Seminar in International Business Wagner College MBA Summer 2006

IBF Seminar in International Business IB 605 MBA SUMMER 2006 SESSION 5 Monday 6:00 – 9:40 PM July 24 th , 2006 August Morar © 2006 AMI Course Documents and Information are available at www.wagner.edu/faculty/august.morar/ World News Country Evaluation Export Import Wagner College Graduate Programs

Seminar in International Business

IB 605 MBA SUMMER 2006

SESSION 5 Monday 6:00 – 9:40 PM

July 24 th , 2006

August Morar

© 2006 AMI

Course Documents and Information are available at

www.wagner.edu/faculty/august.morar/

Session 5 IBF Review of the international business and financial news, the Weekly Report The Strategy of International Business Export, Import and Direct Investment CASES The Globalization of eBay Carrefour International Operation Grieve, a Small-Business Export Strategy GE Hungary VIDEO LIBRARY Entry Modes into the Chinese Market EU Regional Policy

Review of the international business and financial news, the Weekly Report

The Strategy of International Business

Export, Import and Direct Investment

CASES

The Globalization of eBay

Carrefour International Operation

Grieve, a Small-Business Export Strategy

GE Hungary

VIDEO LIBRARY

Entry Modes into the Chinese Market

EU Regional Policy

Session 5 IBF MIDTERM Presentation Session Investment Portfolios Wagner College Graduate Programs

MIDTERM Presentation Session

Investment Portfolios

Session 5 IBF Center for International Strategic Studies Global Markets July 21, 2006 Stock Exchanges Commodity Prices Currency Cross Rates EUSAS Index Components and Charts

Center for International Strategic Studies

Global Markets July 21, 2006

Stock Exchanges Commodity Prices Currency Cross Rates

EUSAS Index Components and Charts

Session 5 IBF Business and Financial World News

Business and Financial

World News

Business News IBF Online gambling companies suffered losses Backdated stock options investigation Airbus unveils its redesigned midsize A350 Russia’s WTO accession delayed Rosneft shares began trading in London Phelps Dodge offer to buy Canadian Inco Yahoo! share price fell to its two year low Microsoft and Nortel Networks alliance Citigroup’s second quarter revenue rose China’s economy grew by 11.3% in Q2

Online gambling companies suffered losses

Backdated stock options investigation

Airbus unveils its redesigned midsize A350

Russia’s WTO accession delayed

Rosneft shares began trading in London

Phelps Dodge offer to buy Canadian Inco

Yahoo! share price fell to its two year low

Microsoft and Nortel Networks alliance

Citigroup’s second quarter revenue rose

China’s economy grew by 11.3% in Q2

Midterm Presentations MIDTERM Presentation Session Investment Portfolios Wagner College Graduate Programs

MIDTERM Presentation Session

Investment Portfolios

Governments and the FDI Video Library Chinese Market

Video Library

Chinese Market

Global Strategy IBF The Strategy of International Business Industry, Strategy, and Firm Performance The Firm as a value Chain Geographical Considerations Global Integration versus Local Responsiveness Strategy Types

The Strategy of

International Business

Industry, Strategy, and Firm Performance

The Firm as a value Chain

Geographical Considerations

Global Integration versus Local Responsiveness

Strategy Types

Global Strategy IBF Case Study The Globalization of eBay

Case Study

The Globalization of eBay

Global Strategy IBF The Globalization of eBay

The Globalization of eBay

Country Evaluation IBF Country Evaluation and Selection INTRODUCTION Companies must determine both the order of country entry as well as the rates of resource allocation across countries. CHOOSING MARKETING AND PRODUCTION SITES, AND GEOGRAPHIC STRATEGY where to market and where to produce SCANNING FOR ALTERNATIVE LOCATIONS Perform a detailed analysis of a manageable number of geographic locations.

Country Evaluation and Selection

INTRODUCTION

Companies must determine both the order of country entry as well as the rates of resource allocation across countries.

CHOOSING MARKETING AND PRODUCTION SITES,

AND GEOGRAPHIC STRATEGY

where to market and

where to produce

SCANNING FOR ALTERNATIVE LOCATIONS

Perform a detailed analysis of a manageable number of geographic locations.

