International Business: Cross-border motivations and mentalities

1. International Business:Cross-border motivations and mentalities

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

3. Pervasive nature of International Business

4. Pervasive nature of international business

5. 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

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

7. 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

8. 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

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

10. 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

11. 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.

12. 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

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

14. 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.

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

16. 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

17. 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

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

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

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

21. Ethnocentric-InternationalForeign 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.

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

23. RegiocentrismOperations are geared towards a particular continental region with similar economies and cultures Betaminor HQ Alphaland Betaland

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

25. The Global Marketplace

26. 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.

27. 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.

28. 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

29. 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 Looking at the Global Marketing Environment Regional Free Trade Zones Group of nations organized to work toward common goals in the regulation of international trade

30. Economic Environment Subsistence Economies Industrial Structure Types of Industrial Structure Raw Material Exporting Economies Industrial Economies Industrializing Economies Income Distribution

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

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

33. 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.

34. Define Organization’s Marketing Objectives and Policies What Volume of Foreign Sales is Desired? Deciding Which Markets to Enter 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.

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

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

37. 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 DEMAND SIDE

38. 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 Analysis of GlobalSUPPLY SIDE

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

40. 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 • B2B • B2C • C2B • C2C • The Concept of Web portals • Payment Mechanism • Traditional methods • Virtual money/ Electronic Cash • Merchant Accounts

41. 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)

42. 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

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