INTERNTIONAL BUSINESS MANAGEMENT.pptx

INTERNTIONAL BUSINESS MANAGEMENT B B A YE A R 1 S E C ON D SE M E S T E R L E C T UR E N OT E S WHAT IS INTERNATIONAL BUSINESS • International Business: all commercial transactions between parties in two or more countries. • These transactions include the transfer of goods, services, technology, a...

INTERNTIONAL BUSINESS MANAGEMENT B B A YE A R 1 S E C ON D SE M E S T E R L E C T UR E N OT E S WHAT IS INTERNATIONAL BUSINESS • International Business: all commercial transactions between parties in two or more countries. • These transactions include the transfer of goods, services, technology, and capital to other countries, and involves exports and imports. • International Business Management : • The management of business operations for an organization that conducts business in more than one country. • International management requires knowledge and skills more than normal business expertise, such as familiarity with the business regulations of the nations in which the organization operates, understanding of local customs and laws. Multinational Enterprise: •A MNE has a worldwide approach to foreign markets and production and an integrated global philosophy encompassing both domestic and international markets. International Management • It is defined as a process of accomplishing the global objectives of a firm by • Effectively coordinating the procurement, allocation, and utilization of the human, financial, intellectual, and physical resources of the firm within and across national boundaries. •Effectively charting the path toward the desired organizational goals by navigating the firm through a global environment that is not only dynamic but often very hostile to the firm’s very survival International Trade: When a firm exports goods or services to consumers in another country. Foreign Direct Investment: When a firm invests resources in business THE INTERNATIONAL BUSINESS • Domestic business: a business that acquires all its resources and sells its products or services within a single country. • International business: a business that is primarily based in a single country but acquires some meaningful share of its resources or revenues (or both) from other countries. •  The international business is directly linked to globalisation FACTORS CAUSING COST FORCES OF GLOBALIZATION GLOBALISATION Technology and Removal of Trade FORCES OF  Global scale economies Barriers GLOBALISATION  Sourcing efficiencies • Cost  Factor of production • Market differences • Competitive  High product development • Technological costs POLITICAL AND GOVERNMENT • Political  Rapidly changing MARKET FORCES OF ISSUES technology GLOBALISATION  Common customer needs  Global customers  Global market channels  Transferable marketing Unrestrictive trade and investment policies Compatible technical standards Common marketing regulations Reduction of barriers to trade and • COMPETITIVE FORCES • High two-way trade / crossborder FDI • Global competitors • Interdependence among countries •  Policy Link •  Trade/Investment Link •  Management Link TECHNOLOGICAL FORCES  Advances in computers and communications technology  Internet and network computing EVOLUTION OF INTERNATIONAL BUSINESS 🞇 First phase of globalization in 1870 🞇 Ended with World war I driven by Industrial Revolution 🞇 ‘A vast game of beggar-my-neighbour’ 🞇 Felt need for International Cooperation IMF IBRD EVOLUTION OF INTERNATIONAL BUSINESS 🞇 Prolonged recession before world war II 🞇 GATT by 23 countries 🞇 GATT WTO 🞇 International trade 🞇 International Marketing International Marketing International Business • • • • • Sta Domestic ges International Multinational Global Transnational Influence Social and Cultural Technological Economic Political Domestic Business International Business Approaches Influence • Ethnocentric Export • Polycentric Direct Investment • Regiocentric Licensing • Geocentric Franchising Turnkey Projects Joint Venture Mergers and Acquisition INTERNATIONAL BUSINESS Go • alsMarket Share • High Profit • Risk Avoidance • Resource Acquisition • Expand Business Capacities Advant • Low Price ages • Variety of Goods • High Living Standards • Economic Growth • Competitive Advantages Probl • Political risk ems • Foreign Debt • Exchange Instability • High Cost STAGES OF INTERNATIONALIZATION 🞇 Domestic Company 🞇 Limits operation, Vision, Mission to National political boundaries 🞇 International Company 🞇 Focus on domestic practices but extend wings to foreign countries (Mere export-import) 🞇 Multinational Company 🞇 Different strategy for different market 🞇 Global Company 🞇 Either produce in one country and market globally or produce globally and market domestically 🞇 Transnational Company 🞇 Produces, markets, invests and operates across the world APPROACHES TO INTL. BUSINESS-Reading Assignment Ethnocentric Domestic companies view foreign markets as an extension to domestic markets Regiocentric Subsidiaries consider regional environment for policy/strategy Polycentric Companies establish foreign subsidiaries and empowers its executives Geocentric Companies view the entire world as a single unit GOALS OF INTERNATIONAL BUSINESS 🞇 Expanding production capacity 🞇 Severe competition in home country 🞇 Limited home market 🞇 Political stability vs. instability ADVANTAGES OF INTERNATIONAL BUSINESS High living standards 🞇 Increased socio-economic welfare 🞇 Wider market 🞇 Reduced effects of business cycles 🞇 Reduced risks 🞇 Availability of technology and human resources 🞇 High cost of transportation 🞇 Nearness to raw material 🞇 Liberalization and Globalization 🞇 To increase market share 🞇 Higher rate of economic growth 🞇 Tariffs and import quotas 🞇 Large-scale economies 🞇 Potential Untapped markets ADVANTAGES OF INTL BUSINESS 🞇 High living standards 🞇 Increased socio-economic welfare 🞇 Wider market 🞇 Reduced effects of business cycles 🞇 Reduced risks 🞇 Large-scale economies 🞇 Potential Untapped markets Why study international business? 