Country Evaluation IBF CASE STUDY Carrefour International Operation

CASE STUDY

Carrefour International Operation

Country Evaluation IBF CHOOSING AND WEIGHTING VARIABLES Variables must be weighed against each other to effectively evaluate the potential success of a particular venture and to compare various ventures. Opportunities Market Size Market size is determined by sales potential. Ease and Compatibility of Operations Market located nearby, share the same language and offer similar market conditions. Costs and Resource Availability The cost of labor, the cost of inputs, tax rates, and available capital, utilities, real estate and transportation. Red Tape Difficulty of getting permission to operate the business.

CHOOSING AND WEIGHTING VARIABLES

Variables must be weighed against each other to effectively evaluate the potential success of a particular venture and to compare various ventures.

Opportunities

Market Size

Market size is determined by sales potential.

Ease and Compatibility of Operations

Market located nearby, share the same language and offer similar market conditions.

Costs and Resource Availability

The cost of labor, the cost of inputs, tax rates, and available capital, utilities, real estate and transportation.

Red Tape

Difficulty of getting permission to operate the business.

Country Evaluation IBF Risks Economic and political risk ratings Risk and Uncertainty Firms usually experience higher risk and uncertainty when they operate abroad. Competitive Risk A firm’s innovative advantage may be short-lived. Monetary Risk A firm’s expansion occurs through foreign-direct investment, foreign-exchange rates and access to investment capital and earnings. Political Risk Look for economic and social conditions that could lead to political instability.

Risks

Economic and political risk ratings

Risk and Uncertainty

Firms usually experience higher risk and uncertainty when they operate abroad.

Competitive Risk

A firm’s innovative advantage may be short-lived.

Monetary Risk

A firm’s expansion occurs through foreign-direct investment, foreign-exchange rates and access to investment capital and earnings.

Political Risk

Look for economic and social conditions that could lead to political instability.

Country Evaluation IBF COLLECTING AND ANALYZING DATA Firms perform research to reduce uncertainties in their decision processes, savings. Problems with Research Results and Data Data discrepancies further increase uncertainty in decision-making. Reasons for Inaccuracies Inability of governments to collect the needed information Comparability Problems Comparability problems result from definitional differences across countries.

COLLECTING AND ANALYZING DATA

Firms perform research to reduce uncertainties in their decision processes, savings.

Problems with Research Results and Data

Data discrepancies further increase uncertainty in decision-making.

Reasons for Inaccuracies

Inability of governments to collect the needed information

Comparability Problems

Comparability problems result from definitional differences across countries.

Country Evaluation IBF External Sources of Information The specificity and cost of information will vary by source. Individualized Reports Specialized Studies Service Companies Government Agencies International Organizations and Agencies Trade Associations Information Service Companies The Internet Internal Generation of Data

External Sources of Information

The specificity and cost of information will vary by source.

Individualized Reports

Specialized Studies

Service Companies

Government Agencies

International Organizations and Agencies

Trade Associations

Information Service Companies

The Internet

Internal Generation of Data

Country Evaluation IBF COUNTRY COMPARISON TOOLS Grids make country comparisons according to a wide variety of relevant factors Matrices Two matrices frequently used when doing country comparisons - Opportunity-Risk Matrix - Country Attractiveness-Company Strength Matrix Environmental Scanning Firms will likely collect economic, competitive, societal and political/legal information.

COUNTRY COMPARISON TOOLS

Grids

make country comparisons according to a wide variety of relevant factors

Matrices

Two matrices frequently used when doing country comparisons - Opportunity-Risk Matrix

- Country Attractiveness-Company Strength Matrix

Environmental Scanning

Firms will likely collect economic, competitive, societal and political/legal information.

