International Business

Ulvi Vaarja2015

International Business

• Any situation where the production or distribution of goods or services crosses country borders

• Some managers consider the definition of international business to relate purely to business

• International business encompasses a full range of cross-border exchanges of goods, services, or resources between two or more nations.

Strategic Management

• Strategic management - knowledge that answers questions about the development and implementation of good strategies and is mainly concerned with the determinants of firm performance.

• Strategy - the central, integrated, and externally oriented concept of how an organization will achieve its performance objectives. – Basic tool –SWOT-analysis

SWOT-analysis

Entrepreneurship

• Entrepreneurship - the recognition of opportunities and the use or creation of resources to implement innovative ideas for new, thoughtfully planned ventures.

• Entrepreneurship is the process of starting a business, typically a start-up company offering an innovative product, process or service.

Entrepreneurship

• An entrepreneur - a person who engages in entrepreneurship

• Entrepreneurship is often confused with small business – it is not the same.

Entrepreneurs• How do entrepreneurs identify opportunities for new

business ventures? – they actively search for opportunities. – They are particularly alert to opportunities. – prior knowledge helps entrepreneurs identify potentially profitable

opportunities.

• The latest research in human cognition shows that these three factors—active search, alertness, and prior experience—combine to help entrepreneurs see patterns among seemingly unrelated events or trends in the external world.

True or myth?The following five entrepreneurship myths are among the most prevalent: • Entrepreneurs are born, not made

– In reality, entrepreneurism is a skill that, like any other skill, can be learned. • Entrepreneurs make more money.

– Surprisingly, the typical entrepreneur earns less than he or she would earn if working as an employee.

• Being original is essential. – Google, eBay, and Swatch are examples of successful businesses that entered

markets later.• It takes a lot of money to start a business.

– the average new business needs only $25,000 in financing and that most of that money can be raised through debt.

• Entrepreneurs must be risk takers. – the stocks of publicly traded companies run by entrepreneurs significantly

outperform those run by non-entrepreneurs and continue to do so even after adjusting by market cap size, sector, geography, or time period.

What Do Entrepreneurs Do?

• The most well-known type of entrepreneurial venture is the for-profit, or commercial, venture, which sells products or services for a profit.

• Entrepreneurs can also launch a non-profit venture whose purpose is to fulfil a social mission rather than to make money.

• Social entrepreneurs look for and implement innovative solutions to societal problems.

• Entrepreneurial ventures can grow large or stay small, and they can operate at any level: local, national, or International.

Entrepreneurial process• There are three essential parts of the entrepreneurial process:

– opportunity identification, – plan and prepare the venture,– resource the venture and take action.

• The starting point for new ventures is opportunity, while the strategy for existing firms usually begins with some assessment of the firm’s underlying resources and capabilities.

• New venture opportunities tend to fall into one of three categories:– new-market disruptions, – low-end disruptions,– hybrid.

• A disruptive technology is a technology that can make prior technologies obsolete.

Low-end disruptions

• Some disruptive technologies appear at the low end of an industry offering and are referred to as low-end disruptions.

• low-end disruptions rarely offer features that satisfy the best customers in the industry.

• New entrants often use low-end entry to gain a foothold to move into the attractive market once their products or services improve

Other disruptions

• A new-market disruption targets non-customers rather than low-end customers.

• Most newcomers adopt some combination of new-market and low-end disruption strategies - these are hybrid-disruption strategies.

• All three of these disruption strategies provide the entrepreneur with a solid basis for identifying market opportunities.

The business plan• A business plan - a formal statement of business

goals, the reasons why they are attainable, and the plan for reaching those goals.

• All too often, would-be entrepreneurs tend to equate a good business plan with the probability of success in running a business.

• A business plan is no substitute for strategy and strong execution.

Resourcing

• Sometimes key people are among the intangible resources and capabilities that distinguish the potential new venture as an opportunity, rather than just another good idea.

• Because individuals have limits, team members are often selected because they bring skills that complement those of the lead entrepreneur and ensure that the firm has the necessary human capital to achieve its objectives.

Money

• Many successful entrepreneurs suspect that too much money too early does more damage than good.

• How can excess cash possibly be a problem? – first of all financing rarely comes without strings

attached. – ample funding can obscure potential problems until

the consequences are irreversible. – deep financial pockets shelter the new firm from the

need to innovate in all aspects of its business.

Bootstrapping• Bootstrapping - exploiting a new business opportunity with limited funds. • The most common form of bootstrapping - use a personal credit card and then pay off

the incurred debt. • There are different types of bootstrapping:

– Owner financing– Sweat equity - a party's contribution to a project in the form of effort– Minimization of the accounts receivable– Joint utilization – Delaying payment – Minimizing inventory – Subsidy finance – Personal debt

• Entrepreneurs will bring in outside investors if they need a larger sum of capital than they can obtain through personal credit cards or second mortgages.

• Outsiders can range from individuals like angel investors to professionals like venture capitalists, insurance companies, and public and private pension funds.

• An angel investor or angel (also known as a business angel, informal investor, angel funder, private investor, or seed investor) - an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.

Action

• One thing that separates successful ventures from unsuccessful ones is a bias for action, or a “propensity to act or decide without customary analysis or sufficient information”

• this bias for action relates to activities guided by the business plan or core idea.

Intrapreneurship

• Intrapreneurship - a form of entrepreneurship that takes place inside a business that is already in existence.

• Intrapreneur - a person within the established business who takes direct responsibility for turning an idea into a profitable finished product through assertive risk taking and innovation.

