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International Business: Strategy, Management, and the New Realities
Chapter 3
Participants in
International Business
International Business: Strategy, Management, and the New Realities
Three Types of Participants in IB
1. The focal firm – initiator of IB transaction,
including MNEs and SMEs
2. Distribution channel intermediary –
specialist firm providing logistics and
marketing services in the international supply
chain
3. Facilitator – a firm providing special
expertise in legal advice, banking, customs
clearance, market research, and similar
areas
5861175.ppt
5861175.ppt
5861175.ppt
International Business: Strategy, Management, and the New Realities
The MNE as a Focal Firm
• A Multinational Enterprise (MNE) is a large
organization with a network of production plants,
regional headquarters, and country subsidiaries
in numerous countries.
• Examples include: Nestlé, Sony, Unilever,
Nokia, Ford, Citibank, ABB, and Shell Oil.
• MNEs include those in retailing ( e.g., Carrefour
and Gap) and services ( e.g., Citibank,
Amazon).
• Some MNEs in countries like China and Russia
may be state owned.
International Business: Strategy, Management, and the New Realities
The SME as a Focal Firm
• A Small and Medium-Sized Enterprise (SME) is
a relatively small player in its respective industry
(in the U.S., those with less than 500
employees).
• SMEs can be more flexible and quicker to
respond to international opportunities.
• Though their limited resources prevent them
from engaging in FDI, SMEs can excel in
exporting, licensing, and franchising.
International Business: Strategy, Management, and the New Realities
The Born Global as a Focal Firm
• A Born Global (BG) firm represents a relatively
new breed of the SME that undertakes early and
substantial internationalization.
• Primarily a niche player, born globals display
high degree of entrepreneurial orientation,
proactiveness, and customer service.
• In the contemporary era, born globals make up
the fastest growing segment of exporters in
most countries.
International Business: Strategy, Management, and the New Realities
Evolution of a Born Global Exporter
and Challenges It Overcomes
Some will exceed
$100 million
Niche
limits
Manage
transition
issues early
Create
international
position
Begin exporting
early (2 years)
Small
domestic
sales only
Product or
process
development
Time
Size
Credibility
Finance
Export
Finance
Foreign representation
Export know-how & skills
Market information
Innovation…
the next
product
International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms
 Experience early, rapid, and substantial
internationalization
 Fewer financial and other resources than
traditional exporters
 Formed by technically inclined, market-oriented
business people with entrepreneurial drive
 Often enjoy internationally recognized technical
eminence and universal appeal in given product
category
International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms (2)
 Emergence often associated with significant
product/process breakthrough or innovation
 Products often involve advanced technology,
substantial added value, superior quality, and
differentiated design
 Internationalization typically via exporting and
facilitated through network relationships
 Heavy user of advanced IT and communications
technologies
International Business: Strategy, Management, and the New Realities
 Typically a specialist, niche player
 Distinctive product/offering
 High degree of product/service quality
 Personal attention to building customer
relationships
 Constant effort to upgrade foreign
distributor effectiveness
Distinctive Features of Born Global
Marketing Strategy
Globalization and Entrepreneurship
International Business: Strategy, Management, and the New Realities
The Stanford Technology Ventures Program
Link: http://ecorner.stanford.edu/
International Business: Strategy, Management, and the New Realities
Foreign Market Entry Strategies of Focal Firms
Cross-border business transactions can be
grouped into three categories:
1. Trade: buying and selling of products
2. Contractual exchange of services or
intangibles: buying and selling of services
3. Equity ownership in foreign operations:
establishing foreign presence through direct
investment
5861175.ppt
International Business: Strategy, Management, and the New Realities
The Nature of Cross-Border Transactions
• Trade (export and import) implies a home-
based operation where independent partners in
the foreign market are engaged to provide local
services.
• Contractual exchanges include licensing,
franchising, service contracting, turnkey
operations, and project-based partnerships.
• Equity ownership is accomplished through FDI
which can be implemented through acquisition
or greenfield investment.
