OKBIT22 Managing International Relations

2. International Business and Business to business markets

International business

= All business transactions that involve two or more countries, i.e. nations

Comprises a large and growing portion of the world’s total business

Almost all companies are affected by global events and competition (e.g. Maija’s father’s farm, 10-kioski, ... ), because most sell output to and/or secure supplies from foreign countries and/or compete against products and services that come from abroad

International business

Modes of business (to have or not to have one or more intermediaries) that differ from those it is accustomed to, on a domestic level

To operate effectively, managers must understand these different modes

International business takes place within a more diverse external environmentAffects the way company functions are handled

Some definitions

Global CompanyA multinational venture centrally managed from

one country, like e.g. Nokia plc. -> maybe, becoming a transnational one, in the future Has global strategies for product design, financing,

purchasing, manufacturing, and marketing.

Transnational CompanyA global network of productive units with a

decentralized authority structure and no distinct national identity, like e.g. Ford Mo.CoRelies on a blend of global and local strategies

Why companies engage in International Business; trigger factors, i.e. internal (push, micro...) and external (pull, macro...) factors Desire for continued growth Domestic market saturation To expand salesTo acquire resourcesTo diversify their sources

of sales and supplies To minimize competitive

risk

Also because of:Rapid increase in and

expansion of technologyLiberalization of

governmental policiesDevelopment of the

institutions needed to support international trade

Increased global competition

Internationalization process

Internationalization is the process by which

Firms increase their awareness of the influence of international activities on their future

Establish and conduct transactions with firms from other countries

How? Modes of international business

The Internationalization ProcessLicensing

Authorizing companies in foreign countries to produce and/or market a given product within a specified territory in return for a fee

ExportingGoods produced in one country are sold to

customers in foreign countries

How? Modes of international business

The Internationalization Process (cont’d)Local warehousing and selling

Goods produced in one country are shipped to the parent company’s storage and marketing facilities located in overseas countries

Local assembly and packagingComponents, rather than finished products, are

shipped to company-owned foreign facilities for final assembly and sales

How? Modes of international business

The Internationalization Process (cont’d)Joint ventures (also strategic alliances or

partnerships)A company in one country pools its resources with

another foreign company or companies to create and market products and jointly share profits and losses

Direct foreign investmentsThe production and marketing of products through

subsidiary in a foreign country that is wholly owned or as the result of cross-border merger

Market Entry Decisions

Foreign Market Selection

Timing & Order of Entry

Market Expansion Strategies

Mode of Entry Decisions

Decision criteria for Mode of Entry

Market Size and GrowthRiskGovernment RegulationsCompetitive EnvironmentLocal Infrastructure

Case

Business to business markets

Market for goods and services bought and sold between businesses is huge

Comprises many types and sizes of organizations that interact selectively and form relationships of varying significance and duration with one another

Although companies are independent entities, they are also interdependentNetworks!

Business to business markets

Companies serving companies are therefore usually cooperative rather than competitive

All businesses buy and sell items in order to create their own offerings

Other businesses may then buy these products to use, to create other products or to sell as finished items to consumers

Characteristics of business markets

International aspectsIn comparison to consumer markets

international b2b business is easierB2B organizations benefit from a lower diversity

in product functionality and performanceB2B organizations are able to work together to

help shape their trading environment

Characteristics of business markets

RelationshipsSignificance of relationships!Between buying and selling companies, but

also among other actorsCollaboration and partnership

Development, supply and support of products

Active sellers and active buyers

Consumer markets

Market structureBuyer behaviourDecision-makingProductsChannelsPromotionPrice

Business markets

Market structure

Business markets

Buyer behaviour and decision-making

Characteristics of business markets

Buying processesPotential risk is highDecisions take much longer Involve more peopleNature and form of interactions between organizations

is based on an understanding of individual customer’s needs and willingness to provide and share information

Group activityDecision Making Unit (DMU) or Buying CentreConsumption is also organizational activity

B2B Buying motivations

Senior Management Reduce costs, use and be seen using latest technology

Purchasing Manager Get value for money, increase own credibility and colleague satisfaction

Plant Engineer Use modern equipment and provide cover for power breakdown

Production Manager Reduce operating costs and improve reliability

Consultants Improve plant efficiency & staff working conditions

Business markets

Products

Business markets

Channels

Business markets

Promotion

Business markets

Price

The economics of Business Market Demand

Derived demandThe impact of derived demand

→ Accelerator principle→ Volatility of demand→ Price variability in business markets

Joint demandCross-elasticity of demand

PESTEL

Categories of business goods

E.g.Component partsSystems Services

Business market customers

Commercial enterprisesOEMsEnd usersResellersOverlap of categories

Government agenciesInstitutions

Case