Country Evaluation IBF Opportunity-Risk Matrix

Opportunity-Risk Matrix

Country Evaluation IBF Country Attractiveness- Company Strength Matrix

Country Attractiveness-

Company Strength Matrix

Country Evaluation IBF ALLOCATING AMONG LOCATIONS Most of the value of a firm’s FDI comes from reinvestment activities. Reinvestment vs. Harvesting - Reinvestment Decisions . Reinvestment refers to the use of retained earnings to replace depreciated assets or to add to a firm’s existing stock of capital. - Harvesting. Harvesting refers to the reduction in the amount of an investment Interdependence of Locations It is often difficult to assess the true impact a particular foreign subsidiary has on other operations within a n MNE.

ALLOCATING AMONG LOCATIONS

Most of the value of a firm’s FDI comes from reinvestment activities.

Reinvestment vs. Harvesting

- Reinvestment Decisions . Reinvestment refers to the use of retained earnings to replace depreciated assets or to add to a firm’s existing stock of capital.

- Harvesting. Harvesting refers to the reduction in the amount of an investment

Interdependence of Locations

It is often difficult to assess the true impact a particular foreign subsidiary has on other operations within a n MNE.

Country Evaluation IBF Geographic Diversification vs. Concentration a firm moves rapidly into many foreign countries and then gradually builds its presence in each, versus a firm moves into a limited number of countries and develop a strong competitive position, has to consider a number of variables: - Growth Rate in Each Market - Sales Stability in Each Market - Competitive Lead Time - Spillover Effects - Need for Product, Communication and Distribution Adaptation - Program Control Requirements - Extent of Constraints

Geographic Diversification vs. Concentration

a firm moves rapidly into many foreign countries and then gradually builds its presence in each, versus a firm moves into a limited number of countries and develop a strong competitive position, has to consider a number of variables:

- Growth Rate in Each Market

- Sales Stability in Each Market

- Competitive Lead Time

- Spillover Effects

- Need for Product, Communication and Distribution Adaptation

- Program Control Requirements

- Extent of Constraints

Country Evaluation IBF MAKING FINAL COUNTRY SELECTIONS firms must make resource allocation decisions. For new investments Firms will need to develop detailed estimates of all costs and expenses and Consider whether to enter a particular venture alone or with a partner. For acquisitions Firms will need to examine financial statements in great detail. For expansion Country managers will most likely submit capital budget requests that include details of expected returns. To maximize expected gains, decisions must be made in a timely fashion.

MAKING FINAL COUNTRY SELECTIONS

firms must make resource allocation decisions.

For new investments

Firms will need to develop detailed estimates of all costs and expenses and

Consider whether to enter a particular venture alone or with a partner.

For acquisitions

Firms will need to examine financial statements in great detail.

For expansion

Country managers will most likely submit capital budget requests that include details of expected returns.

To maximize expected gains, decisions must be made in a timely fashion.

Country Evaluation IBF Issues With Emerging Economies Advantages may be short-lived Competitors follow leaders into low-wage areas Little first-in advantage for this type of production migration Comparability problems Foreign costs rise quickly due to wage pressures and exchange rates Extent of “red tape” Risk and uncertainty Lack, obsolescence, or inaccurate data/information to base decisions on

Issues With Emerging Economies

Advantages may be short-lived

Competitors follow leaders into low-wage areas

Little first-in advantage for this type of production migration

Comparability problems

Foreign costs rise quickly due to wage pressures and exchange rates

Extent of “red tape”

Risk and uncertainty

Lack, obsolescence, or inaccurate data/information to base decisions on

Country Evaluation IBF Flowchart for Choosing Where to Operate

Flowchart for Choosing Where to Operate

Country Evaluation IBF Video Library EU Regional Policy

Video Library

EU Regional Policy

Global Operations IBF INTERNATIONAL OPERATIONS Strategies for Managing Business Functions EXPORT AND IMPORT STRATEGIES Export Strategy Import Strategy Third Party Intermediaries Export Financing Countertrade

INTERNATIONAL OPERATIONS

Strategies for Managing Business Functions

EXPORT AND IMPORT STRATEGIES

Export Strategy

Import Strategy

Third Party Intermediaries

Export Financing

Countertrade

Export Strategy IBF CASE STUDY Grieve – A Small-Business Export Strategy

CASE STUDY

Grieve – A Small-Business

Export Strategy

Export and Import IBF EXPORT STRATEGY the decision to export must fit a company’s overall strategy and take into account global concentration , global synergies and global strategic motivations ). Characteristics of Exporters - the probability of exporting - export intensity Why Companies Export Stages of Export Development - export to more countries and - expect exports to grow as a percentage of total sales.