International Business: Strategy, Management, and the New Realities
Examples of Focal Firms that are Involved in
Contractual Exchanges
Turnkey Contractor: Provide engineering, design, and
architectural services in the construction of airports,
hospitals, oil refineries, and other types of
infrastructure.
• These projects are typically awarded on the basis of
open bidding by the sponsor.
• Examples- European Channel Tunnel, the Three
Gorges Dam in China, Delhi Metro Rail Ltd. and the
Hong Kong Airport.
• Build-own-transfer venture- an increasingly popular
type of turnkey contract in the developing economies
where contractors acquire an ownership in the facility
for a period of time until it is turned over to the client.
International Business: Strategy, Management, and the New Realities
International Collaborative Venture
• In an international collaborative venture (ICV),
partners pool their resources and share the
cost and risks of the new venture.
• Through an ICV, a focal firm can exploit
partner’s complementary technologies and
expertise, avoid trade barriers, connect with
customers abroad, and configure value chains
more effectively.
• ICV represents the middle ground between
FDI and exporting; the firm externalizes value
adding activities such as R&D or
manufacturing.
International Business: Strategy, Management, and the New Realities
Two Types of International Collaborative Ventures
• Joint Venture: the focal firm creates and
jointly owns a new legal entity together with
foreign partners
• Project-Based Collaborative Venture: Focal
firm collaborates with foreign partners on a
project with a relatively narrow scope and a
well-defined timetable, without creating a new
legal entity.
• Firms often form project-based ventures to
share the cost and risks involved in
knowledge-intensive R&D projects.
International Business: Strategy, Management, and the New Realities
An Example of Joint Venture
• Advantages: share costs and risks, gain access
to needed resources, gain economies of scale,
and pursue long-term strategic goals.
• Hitachi formed a joint venture with MasterCard
to promote a smart card system (Multos) for
banking and other applications.
• BP partnered with the state-controlled Hindustan
Petroleum Corporation in India. The new venture
built a $3 billion refinery in Punjab and
established a joint marketing business, including
a network of retail service stations around India.
International Business: Strategy, Management, and the New Realities
An Example of Project-Based Collaboration
Cisco Systems has expanded much of its operations
through strategic alliances with key foreign players.
• With Japan’s Fujitsu to jointly develop routers and
switches that enable clients to build Internet protocol
networks for advanced telecommunications.
• In Italy, Cisco teamed with the telecommunications
company Italtel to jointly develop network solutions
for the convergence of voice, data, and video to
meet growing global demands.
• In China, Cisco formed an alliance with
telecommunications company ZTE to tap the China
and Asian markets.
International Business: Strategy, Management, and the New Realities
Distribution Channel Intermediary
• Agents, distributors, manufacturers’ reps
• Specialize in physical distribution and marketing service;
connect the focal firm with the end user in the foreign
market.
• Assist the focal firm by providing logistics services such
as warehousing and customer support.
• Especially critical to exporters who do not establish
foreign presence themselves.
• Are based either in the home country or the host
country.
International Business: Strategy, Management, and the New Realities
Export Management Company (EMC)
• A more common intermediary in the U.S.
is the Export Management Company
which acts as an export agent on behalf
of the focal firm.
• An EMC finds export customers,
negotiates terms of sale, and arranges
for international shipping, typically for
smaller exporters.
• Most EMCs specialize in specific
industries and geographic areas.
International Business: Strategy, Management, and the New Realities
Online Intermediaries
• Disintermediation – bypassing traditional
intermediaries – is made possible due to
widespread use of the Internet to reach customers
globally.
• Examples include Amazon, Dell, eBay, and Alibaba
– English-language portal based in China that
specializes in business-to-business exchanges.
• Traditional retailers such as Sony and Tesco have
also established online presence.
• One negative outcome of online retailing has been
the ease with which unscrupulous marketers reach
on suspecting him customers with fake products
(e.g., fake pharmaceuticals).
International Business: Strategy, Management, and the New Realities
Facilitators in IB
• Facilitators assist the focal firm with
specialized services required in cross-
border transactions.
