international business (expgdm - batch 2)

8/3/2019 International Business (ExPGDM - Batch 2)

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International Business


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Monday(12, June10 AM)

- Chanda places an on-line order for an I-pod Music Player onApple Computers Web.Specification: Sons name to be inscribed on the set.Free delivery at New York.Within

minutes- Order confirmed with a tracking number for Chanda to follow

progress of the freight of the articleWithin 45

minutes- Music player with name engraved shipped from Shanghai,

China, left Apple factory in Shanghai on a FEDEx van for the

sorting facility and then put on a plane for anchorage AlaskaChanda tracks the I-pod through flight and on the FEDEx hub

at Indianapolis, USAMidnight

Monday /Tuesday: (40

hrs. after)

- Wending its way through a maze of conveyor belts and rampsand guided by robotic arms into containers with specific zipcodes, travelling aboard vans and aircraft, the I-pod arrives in

New York.At the back of the shining metal box were the words Designed

in California. Assembled in China


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Many more countries had joined in making the I-pod

Microdrive (the heart of the machine) Hitachi,

Japan Controller chip South Korea Sony Battery assembled in China Stereo digital to analog converter by a

company in Edinburgh, Scotland Flash memory chip from Japan Software on a chip that allows one to search 10,000

songs designed by programmers at PortalPlayerin India

Source:(Nayan Chanda, Author ofBound Together)


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Globalization: Internationalbusiness perspectives

Universalisation of capitalism

Business becomes global corporations and companies

Strategies Globality

Outlook


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Globalization of

Markets

Production : global supply chains

Financial flows / FDIs / PIs

Transport links and logistics

Global institutions:

WTO, IMF

International Organization forstandardization. ISO 9001:2000series

ICANN


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Regional Economic

Integration : EU, NAFTA, SAARC

Role of Emerging Economies

Sheer size of their consumer marketsand their growth story

Bottom of the pyramid, frugalengineering

End of corporate imperialism Challengers and incumbents


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Globalization and Management

The global manager.


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Business Assessment of Countries:Risk Rating


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Political Risk Rating Method

A Model (IMR)

Type ofRisk

Examples MinimumScore

MaximumScore

Pol./ Econ.Environment

Pol. Stability 3 14

Possibility of Internal conflicts 0 14

External threat to stability 0 12

Degree of econ. Control 5 9

Dependability as tradingpartner

4 12

Constitutional guarantees 2 12

Effectiveness of publicadministration

2 12

Quality of labour relations /social peace

3 15


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Domestic Econ.Conditions

Pop. Size 4 8

Per cap. income 2 10Econ. Growth last 5 years 2 7

Potential growth last 3years

3 10

Inflation last 2 years 2 10

Openness of cap. Mkt forforeigners

3 7

Availability of high qualitylabour

2 8

Ability to hire foreigners 2 8

Availability of energyresources

2 14

Regulations on envrt 4 8

Standard of infrast. 2 14

Type of Risk Examples MinimumScore

MaximumScore


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Type of Risk Examples MinimumScore

MaximumScore

External Econ.

Relations

Import restrictions 2 10

Export restrictions 2 10

FDI restrictions 3 9

Brand / T. Mark protection 3 9

Rstres on money transfers 2 8

Currency revaluationprevious 5 years

2 7

BOP condition 2 9

Amount of oil/energy

imports

3 14

Intl financial standing 3 8

Currency exchangerestrictions

2 8


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Direct Indirect

Defensive /Reactive

Legal action Risk insurance

(eg: ECGC of India)

Make operationsdependent on parent co.

