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BU6692004Session1.ppt BU6692004Session1.ppt Presentation Transcript

  • BU669 – Session 1 International Business Dr. Hugh Munro
  • Agenda
    • Review Course Objectives, Requirements & Trip Update
    • International Business, International Strategy & Internationalization
    • Global Company
    • Environmental Influences on International Business – Higgins Case
    • FINS set-up
    • Summary
    • Next Session
  • Course Objectives
    • Appreciation for and skills in addressing complex issues faced in international business
    • Decision-making framework to assist with market opportunity assessment, market entry mode and strategy, structuring & managing joint venture & alliance relationships, & ongoing management of international operations
    • Develop skills in structuring and negotiating business relationships with public and private stakeholders in an international context
    • Opportunity to experience an international business context
  • Performance Assessment
    • Participation – 20%
    • Simulation – 30%
    • Report – 50%
  • Trip Updates
    • Australia-NZ – set, need to finalize meetings, visa check, packages coming
    • Eastern Europe – three teams – one for each country to set up meetings, visas, payments
  • Objectives – Part One
    • Define international business and how it differs from domestic business
    • Explain why companies engage in international business
    • Introduce different international business models companies use
    • Illustrate the role social science plays in understanding international business
    • Provide an overview of patterns for international expansion
    • Describe the forces that affect international business
    1-2
  • Questions For Discussion – Part One
    • What constitutes a global company? Criteria? Examples?
    • Drivers of globalization?
    • Globalization – good or bad?
  • International Business Perspectives
    • World
    • Regions
    • Country
    • Industry
    • Company
    • Individual
  • Reasons for Growth in International Business
    • Rapid increase in and expansion of technology
    • Transportation is quicker while costs are lower
    • Communication enables control from afar
    • Liberal government policies on trade and resources
    • Development of institutions that support international trade
    • Consumer pressures
    • Increased global competition
    1-6
  • Examples of Reduction in Trade Barriers
    • General Agreement on Tariffs and Trade www.gatt.org
    • World Trade Organization (WTO) www.wto.org
    • North America Free Trade Agreement www.nafta.org
    • European Union (EU) europa.eu.int
    • Asia Pacific Economic Cooperation www.apec.org
  • China’s First Year in WTO – Procrastination or Progress? – EDC Winter 2003 (www.edc.ca)
    • Telecommunications – reforms are incomplete but rules for operating licenses becoming clearer
    • Intellectual Property Rights – laws & regulations in place – enforcement is the challenge
    • Auto Sector – tariffs reduced but licenses problematic
    • Insurance – up to WTO regulatory standards but issues with transparency, capital & solvency requirements, licensing
    • Agriculture – problematic – standards & legislation – unpredictable
    • Banking – restrictions – 1 branch per year, capital per branch
  • China Pays Off At Last – Wall Street Journal (www.wsj.com)
    • China has turned into a profitable domestic market in a relative short time
    • 64% of 200 US companies in China are profitable
    • Profits from 31,000 foreign-invested mfg companies rose 13% in 2001
    • China is now Kodak’s second largest market
    • France’s Group Danne Sa – built a $1.2 bil business in China – profitable
    • Siemens – China now #3 market
    • KFC – new store every other day – “gold mine for them”
  • Industry Globalization Drivers
    • Market Drivers - customers & channels
    • Cost Drivers - scale, sourcing, development efficiencies
    • Government Drivers - free trade, standards, regulation, development initiatives
    • Competitive Drivers - activities, globalization
  • Why Engage in International Business
    • Expand sales
      • Volkswagen (Germany)
      • Ericsson (Sweden)
      • IBM (United States)
    • Acquire resources
      • Better components, services, products
      • Foreign capital
      • Technologies
      • information
    • Minimize risk
      • Take advantage of the business cycle for products/services
      • Diversify among international markets
    1-5
  • Global Strategy Levers
    • Global Market Participation
    • Global Products & Services
    • Global Location of Activities
    • Global Marketing
    • Global Competitive Moves
  • Scope of International Business
    • A. Outward Activities
    • Exporting
    • Licensing
    • Joint Ventures
    • Direct Investment
    • B. Inward Activities
    • Importing/Sourcing
    • Licensee
    • Domestic JV partner
    • Subsidiary of Foreign Parent
  • Operations and Influences 1-10
  • Key Players In International Business
    • Multinational Corporation
      • Business that has direct investments abroad in multiple countries.