EXPORT STRATEGY

the decision to export must fit a company’s overall strategy and take into account global concentration , global synergies and global strategic motivations ).

Characteristics of Exporters

- the probability of exporting

- export intensity

Why Companies Export

Stages of Export Development

- export to more countries and

- expect exports to grow as a percentage of total sales.

Export and Import IBF EXPORT STRATEGY (cont) Potential Pitfalls of Exporting Designing an Export Strategy To design an effective export strategy, managers must: - assess the company’s export potential - Obtain expert counseling on exporting - select target markets - formulate and implement an effective export strategy.

EXPORT STRATEGY (cont)

Potential Pitfalls of Exporting

Designing an Export Strategy

To design an effective export strategy, managers must:

- assess the company’s export potential

- Obtain expert counseling on exporting

- select target markets

- formulate and implement an effective export strategy.

Export and Import IBF IMPORT STRATEGY There are two basic types of imports : - extracompany imports and - intracompany imports The three basic types of importers are those that: look for any product around the world that will generate a positive cash flow look to foreign sourcing as a means to minimize product costs use foreign sourcing as part of their global supply chain strategy.

IMPORT STRATEGY

There are two basic types of imports :

- extracompany imports and

- intracompany imports

The three basic types of importers are those that:

look for any product around the world that will generate a positive cash flow

look to foreign sourcing as a means to minimize product costs

use foreign sourcing as part of their global supply chain strategy.

Export and Import IBF The Role of Customs Agencies The primary duties of a customs agency are the assessment and collection of all duties, taxes and fees on imported products. A customs broker can help an importer minimize duties. Import Documentation Are those that determine whether customs will release the shipment, and those that contain the information necessary for duty assessment and data gathering purposes.

The Role of Customs Agencies

The primary duties of a customs agency are the assessment and collection of all duties, taxes and fees on imported products.

A customs broker can help an importer minimize duties.

Import Documentation

Are those that determine whether customs will release the shipment, and

those that contain the information necessary for duty assessment and data gathering purposes.

Export and Import IBF THIRD-PARTY INTERMEDIARIES They may perform any or all of the following functions: Stimulate sales, obtain orders and conduct market research Perform credit investigations and payment-collection activities Handle foreign traffic arrangements and shipping details Provide support for a client’s sales, distribution and promotion staff. While services are more likely to be exported on a direct basis, goods are exported via both avenues.

THIRD-PARTY INTERMEDIARIES

They may perform any or all of the following functions:

Stimulate sales, obtain orders and conduct market research

Perform credit investigations and payment-collection activities

Handle foreign traffic arrangements and shipping details

Provide support for a client’s sales, distribution and promotion staff.

While services are more likely to be exported on a direct basis, goods are exported via both avenues.

Export and Import IBF Direct Selling Whereas a sales representative usually operates on a commission basis, a distributor is a merchant who purchases goods from a manufacturer and resells them at a profit. Direct Exporting through the Internet and Electronic Commerce It is especially important for small and medium-size firms that wish to reach distant markets. Indirect Selling is carried out via export management companies and export trading companies. Export Management Companies Export management companies specialize according to product, function and/or market area.

Direct Selling

Whereas a sales representative usually operates on a commission basis, a distributor is a merchant who purchases goods from a manufacturer and resells them at a profit.

Direct Exporting through the Internet and Electronic Commerce

It is especially important for small and medium-size firms that wish to reach distant markets.

Indirect Selling

is carried out via export management companies and export trading companies.

Export Management Companies

Export management companies specialize according to product, function and/or market area.

Export and Import IBF Export Trading Companies its primary purpose in becoming involved in international trade as an independent broker is to match domestic exporters to foreign customers.. Non-U.S. Trading Companies There are no U.S. trading companies that rank among the Fortune Global 500 companies; only Japan, South Korea, Germany and China have firms on that list. Foreign Freight Forwarders Some may specialize in the type of mode used, others in the geographical area served. s. Export Documentation An export license allows the exporter to ship goods to particular countries. Other key export documents are the: pro forma invoice, commercial invoice, consular invoice, bill of lading, certificate of origin, shipper’s export declaration, export packing list.