Contingency planningmethods

Control makeup ofmanagement

Home countrygovernment pressure

Linking / Merging

Long-term agreements Lobbying foreign

governmentsJVs

Promoting host goals

Becoming goodcorporate citizen tohost country

Approaches to managing risk


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MODEL FOR ECONOMIC VIABILITY PROFILEWITH WEIGHTS FOR DIFFERENT SETS

Criteria Indicator Weight

Growth Rate Change of GDP

Level of Development GDP Per Capita

Inflation Rate 40%

Investments as % of GDP

Fiscal Policy Net Budget Deficit as % of GDP

External Debt as % of Exports 30%

Debt Repayment as % of Exports

International TradeLiquidity

Balance of Trade in % of GDP

Foreign Exchange reserves in % ofImports

30%


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EUROMONEY: COUNTRY RISK ASSESSMENT

Economic Data (25% weight) Political Risk (25% weight)

Debt indicators (10% weight)

Debt defaulted/rescheduled (10%)

Credit ratings (10%)

Access to bank finance (5%)

Access to short-term finance (5%)

Access to international bond/syndicatedloan

markets (5%)

Access to forfaiting (5%)


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MNEs: Main Vehicle of

International BusinessA good definition of MNEs:

An enterprise having a substantialdirect investment in foreign countriesengaged in active management ofsuch offshore assets and regardingthose operations strategically andorganizationally as integral part of it.


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Motivations for international operations:Capitalize on all potential advantages

Traditional:Secure key supplies. Eg: ONGC inRussia

Seek markets abroad in pursuit ofeconomies of scale: Mahindra in US

Seek access to low cost factors ofproduction. CEAT in Sri Lanka

These push factors can be related to theproduct Life Cycle Theory


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Emerging motivations Beyond overseassales and production operations:

Set of forces I

Increasing scale economies

expanding R&D investments

shortening product life cycles

II

global scanning and learningcapability (on raw materials,markets, products, technologies)

III

Competitive positioning (eg. Cross-subsidisation of markets)


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Process of Internationalization:

Countervailing strategic advantage of anMNE over a domestic company:

Superior knowledge or skills as regardstechnology, marketing, R&D, Scaleeconomies or

some other part of its value chain

Options for entry in markets abroad

Exports

LicensingFranchising

Joint venture

Wholly owned subsidiary


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Uppsala Model of internationalization:

Go through cycles of investment treating

market entry as a learning process:

Step I : Initial commitment ofresources to the foreign

market to know aboutcustomers, competitorsand regulatory conditions.

II : On this basis, evaluatecurrent activities andopportunities for additionalinvestment.


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III: Make a subsequent resourcecommitment, eg. buy out local

distributor or invest in amanufacturing plant.

IV: With additional knowledge andseveral cycles of investment,develop capability and marketknowledge to compete in theforeign market.


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STRATEGIC MANAGEMENT

A critical part: Deciding how a company shouldcompete abroad.

All companies make money through valuecreation.

3 general strategies for value creation:

Differentiating products or services from those ofcompetitors (eg. Mercedes Benz.)

Cost leadership (eg. ACER of Taiwan)

Niche strategy Focusing a specific line of

products/services relative to competitors whooperate more broadly (eg. PORSCHE of Germanyfor Upscale sports cars. Slogan There is nosubstitute)


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Regardless of this basic approach, companies are

A LINKED SET OF VALUE CHAINS.

So, companies can add value by

Changing any of their primary activities(manufacturing, marketing)

Changing any of their supporting activities (materialsprocurement, HR)

either alone or in combination.

So a companys international strategy is about choices on

- How value chain activities are configured (eg.

Where do value chain activities happen? ) and

Coordinated (eg. Are dispersed activities tightly

controlled from HQ? or

Do they remain under local control?)


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OFTEN COMPANIES CHANGE THESE ACTIVITIES

TO IMPROVE THEIR CORE COMPETENCIES

(i.e: skills that are hard for competitors to imitate)

CORE COMPETENCIES CAN BE LOCATED ANYWHERE INTHE FIRMS VALUE CHAIN AND PROVIDE THE BASIS FORINTERNATIONAL COMPETITIVENESS.

Examples:

Logistical execution - Wal-Mart

Product innovation - 3M

Manufacturing Quality - Toyota

Location Economies: cost effective availability of benefitsexclusive to locations.

Scattering certain value chain activities to locations thatoffer such benefits can provide a source of competitiveness.

