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  • 1. Seminar in International Business Wagner College MBA Summer 2006
  • 2. 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
  • 3. 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
  • 4. Session 5 IBF
    • MIDTERM Presentation Session
    • Investment Portfolios
    Wagner College Graduate Programs
  • 5. 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
  • 6. Session 5 IBF
    • Business and Financial
    • World News
  • 7. 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
  • 8. Midterm Presentations
    • MIDTERM Presentation Session
    • Investment Portfolios
    Wagner College Graduate Programs
  • 9. Governments and the FDI
    • Video Library
    • Chinese Market
  • 10. 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
  • 11. Global Strategy IBF
    • Case Study
    • The Globalization of eBay
  • 12. Global Strategy IBF
    • The Globalization of eBay
  • 13. 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.
  • 14. Country Evaluation IBF
    • CASE STUDY
    • Carrefour International Operation
  • 15. 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.
  • 16. 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.
  • 17. 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.
  • 18. 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
  • 19. 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.
  • 20. Country Evaluation IBF
    • Opportunity-Risk Matrix
  • 21. Country Evaluation IBF
    • Country Attractiveness-
    • Company Strength Matrix
  • 22. 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.
  • 23. 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
  • 24. 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.
  • 25. 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
  • 26. Country Evaluation IBF
    • Flowchart for Choosing Where to Operate
  • 27. Country Evaluation IBF
    • Video Library
    • EU Regional Policy
  • 28. Global Operations IBF
    • INTERNATIONAL OPERATIONS
    • Strategies for Managing Business Functions
    • EXPORT AND IMPORT STRATEGIES
    • Export Strategy
    • Import Strategy
    • Third Party Intermediaries
    • Export Financing
    • Countertrade
  • 29. Export Strategy IBF
    • CASE STUDY
    • Grieve – A Small-Business
    • Export Strategy
  • 30. 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.
  • 31. 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.
  • 32. 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.
  • 33. 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.
  • 34. 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.
  • 35. 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.
  • 36. 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.
  • 37. 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
  • 38. Export and Import IBF
    • Letter-of-Credit Relationships
  • 39. 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.
  • 40. Enterprise IBF
    • VIDEO LIBRARY
    • The Innovation Relay Centers
  • 41. 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
  • 42. Direct Investments IBF
    • Motives for Collaborative Arrangements:
    • International
    • Gain Location-Specific Assets
    • Overcome Legal Constraints
    • Diversify Geographically
    • Minimize Exposure in Risky Environments
  • 43. Direct Investments IBF
    • Strategic Alliances & Objectives
  • 44. 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.
  • 45. 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.
  • 46. 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.
  • 47. 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.
  • 48. Direct Investments IBF
    • Alternative Operating Modes for
    • Foreign Market Expansion
  • 49. 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.
  • 50. 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
  • 51. Direct Investments IBF
    • CASE STUDY
    • International Airline Alliances
  • 52. 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
  • 53. 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
  • 54. Organization IBF
    • CASE STUDY
    • GE Hungary
  • 55. 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
  • 56. 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.
  • 57. 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
  • 58. 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.
  • 59. 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
  • 60. 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.
  • 61. 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
  • 62. Business Plan IBF
    • FINAL PROJECT
    • Discussion of the proposed International Market Research Studies
  • 63. Business Plan IBF
    • Final Project
    • Requirements and Recommendations
    • Sample Market Research
    • FOOD PROCESSING OPERATION IN CENTRAL EUROPE INTERNATIONAL MARKET RESEARCH
    • © 2004 AMI
  • 64. 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
  • 65. 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