Export Trading Companies

its primary purpose in becoming involved in international trade as an independent broker is to match domestic exporters to foreign customers..

Non-U.S. Trading Companies

There are no U.S. trading companies that rank among the Fortune Global 500 companies; only Japan, South Korea, Germany and China have firms on that list.

Foreign Freight Forwarders

Some may specialize in the type of mode used, others in the geographical area served. s.

Export Documentation

An export license allows the exporter to ship goods to particular countries. Other key export documents are the: pro forma invoice, commercial invoice, consular invoice, bill of lading, certificate of origin, shipper’s export declaration, export packing list.

Export and Import IBF EXPORT FINANCING From the exporter’s point of view, four major issues relate to export financing: Product Price Method of Payment cash in advance a letter of credit a draft or bill of exchange an open account Financing Receivables funds through factoring, and forfeiting Insurance

EXPORT FINANCING

From the exporter’s point of view, four major issues relate to export financing:

Product Price

Method of Payment

cash in advance

a letter of credit

a draft or bill of exchange

an open account

Financing Receivables

funds through factoring, and forfeiting

Insurance

Export and Import IBF Letter-of-Credit Relationships

Letter-of-Credit Relationships

Export and Import IBF COUNTERTRADE when a firm (or government) does not have sufficient convertible currency to pay for imports, or it simply does not have sufficient funds. Barter represents a non-monetary transaction. Buybacks, offsets and counterpurchase all of which are used to impose reciprocal commitments.

COUNTERTRADE

when a firm (or government) does not have sufficient convertible currency to pay for imports, or it simply does not have sufficient funds.

Barter

represents a non-monetary transaction.

Buybacks, offsets and counterpurchase

all of which are used to impose reciprocal commitments.

Enterprise IBF VIDEO LIBRARY The Innovation Relay Centers

VIDEO LIBRARY

The Innovation Relay Centers

Direct Investments IBF Direct Investments and Collaborative Strategies INTRODUCTION collaboration and strategic alliance MOTIVES FOR COLLABORATIVE ARRANGEMENTS basic objectives for operating internationally with a partner. Motives for Collaborative Arrangements: General Spread and Reduce Costs Specialize in Competencies Avoid Competition Secure Vertical and Horizontal Links Gain Market Knowledge

Direct Investments and

Collaborative Strategies

INTRODUCTION

collaboration and strategic alliance

MOTIVES FOR COLLABORATIVE ARRANGEMENTS

basic objectives for operating internationally with a partner.

Motives for Collaborative Arrangements: General

Spread and Reduce Costs

Specialize in Competencies

Avoid Competition

Secure Vertical and Horizontal Links

Gain Market Knowledge

Direct Investments IBF Motives for Collaborative Arrangements: International Gain Location-Specific Assets Overcome Legal Constraints Diversify Geographically Minimize Exposure in Risky Environments

Motives for Collaborative Arrangements:

International

Gain Location-Specific Assets

Overcome Legal Constraints

Diversify Geographically

Minimize Exposure in Risky Environments

Direct Investments IBF Strategic Alliances & Objectives

Strategic Alliances & Objectives

Direct Investments IBF TYPES OF COLLABORATIVE ARRANGEMENTS Collaborative arrangements allow a greater spreading of assets across countries. Some Considerations in Collaborative Arrangements Two critical variables that influence the choice of collaborative arrangement ventures. Control The loss of control over flexibility, revenues and competition is critical. Prior Expansion of the Company The advantages of collaboration may not be attractive.

TYPES OF

COLLABORATIVE ARRANGEMENTS

Collaborative arrangements allow a greater spreading of assets across countries.

Some Considerations in

Collaborative Arrangements

Two critical variables that influence the choice of collaborative arrangement ventures.

Control

The loss of control over flexibility, revenues and competition is critical.

Prior Expansion of the Company

The advantages of collaboration may not be attractive.