1. Increasingly, companies are sourcing their human resource requirement globally, Sony corporation. 2. Most of the products we consume everyday are supplied to us by global businesses. We are sure of quality if the products bear such names as Nike, Toyota, Colgate, Gap T- shirt, and the like. To know these brands is to understand international business 3. Managing an international business is major complex than running a domestic business. Global business involves production of goods in facilities located in different countries with resources, human and physical sourced from all parts of the globe and marketing goods and services to users across the globe. 4. The major impact of international business in this area has been impetus on governments to open up their borders to international trade and investment, standardize their systems and procedures, and adopt internationally acceptable values and attitudes. 5. International business executives play a powerful role in determining the relative competitiveness of various countries in the global arena. Advantages of international business: •  Product FlexibilityIf you have products that don’t sell well in your local or regional market, you may find greater demand abroad. Less Competition • Company may have come to view competition as a local phenomenon. You can find international markets that have less competition and move quickly to capture market share. Protection from National Trends and Events When you market to several countries, you are not as vulnerable to events in any one country.  Learning New Methods • When you do business in another country, you learn new ways of doing things. Economic benefits of International Trade FACTORS CAUSING GLOBALIZATION • Trade Liberalization • Technology Stages of Globalization • • The first stage is the arm’s length service activity of essentially domestic company which moves into new markets overseas by linking up with local dealers and distributors. • • In stage two, the company takes over these activities on its own. • • In the next stage, the domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets. • • In stage four, the company moves to a full insider position in these markets, supported by a complete business system including R & D and engineering. • • In the fifth stage, the company moves toward a genuinely global mode of operation. L I B E R A L I Z AT I O N : In general, Liberalization refers to relaxation(s) of government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation. Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization. Although economic liberalization is often associated with privatization, the two can be quite separate processes. Privatization: • Privatization means transfer of ownership and/or management of an enterprise from the public sector to the private sector. It also means the withdrawal of the State from an industry or sector, partially or fully. Another dimension of privatization is opening up of an industry that has been reserved for the public sector to the private sector. WAYS OF PRIVATIZATION There are different ways of achieving privatization.• • One of the important ways of privatization is divestiture, or privatization of ownership, through the sale of equity.• Another way of privatization is contracting. • Another option for the government is to withdraw from the provision of certain goods and services leaving them wholly or partly to the private sector. • • Privatization may also take the form of privatization of management, using leases and management contracts The Important Ways of Privatization • 1. Divestiture • 2. Denationalization • 3. Contracting4. Franchising • 5. Government withdrawing • 6. Privatization of management • 7. Liquidation BENEFITS OF PRIVATIZATION 1.Reduces the fiscal burden 2.Enables the government to mop up funds 3.Result in better management of the enterprises 4.Encourage entrepreneurship COUNTRY ATTRACTIVENESS • : • It is a multidisciplinary concept at the crossroads of development economics, financial economics, comparative law and political science: it aims at tracking and contrasting the relative appeal of different territories and jurisdictions competing for “scarce” investment inflows, by scoring them quantitatively and qualitatively across ad hoc series of variables such as GDP growth, tax rates, capital repatriation International business environment • The environment of international business is regarded as the sum total of all the external forces working upon the firm as it goes about its affairs in foreign and domestic markets. The environment can be classified in terms of domestic, foreign, and international spheres of impact. 1. The domestic environment – is familiar to managers and consists of those uncontrollable external forces that affect the firm in its home market. 