CH1- What is International Business??

International business consists of all commercial transactions (eg : sales, investments, transportation ) between two or more

countries. Private companies – for profit

Governments – profit or political reasons

Factor in International Business Operations

PHYSICAL AND SOCIETAL FACTORS

• Political policies and legal practices

• Values, attitudes, and beliefs

• Economic forces• Geographical

influences

COMPETITIVE ENVIRONMENT

• Major advantage in price,marketing,innovation

or other factors• Number and relative

capabilities of competitors• Competitive differences

by country

EXTERNAL INFLUENCES

OBJECTIVES• Sales expansion

• Resource acquisition• Diversification

• Competitive risk minimization

STRATEGY

OPERATIONS

MEANS

Modes•Importing & exporting•Tourism & transportation•Licensing & franchising•Turnkey operations•Management contracts•Direct & portfolio investment

Functions•Marketing•Production•Accounting•Finance•Human Resources

Overlaying Tactical Alternatives•Choice of countries•Organization & control mechanisms•Degree of integration among countries’ operations

1. Economic- International trade and investment2. Technological – Internet connectivity3. Personal contact – International trade & tourism, international telephone

traffic & personal transfers of funds internationally4. Political – Participation in international organizations & government

monetary transfers

Four Dimensions of Globalizations

Factors in Increased Globalization

1. Increased in & expansion of technology2. Liberalization of cross-border trade & resource movements3. Development of services that support international business4. Growing consumer pressures5. Increased global competition6. Changing political situations7. Expanded cross-national cooperation

1. Threats to national sovereignty2. Economic growth & environment stress3. Growing income inequality

What wrong with Globalization ????

Why Companies engage in International

Business???

Expanding sales

Acquiring resources

Minimizing risk

Modes of Operations in IB

PHYSICAL & SOCIETAL FACTORS

• Political policies & legal practices

• Values, attitudes & beliefs• Economic forces

• Geographical influences

COMPETITIVE ENVIRONMENT

• Major advantage in price, marketing, innovation or

other factors• Number & relative

capabilities of competitors•Competitive differences by

country

OBJECTIVES• Sales expansion

• Resource acquisition• Diversification• Competitive risk

minimization

STRATEGY

MEANSModes

•Importing & exporting•Tourism & transportation•Licensing & franchising•Turnkey operations•Management contracts•Direct & portfolio investment

Functions•Marketing•Production•Accounting•Finance•Human Resources

Overlaying Tactical Alternatives•Choice of countries•Organization & control mechanisms•Degree of integration among countries’ operations

EXTERNAL INFLUENCES OPERATIONS

1. Physical & social factors- Physical ( eg: geography)- Social ( eg: politics, law, culture, economy)

2. Competitive factors- Number & strengths of a company’s suppliers, customers and rival

firms)

Why International Business Differs from Domestic Business??

International Strategy Evolution

Patterns of international expansion :

Strategy for heavy international commitments usually evolve gradually from•Passive to active expansion•External to internal handling of operations•Deepening mode of commitment•Geographical diversification

Leapfrogging of Expansion

Usual Pattern of Internationalization

Global OperationsOperations Strategy in a Global Environment

Reasons of GlobalizeTangibleReasons

IntangibleReasons

Reasons to Globalize1. Reduce costs (labor, taxes, tariffs, etc)2. Improve supply chain3. Provide better goods & services4. Understand markets5. Learn to improve operations6. Attract & retain global talent

Reduce Costs

Foreign locations with lower wage rates can lower direct & indirect coats

World Trade Organization (WTO)North American Free Trade Agreement (NAFTA)APEC, SEATO, MERCOSUREuropean Union (EU)

Improve the Supply Chain

Locating facilities closer to unique resources

•Auto design to California•Athletic shoe production to China•Perfume manufacturing in France

Culture and Ethical Issues

•Cultures can be quite different•Attitudes can be quite different towardsPunctualityLunch breaksEnvironmentIntellectual propertyThieveryBriberyChild labor

You May Wish To Consider

National literacy rate Rate of innovationRate of technology changeNumber of skilled workersPolitical stabilityProduct liability lawsExport restrictionsVariations in languageWork ethicTax ratesinflation

Availability of raw materialsInterest ratesPopulationNumber of miles of highwayPhone system

Match Product & Country

•Braun Household Appliances•Firestone Tires•Godiva Chocolate•Haagen-Dazs Ice Cream•Jaguar Autos•MGM Movies•Lamborghini Autos•Alpo Pet Foods

1. Great Britain2. Germany3. Japan4. United States5. Switzerland

`Marketing

DistributionPromotionChannels of distributionProduct positioning(image, functions)

Finance/AccountingLeverageCost of capitalWorking capitalReceivablesPayablesFinance controlLines of credit

Production/Operations

Decisions Sample Options

ProductQualityProcessLocationLayout

Human resourceSupply chain

InventorySchedule

maintenance

Customized or standardizedDefine customer expectations & how to achieve them

Facility size, technology, capacityNear supplier or near customer

Work cells or assembly lineSpecialized or enriched jobsSingle or multiple supplier

When to reorder, how much to keep on handStable or fluctuating production rate

Repair as required or preventive maintenance

Activity Mapping southwest Airlines

Competitive Advantage : Low

Cost

Courteous but Limited Passenger

Service

Short Haul, Point to point Routes, Often

to Secondary Airports

Frequent, Reliable Schedules

Standardized Fleet of Boeing 737

Aircraft

High Aircraft Utilization

Lean, Productive Employees

No baggage transfers

No meals (peanuts)

Lower gate costs at secondary airport

High number of flight reduces employees idle time between flights

Saturate a city with flights, lowering administrative costs ( advertising, HR, etc) per passengerFor that city

Pilot training required on only one type of aircraft

Reduced maintenance inventory required because of only one type of aircraft

Excellent supplier relation with Boeing has aided financing

Flexible employees & standard planes aid schedulingFlexible union contracts

Maintenance personnel trained on only one type of aircraft

20 minute gate turnarounds

High level of stock ownership

Hire for attitude, than train

High employees compensation

Empowered employees

Automated ticketing machines

No seat assignments

Four International Operations Strategies

Global Strategy• Standardized product• Economies of scale• Cross-cultural learning

Examples• Texas Instruments

• Caterpillar• Otis Elevator

International Strategy• Import-export or license

existing productExamples

• U.S Steel• Harley Davidson

Transnational Strategy• Move material, people, ideas

across national boundaries• Economies of scale• Cross-cultural learning

ExamplesCoca-Cola

Nestle

Multidomestic Strategy• Use existing domestic model

globally• Franchise, joint ventures,

subsidiariesExample• Heinz

• The Body Shop• McDonald’s

High

Low

Cost

Red

uctio

n Co

nsid

erati

ons

Low High Local Responsiveness Considerations(Quick Response and/or Differentiations)