This document outlines key concepts in managing international business operations. It defines globalization and the forces driving it, as well as the implications for managers in political, economic, socio-cultural and technological environments. Methods for foreign market entry are discussed, including exporting, licensing, joint ventures, strategic alliances and wholly owned subsidiaries. International business strategies like international, global, multidomestic and transnational are also defined. The roles of expatriate managers and reasons for expatriate failure are summarized. Trends in increasingly global business operations are noted.

1. Chapter 4: Managing in the
Global Economy
Raja Nerina Raja Yusof

2. Learning Outcomes
• 4.1 Define globalization and explain the forces that drive
globalization.
• 4.2 Discuss the implications of globalization to managers from the
aspect of political-legal, economic, technological and social cultural
environments.
• 4.3 Define a multinational company and identify optional methods
for entering foreign markets.
• 4.4 Discuss the advantages and disadvantages of different entry
methods for a multinational company.
• 4.5 Explain the four international business strategies for
international businesses or multinational companies.

3. Learning Outcomes
• 4.6 Define expatriate managers and explain how its role differs from
a domestic manager.
• 4.7 Identify the main characteristics of a successful expatriate
manager.
• 4.8 Define expatriate failure and discuss the top reasons for
expatriate failures.
• 4.9 Discuss the trends of international business and how managers
may be impacted by these trends.

4. The International Environment
• Globalization
• Defined as the shift toward a more integrated and interdependent
world economy.
• What happens in one country will most probably impact other
countries with whom it has a close relationship.
• For example, European Union (EU) was heavily hit by the Eurozone
Crisis in 2008, the United States (US) also felt the heat because it
was a major trading partner of EU.

5. Drivers of Globalization
1. Reduced trade barriers and investment restrictions
• Establishment of WTO in 1995 has sped up reduction of trade barriers
• Establishment of regional economic integrations – ASEAN, APEC, etc.
2. Development of Technology
• The Internet and World Wide Web
• Modern transportation technology – airplanes and shipping vessels
3. Convergence of global tastes and preferences
• Global brands becoming household names
• i.e., McDonald’s is in 119 countries globally

6. Implications of Globalization
• Political and Legal
o Changes of political systems - i.e. totalitarianism to democracy
o Managers need to understand the changes in policy
• Economic
o More countries going for open economy – Laos, Vietnam, Russia, etc.
o Managers need to embrace changes that come with an open economy
• Socio-cultural
o Convergence of taste and preferences of global consumers
o Managers need to monitor changes in socio-cultural trends
• Technological
o Dynamic inventions from international collaborations
o Managers need to be updated on current technological knowledge

7. Multinational corporations (MNCs)
• Defined as companies which undertake productive activities outside
the country in which they are incorporated and establish presence in
more than two countries.
• Have also been known as MNEs (multinational enterprises) or TNCs
(transnational corporations).

8. Entry Modes of International Business
There are many ways of penetrating a new market, among them are:
1. Exporting
2. Licensing
3. Joint venture
4. Strategic alliance
5. Wholly-owned subsidiary

9. Exporting
• products/raw materials that are produced in the home country are
transported to a host country to be sold
• the lowest risk among the entry methods
• exporters also can realize experience and location economies by mass
producing products in one location for the purpose of exporting
• transportation costs such as shipping and air cargo can be very
expensive and present the risk of accidents

10. Licensing
• arrangement whereby a licensor grants the rights to intangible
property to another entity (the licensee) for a specified period, and in
return, the licensor receives a royalty fee from the licensee
• a specialized form of licensing is franchising
• a very quick way of expanding and marketing your business globally
• however, licensors might have a tough time keeping track of the
quality, performance and marketing of their licensed products in the
host countries
• risks their products to be imitated or copied by their own licensees
which in the end will create competitors to them in the future

11. Joint venture
• when two or more companies decided to cooperate with each other
to produce or provide certain services, with each partner contributing
a certain portion of capital to the agreement.
• a joint venture is usually the entry method by which companies use
to penetrate into a foreign country using foreign direct investment
(FDI).
• joint ventures with local companies help foreign companies to learn
and adapt to the local laws and cultural requirements.
• However, when the partners’ objectives are no longer similar, there
tend to be conflicts and battles between the parties involved
regarding ownership and control of resources of the joint venture.

