International businessUNIVERSITÀ DEGLI STUDI DI BERGAMO

1.INTERNATIONALIZATION• From pyramid to network management

2010 2

1.International management• Management : looking for managers with international

culture and national sensitivity

• As from when do you are a manager

?2010 3

Complexity of the environment

• Need to perform complex tasks• Especially in international business• Long and short term• Analytical and synthetic• Analytical and synthetic• Scales of challenges

2010 4

Scales of capabilities

• Functional execution• Business unit profit (profitability, sales,, finance,

new products)• Competitive position at international level also • Competitive position at international level also

choice of suppliers)• Strategic thinking, successful growth and

efficiency international policies• Job design, recruitment, assessment

2010 5

Global leaders in healthy food

• Danone, Nestlé, Kraft...

• Close to nature• Close to consumers• Close to consumers• Close to shareholders• Product improvement• Quality control• Innovation

2010 6

Differentiation

• The strategic capability f a business is limited by the capabilities of the senior management

• Personality tests• Right man at the right place• Right man at the right place• Complexity of the job in line with the capability

of the person and vice versa• Knowledge and experience• Creating competitive advantage

2010 7

Excessive remuneration

• National Westminster versus Royal Bank of Scotland

• Quality of decision making not in line with levels of remunerationof remuneration

• Why ?

2010 8

1.Interdependency

• Subprime real estate lending, impact on investment funds and banking worldwide...

2010 9

1.Gains from international trade

• Less advanced countries to compete with technologically more advanced countries

• Fears in industrialized world to loose employment to cheap labor countries

2010 10

1.South-South and North-North

• Competition no longer essentially North-South• All ways…

2010 11

1.The right place

• Producing more at the right place with the right men

• Car industry• Sportswear…

2010 12

1.Gaining from internationalization

• Transfer of technology (AIRBUS-CHINA)

• Cheaper and wider variety of goods, lower inflation• Inducing competition, spurring productivity• Improvements in transport and telecoms• Impact on incomes per person• Job opportunities for flexible executives

2010 13

1.International trade policy

• Relative prices and supply• Cheap labor and exploitation• Boycott less effective than active “meddling”• Boycott less effective than active “meddling”

2010 14

1.Three principles of Cesare Romiti

• Flexible strategies• Sound management• Effective control

2010 15

1.Law of comparative advantage

• David Ricardo’s principles today without clear advantages known

• At what we are best in the high technology era

2010 16

1.Regionalism and discrimination

• NAFTA• ASEAN• EU, in future : Iceland (fish), Croatia (coast)…• « Building blocks towards global free trade »• « Building blocks towards global free trade »

2010 17

1.Free trade area

• Barriers to intra group trade removed• Each country remains free to determine its own

trade policy with regard to non members• Example: EFTA (Norway, Iceland, Switzerland,

Liechtenstein)Liechtenstein)

2010 18

2.EXPANSION OF MARKETS :

THREATS AND OPPORTUNITIES

• Not to ignore countries with emerging economies (Croatia, Macedonia, Montenegro…)

• The Chinese at work… all over Africa(Angola, Mozambique, Algeria…) in(Angola, Mozambique, Algeria…) inconstruction of buildings, roads,pipelines with their own workforce:they introduce prices with Chinese(lower) and with local workers (moreexpensive)

2010 19

2.Risks ahead

• Trade protectionism, behavior of fat cats• Terrorism and lack of safety

2010 20

2.Critical size and internationalization

• Required level of production (optimal level) often exceeds the absorption capacities of the national market (Croatian trams)

• Need to discover new markets• Mutual advantages of cooperation between

industrialized and less developed nations (a new beverage..)

2010 21

2. Intra-company international trade

• 1/3 of world trade (products and services) is intra-conglomerate business

• Importance and vast differences between multinationals (US, Japan, Italian, German, French, British… (links with home country mentality, culture, social relations, San Pedro Sula)

2010 22

2.Excessive remunerations

• To be respected corporations, boards, doctors, notaries have to behave in a respectable way, not on the basis of “legal stealing” when there is no longer a link between remuneration and merit

2010 23

2. Gains from international trade

• Specialization leading to higher productivity• Better communications networks• Judging only when aware of circumstances• The beauty of combining forces and skills• The beauty of combining forces and skills

2010 24

2.Economies of scale

• Danger of gigantism• Keiretsu (alliances) to keep companies flexible• Brand policy (ING all over the world)• The costs of marketing• The costs of marketing• Cost of research preventing pharmaceutical

companies to succeed when too small (generics…)

2010 25

3. ETHICAL ISSUES

• Child labor• “Trade not aid”! (lobbies) (apple growers contra

oranges)• Chinese in Africa:

– no interference in Soudan…

• Fair wages:– Middle East circumstances

• Banks and the subprime crisis

2010 26

3.Ethical issues

• Bribes • Fiscal safety and honesty of governments and

citizens• Doing business in totalitarian countries• Doing business in totalitarian countries