2. The foreign environment - can be taken as those factors which operate in those other countries within which the MNC operates. 3. The international environment - is conceived as the interaction between domestic and foreign factors and indeed they cover a wide spectrum of forces Discussion • Define the following: Democracy, Totalitarian • What are the benefits of democracy •What is political risk and what are the classes of political risks •How do you Manage political risks • Systems of law: • There are four basic legal systems prevailing around the world. • 1. Islamic law: derived from the interpretation of the Quran and practiced in countries where Muslims are in majority. Ex: Saudi Arabia, Pakistan, Iran. • 2. Common law: derived from English law, is prevalent in countries, which were under British influence. Ex: US, Canada, England, Australia. • 3. Civil law or code law: derived from Roman law, practiced in Germany, Japan, France, and non - Marxist and non - Islamic countries. Ex: Germany, France, Japan. • 4. Marxist legal system: This has takers in communist countries. Ex: China, Vietnam, North Korea and Cuba • I) Classification on the basis of income: • 1. Developing countries: share a set of common and well – defined goals. Ex: India, China. • 2. Developed countries: Those are highly industrialized, highly efficient. Ex: Canada, Japan, Australia, US. • II) Countries classified by economic system: • 1. Market economy: production of goods and services is not planned by individuals • 2. Command economy: decisions relating to all economic activities – what to produce, how to produce. • 3. Mixed economy: it includes both. Ex: India. • I) 1. 2. 3. 4. 5. 6. • Economic nario: Rates of growth Inflation Savings and investment Fiscal stability Balance of payments Financial system I) Economic policies: 1. Industrial policy 2. Monetary policy 3. Fiscal policy • Trade policy CULTURAL ENVIRONMENT •According to Elbert W Steward and James A Glynn “Culture consists the thought and behavioral patterns that members of a society learn through language and other forms of symbolic interaction – their customs, habits, beliefs and values, the common viewpoints that bind them together as a social entity. Levels of culture: National culture: Business culture: Occupational and organizational cultures: Mechanistic and organic cultures: Authoritarian and participative cultures: Dominant and subcultures: • Elements of culture Language Customs and manners Attitudes Aesthetics Religion Education Supernatural beliefs IMPLICATIONS FOR INTERNATIONAL BUSINESS Multiculturalism: • Managing multiculturalism is essential for every international firm. • Spread cross-cultural literacy • Compatibility between strategy and culture • Culture and competitive advantage • Managing diversity TECHNOLOGICAL ENVIRONMENT Impact of Technology Technology at plant level - Technology and organization structure - Resistance to change - Problems for importing technology -Inability to absorb technology - T.Q.M. / B.P.R.E. / F.M.S. -Fear of risk • Global evidence suggest that there are great advantage from R&D activity in the long run. In Finland total expenditure on R&D as proportion of GDP rose from 1.5% in 1985 to 3.2% in 2001. During this period ,its export/GDP ratio doubled to 39%, the share of high tech exports in total exports rose from 6% in 1990 to 24% in labour productivity 2001 rose from 40% to 100% Main problems and issues facing technology environment and policy • Heavy dominance of government in technology dept. • Condition of stagnation in technology research • Low rate of technology commercialiation • Weak intellectual regime • Limited import of technology due to restriction • Inferior proposition of Indian partner • Import of outdated and inappropiate technology • Little emphasis on technology assimilation and absorption PROTECTIONISM AND TRADE LIBERISATION Trade Liberisation- The removal of or reduction in the trade practices that thwart free flow of goods and services from one nation to another. It includes dismantling of tariff (such as duties, surcharges, and export subsidies) as well as nontariff barriers (such as licensing regulations, quotas, and arbitrary standards). TRADE LIBERALIZATION Nature of international strategic management ⚫ Strategic management is concerned with the process of formulating, implementing and evaluating strategies to achieve a firm’s objectives ⚫ Geographic differences, cultural and national differences and variations in business practices and different norms makes it difficult 55 • INTERNATIONAL STRATEGIC MANAGEMENT Framework for international strategic management ⚫ Five phase of planning and analysis 1. Recognizing antecedents 2. External and internal analysis 3. Strategic analysis and choice 4. Leveraging competitive advantage and process 5. Implementation and integration 57 Area of strategic compulsions ⚫ Orientation ⚫ Emerging ⚫ Cut of globalization e-commerce and culture throat competition ⚫ Diversification ⚫ Active ⚫ Motive pressure group for CSR Corporate social responsibility and ethics 58 Standardization Vs Differentiation ⚫ According to Levitt, represents local marketing Vs global marketing and focus on the central question of whether a standardized (global) or a differentiated (local), country specific marketing approach 1. Regional perspective 2. Marketing