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Syllabus
1. Introduction and Overview of IB
2. Firm Level Part I: Models for International Business
3. International Business Environment
4. International Finance and Economics
5. MNCs and Indian Global Organizations
6. Firm Level Part II: International Business Strategy
7. Case Studies
2. Firm Level Part 1: Models for
International Business
2.1 The decision to globalize
- Why should a firm go global?
- The Firm and Life Cycle of Products
- The Firm and Macro Forces of Globalization
2.2 Models of Foreign Entry
- Selecting Target Markets
- Methods of selecting Market Entry
- Factors determining Choice of Models for Entry
- Complex Entry Models
2. Firm Level Part 1: Models for
International Business
2.1 The decision to globalize
- Why should a firm go global?
- The Firm and Life Cycle of Products
- The Firm and Macro Forces of Globalization
2.2 Models of Foreign Entry
- Selecting Target Markets
- Methods of selecting Market Entry
- Factors determining Choice of Models for Entry
- Complex Entry Models
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2.1 The Decision to Globalize
• Why should a firm go Global?
– Extending and Exploiting Markets
– Extending Production Bases
– Product Life Cycle Considerations
Extending & Exploiting Markets
• Key reasons:
– Monopolistic advantage in Home Country, can be
leveraged in other markets
– High Capital Costs that can deter competition
– Proprietary Technology/ Know-how
– Specialized assets
Extending Production Bases
• Firms expand as they seek factors of
production for their products
– Natural Resources
– Labor and Human Resources
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Product Life Cycle Considerations
• Introduction/ Growth
– High involvement, knowledge, finance, skills, R&D, high
flexibility
• Maturity
– Development costs are recovered, expanded sales, need
for product/process innovation is low
– Firms may look at expanding to source raw material or
lower costs or expand markets or a combination
• Standardization/Decline
– Product is completely standardized, profit margins are
lower, production is shifted to lowest cost bases, and
eventually product/ production asset is milked to generate
cash for next cycle of innovation
The Product Life Cycle
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The PLC and
International
Business
The Firm and Macro Forces of
Globalization
• Globalization of Capital Markets
– volatility of currency markets and interest rates
• Reduced costs and higher speeds of
transportation
• Growth of Regional and International Trading
arrangements
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2. Firm Level Part 1: Models for
International Business
2.1 The decision to globalize
- Why should a firm go global?
- The Firm and Life Cycle of Products
- The Firm and Macro Forces of Globalization
2.2 Models of Foreign Entry
- Selecting Target Markets
- Methods of selecting Market Entry
- Factors determining Choice of Models for Entry
- Complex Entry Models
Michael Porter : A Brief Background
Michael Eugene Porter is the Bishop William
Lawrence University Professor at Harvard Business
School. He is a leading authority on company strategy
and the competitiveness of nations and regions.
Michael Porter’s work is recognized in many
governments, corporations and academic circles
globally. He chairs Harvard Business School's program
dedicated for newly appointed CEOs of very large
corporations.
5 Forces Model for Competitive Advantage
Value Chain Model
Competitive Advantage of Nations
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Porter’s Value Chain Model – A Basis for viewing Strategic Value
SUPPORT Firm Infrastructure (General Management)
ACTIVITIES
Human Resource Management
Technology Development
Procurement
Inbound Ops. Outbound Sales & Service and
Logistics Logistics Marketing Support
Chance Firm Strategy,
Structure and
Rivalry
Demand
Factor
Conditions
Conditions
Related and
Supporting
Industries
Government
Porter’s Diamond Model – Competitive Advantage of Nations
Selecting Target Markets
Porter: Competitive Advantage of Nations
• Factor Conditions: Does a Nation’s factors of production help
a firm to compete successfully?
• Demand Conditions: Are local markets highly demanding in
terms of price/non-price factors
• Related and Supporting Industries
• Firm Structure, Strategy and Rivalry
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Selecting Target Markets
Understanding Nations – some considerations
• Political System
• Collectivism & Individualism
• Economic Systems
• Market vs. Command vs. Mixed Economy
• Legal Systems – differences and Contract Law
• Property Rights
• Intellectual Property Rights
• Product Safety, Liability
• Determinants of Economic Development
• The Nature of Economic Transformation
Basic Approach
HI
Low Level
Engage
Engagement
Company
Ability to
Develop the
Market in
target Develop Ability to
Country Avoid
Access the Market
LO
LO HI
Country Potential
Ansoff Matrix
Existing Products New Products
Existing
Markets Market Product
Penetration Development
New
Market
Markets Diversification
Development
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The Foreign Country Entry: Modes and
Decision Tree
Competitive Advantage obtained by going International
(A)
Produce at home Produce Internationally
Project
and Export (A1) (B)
Management (A2)
Licensing / Contract Manufacturing Manage and Control Assets for
Internationally/ Franchising (B1) Manufacturing
Internationally (B2)
Joint Venture (B2.1) Majority or 100% Owned
Venture (B2.2)
Acquire or Merge (B2.2.1) Build from ground up (B2.2.2)
Produce at home
and Export (A1)
• Advantages:
– Avoids costs associated with establishing manufacturing
operations in a foreign country.