But sustainable competitive advantage comes from:

ability to constantly change and adapt which allowsmany individual firms to outperform their competitors.


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Success factors for cos in specific industries:

Processed Foods Taste

Sales promotion Price Distr. Channels Brand identification

Pharmaceuticals Product efficiency

Product innovation Patents held / filed Co. image

Autos Styling

Service Quality Price Fuel efficiency Distr. system


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Strategic Approaches used by MNEs:(International, multidomestic global and

transnational)Diverse MNEs are networks of relationshipsamong many dispersed organizations, eachwith somewhat different goals and

perspectives (eg: GE)

Understanding strategy in this contextinvolves figuring out

- the internal movements of information,

people, resources and products

through the MNEs entire web of linkages.


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Perspectives on MNE Strategy

Evolution of strategic role of MNEs foreignoperations:

4 stages/ strategic approaches/ mentalities:

International :Overseas operationsconsidered as appendages.

Technology and otherknowledge transferred fromparent company to overseasoperators.


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Multidomestic: Multiple, nationally responsive

strategies by the companys

worldwide subsidiaries

Global : Treats the world as its unit ofanalysis through global

products and manufacture onglobal scale.

Transnational: Combines local responsivenesswith global-scale competitiveefficiency.

(Localization Strategy)

Another Perspective:


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Another Perspective:

Evolution of the strategic role of an MNE interms of its overseas operations:

International (ethnocentric)Multinational (polycentric)Global (geocentric)

Transnational (dispersed butspecialized resources and activitiesintegrated into an interdependentworldwide network)

For readings: Characteristics and aspects oforganizational architecture of

these strategies.Challenges and opportunities for

each of these strategies.


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Note: An MNE might operate with anyone of these strategic approaches,depending on the industry, thecompanys strategic position and avariety of other factors.

More likely, most companies will bearsome characteristics of each of theseapproaches.


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Exercise:

Organisational set-up for the fourstrategic approaches.


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Process of developing internationalstrategy A template:

Step 1 The Mission Statement

Step 2 Conducting a SWOT (environmental

scanning)Step 3 Evaluate alternatives, set strategic

goals

Step 4 Developing implementation

tactics and plans

Step 5 Putting control and

evaluation procedures in place.


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A Model: DETERMINATION OFA FIRMS COMPETITIVE POSITION IN INTERNATIONAL BUSINESS

HANS MUHLBACHER et al

CUSTOMER & MAJORSTAKEHOLDERS MACRO-ENVIRONMENT

SUCCESS FACTORS

COMPETITOR ANALYSISCOMPETITIVE ENVIRONMENTASSESSMENT OF

CORPORATE POLICY CORPORATE STRATEGY MANAGEMENT SYSTEMS

OPERATIONS

INTERNAL ANALYSIS CORPORATE POLICY CORPORATE STRATEGY MANAGEMENT SYSTEMS OPERAITONS

DISTINCIVE COMPETENCIES PROFILE OF STRENGTHS & WEAKNESSESS COMPARISON OF PROFILES OF STRENGTHS & WEKNESSES

COMPETITIVE ADVANTAGES

Advantages and disadvantages of different foreign


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Advantages and disadvantages of different foreignmarket entry options.

Advantages Disadvantages

Exporting fairly inexpensive

easy foreign access

no ownership risks

Missed location economies

logistical difficulties

Licensing Fairly inexpensive

Useful where trade barriers/

tariffs hinder exporting

Leverages location economies

without ownership concerns

Risky where IPR protection

is weak

Control ceded to licensee

may inhibit coordination

May help create new

competitors

Franchising Low cost, low riskOffers more control than

licensing

Builds presence fast

Control still an issue

Franchisee may not be

motivated to adhere to

franchisors standards

ManagementContracts

Very inexpensiveLow risk revenue

No long term presenceMay create competitors


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Turnkey projects

Greenfield subsidiaries

An option if direct

investment is out

Lowers risk if long term

instability exists

Allows high control

Offers location economies

Can pick own site, workers,

technology.

