takes an international approach from the outset. International Business: Challenges in a Changing World

Small-to-medium size enterprise (SME) • An SME is usually defined as an organization employing fewer than 249 employees. • SMEs provide the bulk of jobs in most countries. • The franchise provides a means for an SME to benefit from the brand support of an established MNE. • Franchising is often used by MNEs as a means of international expansion. International Business: Challenges in a Changing World

Figure 1. 3: Early Stage entrepreneurial activity 2006 International Business: Challenges in a Changing World

Figure 1. 4: The global entrepreneur International Business: Challenges in a Changing World

Strategic Crossroads 1. 1: Mc. Donald’s (page 11) What reasons lie behind the comparative success of Mc. Donald’s franchise outlets over the company-owned ones? In the franchise outlets, the franchisee invests more of his or her own resources and has a more entrepreneurial approach to the business. Managers of the company-owned outlets, by contrast, have less sense of ownership and a lower level of entrepreneurial drive. This question can be broadened into a discussion of an entrepreneurial approach generally, which can bring in country differences in entrepreneurial environments. How does the development license fit in with Mc. Donald’s overall revitalization program? The nature of the new developmental licenses should be highlighted at the start. They provide that the underperforming outlets should be sold to local entrepreneurs, who would invest their own capital to a greater extent than under Mc. Donald’s usual arrangements. The new owners would be imbued with a greater entrepreneurial approach, but would still benefit from the strong brand supply chain arrangements. Whether these new owners deliver improved financial performance depends on their competitiveness in their local markets. Mc. Donald’s executives are stressing the importance of the revitalization program to win new customers. They look to the new owners to deliver these improvements, reflecting the success of the revitalization program in the US. International Business: Challenges in a Changing World

Dynamics of the company • Forming a company offers advantages of separate legal identity to the owners. • Companies are registered in particular countries, in accordance with their national laws. • Private companies are often family owned. • In contrast, public companies … – Have numerous shareholders and tradable shares – Have a chief executive officer (CEO) and directors who are accountable to the shareholders – Are increasingly international in their ownership profiles International Business: Challenges in a Changing World

Figure 1. 5: Roles within the public company International Business: Challenges in a Changing World

Figure 1. 6: Changing ownership of UK equities International Business: Challenges in a Changing World

The multinational enterprise (MNE) • Pursues opportunities and co-ordinates businesses across national borders. • As it grows in size, it evolves a more complex organizational structure, often based on parent company and subsidiaries. • MNEs differ in the degree of centralized control or local autonomy in various locations. International Business: Challenges in a Changing World

Figure 1. 7: MNE multi-tiered ownership structure International Business: Challenges in a Changing World

International business functions • International operations • Accounting and finance for international business • International marketing • International HRM • Research and development (R&D) ◊ These functions may be centralized or decentralized, depending on the organization’s overall culture and strategy. International Business: Challenges in a Changing World

Figure 1. 8: Business functions in the international context International Business: Challenges in a Changing World

Corporate governance • Corporate governance concerns the company’s decisionmaking structures and processes. • ‘Shareholder’ model predominates in the US and UK: – It has a single-tier board and focuses on maximizing shareholder value. • ‘Stakeholder’ model is prevalent in the 2 -tier boards in Europe and Japan: – It takes a wider perspective, encompassing employees in particular. • Wider stakeholder interests are now recognized in most companies, as corporate social responsibility (CSR) impacts on governance. International Business: Challenges in a Changing World

Figure 1. 9: Executive managers and company stakeholders International Business: Challenges in a Changing World

Alliances, networks and joint ventures • All are co-operative arrangements which contribute to international strategy. • Alliances (often called strategic alliances) offer opportunities for pooling resources and skills in differing environments. • Networks may be intra-firm or inter-firm; both organizations and individual staff can benefit. They can be important for SMEs in their strategic expansion. • Joint ventures offer international opportunities through the formation of a new enterprise, benefiting from the strengths of both founding partners. International Business: Challenges in a Changing World

Figure 1. 10: Alliances, networks and joint ventures International Business: Challenges in a Changing World

Key players in the international environment • National governments, which play both direct and indirect roles. • Regional institutions, such as the European Union (EU). • International governmental organizations, such as the World Trade Organisation (WTO). • Voluntary organizations, such as trade unions, nongovernmental organizations (NGOs). • Stakeholders in the MNE. International Business: Challenges in a Changing World

Figure 1. 11: MNE interactions International Business: Challenges in a Changing World

Figure 1. 12: The European Union and eurozone International Business: Challenges in a Changing World

Conclusions • Businesses change in their organization and strategy as they become more international. • As more countries become integrated into global business, MNEs face challenges in adapting to diverse cultural environments. • Firms’ interactions with business partners, governments, international organizations and groups in society grow as their operations develop in different locations. • Managing stakeholder interests, including shareholders, customers and communities, is a key challenge for today’s international managers. International Business: Challenges in a Changing World