– May achieve economies of scale
– May take advantage of local suppliers, resources
– Reduces Risks
• Disadvantages
– May not be appropriate if lower cost bases exist elsewhere
– Costs of transportation increase
– Tariff Barriers
– Part of the value chain is outsourced which may create
future competitors
Project
Management (A2)
• Applicable for firms who are engaged in planning, design, construction and
start-up of projects in some industries – software, chemical plants,
construction, petroleum/oil/gas and other forms of productive assets etc.
• Advantages:
– Know –how to successfully manage projects is a valuable asset
– Control intellectual assets and are able to monetize it across various
international markets
– Is effective in entering markets which may not have stable business
environments
– Can obtain high value services
• Disadvantages
– Interests are limited to the duration of the Project and can be short term
oriented
– May create competitors without having any revenue streams from the assets
created
– Part of the value chain developed in-house at considerable cost may be used
by other market participants
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Licensing / Contract Manufacturing
Internationally/ Franchising (B1)
• Licensing is an arrangement where a licensor grants rights to
another entity for an intellectual property/know-how/process/
product for business use and in exchange derives a royalty/license
fee.
• Advantages:
– Reduced capital expenses
– Can be used to go around/circumvent entry barriers
– Very good way to monetize intellectual property when the intellectual
property holder’s core business is in another area
• Disadvantages:
– Limited control on how the licensee uses the know-how
– Creates competitors who can use this in forward/backward integration
– May restrict the intellectual property holders from competing directly
with its licensees
• Note: Franchising is a special model of Licensing that overcomes
some of the drawbacks of Licensing by having greater control on
services/products offered by the licensee.
Joint Venture (B2.1)
• A JV is the establishing of a firm that is jointly
owned by tow or more independent entities.
• Advantages:
– Combines know-how with local market expertise
– Development Costs/Investments are shared
– Risks are shared
• Disadvantages:
– Gives control of its knowhow to an external partner
– Control is very limited
– Conflicts between JV partners tend to emerge as
interests begin to develop in different directions
Majority or 100% Owned
Venture (B2.2)
• In this case, the firm owns 100% of the venture in
the international target market
• Advantages:
– Greatest control possible
– Protects Intellectual property and sources of
competitive advantage
– Largest amount of value additions are retained with
the firm/ subsidiary
• Disadvantages:
– Costs high
– Risks high
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Prosperity Performance, selected countries
Source : Michael E Proter, Advanced Management Program, HBS, April 2009
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Source:
McKinsey
Quarterly, Feb
2004
The Truth about
FDI in Emerging
Markets:Diana
Farrell, Jaana K.
Remes, and
Heiner Schulz
Source:
McKinsey
Quarterly, Feb
2005
The Right
Passage to India:
Kuldeep P. Jain,
Nigel Manson,
Shirish Sankhe
Syllabus
1. Introduction and Overview of IB
2. Firm Level Part I: Models for International Business
3. International Business Environment
4. International Finance and Economics
5. MNCs and Indian Global Organizations
6. Firm Level Part II: International Business Strategy
7. Case Studies
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3. International Business Environment
– Economics*
– Finance*
– Ethics and Law
– Social Systems,
• History, Geography, Politics,
– Governance Systems
• Regional/Multilateral/Global Systems
* Covered Separately in Unit 4
What is Ethics?
• Sociologist Raymond Baumhart asked business
people, "What does ethics mean to you?" Among
their replies were the following:
– "Ethics has to do with what my feelings tell me is right
or wrong.“
– "Ethics has to do with my religious beliefs.“
– "Being ethical is doing what the law requires.“
– "Ethics consists of the standards of behavior our
society accepts.“
– "I don't know what the word means."
Ethics and Law
• Ethics, also known as moral philosophy, is a
branch of philosophy that involves systematizing,
defending, and recommending concepts of right
and wrong conduct.
– ‘Ethos’ (Greek) = Character
• Law is a system of rules and guidelines which are
enforced through social institutions to govern
behavior.
