International Business Strategies PDF

Learning Objectives LO 3-1 Explore some of the factors within the international trade environment that influence business LO 3-2 Investigate some of the economic, legal-political, social, cultural and technological barriers to international business LO 3-3 Specify some of the...

Learning Objectives LO 3-1 Explore some of the factors within the international trade environment that influence business LO 3-2 Investigate some of the economic, legal-political, social, cultural and technological barriers to international business LO 3-3 Specify some of the agreements, alliances and organizations that may encourage trade across international boundaries LO 3-4 Summarize the different levels of organizational involvement in international trade LO 3-5 Contrast two basic strategies used in international business LO 3-6 Assess the opportunities and problems facing a small business considering expanding into international markets 3-1  Enter the World of Business P&G Steps Up Its International Expansion Bob McDonald, Procter & Gamble’s CEO, plans to raise its number of global customers to 5 billion by 2015 P&G faces the challenges of low consumer income; lifestyle differences; very limited retailer space and stiff competition P&G will need to balance its products with the needs of its Indian customers – both retailers and end-users ? Why is P&G expanding into India and the Philippines? ? How is P&G tailoring its products to meet Indian consumer needs? ? What are some of the social and economic barriers P&G is facing in its expansion into India? 3-2  Role of International Business International Business The buying, selling and trading of goods and services across national boundaries Most of the world’s population and two-thirds of its total purchasing power are outside the U.S. Global marketing requires balancing global brands with the needs of local consumers 3-3  Role of International Business » American companies have become widely popular in China » Some have more sales in China than in the United States 3-4  Role of International Business Absolute Advantage A monopoly that exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item Comparative Advantage The basis of most international trade, when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items Outsourcing The transferring of manufacturing or other tasks – such as data processing – to countries where labor and supplies are less expensive 3-5  http://bit.ly/FerrellQR3-1 © 2012 South-Western, a part of 6 Cengage Learning Role of International Business 3-7  Going Green China Faces Growing Concerns over Pollution With China’s growing middle class, pollution has also grown and the Chinese government has taken action China is closing their worst polluting factories, adopting stringent environmental laws and planning for a cap-and-trade system Even though China releases the most greenhouse gas emissions, they still give off less per person than the U.S. ? Describe the environmental issues China is facing. ? Describe the clash between China’s economic situation and the environment. Why is this such a major concern? ? Do you feel it is fair for China to receive attention for greenhouse gas emissions when U.S. citizens emit more per person? 3-8  International Trade Barriers Completely free trade seldom exists, due to: Economic barriers Ethical, legal and political barriers Social and cultural barriers Technological barriers AT&T has made inroads with consumers who don’t want their cell phones to stop working when they go abroad 3-9  Economic Barriers Economic Development Industrialized Less Developed nations are Countries have economically low per-capita advanced income Potentially huge, United States Japan Great Britain Canada and profitable, untapped market 3-10  Economic Barriers Level of development is determined in part by a country’s Infrastructure The physical facilities supporting a country’s economic activities, such as railroads, highways, ports, airfields, utilities and power plants, schools, hospitals, communication systems and commercial distribution systems 3-11  Economic Barriers Another economic trade barrier is the Exchange Rate The ratio at which one nation’s currency can be exchanged for another nation’s currency Exchange rates vary daily and affect the cost of imports and exports A government may intentionally alter the value of its currency through fiscal policy 3-12  International Trade Barriers When entering the international marketplace, companies must contend with potentially complex relationships Different laws of its own nation, international laws and the laws of the nation with which its trading Various trade restrictions Changing political climates Different ethical values 3-13  Legal Barriers A firm doing business abroad must understand and obey the laws of the host country Some countries have restrictions on how much local currency can be taken out of its borders Other countries may forbid foreigners from owning property Some countries fail to honor U.S. laws and/or fail to enforce their own laws In some parts of the world, copyright and patent laws are less strict than in the U.S. 3-14  International