No long-term presence

May create competitors

Vulnerable to political

and legislative changes

Very expensive to set up

Time-consuming to set

up

Requires considerable

international expertiseRisky due to ownership

Acquired subsidiaries Allows high controlRapid market entry

Offers location economies

Risky due to ownership

Cultural differences may

be formidable

May be buying problems

Joint ventures Less financial risk thansubsidiaries

Leverages partners

resources, know-how

Risks giving some

control on technology to

partner

Still some ownership risk


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Going global: first movers andlate movers

Advantages of first movers:Preempt rivals and capture demand by

establishing a strong brand name.

Capture scale economies ahead of laterentrants

Benefit from a lower cost structure whichlater entrants find difficult to match.

Create high switching costs making itdifficult for later entrants to winbusiness.


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Disadvantages:

Pioneering costs can be heavy.

Chances of survival better if a firm entersafter others have already created

potential.

Regulations can change to the benefit oflater entrants.


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Factors that may prevent companiesfrom venturing abroad:

Liabilities of Origin ChristopherBartlett & Samanthra Ghoshal

Feeling trapped in prison of localstandards and of strong domesticdemand for products

Being unaware of the companys global

potentialLimited exposure to global competition,

leaving companies overconfident orblind to potential dangers


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But successful emerging MNEs have

overcome these constraints through:

Push from home eg. SAMSUNG fromSouth Korea and Thermax from India

Pull from abroad eg. Ranbaxy of India


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Strategies for Late Movers:

(Bartlett & Ghoshal)

Benchmark and sidestep

eg. Jollibee of Philippines against McDonald

Confront and Challenge

eg. BRL Hardy against established wineexporters in Europe

Learning how to learn

Protect the past

Build the future


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Exercise:

How MNEs can manage conflictingdemands of

global integration

local responsiveness

world wide learning


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Focus on MNE strategy and Organization

Main preoccupations :

Internal consistency and cohesion of theorganizational set-up

Compatibility of organizational featureswith the strategy of the company or the fitbetween strategy and organization

Fit between company strategy andorganization on the one hand and thecompetitive conditions in the market


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These make demands on;

Structure of the company in itsoperational aspects : Decision-making

Division into subunits

Coordination / integration

Control systems and incentives

Processes

Organizational culture

Capacity to change, innovate andlearn

St t i I t ti l B i O ti


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Structuring International Business Operations

Organizational structure typically changes:

As firms expand their international operations or modify their strategicapproach.

A common sequence:An Export Department

International Division Structure with either

Geography or

Product Line as the basis for sub-division

Global Area Structure with countries or regions as basis

Or

Global Product Structure where a company organizes around a diversified set ofproducts or businesses

Global Matrix Structure


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Where geographic and product division structuresoverlap and decision making is shared between

product and geographic managers.

Thinking beyond the Matrix structure.


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Organizational structure typically

changes:

When firms expand their international

operations or

They modify their strategic approach.


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I A common first step:

An export manager with some staff

Or

An export department

Functional Divisions

Product Division Geographical

Structure Area Structure

Global Product Structures

OR


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Global Area Global Product

Structure Structure

Global Matrix Structure

Flexible Matrix Structure

OR

Typical firm Structure:


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CEO

FINANCE PRODUCTION HR MARKETING

EXPORT DEPT

FOREIGNREPS/BUYERS

yp

I . Firm with a narrow product line:


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II. Firm with a wide product line:

Note: Export manager and staff may report directlyto CEO.

CEO

FINANCE PRODN HR MARKETING EXPORT DEPT

SmallAppliances

LargeAppliances

IndustrialEquipment

FinancialServices


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III. International Division on ProductStructure Basis:

InternationalDivision President

Snackfoods

Beverages RestaurantsCatering /Supplies

l


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IV. International Division on AreaStructure Basis:

Example: Harley Davidson of U.S

International DivisionPresident

NORTHAMERICA

ASIASOUTH

AMERICAEUROPEAN

UNION

h Gl b l


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V. The Global area structure:

CORP.STAFF

Line Management

CEO

FINANCEPRODN R&DMARKETING EXPORT DEPT

N. AMERICA EUROPE L. AMERICA ASIA

INDIA

CHINA

INDONESIA

V. The Global Product Structure:


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V. The Global Product Structure:

CORP.STAFF

Line Management

CEO

FINANCEPRODN R&DMARKETING PERSONNEL

ProductDivn. A

ProductDivn. B

ProductDivn. C

ProductDivn. E

INDIACHINA

INDONESIA

ProductDivn. C

EUROPE ASIA MIDEAST AFRICA

Marketing Production Finance

VI Th Gl b l M t i St t


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VI. The Global Matrix Structure :

CEO

FINANCEPRODN R&DMARKETING PERSONNEL

Europe Tractors Asia Other area& ProductDivisions

GM,Tractors,

Asia

GM,Tractors,Europe


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Nissan Motors Limited

(example of an organizational

Chart in a strategic alliance

Chi f E ti Offi


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Chief Executive OfficerCarlos Ghosn

Chief Operating Officer

Toshiyuki Shiga

Vice Chairman

Tadao Takahashi

Ex- Vice PrAmerican Operations

Hiroto SaikawaEx- Vice Pr (R&D)

Mitsuhiko Yamashita

Ex- V Pr

Corporate PlanningCarlos Tavares

Senior Vice Pr(Treasury)

Alain Dassa

Senior Vice Pr(Production)

Toshiharu Sakai

Senior Vice Pr(Design)

Shiro Nakamura

Senior Vice Pr(TCSX)**

Kazumasa Katoh

Senior Vice Pr(Global Marketing)

Junichi Endo

AuditorMasahiko

AuditorTakemoto

AuditorToshiyuki

AuditorTakeo

**Total Customer SatisfactionFunction

St t i Alli


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Strategic Alliances:

Informal International CooperativeAlliances

Formal International Cooperative

Alliances International Joint Ventures

O h f I i l S i


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Other types of International StrategicAlliances than JVs.

Production alliance - Motivation may includedesire to acquire complex manufacturingexpertise from each other or reducing costs ofproduction.

Eg. Bharat Forge and Faw Corp., China for highlyengineered forged auto components in China.

R&D alliance - to develop new products ortechnologies

eg: Elder with Daiwa to launch IMBRAM, a novelneutraceutical.

Super Religare Labs with Norwegian DIAGENIC tolaunch the worlds first early breast cancer detectiontest.

Financial alliance partners reduce


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Financial alliance - partners reducetheir financial exposure in riskyprojects by sharing costs

eg: Morgan Stanley and ChinaFortune Securities for a securitiestrading company in China

Marketing alliance - partners shareservices or expertise in marketingrelated areas in ways that generate

additional profits for both.eg: Bharati Airtel with TranscendInfn Inc. for sale and distribution of

memory accessories.


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Why SAs?

Local partners knowledge of the

market

Government regulations

Sharing risks

Sharing technology

Economies of scale

Low-cost raw materials or labour


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Key considerations in the SA decision:

Could other participation better satisfystrategic objectives?

Does the firm have management and

capital resources to contribute to the SA?

Can a partner really benefit thecompanys objectives?

What is the expected payoff of theventure?


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Pre-alliance process: Building an SA

- Partner selection: Strategic andorganisational analysis.

- Avoidance of wrong choices and

unrealistic expectations.

- Determination of scope of thealliance.

- Opt for simplicity and flexibility.

Reasons why SAS present some very


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Reasons why SAS present some verysignificant management challenges :

Strategic and environmentaldisparities between partners

Lack of a common experience andperception base

Difficulties inter-firm communication

Conflicts of interests and priorities

Inevitable differences among

individuals managing the interface


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Specific Tasks in Managing an SA

Structuring the interface.Managing knowledge flows.

Adopt appropriate structure forgovernance.

Perspectives on SAs

- Viewed as second best option.

- Alliances need not be permanent.- Flexibility is essential.

- An internal knowledge network is also amust for organisational learning.