Direct Investments IBF Licensing Licensing agreement . Intangible property may be classified as: patents, inventions, formulas, processes, designs, patterns copyrights for literary, musical, or artistic compositions trademarks, trade names, brand names franchises, licenses, contracts methods, programs, procedures, systems. Major Motives for Licensing Payment. Agreement-specific and environment-specific factors may affect the value of a license. Sales to Controlled Entities. A license may be required in order to transfer intangible property.

Licensing

Licensing agreement .

Intangible property may be classified as:

patents, inventions, formulas, processes, designs, patterns

copyrights for literary, musical, or artistic compositions

trademarks, trade names, brand names

franchises, licenses, contracts

methods, programs, procedures, systems.

Major Motives for Licensing

Payment. Agreement-specific and environment-specific factors may affect the value of a license.

Sales to Controlled Entities. A license may be required in order to transfer intangible property.

Direct Investments IBF Franchising The two partners act like a vertically integrated firm because they are interdependent. Organization of Franchising in a country or region. Operational Modifications The higher the costs the less the control by the franchisor. Management Contracts when a firm believes a partner can manage certain operations more efficiently and effectively than it can itself.

Franchising

The two partners act like a vertically integrated firm because they are interdependent.

Organization of Franchising in a country or region.

Operational Modifications The higher the costs the less the control by the franchisor.

Management Contracts

when a firm believes a partner can manage certain operations more efficiently and effectively than it can itself.

Direct Investments IBF Turnkey Operations Customers most often are government agencies or large MNEs. Joint Ventures and Consortiums Other forms of joint ventures include: two firms from the same country joining together in a foreign market a foreign firm joining with a local firm firms from two or more countries establishing an operation in a third country a private firm and a local government a private firm joining a government-owned firm in a third country. Equity Alliances The purpose is to solidify a collaborating contract, thus making it more difficult to break.

Turnkey Operations Customers most often are government agencies or large MNEs.

Joint Ventures and Consortiums

Other forms of joint ventures include:

two firms from the same country joining together in a foreign market

a foreign firm joining with a local firm

firms from two or more countries establishing an operation in a third country

a private firm and a local government

a private firm joining a government-owned firm in a third country.

Equity Alliances The purpose is to solidify a collaborating contract, thus making it more difficult to break.

Direct Investments IBF Alternative Operating Modes for Foreign Market Expansion

Alternative Operating Modes for

Foreign Market Expansion

Direct Investments IBF PROBLEMS OF COLLABORATIVE ARRANGEMENTS Problems arise for a number of reasons: Collaboration’s Importance to Partners blame the other for poor decisions. Differing Objectives performance standards may evolve quite differently over time. Control Problems both may be held responsible for problems. Partners’ Contributions and Appropriations may lead to the dissolution of the agreement. Differences in Culture may cause problems with collaborative arrangements , especially joint ventures. from similar cultures.

PROBLEMS OF

COLLABORATIVE ARRANGEMENTS

Problems arise for a number of reasons:

Collaboration’s Importance to Partners

blame the other for poor decisions.

Differing Objectives

performance standards may evolve quite differently over time.

Control Problems

both may be held responsible for problems.

Partners’ Contributions and Appropriations

may lead to the dissolution of the agreement.

Differences in Culture

may cause problems with collaborative arrangements , especially joint ventures. from similar cultures.

Direct Investments IBF MANAGING FOREIGN ARRANGEMENTS partners need to reassess certain decisions changes. Dynamics of Collaborative Arrangements Finding Compatible Partners Negotiating Process Contractual Provisions Performance Assessment

MANAGING FOREIGN ARRANGEMENTS

partners need to reassess certain decisions changes.

