International Business: Rationale and Strategies

Rational for International Business (Session 2)

• Comparative advantage, natural resources, technology, and managerial know-how drive international business.

International Market Life Cycle

• Export strength builds initially.
• Foreign product starts to gain traction.
• Foreign production becomes competitive.
• Import competition arises in domestic markets.

Product Sharing

• Production gets distributed across different locations.
• This involves transfer of technology, standardization, centralized quality control, and custom hiring based on comparative advantage.

Internalization Theory

• A multinational firm serves markets across national boundaries.

Importance of Global Business

• Market saturation necessitates global expansion.
• Trade deficits, foreign competition, and the emergence of new markets promote global business.

Multinational Strengths (Third World)

• Experience with small-scale manufacturing
• Use of intermediate technology
• Access to local raw materials
• Semi-skilled labor availability
• Operation of job shop plants are key strengths.

Global Market

• The triad market comprises NAFTA, Japan, and Europe.

Globalization Market Forces

• Growing similarity of countries
• Falling tariff barriers
• Strategic role of tech propel globalization.

Competitive Advantage

• Cost effectiveness as cheaper materials come in from foreign countries
• Benefits of price relationships in coin
• Specialization

Tariffs

• Taxes are imposed on goods moved between countries.
• Tariffs exist as single column or general tariffs.

Global Marketing (21st Century)

• Competition intensifies
• The world is shrinking due to globalization.

Global Marketplace

• It involves a spatial network of markets across countries.
• Markets comprise homogenous and customized segments.
• Product standardization is uniform.
• Packaging is homogenous in brand architecture, with identical brand names.
• Synchronized product positioning ensures commonality in communication and well-coordinated sales campaigns.

Transnational Companies

• Transnational companies feature flexible management processes.
• They integrate diverse assets, resources, and people into globally operating units.

Global Market Drivers

• Market drivers include the needs of common and global customers.
• Global channels and transferable marketing also contribute.

Competitive Drivers

• These support companies in matching strategies appropriately.
• The existence of many competitors indicates a mature industry.

Technology Drivers

• Global expansion of multinationals lead to technology advancements.

Government Drivers

• Diplomatic trade, trade policies, unions, and common markets are key governmental influences.

International Monetary System

• The IMF is an organization with 188 countries for monetary cooperation.

IMF Objectives

• Promotion of international monetary cooperation
• Facilitation of expansion and growth
• Assistance in multilateral payment
• Promotion of exchange stability
• Development of confidence in the international economy
• Lowering disequilibrium

Factors Influencing Forex Rates

• Influencing factors are relative inflation, balance of payments, foreign exchange reserves, and economic growth.
• Social expenditure, money supply, interest rate policy, exchange rate control, and election/leadership changes also play a role.

Balance of Payments

• It summarizes all transactions between residents and foreigners in a specific period.

Arbitrage

• It involves buying assets in one market and selling an identical asset in another at a higher price.

Hedging

• It involves taking a new risk to offset an existing existing one, and taking cash flow to protect an asset.

Hedging Types

• Contractual hedging involves risk-sharing agreements.
• Forward market hedging uses future contracts and a dedicated fund for prolonged payments.
• Money market hedging involves borrowing money in one currency and investing in another country.

Money Management Risks

• Political, exchange, and translation risks are associated with money management.

Macro Factors

• Macro factors are population, income, and structure of consumption.
• Economic system types (capitalistic, communist, democratic, mixed)
• Production indicators (infrastructure, minerals, farm produce, crude oil)
• Prices like consumer price, bulk price, and international price influence the macro environment.
• Finance aspects are inflation rate, foreign exchange rates along with industrial production and mutual economic dependence.

Micro Factors

• Existing, latent, and incipient demand.
• Breakthrough Diet products
• Consideration should be given to being competitive and improved.

Competitive Advantage

• Open entries and strong leaders in the market

Cultural Environment

• The cultural environment is learned, acquired, iterated, and shared.

Political Environment

• Focus on the structure of the government; government policies and regulations.
• Incentives and government programs, and investment regulations.