process perspective 3. Marketing components/marketing mix perspective 59 Strategic Options ⚫ Global strategy ⚫ International strategy ⚫ Trans-national strategy ⚫ Multi-domestic strategy 60 Factors affecting strategic options ⚫ External constraints ⚫ Intra-organizational forces and managerial power- relations ⚫ Values and preferences and managerial attitudes risk ⚫ Impact ⚫ Time of past strategy constraints in choice of strategy ⚫ Information constraints ⚫ Competitors’ reaction 61 Global portfolio investment ⚫ Global portfolio investment means the purchase of stocks, bonds and money market instrument by foreigners for the purpose of realizing financial return which does not result in foreign management, ownership or control ⚫ Portfolio investment is part of the capital account on the balance of payment statistics 62 Factors affecting Global portfolio investment ⚫ Tax rates on interest and dividends ⚫ Interest rates ⚫ Exchange rates 63 Problems of Global portfolio investment ⚫ Unfavorable ⚫ Frictions exchange rate movement in international financial market ⚫ Manipulation ⚫ Unequal of security prices access to information 64 Global Entry Strategies ⚫ Exporting as an entry strategies 1. Indirect exporting 2. Direct exporting ⚫Manufacturing strategies without FDI 1.Licensing 2. Franchising 3. Contract manufacture 4. Turnkey projects 5. Management contracts 65 Organizational structure ⚫ An organizational structure defines how activities such as task allocation, coordination and supervision are directed towards the achievement of organizational aims. 66 Designing organization the analysis of following aspects: External environment Overall aims and purpose of the enterprise Objectives Activities Decisions Relationships Organization structure Job structure Organization climate Management style Human resource ⚫ Includes 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 67 structure Types of organization structure ⚫ International ⚫ Functional ⚫ Product division’s structure division’s structure division structure ⚫ Geographic (Area) structure ⚫ Matrix division structure ⚫ Mixed structure 68 Methods of control system ⚫ Personal controls ⚫ Bureaucratic ⚫ Output controls controls ⚫ Cultural controls Approaches tocontrol ⚫ Market ⚫ Rules approach approach ⚫ Corporate culture approach 69 Process of performance measurement ⚫ Establishing ⚫ Measure ⚫ Analyze standards of performance actual performance performance and compare it with standards ⚫ Construct ⚫ Review and implement an action plan and revise standards 70 Performance evaluation system ⚫ Defined as “Periodic review of operations to ensure that the objectives of the enterprises are being accomplished” ⚫ Various performance indicators: 1. Financial measures a, Return on investment (ROI) b, Budget as a success indicator 2. Non Financial measures 71 Types of performance evaluation system ⚫ Budget programming ⚫ Management ⚫ PERT Audit (Program evaluation review technique) ⚫ Management information system 72 Organization design ⚫ Organizational design is a step-by-step methodology which identifies dysfunctional aspects of work flow, procedures, structures and systems, realigns them to fit current business realities/goals. The following can be achieved: ⚫ ⚫ Excellent customer service Increased profitability Reduced operating costs ⚫ Improved efficiency and cycle time ⚫ A culture of committed and engaged employees ⚫ A clear strategy for managing and growing your business 73 74 Five Approaches to Organizational Design Five common approaches – 1. Functional approaches 2. Divisional approaches 3. Matrix approaches 4. Team approaches 5. Networking approaches 75 CONTROLLING OF INTERNATIONAL BUSINESS These three key levels of control are as follows: ⚫ Strategic control ⚫ Organizational ⚫ Operational control control 76 Organizational control Three types of organizational control systems are: 1. Responsibility Centre Control 2. Generic Organizational Control 3. Planning Process Control 77 Systems Control systems in international business are established through four basic steps: 1. Set Control standards for performance 2. Measure actual performance 3. Compare performance against standards 4. Respond to deviations 78 Essential Controlling Techniques ⚫ Some of controlling techniques as below: 1. Accounting systems 2. Procedures 3. Performance ratios 79 Quality dimensions ⚫ Quality consist of eight dimensions: 1. Performance 2. Features 3. Reliability 4. Conformance 5. Durability 6. Serviceability 7. Aesthetics 8. Perceived quality 80 ⚫ PERFORMANCE OF GLOBAL BUSINESS Global Business Performance is a flexible, web based solution that provides the key components to support global decision making. ⚫ It offers the integration and management of multiple, cross-country data sources including POS, retailer direct, syndicated and consumer data. ⚫ Global Business Performance identifies trends and opportunities and delivers sales and performance insights across regions, countries and categories, only days after data is available. 81 CONFLICT MANAGEMENT AND ETHICS IN INTERNATIONAL BUSINESS MANAGEMENT 3  international busines sThe important problem in international business include: 1. Political factors 2. Huge foreign indebtedness 3. Exchange instability 4. Entry requirements 5. Tariffs, quotas and Trade barriers 6. Corruption 7. Bureaucratic practices of government 8. Technological pirating 9. Quality maintenance 10. High cost Conflict in Organizations 4  Organizational conflict, or workplace conflict, is a state of discord caused by the actual or perceived opposition of needs, values and interests between people working together.   