Trade Barriers The watch on the right, a knockoff developed by Digital Time Co., Ltd, in Thailand, received a special award for falsification The dubious honor is given to the “best” product knockoffs by the organization Action Plagiarius in an effort to shame their makers 3-15  Tariffs and Trade Restrictions Import Tariff A tax levied by a nation on goods imported into the country Fixed tariff is a specific amount of money levied on each unit of product brought into the country Ad valorem tariff is based on the value of the item Exchange Controls Regulations that restrict the amount of currency that can be bought or sold 3-16  Tariff and Trade Restrictions Quota Restriction on the number of units of a particular product that can be imported into a country Embargo A prohibition on trade for a particular product Dumping The act of a country or business selling products at less than what it costs to produce them 3-17 Tariff and Trade Restrictions Dumping can spark trade wars The Obama administration imposed stiff tariffs on Chinese-made tires, allegedly dumped on the U.S. market China retaliated by slapping tariffs on U.S. chicken products exported to China 3-18  Political Barriers Political considerations affect international business daily  Seldom in writing & change rapidly  Political unrest may create a hostile or even dangerous environment for foreign business Cartel A group of firms or nations that agrees to act as a monopoly and not compete with each other, in order to generate a competitive advantage in world markets  OPEC is an example of a cartel 3-19  Social and Cultural Barriers Research can help minimize the problems associated with social and cultural differences Differences in the spoken and written language Appropriate body language, posture, facial expressions and personal space may vary by nation Family roles may differ in different societies Other nations often have a different perception of time National customs and holidays must be respected Most nations use the metric system 3-20 Social and Cultural Barriers 3-21  Technological Barriers Are creating global marketing Technological opportunities The lack of phone lines opens the Advances market for cellular communications Create new challenges and Changing competition Technologies Out of the top five PC companies, three are from countries in Asia 3-22 Trade Agreements and Organizations General Agreement on Tariffs and Trade (GATT) Trade agreement signed by 23 nations in 1947, provided a forum for tariff negotiations and a place where international trade problems could be discussed and resolved World Trade Organization (WTO) International organization dealing with the rules of trade between nations, evolved from GATT 3-23  Trade Agreements and Organizations North American Free Trade Agreement (NAFTA) Agreement that eliminates most tariffs and trade restrictions on agricultural and manufactured products to encourage trade among Canada, the U.S. and Mexico C A M U N E S A X A D I A C O 3-24  Trade Agreements and Organizations NAFTA Easier to Expands Effective invest in Protects trade by Simplifies January 1, Mexico intellectual requiring country-of- 1994 and property equal origin rules Canada treatment While controversial, NAFTA has become a positive factor for U.S. firms 3-25  Trade Agreements and Alliances A union of European nations established in 1958 to promote trade European among its members; one of the largest Union (EU) single markets today The EU has a GDP of $14 trillion+ An international trade alliance that Asia-Pacific promotes open trade and economic and Economic technical cooperation among member Cooperation nations (APEC) Holds 54% of world GDP 3-26  Responding to Business Challenges Starbucks Takes the China Challenge Starbucks entered China in 1999; now runs 450 stores and plans to grow to 1,500 by 2015 CEO, Howard Schultz, is including Chinese cultural expectations into its stores, like offering beverages other than coffee Schultz is so sure of this market, he is changing the company’s structure to include a China and Asia Pacific division ? What are some of the cultural barriers Starbucks encountered in its China expansion? ? How has Schultz been able to resolve some of the differences between Chinese and American culture? ? What are some ways Starbucks is creating trust with its Chinese stakeholders? 3-27  Trade Alliances and Organizations A trade alliance that promotes trade and Association of economic integration among member nations Southeast Asian in Southeast Asia Nations (ASEAN Has a GDP of $2 trillion An organization established by the World Bank industrialized nations in 1946 to loan money to underdeveloped and developing countries Organization established in 1947 to promote trade International among member nations by eliminating trade Monetary Fund barriers and fostering financial cooperation 3-28  Getting Involved Exporting and Importing  Countertrade agreement is a foreign trade agreement that involves bartering products for other products instead of currency  Export agents are middlemen that help companies by handling their international transactions 3-29  Getting Involved Top Exporting Countries *2011 