• Facilitators include: Banks,
international trade lawyers, freight
forwarders, customs brokers,
consultants, ad agencies, and market
researchers.

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5861175.ppt

  • 1. International Business: Strategy, Management, and the New Realities Chapter 3 Participants in International Business
  • 2. International Business: Strategy, Management, and the New Realities Three Types of Participants in IB 1. The focal firm – initiator of IB transaction, including MNEs and SMEs 2. Distribution channel intermediary – specialist firm providing logistics and marketing services in the international supply chain 3. Facilitator – a firm providing special expertise in legal advice, banking, customs clearance, market research, and similar areas
  • 6. International Business: Strategy, Management, and the New Realities The MNE as a Focal Firm • A Multinational Enterprise (MNE) is a large organization with a network of production plants, regional headquarters, and country subsidiaries in numerous countries. • Examples include: Nestlé, Sony, Unilever, Nokia, Ford, Citibank, ABB, and Shell Oil. • MNEs include those in retailing ( e.g., Carrefour and Gap) and services ( e.g., Citibank, Amazon). • Some MNEs in countries like China and Russia may be state owned.
  • 7. International Business: Strategy, Management, and the New Realities The SME as a Focal Firm • A Small and Medium-Sized Enterprise (SME) is a relatively small player in its respective industry (in the U.S., those with less than 500 employees). • SMEs can be more flexible and quicker to respond to international opportunities. • Though their limited resources prevent them from engaging in FDI, SMEs can excel in exporting, licensing, and franchising.
  • 8. International Business: Strategy, Management, and the New Realities The Born Global as a Focal Firm • A Born Global (BG) firm represents a relatively new breed of the SME that undertakes early and substantial internationalization. • Primarily a niche player, born globals display high degree of entrepreneurial orientation, proactiveness, and customer service. • In the contemporary era, born globals make up the fastest growing segment of exporters in most countries.
  • 9. International Business: Strategy, Management, and the New Realities Evolution of a Born Global Exporter and Challenges It Overcomes Some will exceed $100 million Niche limits Manage transition issues early Create international position Begin exporting early (2 years) Small domestic sales only Product or process development Time Size Credibility Finance Export Finance Foreign representation Export know-how & skills Market information Innovation… the next product
  • 10. International Business: Strategy, Management, and the New Realities Common Characteristics of Born Global Firms  Experience early, rapid, and substantial internationalization  Fewer financial and other resources than traditional exporters  Formed by technically inclined, market-oriented business people with entrepreneurial drive  Often enjoy internationally recognized technical eminence and universal appeal in given product category
  • 11. International Business: Strategy, Management, and the New Realities Common Characteristics of Born Global Firms (2)  Emergence often associated with significant product/process breakthrough or innovation  Products often involve advanced technology, substantial added value, superior quality, and differentiated design  Internationalization typically via exporting and facilitated through network relationships  Heavy user of advanced IT and communications technologies
  • 12. International Business: Strategy, Management, and the New Realities  Typically a specialist, niche player  Distinctive product/offering  High degree of product/service quality  Personal attention to building customer relationships  Constant effort to upgrade foreign distributor effectiveness Distinctive Features of Born Global Marketing Strategy
  • 13. Globalization and Entrepreneurship International Business: Strategy, Management, and the New Realities The Stanford Technology Ventures Program Link: http://ecorner.stanford.edu/
  • 14. International Business: Strategy, Management, and the New Realities Foreign Market Entry Strategies of Focal Firms Cross-border business transactions can be grouped into three categories: 1. Trade: buying and selling of products 2. Contractual exchange of services or intangibles: buying and selling of services 3. Equity ownership in foreign operations: establishing foreign presence through direct investment
  • 16. International Business: Strategy, Management, and the New Realities The Nature of Cross-Border Transactions • Trade (export and import) implies a home- based operation where independent partners in the foreign market are engaged to provide local services. • Contractual exchanges include licensing, franchising, service contracting, turnkey operations, and project-based partnerships. • Equity ownership is accomplished through FDI which can be implemented through acquisition or greenfield investment.