Opposition Incompatible behavior Antagonistic 5 International Busines s  Conflicts arise between the foreign companies and host country and foreign companies and domestic companies  Global companies also have the conflicts with the home country 6  Conflicts arises mostly due to the conflicts in interests of global companies with those of: 1. Host country’s companies 2. Host country’s government 3. Host country’s customers 4. Host country’s society 5. Host country’s government Factors causing conflicts 7  The objective of most of the global companies is to maximize the profits world wide along with the earnings as much profits as possible in each country  The purpose of most of countries in allowing and inviting foreign companies is to get the long term benefit from their operation. Conflicts and negotiations in International Business 8  Marketing areas  Finance areas  Human resource areas  Social and Ethical areas  Environmental issues and  Competing Areas Other factors 9  1. 2. Macro economic areas include: Structural factors Exploitation of natural resources  Production areas of conflict  Company level conflicts Negotiatio ns 10 Conflict resolution and negotiations as given below: 1. Negotiation strengths: Government and company Technology; Marketing expertise; product diversity; Joint companies 1. Bargaining process 2. Behavioral aspects in negotiations 3. Bilateral and multilateral agreements  Role of international agencies in conflict resolution 11 International agencies perform conflict preventive functions  Below here are role of some international agencies in resolving the conflicts in international business 1. The united Nations code of conduct for Transnational corporations, 1983: This code is a comprehensive set of recommendations regarding the  12  UNCTAD codes: United Nations Conference on Trade and Development code  The OECD code of practice on MNC operations: The 1976 declaration sought to encourage MNCs to contribute positively to the economic and social The ILO declaration for MNCs and Social Policy 13  This code is adopted in 1977. This code deals with the issues related to employment, Vocational training, working conditions, and industrial relations and etc.,  These codes help the MNCs and host countries to prevent conflicts and disputes among MNCs, host country business firms, Dispute settlement system in WTO 14  WTO provides a more powerful mechanism to solve disputes arise due to trade among member countries.  The rules are set out in the WTO Dispute Settlement Understanding (DSU)  Disputes between or among the member countries arise as one country adopts the Ethics in international business 15  The term ‘Ethics’ refers to accepted principles of right or wrong that govern the conduct of a person , the members of a profession, or the actions of an organizations  Business ethics are the accepted principle of right or wrong governing Ethical issues in International Business 16  Many of the ethical issues and dilemmas in international business are rooted in the fact that political systems, law, economic development and culture vary significantly from nation to nation. 17  In the international business setting, the most common ethical issues involve: 1. Employment practices 2. Human rights 3. Environmental pollution 4. Corruption 5. Moral obligations 6. Ethical dilemmas 18 Ethical behavi or Persona l Ethics Organizati o n Culture Decisio n making Ethical behavi or Unrealistic performan ce Goals process Leadership Ethical decision making 19  1. 2. 3. 4. 5. Focus on five things that an international business and its managers can do to make sure ethical issues are considered in business decisions Favor hiring and promoting people with a well grounded sense of personal ethics Build an organizational culture that places high value on ethical behavior Make sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in a manner that is consistent with that rhetoric Implement decision making process that require people to consider the ethical dimensions Develop moral courage PartA 20      Difference between conflict and dispute. Win – win strategy Ethical Decision making Differentiate between ‘Functional Vs. ‘Dysfunctional conflicts’ How ‘salami tactics’ as a negotiation technique helps to resolve conflicts. PartB 21       I, Explain the factors causing conflicts in international business. II, briefly explain the different types of conflict in international business I, Explain the roles of international agencies in conflict resolution II, Discuss the ethical issues in international business. Describe the sources and types of conflicts. Explain the steps in conflict resolutions. Discuss the steps involved in ethical decision making process.     I, Discuss the causes of organization conflict that 22 MNEs may face during negotiation. II, Discuss the negotiation process in international business and the stages involved therein. I, Examine the role of WTO in dispute resolution among countries. II, Name and describe the role of various international conflict resolution agencies to which MNC’s resort to in maintaining smooth conduct of business worldwide.