    • Entrepreneurs and Small Businesses
      • Small companies are becoming increasingly active in international trade and investment.
  • Gross Domestic Product (GDP)
    • Value of all goods and services produced by a country’s domestic economy over a one year period.
  • Internationalization Company Exercise
    • What characteristics reflect a global company?
    • Examples ?
    • Implications?
  • Global Organization
    • Structure
    • Management Processes
    • People
    • Culture
  • Characteristics of a Transnational Oriented Company
    • Focus/vision - complexity of world differences & similarities
    • Orientation - Geocentric vs Poly or Ethno
    • Mktg Strategy - extension,adaptation,creation
    • R&D Strategy - integrated across regions
    • HR Policy - best people
    • New Product Develop’t - global mkt needs
    • Manufacturing - lowest cost for global needs
    • Financial Policy - global sourcing
    • Investment Policy - cross-subsidization
    • Operating Style/Communications - integrated, interactive across & up
    • Partnerships - competencies for world leadership
    • Score Keeping - share of world mkt
    • Attitude/Mindset - Capabilities - Activities -
    • Performance
  • Stages of International Development
  • A Transnational Company
    • Links
    • the markets of the world
    • the resources of the world
    • on a profitable basis
  • Patterns of Internationalization Figure 1.7 1-16
  • The Backlash Against Globalization
    • Many protestors complain that the world is not sharing equitably the fruits of globalization.
    • A concern of other anti-globalization protestors is the fear that globalization is homogenizing the world and destroying the rich diversity of cultures it contains.
    • Evidence also suggests that the influence of developing nations’ music, art, and literature has grown (not shrunk) throughout the last century.
  • Global Manager Know How to Analyze Problems Improve Logistics Market Effectively Develop World-Class Products Emphasize Global Awareness Know the Customer The Keys to Success
  • BU 669 Part Two The Global Business Environment
  • Part Two Objectives
    • Understand & gain an appreciation for the global business environment – cultural, political, economic factors that influence international business
    • Discuss their implications for developing & executing international business strategy
    2-2
  • Questions for Discussion – Part Two
    • John Higgins Case
    • Pop culture – global consumer?
    • Religious beliefs & work? Consumption?
    • Cultural relativism vs. cultural normativism?
    • Totalitarian vs democratic political system?
    • Political risk?
    • Financial statements of Canada vs. trip countries?
  • Influences on International Business
    • External Influences
      • Physical/Societal factors
        • Political policies and legal practices
        • Cultural factors
        • Economic factors
        • Geographical influences
      • Competitive environment
    • Operations
      • Objectives
      • Strategy
      • Means
    1-11
  • Increased Uncertainties Associated with International Business
    • General Environmental Uncertainties – Political (War, Coup, Revolution), Government Policies (Price Controls, Repatriation, etc.) Macroeconomic (inflation, foreign exchange), Social (concerns, protests), Natural (earthquakes)
    • Industry Uncertainties – Input Market (quality, supply), Product Market (consumer tastes, substitutes, complementary products), Competitive (rivalry, new entrants, technology)
    • Firm Uncertainties – Operating ( labour, input supply, production), Liability (product, environment), R&D, Credit, Behaviour
  • Organizational Responses to Uncertainties
    • Financial Risk Management – contracts, insurance
    • Strategic
    • - Avoidance
    • - Control
    • - Cooperation
    • - Imitation
    • - Flexibility – Diversification, Operational
  • Management in International Business
    • In additional to domestic business management skills, international business management requires
      • Social science understanding
      • Political science appreciation
      • Legal awareness
      • And an innate ability in:
        • Anthropology
        • Sociology
        • Psychology
        • Economics
        • Geography
    1-4
  • What is Culture?
    • Culture – the set of values, beliefs, rules, and institutions held by a specific group of people.