Dynamics of Collaborative Arrangements

Finding Compatible Partners

Negotiating Process

Contractual Provisions

Performance Assessment

Direct Investments IBF CASE STUDY International Airline Alliances

CASE STUDY

International Airline Alliances

Organization IBF THE ORGANIZATION OF INTERNATIONAL BUSIENSS PLANNING The Planning Loop Strategic intent and strategic plan. The six steps in the international planning process include: determining long-range strategic intent analyzing internal corporate resources setting international corporate objectives analyzing host country conditions identifying alternatives and priorities implementing the international strategy. Uncertainty and Planning

THE ORGANIZATION OF

INTERNATIONAL BUSIENSS

PLANNING

The Planning Loop

Strategic intent and strategic plan. The six steps in the international planning process include:

determining long-range strategic intent

analyzing internal corporate resources

setting international corporate objectives

analyzing host country conditions

identifying alternatives and priorities

implementing the international strategy.

Uncertainty and Planning

Organization IBF Control Difficulties in International Business Distance Diversity Market size Type of local competition Nature of product Labor cost Currency Uncontrollables Degree of uncertainty

Control Difficulties in International Business

Distance

Diversity

Market size

Type of local competition

Nature of product

Labor cost

Currency

Uncontrollables

Degree of uncertainty

Organization IBF CASE STUDY GE Hungary

CASE STUDY

GE Hungary

Organization IBF ORGANIZATIONAL STRUCTURE a firm’s choice of a multi domestic, global, or transnational strategy Separate versus Integrated International Structures Most companies will follow one of the following structures: International Division Structure Functional Division Structure Product Division Structure Geographic Division Structure Matrix Division Structure

ORGANIZATIONAL STRUCTURE

a firm’s choice of a multi domestic, global, or transnational strategy

Separate versus

Integrated International Structures

Most companies will follow one of the following structures:

International Division Structure

Functional Division Structure

Product Division Structure

Geographic Division Structure

Matrix Division Structure

Organization IBF Dynamic Nature of Structures Change as the level and type of international activities change. Mixed Nature of Structures Most firms exhibit a mixed structure Nontraditional Structures new organizational structures continue to evolve Network Organizations. Network alliance, heterarchy, keiretsus Lead Subsidiary Organizations A firm may choose to locate divisional headquarters in a strategic foreign country.

Dynamic Nature of Structures

Change as the level and type of international activities change.

Mixed Nature of Structures

Most firms exhibit a mixed structure

Nontraditional Structures

new organizational structures continue to evolve

Network Organizations.

Network alliance, heterarchy, keiretsus

Lead Subsidiary Organizations

A firm may choose to locate divisional headquarters in a strategic foreign country.

Organization IBF LOCATION OF DECISION-MAKING Pressures for Global Integration versus Local Responsiveness Resource Transference Standardization Systematic Dealings with Stakeholders Transnational Strategy Capabilities of Headquarters vs. Subsidiary Personnel Decision Expediency and Quality A poor decision may be better than a good one that comes too late. Cost and Expediency Importance of the Decision

LOCATION OF DECISION-MAKING

Pressures for Global Integration versus

Local Responsiveness

Resource Transference

Standardization

Systematic Dealings with Stakeholders

Transnational Strategy

Capabilities of Headquarters vs.

Subsidiary Personnel

Decision Expediency and Quality

A poor decision may be better than a good one that comes too late.

Cost and Expediency

Importance of the Decision

Organization IBF CONTROL IN THE INTERNATIONALIZATION PROCESS Level of Importance should change over time to reflect the firm’s increased involvement in foreign activities. Changes in Competencies The increasing importance of a firm’s foreign operations to total global performance may dictate a greater need for headquarters to be actively involved. Changes in Operating Forms To minimize obstacles when responsibilities shift from one group to another, a firm should plan carefully and create organizational mechanisms that ensure the complementarily of activities.

CONTROL IN THE

INTERNATIONALIZATION PROCESS

Level of Importance

should change over time to reflect the firm’s increased involvement in foreign activities.

Changes in Competencies

The increasing importance of a firm’s foreign operations to total global performance may dictate a greater need for headquarters to be actively involved.

Changes in Operating Forms

To minimize obstacles when responsibilities shift from one group to another, a firm should plan carefully and create organizational mechanisms that ensure the complementarily of activities.

