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MS 97

MS 97. INTERNATIONAL BUSINESS. BLOCK 1. INTERNATIONAL BUSINESS. INTRODUCTION. International Business can be described as the business carried on across the national borders between two or more nations. Forms of International Business. Export and import of goods and services

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MS 97

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  1. MS 97 INTERNATIONAL BUSINESS

  2. BLOCK 1 INTERNATIONAL BUSINESS | | <document classification>

  3. INTRODUCTION International Business can be described as the business carried on across the national borders between two or more nations | | <document classification>

  4. Forms of International Business • Export and import of goods and services • Licencing agreement • Management contracts • Joint ventures • manufacturing | | <document classification>

  5. Multinational Enterprises • These are the enterprises whose business operations extend beyond the national borders • enterprises which own or control production or services facilities outside the country in which they are based | | <document classification>

  6. International Trading Houses • These houses are established to facilitate the trading activities at the global level • The function of trading house is to coordinate the exchange of goods and services between the importers and exporters of different countries • They carry out market research • These are the extension of export management companies | | <document classification>

  7. Factor Endowments-extent to which different countries possess various factors such as labour,land and technology • Resource Mobility-it is assumed that a resource removed from one industry can be moved to another | | <document classification>

  8. Theory of Mercantilism • Mercantilist believed in nationalism and the welfare of the nation alone,planning and regulation of economic activities for achieving the national goals curbing imports and promoting exports • Bullionism : health of a country is measured by Gold • Colonialism: colony is viewed as a source of raw material | | <document classification>

  9. Theory of Absolute Cost Advantage • Propounded by Adam Smith(1776) Wealth of Nation • Producing goods with fewer I/p per unit of o/p than other countries • If prices are same in two countries,the country • With an absolute advantage in a good will have a lower unit cost of production for that good • This theory argue that the countries gain from trading,if they specialize acc.to their production advantages. | | <document classification>

  10. Opportunity cost Opportunity cost - the cost of pursuing one activity in terms of the foregone return on the next-best alternative activity Examples • The opportunity cost of going to college is what you could have earned working full-time instead • The opportunity cost of using a plant to manufacture one product is what the company could have earned manufacturing another product at the plant instead | | <document classification>

  11. Theory of Comparative Cost Advantage • This is given by Ricardo(1817) • He pointed out that cost advantage to both the trade partners was not a necessary condition for trade to occur • Producing good at lower opportunity cost than than another country | | <document classification>

  12. More on Comparative Advantage Even a country at an absolute disadvantage in everything will have a comparative advantage in something Each country specializes in the production and export of what it does relatively well Prices of goods and inputs in a free-market economy will adjust in order to lead to this outcome | | <document classification>

  13. More on Comparative Advantage Countries rely on imports to meet consumer demands for goods in which they don’t have a comparative advantage A country can achieve consumption levels beyond what it could achieve on its own Government policy can alter free-market outcomes (import tariffs, import quotas, export subsidies, etc.) | | <document classification>

  14. Factor Proportions (Heckscher-Ohlin) Trade Theory A country that is relatively abundant in a factor of production should export goods that use a lot of that factor in the production process, and import other goods Example: a country like China with a lot of labor should export labor-intensive goods Why? If a factor is relatively abundant, it will be relatively cheap, and a country will be more globally competitive in products that use a lot of that factor | | <document classification>

  15. Foreign direct investment Theories • Market Imperfection approach • Product Life Cycle Approach examines the various stages of the international involvement by the firm.there are sequential stages a) New product stage b) Mature product stage c) Standardised product stage • Transaction Cost approach | | <document classification>

  16. International investment process and finance Internationalization process can be seen as • Domestic firm with no export • Marginal exporter • Exporting through marketing intermediaries • Exporting through own marketing facilities abroad • Foreign production through investment abroad | | <document classification>

  17. Corporate Life Cycle Theory • The transformation of the firm into successive stages is evolutionary in character and the stage on which a firm may be found would depend on degree of its commitment towards export market. The stages in evolutionary cycle • Opportunism • Limited Commitment • Limited fixed investment for exports • Equal Treatment of Domestic and Export Business | | <document classification>

  18. An alternative explanation is provided by Ahorani he suggested the following stage of entry • Licencing • Exporting • Establishment of local warehouse and direct local sales • Formation of a Joint Venture • Foreign Direct Investment | | <document classification>

  19. TRANSFER PRICING • It is the price charged for goods for services supplied by the parent to the subsidiary or by on subsidiary to another Variables that are responsible for the manipulation of transfer prices: • Corporate tax rate • Import duties • Risk exposure | | <document classification>

  20. Block 2 Strategic management | | <document classification>

  21. STRUCTURAL DESIGN OF MNEs There are two related processes involved in the growth of a domestic firm to an international one. • geographic dispersion of corporate resources • The transformation of the firm into successive stages in evolutionary and the stage on which a firm may found would depend on the degree of its commitment towards export market. • corresponding changes in organisational development | | <document classification>