  • Culture - learned norms based on attitudes, values, beliefs
    • Approaches - ethnocentric, polycentric, geocentric
    • Areas Most Affected
    • Business Protocol
    • Communications
    • Negotiations
    • Marketing Mix
    • Mg’t of JVs & Subs
  • Components of Culture Physical & Environments Education Personal Communication Religion Social Structure Manners & Customs Values & Attitudes Aesthetics Culture
  • Kluckhohn-Strodtbeck Framework
    • Relationship to nature
    • Time orientation
    • Trust and control
    • Accomplishments in Life
    • Relationship with others
    • View of personal space
  • Hofstede Framework Individualism versus Collectivism Power Distance Uncertainty Avoidance Achievement versus Nurturing
  • Crouching Tiger – Globe & Mail, Saturday Jan 11, 2003
    • Transitioning – communist Welfare State (Iron Rice Bowl) to Capitalism, Consumerism, & Darwinism
    • Pace of Change – stress
    • Class of values
    • Physical & Mental Health Consequences
  • Ethnocentricity
    • Ethnocentricity is the belief that one’s own ethnic group or culture is superior to that of others.
    • Problem with Ethnocentricity:
      • It causes people to view other culture in terms of their own, causing them to overlook important human and environmental differences among cultures.
  • North American “Values”
    • COMPETENCE!
    • Intolerance for discrimination based upon:
      • Gender
      • Race
      • Age
      • Religion
    • Although equality is not applied perfectly, in many other cultures, this competence is of secondary importance
    • Since our values may seem radical to foreigners it is of extreme importance that international businesses spend the resources to determine what foreign cultures they can ethically and effectively conduct business in
    2-9
  • Major Cultural Issues
    • Problems arise in international business when:
      • Employees have subconscious reactions
      • Employees assume all societal groups are similar
      • A company implements practices of work less well than intended
      • Employees encounter distress because of an inability to accept or adjust to foreign cultural behaviors
      • Companies/employees are insensitive to foreign consumer preferences
    2-3
  • Cultural Orientations
    • International businesses adopt an attitude towards foreign cultures
      • Polycentrism: control is decentralized so regional managers can conduct business in a local manner
      • Ethnocentrism: belief that ones own culture is superior and ignores important factors
      • Geocentrism: a hybrid of polycentrism and ethnocentrism, the middle ground
    • Companies MUST evaluate their practices to ensure they account for national cultural norms
    2-18
  • Cultural Relativism vs Normativism
    • Relativism – Ethical truths depend on the groups holding them thus intervention in local traditions is seen as unethical
    • Normativism – universal standards of behaviour everyone should follow thus making non-intervention unethical
    • Which is right?
  • Standardized vs Responsive Practices
    • Global standardization advantages
      • Reduced costs in development and manufacturing
      • Economies of scale since fixed costs are spread over more units of production
    • Responding to national preferences
      • Adjusting operating, marketing, and design to meet specific national preferences
    1-17
  • John Higgins Case
    • Higgins’s and Prescott’s attitudes towards implementing U.S. personnel policies in Japan?
    • Major Reasons for differences?
    • If you were Weaver’s Manager of Japan Operations what would you do about this conflict?
  • Tolerance, Knowledge, & Skills
    • Tolerance
      • A sensitive awareness of the beliefs and practices of other peoples that differ from or conflict with one’s own.
      • The first step in developing tolerance toward other cultures is to understand their histories.
    • International Business Knowledge And Skills
      • The type of knowledge and skills required can include the ability to design effective promotional strategies abroad, manage an international sales force, manage risk in international financial markets, and communicate effectively across cultures.
  • Maintaining A Global Mindset
    • Maintaining a global mindset means keeping up on social, cultural, political, and economic events and trends .
    • Maintaining a global mindset means not allowing oneself to fall into the trap of stereotyping groups of people as a result of current events.
  • Keys to Success
    • Organizations must understand cultural differences
    • Organizations must be culturally literate in order to avoid misunderstanding
    • As companies enter into the international market, localizing business policies and practices can help managers to succeed
  • Review of Culture
    • Understand cultural environments
    • Explain major causes of cultural difference and change
    • Examine behavioral factors influencing countries business practices
    • Examine cultural guidelines for companies that operate internationally
    2-20
  • Political, Legal, & Environmental Influences
  • Political Risks for International Business
    • Opinions of political leadership
    • Civil disorder
      • Economic conditions
      • Human rights violations
      • Group animosity
      • Procurement difficulties
      • Work stoppages
      • Shipment delays
      • Property damage
    • External relations between home and host country
    3-11
  • Political Strategies for International Businesses
    • Identify the exact issue
      • Trade barrier?