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Acquisitions Vs GreenfieldVentures

Pros and Cons

I di C t A i iti Ab d


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Indian Corporate Acquisitions Abroad

2007 Deals worth $42.6 b. (China 2007 - $13b. Russia - $15 b)

Largest: Tata Corus; Hindalco Novelis (Canada)

Between 2003 2004: Value of foreign acquisitions more thandoubled each year, with a compound annual growth of 108%

Successrate : Between 2003 and 2004 in 42 Indian deals, aboutone-third generated 10% above the normal index for foreignacquisitions.

Bains Study 2005: Only one-third of all foreign deals aresuccessful one year after announcement.

Indian companies, on average are as successful as these US andEuropean peers.

Some important ones:


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Some important ones:

Tata Tetlee

Videocon Thomson (color picture tube plants) 2005

VSNL Teleglobe (Canada) 2006Dr. Reddy Labs Betapharm (Germany) 2006

Apollo Dunlop South Africa (2006)

Mahindra Valtra (Finnish truck co.)

United Breweries (Whyte & MackKay Scotland)

Godrej Keyline (FMCG firm, UK)

Jindal Steel & Power iron ore mine in Bolivia (2006)

Tata Tea Energy Brands (US)Tata Motors Jaguar / Land Rover

ONGC Videsh Ominex, Columbia

Suzlon Energy Hansen Transmission, Belgium

Indian MNCs in Boston Consulting


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Indian MNCs in Boston ConsultingGroups Challengers 100

Bajaj Auto - Automotive EquipmentBharat Forge

Birla Hindalco - Non-ferrous metals

Cipla - Pharmaceuticals

Cromption Graves - Engineered ProductsDr. Reddys - Pharmaceuticals

Infosys Technologies - IT Services / BPO

Larsen & Toubro - Engineering Services

Mahindra & Mahindra - Automotive EquipmentSatyam Computer Services IT Services / BPO


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Suzlon Energy - Wind energy

Tata Consultancy Services - IT Services / BPO

Tata Motors - Automotive Equipment

Tata Steel - Steel

Tata Tea - Food and Beverages

Videocon Industries - Consumer Electronics

VSNL - Telecom Networks

Wipro Technologies - IT Services / BPO

Indian IT could do substantial global acquisitions


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Indian IT could do substantial global acquisitions,but the larger acquisitions so far have been in otherareas.

Acquisitions give Indian firms:

a global scale

a portfolio of recognized brands

access to huge markets

But also involve as key challenges:

difficult integration processes between differentmanagement mindsets

Stark cultural differences

Out-of-sync operational processes

HRs, deriving value through organizational structures

Navigating complex labour laws

China Challengers (41)(S ki i th h i iti )


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(Seeking expansion through acquisitions)

Bay steelBYD Consumer Electronics

Changhong Home AppliancesCherry AutomobilesChina MobilesCIMC ShippingCNOOC OilFAW Auto equipmentHaier Home appliancesHisense Consumer ElectronicsHuawei Technologies Telcom Equipment

Johnson Electric Engineering productsLenovo ComputersPetro China OilTCL Corporation Consumer ElectronicsZTE Telcom Equipment

Off-shoring Services in


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gInternational Business

Widely used as a particular subcategory ofoutsourcing

So 4 types of outsourcing based on location andcontrol / ownership are:

1.

Captive onshore outsourcing: shift of intra-firmsupplies to an affiliated firm in the home country

2. Non-captive: if shift benefits a non-affiliated firmin the home economy

3. captive offshoring: when supplies sourced from

an affiliated firm abroad4. Non captive offshoring: When supplies are

source from a non-affiliated firm abroad.

Outsourcing is not a new phenomenon.


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Estimates of size of offshoring services


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Estimates of size of offshoring servicesin IT and Business Process:

OECD (2005): $32 b. (2001)McKinsey (2003): $35 b. (2001)

Indias ranking:

In computer & InformationServices: 1(@ $ 31 b.)

In computer Information andother business services: 8

Analyse:

Indias strengths

Weaknesses

Data on Indian IT exports


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Data on Indian IT exports

FY 07 FY (est.) 08

IT software $22.9 b. $ 28 29 b.