Differences between Entrepreneurs and Intrapreneurs

• The primary difference between the two types of innovators is their context — the intrapreneur acts within the confines of an existing organization.

• Most organizations would dictate that the intrapreneur should ask for permission before attempting to create a desired future — in practice, the intrapreneur is more inclined to act first and then ask for forgiveness later,

• The intrapreneur is also typically the intraorganizational revolutionary.

• In summary, then, an intrapreneur is someone who operates like an entrepreneur but has the backing of an organization.

Intrapreneurial organization• An intrapreneurial organization - one that seeks to systematically promote the

spirit of intrapreneurship in targeted parts of the organization. • some methods that have been used by businesses to foster intrapreneurship:

– Intrapreneurial employees are able to participate in the rewards of what they create– The firm treats intrapreneurial teams as a profit center, rather than as a cost center– Team members can choose the projects on which they work or the alliances they join. – Employees have access to training to help them learn new skills. – Internal enterprises are recognized within the organization and have official standing. – The organization defines and supports a system of contractual agreements between internal

enterprises. – The intrapreneurship plan includes a method for settling disputes that may arise around the

internal enterprise and employees. • Companies that want to gain the benefits of intrapreneurism create systems for

identifying employees with intrapreneurial traits and help develop those employees through training and reward them through incentives.

Who’s interested

• Stakeholder - an individual or organization whose interests may be affected as the result of what another individual or organization does. – On company level – the company and its

managers.– Affecting factors: buyers, suppliers, price changes,

etc.

Stakeholder

• A stakeholder - any person or organization, who can be positively or negatively impacted by, or cause an impact on the actions of a company, government, or organization.

• Types of stakeholders are:– Primary stakeholders - those ultimately affected– Secondary stakeholders - the ‘intermediaries’– Key stakeholders - have significant influence upon

or importance within an organization.

Who’s interested

• Governments– Taxes– Environment issues

• nongovernmental organizations– Industry associations– trade groups

• suppliers• Labour force

Stakeholder analysis• Stakeholder analysis - a technique used to identify and

assess the importance of key people, groups of people, or institutions that may significantly influence the success of an activity, project, or business.

• It is frequently used during the preparation phase of a project.

• stakeholder analysis has the goal of developing cooperation between the stakeholder and the project team and, ultimately, assuring successful outcomes for the project.

• Stakeholder analysis is performed when there is a need to clarify the consequences of envisaged changes, or at the start of new projects and in connection with organizational changes generally.

Forms of international businesses

• A business - a person or organization engaged in commerce with the aim of achieving a profit.

• Nowadays other goals beside just profit:– Social and Environmental Mission – Product Mission – Economic Mission

International business

• International part of the business can be:– Importing– Exporting– FDI

Foreign Direct Investment

• Foreign direct investment - a firm is investing assets directly into a foreign country’s buildings, equipment, or organizations.– Some companies are copies of the mother

company– Others tailored to the local market

Local vs international

• Global locally or local globally?– If more local – can adapt better to the local conditions and changes.– The greater the level of standardization — the greater the possible level of global efficiency.

• In many cases, the choice of foreign location generates unique advantages, referred to as location advantages. – Location advantages include better access to raw materials, less costly labor, key suppliers, key customers, energy, and natural resources.

International forms of government

• Government - the body of people that sets and administers public policy and exercises executive, political, and sovereign power through customs, institutions, and laws within a state, country, or other political unit.

• Governments participate via:– Embassies and consulates– Treaties on international or regional level

Non-governmental organisations

• Non-governmental organisations (NGOs) include any nonprofit, voluntary citizens’ groups that are organized on a local, national, or international level.

• First ones date back to the 19th century– It has been estimated that by 1914, there were 1083

NGOs• The term non-governmental organisation was

first coined in 1945, when the United Nations (UN) was created

NGOs• according to the UN, any kind of private organization that is

independent from government control can be termed an "NGO", provided it is not-for-profit, non-prevention, and not simply an opposition political party.

• Alternative terms for NGOs:– third sector organisation (TSO), – non-profit organisation (NPO), – voluntary organization (VO), – civil society organization (CSO),– grassroots organization (GO), – Social movement (SMO), – private voluntary organization (PVO), – Self-help organization (SHO) – Non-state actors (NSAs).

NGO types• NGOs are divided by:– Orientation

• Charitable– includes NGOs with activities directed toward meeting the needs

of the poor peoples• Service

– includes NGOs with activities such as the provision of health, family planning or education services

• Participatory– characterized by self-help projects where local people are

involved particularly in the implementation of a project• Empowering

– aims to help poor people develop a clearer understanding of the social, political and economic factors affecting their lives

NGOs

– level of operation• Community based - arise out of people's own initiatives• City wide - include organizations such as chambers of

commerce and industry, coalitions of business, ethnic or educational groups, and associations of community organizations• National• international

How NGOs Influence World Affairs

• Service-delivery NGOs provide public goods and services that governments from developing countries are unable to provide

• Capacity-building NGOs’ affect culture, structure, projects and daily operations.

• Advocacy and public education NGOs modify behavior through the use of ideas.

Power and limits of NGOs• Power:

– rely on soft power– are usually politically independent, participate at all levels, and

can make policy with less risk to national sensitivities.– can increase their power through networking with other NGOs.

• Limits– very limited economic resources since they do not collect taxes– some NGOs increasingly rely on governments– Success is hard to measure; there is no single agenda, and NGOs

are often working at cross-purposes.– certain activities undertaken by NGOs may result in prolonging

conflicts.