Organizational Participants in IB

1. Organizational Participants in IB • Three types of participants in IB • Participants organized by value-chain Focal firms in IB(international Business) - Foreign Market entry strategies of focal firms • Distribution channel intermediaries in IB • Facilitators in IB

2. Three types of participants in IB - A focal firm is the initiator of an IB transaction that conceives, designs, and produces the offerings for customers • A distribution channel intermediary is a specialist firm that provides a variety of logistics and marketing for focal firms in both home and abroad • A facilitator is a firm or individual with special expertise such as legal service, banking, and customs clearance. Assist focal firms in the performance of IB transactions

3. Participants organized by value-chain activity The value chain is the complete business system of the focal firm. The value chain consists of all of the focal firm’s activities – market research, R&D, sourcing, production, marketing, distribution, and after-sales service. Channel intermediaries and facilitators support the focal firm by performing value-adding functions.

4. Focal firm in IB Focal firms = multinational enterprises, large global corporations(Sony, ford). Multinational Enterprises operate in multiple countries by setting up the production plants, marketing subsidiaries, and regional headquarters. Small and Medium firms comprise the majority of internationally active firms

5. Foreign market entry strategies of focal firms • Licensor – a firm that enter a contractual agreement with a foreign partner that allows the foreign partner the right to use certain intellectual property for a specifies period of time in exchange for royalties or other compensations. • Franchisor – a firm that grants another the right to use an entire business system in exchange for fees, royalties, or other forms of compensations.

6. Foreign market entry strategies of focal firms A turkey contractor is the firm that plans, finances, organizes, manages, and implements all phases of a project, and then hands it over to a foreign customer after training local personnel. A joint venture is the firm that creates and jointly owns a new legal entity through equity(stock) investment. * Indirect Exporting * Direct exporting

7. Distribution channel intermediaries in IB Distribution channel intermediaries more products and services across national borders and eventually to end-user. They perform key downstream functions in target market on behalf of focal firms, marketing. 1. A foreign distributor = a foreign market-based intermediary that works under contract for an exporter, take title to, and distributes the exporter’s products in a national market or territory, often performing marketing functions such as sales, promotions, and after-sales service

8. Distribution channel intermediaries in IB 2. An agent – an intermediary that handles orders to buy and sell commodities, products, and services in IB transactions for a commission. 3. A manufacturer’s representative = an intermediary contracted by the exporter to represent and sell its merchandise or services in a designated country.

9. Distribution channel intermediaries in IB 4. Trading company is an intermediary that engages in import and export of a variety of commodities, products, and services. TC assumes the international marketing functions on behalf of producers, those with limited IB experience. 5. An export management company is an intermediary that acts as an export agent on behalf of client companies. In return for a commission, EMC finds export customers on behalf of the client firm, negotiates terms of sale, and arranges for international shipping.

10. Facilitators in IB Facilitators assist with International Business(IB) transactions. A freight forwarder is a specialized transportation specialist that arranges international shipping on behalf of exporting firms, much like a travel agent for cargo. A customs broker is a specialist that arranges clearance of products through customs on behalf of importing firms.

11. Theories of international trade and investment • The basis for trade is specialization. • Why nations trade? (1) mercantilism: argued that nations should seek to maximize their wealth by exporting more than they import. (2) absolute advantage principle: argues that a country benefits by producing only those products in which it has absolute advantage, or can produce using fewer resources than another country.

12. Theories of international trade and investment • Comparative advantage: countries should specialize and export those goods in which they have a relative advantage compared to other countries. Competitive advantage derives from distinctive assets or competencies of a firm, such as cost, size, or innovaton strengths, that are difficult for competitors to replicate or imitate

13. Theories of international trade and investment • Factor proportions theory: nations specialize in the production they hold in abundance. • The international product cycle theory describes how a product may be invented in one country, and eventually mass-produced in other countries, with the innovating country losing its initial competitive advantage.

14. How nations enhance their competitive advantage(CA): • Porter’s diamond model: four conditions in each nation that give rise to national competitive advantages: firm strategy, structure, and rivalry, factor conditions, demand conditions, and related and supporting industries. An industrial cluster is a concentration of companies in the same industry in a given location that interact closely with one another, gaining mutual CA.

15. Theories of international trade and investment • New trade theory argues that increasing economies of scale might determine superior performance in some industries. • National industrial policy: describes efforts by governments to direct national resources to the development of expertise in specific industries.

16. Why and how firms internationalize ? • Internationalization process model describes how companies expand into international business gradually, usually going from simple exporting to the ultimate, most committed stage, FDI-(Foreign Direct Investment). Domestic focus -> pre-export stage -> direct exporting -> top management time and resources toward achieving involvement in IB -> making IB a key part of the firm’s profit making via various entry modes, FDI.

17. How firms gain and sustain international competitive advantage • Monopolistic advantage theory describes how companies succeed internationally by developing skills and resources that fewer other firms possess • Internalization theory explains the tendency of multinational enterprises to internalize stages in their value chain when it is to their advantage. Internalization is the process of acquiring and maintaining one or more value chain activities inside the firm to minimize the disadvantages of subcontracting these activities to external firms

18. How firms gain and sustain international competitive advantage • The eclectic paradigm specifies that the international firm should possess certain internal competitive advantage( ownership-specific advantages, location-specific advantages, and internalization advantages.