2010 27

3.Securitization misused

• Banks in search of liquidity• The trick found: collateral debt obligations• Risks not disclos• Sub-primes• Sub-primes

2010 28

3.Fears of losing jobs

• Risk to see well paid workers to loose their jobs (car industry)

• Why robotize and pay unemployment compensation afterwards (with less control in metro stations and car parks)

2010 29

3.Combat poverty

• “The” goal of the World Bank• Perverse effects of subsidized exports of

agricultural products in some cases, for other countries food supplies to stop starvation

• Guinea (Conakry) to protect local grain and rice • Guinea (Conakry) to protect local grain and rice producers

• Somalia at themercy of war lords

• Pirates

2010 30

3.Poverty

encouraging observations• Human race was never richer• Better medical equipment• Write off of debts (gifts called

loans…)

• Technology more widely available

• Populations fleeing from poverty to richer areas

2010 31

3.Poverty: main causes

• Corruption (see bank accounts of corrupt leaders)• White elephants• Poor management• Lack of education• Lack of education• Lack of access to markets• Women prevented from education

2010 32

3.Market economy / aids vaccine

• Different prices for different countries ?

• The danger is that the “cheap drug” would then be exported at high prices to richer nations

2010 33

3.Transparency International

• Rated by businessmen• Except from country concerned (they could be put

under pressure)• Worst : Somalia (180)• Best : Denmark, New Zeeland, Sweden, Singapore• Representatives not always well chosen

2010 34

3.Progress and democracy

• In the first period of democracy sometimes undemocratic governments (Pharaohs) Later democracy comes as a consequence of progress

• First discipline, than democracy (principle of • First discipline, than democracy (principle of Singapore)

• Tunisia favoring safety to attract tourism

2010 35

4.OUT- AND INSOURCING

• A Belgian company decided to produce in Brazil, mechanical production, need to transfer patents, got only a substantial minority share, gave its brand name, problems with staff, bankruptcy…bankruptcy…

• Locals bought (cheaply)the patents and the brandand became competitors!

2010 36

4.Sourcing from low cost

countries

• Economic benefits: brings down production costs, keeps companies competitive, raises profits

• Customers buy more, and more cheaply

2010 37

4.Outsourcing to India

• Well educated, English-speaking• Slow and cumbersome administration• Exporters of remote services: software coders,

medical record transcribers…• Software engineers, banking

services, accounting, lawyers,remote marketing, more andmore complex services

2010 38

4.Offshoring

• Using poor country labor to drive down costs• To exploit differences in productivity and resources, • Economies of scale, gaining access to bigger

markets, firms can spread fixed costs over more outputoutput

• Trade helps to diffusetechnologies

2010 39

4.Labor rigidity and job creation

• Appointments by politicians with almost no expertise , central banks with politically appointed boards

2010 40

5. POSITION OF DEVELOPING WORLD

• To attract FDI:– reliability of management

(government)

• Most have lost a lot of welfare due to welfare due to mismanagement

• Leaders gained from independence, not the populations (Congo, Zimbabwe)

2010 41

5.Trade policy in developing countries

• Import-Substitution industrialization (India, Gandhi)• Infant industry argument (AIRBUS, still infant ?)• Export oriented industrialization

2010 42

5.Inflows of capital to developing countries

• Dangers with heavy inflows of short- term capital (bank lending)

• Expected to open more their service and industrial sectors

• Should be allowed to export agricultural products• Dangers of nationalization and confiscation

2010 43

5.Position of developing countries

• the WTO allows them to take measures to improve standards of living : impose import restrictions, industrial countries may give them preferential treatment on imports of their products without reciprocity

• Looking for partners but not succeeding when safety is not guaranteed (Algeria)

• Educated people emigrating instead of working in their country of origin

2010 44

5.THE VIEW OF DEVELOPING NATIONS

• The drama with instability and tyrants • BRIC (Brazil, Russia; India, China) growing fast

but not solving poverty (electricity cuts in Russia!)• Increased demand for machines, ships, aircrafts,

equipment to boost productivityequipment to boost productivity

2010 45

6. WORLD GROWTH

1. Robust consumer spending 2. Corporate investments 3. World financial crisis4. Governments replacing households demand4. Governments replacing households demand

2010 46

6.Indicators of economic development

• Gross Domestic Production (GDP) per head (misleading)

• Number of people per doctor, infant mortality, life expectancy, car ownership (pick-ups) , education

• Way women are treated• Way women are treated• Hygienic provisions (bathrooms, water supply)

2010 47

6.Newly Industrialized Countries

• Asian tigers:– Indonesia– Malaysia– Singapore– South Korea– Taiwan,– Taiwan,– Thailand…

• also Newly Exporting countries (NEC’s) such as Philippines (problems with safety), Thailand, Indonesia and Malaysia