      • Environmental standards?
      • Workers rights, etc?
    • Define/determine the political aspect of the issue
    • Assess the potential political action of other companies
    • Identify important institutions and individuals
    • Formulate strategies
      • Key objectives
      • Alternatives
      • Probable effectiveness
    3-13
  • Legal Environment
    • Common law systems (tradition/precedent)
      • United States
      • United Kingdom
    • Civil law (rules of business are part of the countries code)
      • Germany
      • France
      • Japan
    • Theocratic law (based on religious precepts)
      • Sudan
      • Pakistan
    3-14
  • Legal Issues for International Businesses
    • Worker relations
      • Health and safety standards
      • Workweek
    • Employment practices
    • Antitrust prohibitions
    • Contractual relationships
    • Environmental practices
    • Patents, trademarks, and intellectual property protection
    • Taxes and reporting requirements
    3-15
  • Economic Issues for International Businesses
    • What type of economic system does the country have?
    • What is the size, growth potential, and stability of the market?
    • Is the company’s industry in that country’s public or private sector?
      • If public, does the government allow private competition?
      • If private, is it moving towards public ownership?
    4-3
  • Economic Issues for International Businesses, cont
    • Does the government view foreign capital as competition with or in partnership with public or local private enterprises?
    • How does the government control the nature and extent of private enterprise?
    • How much of a contribution is the private sector expected to make in assisting the government formulate overall economic objectives?
    4-4
  • Key Economic Forces
    • General economic framework
    • Economic size and stability
    • Existence and influence of capital markets
    • Factor endowments
    • Indicators
      • Growth
      • Inflation
      • Surpluses
      • Deficits
    • Economic transitions
    • Availability of economic infrastructure
    4-5
  • Factor Conditions
    • Inputs to the production process
      • Human resources
      • Physical resources
      • Knowledge
      • Capital
      • Infrastructure
    • Factor conditions are especially critical for the production of goods
    4-6
  • Demand Conditions
    • Market potential
      • Composition of home demand (nature of buyer needs)
      • Size of home demand
      • Growth of home demand
      • Internationalization of demand
    • Demand conditions are
    • especially critical for
    • market-seeking
    • investments
    Composition? Size? Growth? Internationalization? 4-7
  • Gross National Income
    • Tool to measure one country against another
      • Size
      • Demand
    • Gross National Income (formerly the Gross National Product)
    • GNI is the market value of final goods and services newly produced by domestically owned factories of production.
    • Countries with high populations and high per capita GNI are most desirable in terms of market potential
    4-8
  • Gross Domestic Product
    • GDP: the value of production that takes place within a nation’s borders, without regard to whether the production is done by domestic or foreign factors of production
    • Example -
      • Both a Ford and Toyota manufactured in the United States counts towards our GDP
      • A Ford produced in Mexico would not
    4-9
  • Importance of Per Capita GNI 4-10 Low Income 755 or less (in 2000) Developing/Emerging Country High Income 9,266 or more Developed/Industrial Country Upper Middle Income 2,996-9,265 Developing/Emerging Country Middle Income 756-9,265 Developing/Emerging Country Lower Middle Income 756-2,995 Developing/Emerging Country World Bank Category Per Capita GNI ($) Common Name
  • Countries Classified by Economic System Figure 4.2 4-13
  • Economic Freedom
    • Market Economy: resources are primarily owned and controlled by the private sector, not the public sector
      • Consumer sovereignty is the right of consumers to decide what to buy
      • Prices are determined by supply and demand
    4-14
  • Economic Freedom, con’t
    • Command Economy (Centrally Planned Economy): all dimensions of economic activity, including pricing and production decisions, are determined by a central government plan
      • Government owns and controls all resources
      • Prices are determined by government
    4-15
  • Economic Freedom, con’t
