INTRODUCTION TO INTERNATIONAL BUSINESS

1. INTRODUCTION TO INTERNATIONAL BUSINESS Global Production and Supply Chain Management Global Financial Management August 11, 2008 Discussion Section

2. Agenda • Recap of chapter 12 and 14 • Review of chapter 16 • Chapter 16 discussion • Review of chapter 11 • Chapter 11 discussion • Review of chapter 20 • Chapter 20 discussion • Study guides for Chapter 17 & 18 • A few notes about the final • Q&A about the Final • Additional office hours on Wednesday, 10-12am @ Café Strada

3. Recap of chapter 12 and 14 • Chapter 12: The strategies of International Business • Value creation and strategic positioning • Market pressure and strategy determination • Chapter 14: Entry strategy and strategic alliances • Pros and cons of various entry modes • Pros and cons of greenfield ventures, acquisition and strategic alliances.

4. Chapter 16: Global Production, Outsourcing, and Logistics • The central role of production and logistics • Where to produce (Table 16.1) • Country factors • Technology factors: fixed cost, min efficient scale, flexible manufacturing and mass customization • Product factors: value to weight ratio, universality • Changing role of foreign factories • What to do produce - Make-or-Buy Decision/vertical integration • Managing global supply chain • Just-in-time inventory • Information technology

5. Chapter 16 Learning Goal • What are the roles of production and logistic? • How do country differences, production technology, and product features affect the choice of where to locate production activities? • How can the role of foreign subsidiaries in production be enhanced over time as they accumulate knowledge? • What factors do firms take into consideration when decision whether to make or buy? • What is required to efficiently coordinate a globally dispersed production system.

6. Chapter 16: Discussion • A chemical firm is considering how best to supply the world market for sulfuric acid. A manufacturing plant costs approximately $20million to construct and requires a moderately skilled workforce. The total value of the world market for this product over the next 10 years is estimated to be between $20billion and $30 billion range. The tariffs prevailing in this industry are moderate. • Should the firm favor concentrated manufacturing or decentralized manufacturing? • What kind of location(s) should the firm seek for its plant(s)?

7. Chapter 11: The Global Capital Market • Benefits and risks of the global capital market to borrowers and investors • Cost of capital, risk reduction • Opportunity for speculation, lack of information • Growth of the global capital market in the last quarter century • Information technology, deregulation • Benefits and risks of the Eurocurrency market • Lack of regulation, foreign exchange risk • Attractions of the Eurobond market • Regulatory interference, disclosure requirements, favorable tax status • “Global” equity market

8. Chapter 11 Learning Goals • What are the benefits of the global capital market? • Why has the global capital market grown so rapidly over the last quarter century • What risks are associated with the globalization of capital markets? • What are the risks and benefits associated with the Eurocurrency market, the global bond market, and the global equity market? • How does foreign exchange risk impact the cost of capital? • Foreign exchange risks

9. Chapter 11: Discussion • Why has the global capital market grown so rapidly in recent decades? • Do you think this growth will continue throughout the next decade? • What implications does this growth have for borrowers and investors from developed and developing countries?

10. Chapter 20: Financial Management in the International Business • Investment decision • Capital budgeting (NPV of cash flow) • Cash flow to the parent company • Political and economic risks (discount rates) • Financing decision – source and structure • Global money management objectives: • Efficiency: cash balance and transaction cost • Minimize tax payment • How to move money across borders? • Dividend remittance • Royalty payments and fees • Transfer prices • Fronting loans • Techniques for global money management • Centralized depositories and multilateral netting

11. Chapter 20 Learning Goals: • How does operating in different nations impact investment decisions within the multinational enterprise? • What are the different financing options available to the subsidiary of a multinational enterprise? • How can money management in an international business be used to minimize cash balances, transaction costs, and taxation? • What are some of the basic techniques for global money management?

12. Chapter 20: Discussion • You are the CFO of a US firm with a wholly owned subsidiary in Mexico that manufactures component parts for your US assembly operations. The subsidiary has been financed by bank borrowings in the United States. One of your analysts told you that the Mexican peso is expected to depreciate by 30% against the US dollar on the foreign exchange markets over the next year. What actions, if any, should you take?

13. Chapter 17 Study GuideWhat determines firms’ global marketing and R&D strategies? • Marketing • Market segmentation • Product attributes - affected by cultural differences, economic development, and product & technical standards • Distribution channels - retail concentration, channel length, channel exclusivity and channel quality • Communication differences – barriers, what determines the optimality of push vs. pull strategies? • Standardized vs. localized advertising • Price discrimination, predatory pricing, multipoint pricing and experience curve pricing • Government regulation on pricing: antidumping and competition policy • R&D • Used to be concentrated in the U.S., no longer so • As successful product requires the integration of R&D, marketing, and production – achieved through cross-functional teams

14. Chapter 18 Study Guide:Global Human Resource Management • What is human resource management • Benefits and costs of the 3 staffing policies: • Ethnocentric, polycentric and geocentric (see Table 18.1, pg 631) • Why do global expat managers fail? • How to reduce failure rates: • Cultural, language and practical training • Repatriation of expats • Problems with performance appraisals in a MNE • Components of expat pay • Managing international labor relations – decentralized and centralized control

15. Final Exam • Same format as midterm • Bring a #2 pencil and a green scantron • Suggested articles to focus on: • “A Tale of Two Factories” • “Philippines Jollibee Goes Abroad” • “Low-Skilled Jobs: Do They Have to Leave?” • “Big Mac’s Local Flavor” • “Calling the Faithful” • Other questions • Good luck!