Organization IBF CONTROL MECHANISMS to maximize operation performance Corporate Culture Coordinating Methods Reports Types of Reports Visits to Subsidiaries Management Performance Evaluation Cost and Accounting Comparability Evaluative Measurements Information Systems

CONTROL MECHANISMS

to maximize operation performance

Corporate Culture

Coordinating Methods

Reports

Types of Reports

Visits to Subsidiaries

Management Performance Evaluation

Cost and Accounting Comparability

Evaluative Measurements

Information Systems

Organization IBF CONTROL IN SPECIAL SITUATIONS Acquisitions Attempts to centralize decision-making or change operating methods may be met with resistance from foreign personnel and host governments alike. Shared Ownership Effective control can be achieved by spreading the ownership across many shareholders, dividing equity into voting and non-voting stock. Changes in Strategies It is difficult to take control away from country subsidiaries when managers have become accustomed to operational autonomy.

CONTROL IN SPECIAL SITUATIONS

Acquisitions

Attempts to centralize decision-making or change operating methods may be met with resistance from foreign personnel and host governments alike.

Shared Ownership

Effective control can be achieved by spreading the ownership across many shareholders, dividing equity into voting and non-voting stock.

Changes in Strategies

It is difficult to take control away from country subsidiaries when managers have become accustomed to operational autonomy.

Organization IBF THE ROLE OF LEGAL STRUCTURES IN CONTROL STRATEGIES Branch and Subsidiary Structures Foreign branch Foreign subsidiary. The concept of limited liability Types of Subsidiaries and Their Effects on Control Structures the ability of the parent to sell its ownership the number of stockholders required to establish a subsidiary the percentage of foreigners allowed to serve on a board of directors the amount of required public disclosure whether equity may be acquired by non-capital contributions the types of eligible businesses the minimum capital requirements for establishing a subsidiary

THE ROLE OF LEGAL STRUCTURES IN

CONTROL STRATEGIES

Branch and Subsidiary Structures

Foreign branch

Foreign subsidiary. The concept of limited liability

Types of Subsidiaries and Their Effects on Control Structures

the ability of the parent to sell its ownership

the number of stockholders required to establish a subsidiary

the percentage of foreigners allowed to serve on a board of directors

the amount of required public disclosure

whether equity may be acquired by non-capital contributions

the types of eligible businesses

the minimum capital requirements for establishing a subsidiary

Business Plan IBF FINAL PROJECT Discussion of the proposed International Market Research Studies

FINAL PROJECT

Discussion of the proposed International Market Research Studies

Business Plan IBF Final Project Requirements and Recommendations Sample Market Research FOOD PROCESSING OPERATION IN CENTRAL EUROPE INTERNATIONAL MARKET RESEARCH © 2004 AMI

Final Project

Requirements and Recommendations

Sample Market Research

FOOD PROCESSING OPERATION IN CENTRAL EUROPE INTERNATIONAL MARKET RESEARCH

© 2004 AMI

IBF Next Session Wednesday July 26 th , 2006 International Business and Financial News Global Manufacturing, Marketing and Supply Chain Management CASES Avon International NeoPets - Play Games Samsonite’s Global Supply Chain Denso Corp and Supplier Relations

Next Session

Wednesday July 26 th , 2006

International Business and Financial News

Global Manufacturing, Marketing and Supply Chain Management

CASES Avon International

NeoPets - Play Games

Samsonite’s Global Supply Chain

Denso Corp and Supplier Relations

Session 5 IBF Acknowledgements This Power Point Presentation is based on International Business : Environments and Operations by John D. Daniels, Lee H. Radebaugh, Daniel P. Sullivan, 11 th Edition © 2006 Prentice Hall, Inc. Comparative Economic Studies Center for International Strategic Studies © AMI CISS 2006 Culture Quest International Business Videos © 2004 Prentice Hall, Inc. European Commission Audiovisual Library © European Community 2006

Acknowledgements

This Power Point Presentation is based on

International Business :

Environments and Operations

by John D. Daniels, Lee H. Radebaugh, Daniel P. Sullivan, 11 th Edition

© 2006 Prentice Hall, Inc.

Comparative Economic Studies

Center for International Strategic Studies

© AMI CISS 2006

Culture Quest International Business Videos

© 2004 Prentice Hall, Inc.

European Commission Audiovisual Library

© European Community 2006