  • 17. International Business: Strategy, Management, and the New Realities Examples of Focal Firms that are Involved in Contractual Exchanges Turnkey Contractor: Provide engineering, design, and architectural services in the construction of airports, hospitals, oil refineries, and other types of infrastructure. • These projects are typically awarded on the basis of open bidding by the sponsor. • Examples- European Channel Tunnel, the Three Gorges Dam in China, Delhi Metro Rail Ltd. and the Hong Kong Airport. • Build-own-transfer venture- an increasingly popular type of turnkey contract in the developing economies where contractors acquire an ownership in the facility for a period of time until it is turned over to the client.
  • 18. International Business: Strategy, Management, and the New Realities International Collaborative Venture • In an international collaborative venture (ICV), partners pool their resources and share the cost and risks of the new venture. • Through an ICV, a focal firm can exploit partner’s complementary technologies and expertise, avoid trade barriers, connect with customers abroad, and configure value chains more effectively. • ICV represents the middle ground between FDI and exporting; the firm externalizes value adding activities such as R&D or manufacturing.
  • 19. International Business: Strategy, Management, and the New Realities Two Types of International Collaborative Ventures • Joint Venture: the focal firm creates and jointly owns a new legal entity together with foreign partners • Project-Based Collaborative Venture: Focal firm collaborates with foreign partners on a project with a relatively narrow scope and a well-defined timetable, without creating a new legal entity. • Firms often form project-based ventures to share the cost and risks involved in knowledge-intensive R&D projects.
  • 20. International Business: Strategy, Management, and the New Realities An Example of Joint Venture • Advantages: share costs and risks, gain access to needed resources, gain economies of scale, and pursue long-term strategic goals. • Hitachi formed a joint venture with MasterCard to promote a smart card system (Multos) for banking and other applications. • BP partnered with the state-controlled Hindustan Petroleum Corporation in India. The new venture built a $3 billion refinery in Punjab and established a joint marketing business, including a network of retail service stations around India.
  • 21. International Business: Strategy, Management, and the New Realities An Example of Project-Based Collaboration Cisco Systems has expanded much of its operations through strategic alliances with key foreign players. • With Japan’s Fujitsu to jointly develop routers and switches that enable clients to build Internet protocol networks for advanced telecommunications. • In Italy, Cisco teamed with the telecommunications company Italtel to jointly develop network solutions for the convergence of voice, data, and video to meet growing global demands. • In China, Cisco formed an alliance with telecommunications company ZTE to tap the China and Asian markets.
  • 22. International Business: Strategy, Management, and the New Realities Distribution Channel Intermediary • Agents, distributors, manufacturers’ reps • Specialize in physical distribution and marketing service; connect the focal firm with the end user in the foreign market. • Assist the focal firm by providing logistics services such as warehousing and customer support. • Especially critical to exporters who do not establish foreign presence themselves. • Are based either in the home country or the host country.
  • 23. International Business: Strategy, Management, and the New Realities Export Management Company (EMC) • A more common intermediary in the U.S. is the Export Management Company which acts as an export agent on behalf of the focal firm. • An EMC finds export customers, negotiates terms of sale, and arranges for international shipping, typically for smaller exporters. • Most EMCs specialize in specific industries and geographic areas.
  • 24. International Business: Strategy, Management, and the New Realities Online Intermediaries • Disintermediation – bypassing traditional intermediaries – is made possible due to widespread use of the Internet to reach customers globally. • Examples include Amazon, Dell, eBay, and Alibaba – English-language portal based in China that specializes in business-to-business exchanges. • Traditional retailers such as Sony and Tesco have also established online presence. • One negative outcome of online retailing has been the ease with which unscrupulous marketers reach on suspecting him customers with fake products (e.g., fake pharmaceuticals).
  • 25. International Business: Strategy, Management, and the New Realities Facilitators in IB • Facilitators assist the focal firm with specialized services required in cross- border transactions. • Facilitators include: Banks, international trade lawyers, freight forwarders, customs brokers, consultants, ad agencies, and market researchers.