  22. The Organisation Structure and Characteristics | | <document classification>

  23. different types of organisational structures Type A domestic oriented narrow product line | | <document classification>

  24. Wide product line | | <document classification>

  25. Type B export oriented | | <document classification>

  26. Type C International oriented | | <document classification>

  27. Type D Multinational Firm Narrow product line | | <document classification>

  28. Type E Transnational Firm | | <document classification>

  29. American MNEs • key tasks were to transfer knowledge and expertise overseas, the structure and process became important. • The decisions on assets, resources and responsibilities were decentralized with control from headquarters. • The structure is that of a multinational form but subsidiaries are dependent on headquarters. | | <document classification>

  30. Japanese MNEs The Japanese pattern of multinational business is closely related to the operations of their trading companies. The organizational structure of the Japanese companies developed on the basis of the information collected by them in the process of exporting and their linkage with the major banks providingfinancial resources | | <document classification>

  31. European MNEs The European international companies, at the initial stage, followed "mother daughter" form of organization which involved personal and informal contacts between the parent company and the subsidiary rather than a formal system. | | <document classification>

  32. ORGANISATION OF ASEA BROWN BOVERI (ABB) ABB was created in 1987 with the merger of two large European companies: Asea (established in 1890), Sweden and Brown Boveri (established in 1891), Switzerland | | <document classification>

  33. DESIGNING APPROPRIATE STRUCTURE • The Functional Structure • The Product-based Structure • Area-based Structure • The Matrix-based Structure | | <document classification>

  34. STRUCTURAL DESIGN OF MNEs TYPE OF MNEs • Horizontally integrated MNEs • Vertically integrated MNEs • Diversified MNEs | | <document classification>

  35. PLANNING NEEDS Stage Structure Strategy • I Functional Single product line • II Product Related product line • III Divisional Unrelated product line | | <document classification>

  36. PLANNING FOCUS | | <document classification>

  37. PLANNING MODES | | <document classification>

  38. SUBSIDIARY DEVELOPMENT PATH • Localisation of Global Strategy • Growth and Development of the subsidiaries | | <document classification>

  39. PITFALLS IN PLANNING a) Pitfalls in getting started. b) Pitfalls related to misunderstanding of the nature of long range planning. c) Pitfalls in doing long-range planning. Managerial involvement, Process of planning, Credibility of result, and d) Pitfalls in using long range plans | | <document classification>

  40. ENVIRONMENTAL VOLATILITY | | <document classification>

  41. OWNERSHIP STRATEGY • MNEs have the synergistic advantages from an integrated operation system. These advantages arise from operating on an international scale, exploitation of comparative advantages of different countries on account of differences in cost of capital, labour, resources, etc. and capability to provide consumer satisfaction. • The MNEs have the capacity to exploit all these differences with their massive resources. This may perhaps imply that the MNEs would like to have central control and 100% ownership of the overseas operations. | | <document classification>

  42. CHOICE OF STRATEGY • The ownership strategy depends on three factors viz., rights and assets owned by MNEs, rights and assets owned by local firms and the type of foreign associate.The optimum ownership strategy depends on five factors: • competitive position • availability of acceptable associates • legal constraints • control requirement • benefit/cost relationship | | <document classification>

  43. STRATEGIC ALLIANCES • It is a long term alliances • The major reasons for strategic alliances are scale economies, technology development, market opportunities and neoprotectionism. • Determinants of strategic alliances | | <document classification>

  44. Strategic Alliances cost/benefit | | <document classification>

  45. INTEGRATION AND RESPONSIVENESS There are three major motives which prompted MNEs to invest overseas • Secure key suppliers • Development of technology • Cost factor Integration Different MNEs try to integrate their subsidiaries differently • The UN model assumption • Headquarters hierarchy syndrome • Multi center system | | <document classification>

  46. MANAGING A MULTIFOCAL STRATEGY MNEs have • Strong geographical management • strong function based management Barriers to overcome organisational biases • Strategic barriers • Organisational barriers • Cultural barriers | | <document classification>

  47. FLEXIBLE COORDINATION Three mechanisms originating in different countries have emerged among MNEs: • Centralisation • Formalisation • Socialisation | | <document classification>

  48. Commitment • MNEs try to build understanding, identification and commitment of individual managers to the overall corporate agenda.there are three tasks in changing the mentality of managers towards global perspectives. • Shared vision • Understanding and acceptance • The binding commitment | | <document classification>

  49. Block 3 Control and Evaluation

  50. CONTROL AND INFORMATION BUSINESS THE NEED FOR CONTROL control is essentially concerned with regulating the activities within an organisation so that they are in accord with expectations established in policies, plans and practices | | <document classification>

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