Chapter 1 intro to international business
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International business involves commercial transactions between two or more countries. It is influenced by various physical, social, economic and political factors in different country environments. There are several modes of conducting international operations including importing/exporting, licensing, direct investment etc. Companies globalize their operations to reduce costs, improve supply chains, access new markets and resources, and learn from foreign markets. However, globalization also faces challenges such as threats to national sovereignty and growing inequality.
Chapter 1 intro to international business
- 1. CH1- What is International Business?? International business consists of all commercial transactions (eg : sales, investments, transportation ) between two or more countries. Private companies – for profit Governments – profit or political reasons
- 2. EXTERNAL INFLUENCES PHYSICAL AND SOCIETAL FACTORS •Political policies and legal practices •Values, attitudes, and beliefs •Economic forces •Geographical influences COMPETITIVE ENVIRONMENT •Major advantage in price,marketing,innovation or other factors •Number and relative capabilities of competitors •Competitive differences by country OPERATIONS OBJECTIVES •Sales expansion •Resource acquisition •Diversification •Competitive risk minimization STRATEGY MEANS Modes •Importing & exporting •Tourism & transportation •Licensing & franchising •Turnkey operations •Management contracts •Direct & portfolio investment Functions •Marketing •Production •Accounting •Finance •Human Resources Overlaying Tactical Alternatives •Choice of countries •Organization & control mechanisms •Degree of integration among countries’ operations
- 3. 1. Economic- International trade and investment 2. Technological – Internet connectivity 3. Personal contact – International trade & tourism, international telephone traffic & personal transfers of funds internationally 4. Political – Participation in international organizations & government monetary transfers
- 4. Factors in Increased Globalization 1. Increased in & expansion of technology 2. Liberalization of cross-border trade & resource movements 3. Development of services that support international business 4. Growing consumer pressures 5. Increased global competition 6. Changing political situations 7. Expanded cross-national cooperation
- 5. What wrong with Globalization ???? 1. Threats to national sovereignty 2. Economic growth & environment stress 3. Growing income inequality
- 6. Expanding sales Acquiring resources
- 7. Modes of Operations in IB EXTERNAL INFLUENCES OPERATIONS PHYSICAL & SOCIETAL FACTORS •Political policies & legal practices •Values, attitudes & beliefs •Economic forces •Geographical influences COMPETITIVE ENVIRONMENT •Major advantage in price, marketing, innovation or other factors •Number & relative capabilities of competitors •Competitive differences by country OBJECTIVES •Sales expansion •Resource acquisition •Diversification •Competitive risk minimization STRATEGY MEANS Modes •Importing & exporting •Tourism & transportation •Licensing & franchising •Turnkey operations •Management contracts •Direct & portfolio investment Functions •Marketing •Production •Accounting •Finance •Human Resources Overlaying Tactical Alternatives •Choice of countries •Organization & control mechanisms •Degree of integration among countries’ operations
- 8. 1. Physical & social factors - Physical ( eg: geography) - Social ( eg: politics, law, culture, economy) 2. Competitive factors - Number & strengths of a company’s suppliers, customers and rival firms)
- 9. International Strategy Evolution Patterns of international expansion : Strategy for heavy international commitments usually evolve gradually from •Passive to active expansion •External to internal handling of operations •Deepening mode of commitment •Geographical diversification Leapfrogging of Expansion
- 10. Usual Pattern of Internationalization
- 11. Global Operations Operations Strategy in a Global Environment
- 12. Reasons of Globalize Tangible Reasons Intangible Reasons Reasons to Globalize 1. Reduce costs (labor, taxes, tariffs, etc) 2. Improve supply chain 3. Provide better goods & services 4. Understand markets 5. Learn to improve operations 6. Attract & retain global talent
- 13. Reduce Costs Foreign locations with lower wage rates can lower direct & indirect coats World Trade Organization (WTO) North American Free Trade Agreement (NAFTA) APEC, SEATO, MERCOSUR European Union (EU)
- 14. Improve the Supply Chain Locating facilities closer to unique resources •Auto design to California •Athletic shoe production to China •Perfume manufacturing in France
- 15. Culture and Ethical Issues •Cultures can be quite different •Attitudes can be quite different towards Punctuality Lunch breaks Environment Intellectual property Thievery Bribery Child labor
- 16. You May Wish To Consider National literacy rate Rate of innovation Rate of technology change Number of skilled workers Political stability Product liability laws Export restrictions Variations in language Work ethic Tax rates inflation Availability of raw materials Interest rates Population Number of miles of highway Phone system
- 17. Match Product & Country •Braun Household Appliances •Firestone Tires •Godiva Chocolate •Haagen-Dazs Ice Cream •Jaguar Autos •MGM Movies •Lamborghini Autos •Alpo Pet Foods 1. Great Britain 2. Germany 3. Japan 4. United States 5. Switzerland
- 18. Marketing Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Leverage Cost of capital Working capital Receivables Payables Finance control Lines of credit Production/Operations Decisions Sample Options Product Quality Process Location Layout Human resource Supply chain Inventory Schedule maintenance Customized or standardized Define customer expectations & how to achieve them Facility size, technology, capacity Near supplier or near customer Work cells or assembly line Specialized or enriched jobs Single or multiple supplier When to reorder, how much to keep on hand Stable or fluctuating production rate Repair as required or preventive maintenance
- 19. Activity Mapping southwest Airlines Courteous but Limited Passenger Service Competitive Advantage : Low Cost Short Haul, Point to point Routes, Often to Secondary Airports Frequent, Reliable Schedules Standardized Fleet of Boeing 737 Aircraft Automated ticketing machines Lean, Productive Employees Empowered employees High employees compensation Hire for attitude, than train 20 minute gate turnarounds High Aircraft Utilization No baggage transfers No meals (peanuts) Lower gate costs at secondary airport High number of flight reduces employees idle time between flights Saturate a city with flights, lowering administrative costs ( advertising, HR, etc) per passenger For that city Pilot training required on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Maintenance personnel trained on only one type of aircraft Flexible employees & standard planes aid scheduling Flexible union contracts Excellent supplier relation with Boeing has aided financing High level of stock ownership No seat assignments
- 20. Four International Operations Strategies Global Strategy •Standardized product •Economies of scale •Cross-cultural learning Examples •Texas Instruments •Caterpillar •Otis Elevator International Strategy •Import-export or license existing product Examples •U.S Steel •Harley Davidson Transnational Strategy •Move material, people, ideas across national boundaries •Economies of scale •Cross-cultural learning Examples Coca-Cola Nestle Multidomestic Strategy •Use existing domestic model globally •Franchise, joint ventures, subsidiaries Example •Heinz •The Body Shop •McDonald’s High Low Cost Reduction Considerations Low High Local Responsiveness Considerations (Quick Response and/or Differentiations)