12. Strategic alliance
• any cooperative agreements between potential or actual competitors
• Includes equity-based and non-equity based cooperative agreements
• Examples such as joint ventures (equity based) and licensing,
marketing alliances, R&D contracts (non-equity based), etc.

13. Exhibit 4.1 Scope of Strategic Alliance
Choice of
Entry Mode
Non-Equity
Mode
Exports
Contractual
Agreements
Equity
Mode
Joint
ventures
Wholly Own
Subsidiary
Adapted from Hill, Wee & Udayasankar (2012). International Business: an Asian Perspective. McGraw-Hill: New
York.

14. Wholly-Owned Subsidiary
• when a foreign firm invests into a subsidiary in a host country without
any partners, which means that it owns 100 percent of the subsidiary.
• suitable for companies that need full control of their business in the
foreign market.
• allows the company to retain the full profit without having to share it
with partners.
• however, this means that costs, risks or losses are also born fully by
the company.
• can be applied using either greenfield investment or acquisition.

15. International Business Strategies
Global
Strategy
Transnational
Strategy
International
Strategy
Multidomestic
strategy
Pressures
for Cost
Reduction
Pressures for Local Responsiveness
High
HighLow

16. International Business Strategies
1. International Strategy
2. Global Strategy
3. Multidomestic Strategy
4. Transnational Strategy

17. International Strategy
• a company takes the products produced in the home country and sell
them internationally with minimal local customization
• company may centralize all research and development (R&D)
functions in the home country
• however, the company may duplicate certain functions such as
manufacturing and marketing in each of its host countries

18. Global Strategy
• company is concerned mostly on the reduction of costs, and less on
localizing or adapting to the host country’s culture
• focuses on achieving global economies of scale in its operations
• decision making is left mainly to home country since subsidiaries role
are mainly to implement strategies developed by the home country
• examples of industries – automobiles, semiconductors, electronic
products, etc.

19. Multidomestic Strategy
• Opposite of global strategy
• company’s foreign subsidiaries are independent from home country
• adapting to the local culture and exploiting opportunities in the host
country
• home country will give subsidiary more freedom to implement their
own way of doing business and adopts a decentralized approach of
managing its assets and capabilities
• examples of industry – retailing, consumer packaged goods, etc.

20. Transnational Strategy
• an ideal strategy that tries to balance both the needs to reduce costs
as well as to localize products to the home country’s culture
• its subsidiaries rely more on each other in terms of knowledge and
resources
• different subsidiaries have their own role in a specialized capacity,
and thus in the end they need to cooperate closely with each other to
produce the products and services

21. Expatriate Managers
• Expatriates are citizens of one country who are working in another
country; usually managerial level employees
• Need to have cultural intelligence - comprehension or understanding
that cultures among countries differ and that they have impacts on
the way business is performed and operated in the countries involved
• Need to avoid ethnocentrism - the tendency to believe in the inherent
superiority of their own culture compared to other cultures

22. Characteristics of Successful Expatriate
Managers
Flexibility
Open-
mindedness
Curiosity
Cultural
sensitivity
Adventurous

23. Expatriate Failure
• defined as premature return of an expatriate from a foreign
assignment.
• Top reasons:
1. Inability of spouse to adjust.
2. Manager’s inability to adjust.
3. Other family problems.
4. Manager’s personal or emotional maturity.
5. Inability to cope with larger overseas responsibilities.
6. Difficulties with new environment.
7. Lack of technical competence.

24. Trends in International Business
• Trend for businesses to venture overseas is increasing – aggressively
search for market and resources
• MNCs from developed countries going into emerging countries –
previously to China but now to rising countries such as Vietnam and
Cambodia
• Interdependence of countries - financial crises, natural disasters,
political turmoil and wars in one country can impact international
business operations of other countries