• Hard working, skilled labor, high domestic savings, open to foreign technology

y 48

6.Restructuring after financial

crisis

1. Liquidate or restructure weak financial institutions2. Strengthen banks that maintain credit lines to

industrial corporations3. Improve banking supervision + state investments

2010 49

6.Production and innovation

• Consumer's demand for innovation has strong impact on innovation process

• Entrepreneur prefers to invest in innovations for the home market first (feedback)

• The closer the producer is to the market, the lower • The closer the producer is to the market, the lower the costs associated with transfer of market knowledge

2010 50

6.Productivity

• Multi-factor or total-factor productivity, if workers are given better machines, productivity also a result of heavy capital spending

2010 51

7. GLOBALISATION • To improve effectiveness of

economies• Working conditions vary all

over the world and multinationals take advantage of disparities

• In a way workers are put in • In a way workers are put in competition as multinationals are

• More dangers, more opportunities, need for fast adaptation

• Effective management to be supported

2010 52

7. Objectives of authorities with a

view to put in place globalization

1. Liberalize capital movements

2. Opening markets 3. Privatization4. Deregulation4. Deregulation5. Reasonable tax

policies6. Keeping the country

free from corruption7. Still some state

intervention needed2010 53

7.Multinationals

• Mergers and acquisitions with the help of investment bankers

• Harmonization of cultures (Trelleborg case!)

• Acquiring the best ( motivated and reliable) talents• Not essentially a question of cheap labor

2010 54

7. Mergers and acquisitions

• Concentration in the fields of mainly banking, media, telecoms, pharmaceuticals, energy

• To be able to commercialize products worldwide• Joint ventures, dangers of gigantism

• Fees for investment bankers!• Lawyers’ paradise

2010 55

7. Preparatory work (going abroad)

• Schematic report (see separate document)• Information on culture, economic circumstances, laws

and regulations• Look for the right partner, best region, political risks,

other industries and suppliers, skillsother industries and suppliers, skills• Legal personality to choose,

headquarters, management,technical assistance…

• Looking for the righthuman resources (essential!)

2010 56

7. Causes of failures (abroad)

• No adaptation of project in course of realization• Poor marketing study• Lack of funds, poor managerial skills, conflicts

between partners• Hiring the wrong human resources, case: • Hiring the wrong human resources, case:

SIDAPLAX EXERCISE !

2010 57

7.Impact of globalization

• Effects on investment, capital flows, jobs, profits, welfare

• More efficiency in multinational enterprises• Deregulation also at social levels (wages, job • Deregulation also at social levels (wages, job

safety), restructuring of industry

2010 58

7.Anti-globalization

• Pretending to fight for ecology and for social justice• Often linked to ignorance • Demonstrators spending money of NGO’s (EU

summits)

2010 59

7.World economy: fragile

• Japan helped by strong demand in China• Slump in consumer demand• Consequences of excessive risks taken by banks in

mortgage loan business• Banks in turmoil, need for better education in banking• Banks in turmoil, need for better education in banking

2010 60

7.Factors of globalization

• Decline of barriers to the free flow of goods, services and capital

• Development and transmission of new transmission of new technologies

• Too many hollow words (Lisbon declaration EU to become world’s technology leader… ?)

2010 61

8.Impact of protectionism

• domestic producers can now produce profitably• protected products more expensive for consumers • government receives import levies

2010 62

8.ANTI-DUMPING

• Lower prices abroad than domestically, or under cost price

• Must cause substantial damage• Attackers must prove there is link between the

damage and the dumpingdamage and the dumping• Products or services must be proven to be identical

2010 63

8.Countervailing duties

• If imports are subsidized by exporting country• Tariffs imposed to offset value of subsidies• To protect the national industry • Take the interests of consumers also into

account… court cases long and expensive!account… court cases long and expensive!• Measures usually for maximum 5 years after which

the problems reappear

2010 64

8.Import substitution policy

• Was pursued by a number of developing countries (India)

• Backfires in the longer term• Retaliation by other countries

2010 65

8.Voluntary Export Restraints

• Leads to a transfer of income from the consumers (pay more for the cars) to the foreign and domestic producers (charge higher prices)

• The difference with import duties is that with import duties the government receives import duties, not duties the government receives import duties, not so with VER’s

2010 66

8.Export subsidies

• New exporters appear • Cost of export subsidies • Taxpayer subsidizing foreign customers• Not so cost effective to create jobs, more to please

lobbies of industrialistslobbies of industrialists• Problems with agricultural products

2010 67

9. WORLD TRADE ORGANISATION

• Pascal Lamy: General Director• His objective: introduce poorer and developing

nations into the global world of business (his Thai predecessor helped to include farming in the process)process)

2010 68

9.Rules of the international economy

• Strong states more capacity to influence rules• Limits even on strong states ( to avoid protests)• Weaker states had to open their economies, had to

liberalize, had to deregulate (forced harmonization)

2010 69

10.Intellectual property

• To be protected to support scientific research• In EU European patent office, but registration in

each country with certified translations…to receive the necessary protection

• The Cortinovis case (Bergamo)• The Cortinovis case (Bergamo)

2010 70