    • Mixed Economy: Some degree of government ownership and control
    • No economy is purely market or command
    • Economic systems are along a spectrum of freedoms
    • Most command economies are moving towards a market economy
    4-16
  • Economic Factors International Businesses Must Address
    • Inflation
    • Surpluses
    • Deficits
    • Balance of Payments
    • External Debt
    • Internal Debt
    • Privatization
    4-17
  • Reforms and Economic Progress Figure 4.3 4-18
  • Global Competitive Advantage 5-15
  •  
  •  
  • FDI and Balance-of-Payments Effects
    • Countries that run trade deficits must compensate for that deficit by:
      • Reducing its capital reserves, or
      • Attracting an influx of capital
        • Foreign aid
        • Receipt of credit
        • Receipt of foreign investment (FDI)
    11-10
  • Country Risk Ratings
    • GNP Per Capita - (+)
    • Propensity To Invest - (+)
    • Reserves to Import Ratio - (+)
    • Current Account Balance - (+)
    • Export Growth Rate - (+)
    • Export Variability - (mixed)
    • Net Foreign Debt To Exports - (-)
    • Debt Service Difficulty - (-)
    • Political Instability - (-)
    • Ratings Provided By - Euromoney, Institutional investor
  • BU669 FINS Exercise
  • Players in FINS
    • 3 Multinationals – Megatronics, Eurodata, Tanaka
    • 2 Governments of Developing Countries – Tropicalia, Paradiso
    • 4 local companies – Tropimatics & Systrop in Tropicalia; Electro Paradys & Parafino in Paradiso
  • Issues For Individual Players
    • MNCs – Tropicalia or Paradiso or both? Type & size of Plant?
    • Local Companies – Enter industry? Alone or Partner? Plant type & size?
    • Government – Industry structure & ownership to allow? Incentives? Other government – free trade?
  • Issues Between MNCs & Local Companies
    • License, subcontract, JV, other?
    • Owbership %s
    • Mg’t responsibilities & Control
    • Technology transfer
    • Local market or export
    • Size & Type of plant
    • Transfer pricing – imports/exports
  • Issues Between MNCs & Government
    • Plant size & type
    • Number of manufacturers allowed
    • Tariff protection
    • Foreign ownership allowed
    • Technology transfer conditions
    • Pricing regulations
    • Export and local content requirements
    • Tax & financial incentives
    • Repatriation of profits
  • Issues Between Local Companies & Governments
    • Incentives & Special consideration
    • Degree of support with MNCs
    • Number of manufacturers
    • Tariff Protection
    • Tax, financial & export incentives
    • Plant location
  • Issues Between Local Companies
    • Cooperate or compete
    • If cooperate – independent or joint operations?
  • Issues Between Governments
    • Cooperate or compete?
    • Free Trade?
  • Initial Strategy Report – Due Beginning of February 8 th Session
    • Strategy & supporting analyses – push the numbers
    • Player assessment – partnering options
    • Negotiating objectives & strategy/tactics
    • Desired outcomes
    • Deal makers & breakers
    • Contingencies
  • Performance Assessment
    • Quality of reports & presentation –
    • Soundness of agreements – e.g., financial consequences, competitive positions
    • Negotiating strategy/tactics
    • Lessons learned
  • Contributions of MNEs 11-9
  • Home-Country Losses
    • Displaces jobs
    • Technology transferred abroad
    • Loss of output
    • Loss of exports
    • Declining wages
    • Replace local companies
    • Loss of best resources
    • Destroy local entrepreneurship
    • Decrease local R&D undertakings
    11-11
  • Home-Country Gains
    • Increase in demand and wages for skilled-labor
    • Lower prices
    • Higher product demand
    • More optimum use of production factors
    • Use of unemployed resources
    • Upgrading of resource quality
    • Ability to observe foreign competitive conditions
    11-12
  • Economic Integration
    • NAFTA , EU, Asia Pacific
    • Evolution?
    • Implications?
  • Summary
    • Strategic Importance of International Business
    • Added complexity – regular business issues ++++ influences of very different environment
    • Understanding the environmental influences & their implications for strategy & implementation
    • Challenges to managers
    • Your career
  • Next Session
    • Decision making framework – Cameron A & B
    • Standardization vs. customization
    • Off-shore sourcing
    • Ongoing management of global operations – look at cases in text