estimates in billions, calculated on an exchange rate basis 3-30  Getting Involved Trading Company A firm that buys goods in one country and sells them to buyers of another country Handles all trade activities; similar to export agents but their role is broader Licensing A trade agreement in which one company – the licensor – allows another company – the licensee – to use its company name, products, patents, brand, trademarks, raw materials and/or production processes in exchange for a fee or royalty An attractive alternative to direct investment when political stability is in doubt 3-31  Getting Involved Franchising A form of licensing in which a company – the franchiser – agrees to provide a franchisee a name, logo, methods of operation, advertising, products and other elements associated with a franchiser’s business, in return for a financial commitment and the agreement to conduct business in accord with the franchiser’s standard of operation 3-32  Getting Involved  McDonald’s has expanded around the world via franchising  Although the company will customize some of its meals to the local culture, this menu from McDonald’s in Morocco shows the firm offers similar fare across the world 3-33 Getting Involved 3-34  Getting Involved The hiring of a foreign company to produce a specified volume of the initiating company’s Contract product to specification; the final product carries Manufacturing the domestic firm’s name For example, Reebok uses contract manufacturers to produce many of its shoes As defined earlier is transferring tasks to other countries where costs are lower Outsourcing Insourcing, where foreign companies transfer tasks to U.S. companies, happens more often 3-35  Getting Involved Offshoring Joint Venture The relocation of The sharing of the costs business processes by a and operation of a company or subsidiary to business between a another country foreign company and a Different from local partner outsourcing; the company Used in countries retains control by not forbidding direct subcontracting to another investment from foreign company companies or when the company lacks resources or expertise 3-36  Getting Involved Strategic Alliance Direct Investment A partnership formed to The ownership of create competitive overseas facilities advantage on a For companies who worldwide basis want more control and Used when competition are willing to invest is fierce and costs are considerable resources high May involve new Becoming predominant facilities or the purchase in the automobile and of an existing operation computer industries 3-37 Getting Involved o Walmart has chosen to directly invest in China o However, it must still make adjustments to fit with the local culture o For instance, Walmart, which is normally against trade unions, was pressured to allow its Chinese employees to unionize 3-38  Getting Involved Multinational Corporation (MNC) A corporation that operates on a worldwide scale, without significant ties to any one nation or region ► They often have greater assets than the countries in which they operate ► Many MNCs are targeted by antiglobalization activists, including some violent protests ► Activists contend the MNCs increase the gap between rich and poor, misuse scarce resources, exploit the labor markets in LDCs and harm natural environments 3-39 Getting Involved 3-40  International Business Strategies Global Strategy (Globalizati Multinational on) Strategy A strategy that involves standardizing products A plan used by international (promotion and distribution) companies that involves customizing products, for the whole world as if it promotion and distribution were a single entity according to cultural technological, regional and national differences 3-41  Solve the Dilemma Global Expansion or Business as Usual? Audiotech Electronics currently operates a 35,000-square-foot factory with 75 employees The company produces control consoles for TV and radio stations and recording studios It is involved with every facet of production and has been successful in meeting customers’ needs With growth stagnating, it is looking into global expansion ? What key issues need to be considered for its global expansion? ? What are some of the unique problems a small business might face in global expansion that larger firms would not? ? Should Audiotech consider a joint venture? Should it hire a sales force of people native to the countries it enters? 3-42  Walt Disney Around the Globe Disneyland’s first international park was in Tokyo, Japan in 1983; followed by Paris, France in ‘93 and Hong Kong, China in 2005 Disney has learned the parks must embrace local culture while staying true to the Disney message While some locals continue to protest Disney’s presence, the benefits are numerous including increased tourism dollars for the cities they inhabit ? What led the Walt Disney Company to believe that its theme parks would be successful internationally? ? What stumbling blocks did Disney encounter at their France and Hong Kong theme parks? ? What are some of the factors complicating international expansion of a brand like Disney? What can a multinational corporation do to mitigate these issues? 3-43