ITes BPO $ 8.4 b. $10.5 11 b.

Total $31.4 b. $ 39 40 b.

Industry employment in FY 07 - 1.6 million

indirect employment due to

IT ITes - nearly 6 million

Total - 7.5 million


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International Financial Markets

Can be classified into

International Money Markets

International Capital Markets

I. International Money Markets for financiali (d i i i )


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instruments (deposits, accounts or securities)having maturities of 1 year or less.

Notably: Euro-commercial paper which is a short term debt obligation of a corporation or bankhaving maturities of one, three and six months.

International Money Markets are often termedEurocurrency markets.

Eurocurrency: Any foreign currency denominateddeposit at a financial institution outside the

country of the currencys issuance.

Eurodollars (Class discussion)

Interest Rates applicable: CIBOR

II. International Capital Markets for


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II. International Capital Markets forfinancial Instruments having maturitiesover 1 year.

Can be classified into:

Equity & Debt markets

or as markets for: Securitized capital (separable and

tradable) like bonds or stocks

Non securitized capital (bank loans)

International Equity Markets:


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International Equity Markets:ADRs / GDRs /

Euro-equity markets Stock Exchanges

Investment Banks

Indian Equity Market: Role of SEBI

Class discussion

Also Private Placements

SALE OF EQUITY (OR DEBT) TO A LARGEINVESTOR NORMALLY A ONE-TIMETRANSACTION PURCHASER HOLDS IT TILLREPURCHASE BY THE FIRM (IF EQUITY) OR

MATURITY (IF DEBT)

International Debt Markets:


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4 Kinds of International financing:

Domestic Borrower in a domestic currency Foreign Borrower in a domestic currency

Domestic borrower in a foreign currency

Foreign Borrower in a foreign currency

3 & 4 are Eurobonds

International Bonds classified into: Foreign Bonds and Eurobonds

Euronotes: of longer than Short term:

Medium Term notes: Has Characteristics similar to a bond

Maturities of 9 months to 10 years.

International Bank Loans:

Euro credits

Syndicated Credit


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I. Two money market instruments:

1. Certificate of Deposit: Issued by a bank to indicateownership of a large deposit (over $10,000) oftenby a company. A negotiable instrument, it can bebought and sold between the time it is issued andthe time it is redeemed.

2. Commercial Paper: Short term debt instruments

issued by important companies and banks, maturity5 to 365 days, as large as $10,000 or as large as $1million.

In Euro currency market it is known as EuroCommercial Paper.

II. Some important Indian companies which haveused ADRs/GDRs: ICICI and HDFC have floatedADRs in the US while SBI, UTI and KotakMahindra have raised funds through GDRs


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III. Why cross listing (listing of shares ofcommon stock on two or more stock

exchanges)1. Improve the liquidity of existing shares and

provided a liquid secondary market for new equityissues in foreign markets.

2. Increase share price by overcoming mispricing in asegmented and illiquid home capital market.

3. Increase the firms visibility and political acceptanceto its customers, suppliers, creditors and homegovernments.

4. Establish a secondary market for shares that are

used to acquire other firms in the host market (eg:Tata acquiring Corus in Europe)5. Create a secondary market for shares that may be

used to compensate local management andemployees in foreign affiliates.


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IV. Alternative Instruments to source

equity in international markets Sale of directed public share issue to investors in a

target market

Sale of a Euro equity public issue to investors in more

than one market including both foreign and domesticmarkets (international equity issues originating andsold anywhere in the world)

Private placements (Sale of a security to a small set ofqualified institutional buyers)

Sale of shares to private equity funds (limitedpartnerships of institutional and wealthy individualinvestors

Sale of shares to a foreign firm as part of a strategic

alliance.


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V. Sourcing Debt

Major Sources of Debt Funding:

International bank loans: Traditionally sourced in theEurocurrency markets. Eurodollar bank loans are alsocalled Eurocredits given to MNEs, governments, otherbanks.