Political Interventions

• Political interventions can be: expropriation, domestication, nationalization, or other forms.
• Also, exchange control, import/market/tax restrictions, excessive taxes, and price controls.
• Labor restrictions and immigration policies can serve as political interventions.

Political Risk Assessment

• Grand Tour (Team Investigation)
• Old Hand approach utilizes in-house experts.
• Delphi Technique involves sharing opinions independently by a group, rating political factors and conflicts
• There are quantitative methods.

Types of Market Agreements

• Free Trade Area
• Customs Union [Tariffs]
• Common Market [Tariffs and Factors of Production CLT]
• Economic Union
• Political Union

International Marketing

• Legal Environment is important

Intellectual Property

• Patents, copyright, trademark, and trade process.

Legal Considerations

• Anti-corruption laws under international agreements
• WTO arbitration
• Special courts for international trade disputes.
• Local legal systems and laws
• Business practices, including green marketing environment, civil legal systems, and commercial laws.
• Jurisdiction, arbitration, and enforcement.

Common Law vs Code Law

• Common law is based on precedents and practices.
• Code law is based on detailed rules.

Host Country Laws

• They include tariffs, antidumping laws, legal incentives, export/import licensing.
• Also foreign investment regulation, restrictive trading laws, and advertising laws.

International Market Research Methods

• Concept test
• Channel survey and acceptance
• Product test
• Market test
• Sales forecasting study
• Test market
• Follow up survey consumers, channels
• Market tracking survey
• Benchmarking

Types of Marketing Research

• Commercial Surveys
• Periodic surveys
• Panel survey
• Retail panels, consumer panels
• Shared surveys
• Audits (stores audit, product audit, retail)
• Experimentation (control vs. non-control group)
• Blind fold surveys
• Surveys based on product, brand, and pricing packaging.

Forecasting Methods

• Benchmarking
• Statistical forecasting
• Time series data, spatial statistics, variance analysis, estimate, seasonal factors
• Sales force composite
• Expert consensus
• Periodic forecasting using electronic machines for moving averages

Sampling Techniques

• Simple Random Sampling
• Multi Stage Sampling
• Snowballing Technique
• Cluster Sampling
• Stratified Sampling
• Purposive Sampling
• Quota Sampling
• Probability Proportion Sampling

Data Analysis Methods

• Descriptive analysis
• Correlation (single - multiple)
• Regression method
• Discriminant function analysis
• Factor analysis
• Cluster analysis
• Conjoint analysis
• Reliability test of the data

Delphi Market Research Technique

• No face-to-face participation is required.
• It uses a series of questionnaires with information summaries and feedback

Emerging Markets

• Emerging Markets and Economic Development in the Less Developed Countries

Stages of Economic Development

• Walt Rostow Model
• Traditional society: Unorganized
• Preconditions for take-off: Advances in R&D, Social and Business infrastructure
• The take-Off: Growth In industrial production, employment, agriculture, technology, innovation
• Drive to maturity: International expansion, sustainable growth in export of goods and services
• Mass consumption: Increase in purchasing power, consumption, per capita income

Newly Industrialized Countries

• Focus on political stability, industrial/economic/legal reforms and outward orientation
• Factors of production
• Economic incentives on investment
• Privatization, regional trade agreements, and technology development are key.

International Partnering

• It involves Turkey projects and process consultancy.
• Also, consortium production and marketing, cooperative ventures, and strategic alliances.
• There are buyback agreements, corporate chains, custom hiring, and tech diffusion, and green marketing.

Big Emerging Markets

• Big markets are physically large with growing populations.
• They represent wide range of products
• Feature a strong growth rate, high participation, and regional development drivers.
• Has lead managers in neighborhood and regional trade, contemporary infrastructure, and liberal policies.

Geographic Spread

• Latin America (Mexico, Brazil)
• Eastern Europe, Baltic States
• Asia Pacific, India and China
• Far East, Africa, and Islands

Emerging Sectors

• Consists of green products, telecommunication, and renewable energy.
• It consists of health, diet, infrastructure, information tech, ecotourism, process insurance.
• Focus on credit management, and retailing.