– Laws are made by governments, specifically by their
legislatures.
– Law shapes politics, economics and society
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Indian Ethical System
• Yama: Precepts of Social Discipline
– Ahimsa -- Non-violence. / Not harming
• People and other living beings, Oneself. Environment. Tolerance for even that which we
dislike.
– Satya -- Truthfulness. Satya also means not intending to deceive others in our thoughts,
as well as our words and actions.
– Asteya -- Non-stealing. Not taking that which is not given.
– Brahmacarya – Gender responsibility. Regarding others as human beings rather than as
male and female bodies.
– Aparigraha – Non-covetousness Not coveting that which is not ours and avoidance of
unnecessary acquisition of objects not essential to maintaining life or spiritual study.
• Niyama: Precepts of Invididual Discipline
– Saucha -- Cleanliness. Not only external cleanliness of the body, but attending to
internal cleanliness such as avoiding the impurities of anger and egoism.
– Santosh -- Contentment. Not complacency, but acceptance of the external situation we
are allotted in this life.
– Tapas -- Austerity. Deep commitment to (yoga )practice.
– Svadhyaya -- Self-study. Self-education. Contemplation and application of knowledge
to chosen path.
– Isvara pranidhana -- Surrender of the self to God. Acknowledgement that there is a
higher principle in the universe than one's own self. Modesty. Humility.
Another Framework Determining Ethical Foundations : Moses’ Commandments
1. You shall have no other gods before me.
2. You shall not make for yourself any carved image, or any likeness of anything that is in heaven
above, or that is in the earth beneath, or that is in the water under the earth; you shall not bow
down to them nor serve them. For I, the Lord your God, am a jealous God, visiting the iniquity
of the fathers on the children to the third and fourth generations of those who hate me, but
showing mercy to thousands, to those who love Me and keep My commandments.
3. You shall not take the name of the Lord your God in vain, for the Lord will not hold him
guiltless who takes His name in vain.
4. Remember the Sabbath day, to keep it holy. Six days you shall labor and do all your work, but
the seventh day is the Sabbath of the Lord your God. In it you shall do no work: you, nor your
son, nor your daughter, nor your manservant, nor your maidservant, nor your cattle, nor your
stranger who is within your gates. For in six days the Lord made the heavens and the earth, the
sea, and all that is in them, and rested the seventh day. Therefore the Lord blessed the Sabbath
day and hallowed it.
5. Honor your father and your mother, that your days may be long upon the land which the Lord
your God is giving you.
6. You shall not murder.
7. You shall not commit adultery.
8. You shall not steal.
9. You shall not bear false witness against your neighbor.
10. You shall not covet your neighbor’s house; you shall not covet your neighbor’s wife, nor his
manservant, nor his maidservant, nor his ox, nor his donkey, nor anything that is your
neighbor’s.”
Western Philosophical Ethics
• Straw Men
– 4 approaches : Friedman Doctrine, Cultural Relativism, Righteous
Moralist, Naïve Moralist
• ALL of them have some value BUT unsatisfactory
• Utilitarian & Kantian Ethics
– Utilitarian Approach: Moral worth is determined by the consequences,
and actions need to be justified if they have ‘good’ consequences;
“greatest good for greatest no. of people”
– Kantian Ethics: People should not be treated as instruments or
machines; people have dignity & need to be respected as such
• Rights Theories
– Human Rights/ Individual Rights ( Obligations not comprehensive,
although mentioned).
• Justice Theories
– John Rawls theory under veils of ignorance has 2 principles:
• Principle 1: Each person is allowed maximum amount of basic liberty
• Principle 2: Once basic liberty is assured, inequality in income/ wealth
distribution / opportunities can be allowed.
Reference: 172-178, Hill & Jain, IB – 6th Edition
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Trust
You can’t have success without trust. The word
trust embodies everything you can strive for that
will help you succeed. You tell me any human
relationship that works without trust, whether it
is marriage or a friendship or a social interaction;
in the long run, the same thing is true about
business, specially businesses that deal with the
public.
Jim Burke,
former Chairman & CEO
Johnson & Johnsom
Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
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Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
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Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
The Economics of Trust
Trust = Speed Cost
Trust = Speed Cost
Transcendent values like trust and integrity
literally translate into revenue, profits and
prosperity.
- Patricia Aburdene, Author of Megatrends 2010
Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill
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Root of Unethical Behavior
Decision
Personal
Making
Ethics
Process
Ethical
Behavior
Organization
Culture Leadership
Unrealistic
Performance
Goals
Reference: Hill & Jain, p 169
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