(Euro currency : domestic currency of one country ondeposit in a second country. Euro currency deposits are anefficient and convenient money market device for holdingexcess corporate liquidity and a major source of shortterm bank loans to finance corporations and their workingcapital needs including financing of imports and exports.

Euronote Market: Collective term for short to mediumdebt instruments sourced in Eurocurrency markets (Noteis a written acknowledgement of a debt)

International Bond Market

Has variety of instruments, falling within twoclassifications: Eurobonds and Foreign bonds


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Eurobond:

Underwritten by an international syndicate of banks

and other security firms and sold in countries otherthan the country in whose currency the issue isdenominated.

Foreign Bond:Underwritten by a syndicate composed of membersfrom a single country, sold principally within thatcountry and denominated in the currency of thatcountry. The issuer, however, is from another country

(A bond issued by a firm resident in Germany,denominated in dollars and sold in the US to Americaninvestors is a foreign bond Yankeebond)

International Finance


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International FinanceCentres

New York Stock Exchange: Worlds biggest market for sharetrading. Merged with Euro next, a pan-European exchange .

Nearest rival in US is NASDAQ

London Stock Exchange : Surpasses New York in structured

finance and new stock listings.Its Alternative Investment Market (AIM)is geared to smaller firms.

Alternative InvestmentMarket (AIM) London : A sub market of London Stock Exchange,

now becoming an international exchange, forsmaller firms to float shares with a moreflexible regulatory system than

applicable to the big companies. Thereare no requirements for capitalization ornumber of shares issued.


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Other financial hubs in US:

Chicago : Worlds derivatives centre.

Famous for its MercantileExchange.

Houston : An active cluster of energy tradersand hedge funds.

in Europe:Frankfurt : An important centre for banking

and derivatives.

Geneva : Specialized in private banking and

wealth management.Zurich : Specialized in insurance.

Paris : Largest market in Europe fortrading in mutual funds.

i A i


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in Asia:Tokyo : Worlds second largest share

market and Asias biggest financial

centre.

Hong Kong : With half of market capitalizationfrom mainland Chinese

companies.

Singapore : Noted for strengths in stocks,derivatives, private banking

and wealth management.

Shanghai : Comes after Tokyo and Hong Kong

in value of equities traded.

Mumbai : India plans to make it a leadingfinancial centre of Asia


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Dubai : Growing as a new financialcentre, with offices of severalglobal financial institutions (Itsstyle cramped lately!)

Qatar : An important hub forinfrastructure finance.

Bahrain : Well established in Islamic

banking.

Process of International Marketing


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Process of International Marketing

Motives for international marketing Growth

Profitability

Risk spread Access to imported inputs

Uniqueness of product / services

Life cycle-oriented marketingopportunities

Spreading R&D costs

SWOT Analysis


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Decision to enter international markets

International marketing decisions Market identification and targeting (Segments)

Choice of entry mode

Product decisions

Distribution channel decisions

Market promotion decisions

Enter international markets

Review performance

Consolidate marketing efforts for global

marketing

Computation of Market Potential


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p

Is evaluated, according to one method by 8

dimensions with weights attached to each:

Measures Used

Market Size 10/50 Urban, rural populations Electricity consumption etc

Market growth rate 6/50 GDP growth rate

Market intensity 7/50 GNI per capita as per PPP private consumption.

Market consumptioncapacity

5/50 Percentage of middle class inconsumption

Commercial infrastructure 7/50 Telephone and road density,retail outlets etc

Market receptivity 6/50 Trade as percentage of GDP

Country risk 4/50

Analysis of international markets


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y

2 Models :

BCG Matrix:

Classification of markets on the basis of growth rate and

market share:

High growth High share products (stars)

Low growth High share products (cash cows)

High growth Low share products (Question marks) Low growth Low share products (Dogs)


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Market attractiveness / company strength matrix:

Combining market attractiveness and competitivestrength of a company, both based on variousfactors. Firms focus is to be at the point where

the two are very high.

international business (expgdm - batch 2)

Documents