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Lecture by Dr. Lei Li 1
International Business
Environment:
An Integrated View
IBE(II) Lecture 1: Introduction
22nd February, 2011
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Source: Stephen Guisinger (2000) 2
Domain of International
Business
Business Management
Large-Scale Business Management
International Business Management
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Source: Stephen Guisinger (2001)
International Business Environment:
TheECLIPTER FrameworkInternational business environment (IBE)comprises national business environments.
The IBE and its component national business
environments are diffuse, subjective conceptsthat can never be completely measured.
Formal modeling can capture substantial
amounts of the variation in the IBE.Only formal modeling framework available atpresent is the ECLIPTER.
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Source: Stephen Guisinger, 2001 4
ECLIPTERE conography: Economic geography and physical environment
C ulture
L egal system
I ncome profileP olitical risk
T ax regime
E xchange rateR estrictions
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Econography
Econography mainly refers to physicalcharacteristics of nations that affect firmperformance
Climate
Size (population)
Distance from major marketsNatural resources
Infrastructure
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Culture
Culture describes the complex set ofsocial characteristics that distinguishesone group of people from another:
Values
Attitudes
Beliefs
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Legal System
Legal System describes the laws that govern asociety. Patent Anti-trust
Product liability
Common law
Civil lawIslamic lawSocialist Law
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Income Profile
Income Profile describes various indices ofproduction capabilities and consumptionpossibilities of a society
Per capita income
Growth in GDP
Distribution of income across groups
and regions
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Political Risk
Political Risk describes the stability ofgovernment institutions. It can be measuredin a variety of ways:
Likelihood of foreign aggression
Likelihood of civil insurrection
Bureaucratic instabilityCorruption/Quality of Government
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Tax Regime
Tax Regime refers to the tax instruments(except border taxes such as import tariffsand export duties) that governments use to
raise revenues from multinational firms.
Corporate taxes including tax incentivesWithholding taxes on remittancesTax treaties
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Exchange Rate
An Exchange Rate is the value of thelocal currency expressed in terms offoreign currencies. Firms must adoptpolicies to avoid or reduce risk arisingfrom movements in exchange rates.
Overvaluation/UndervaluationVariability
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Restrictions
Restrictions refer to the taxes and limitations thathost governments place on foreign products andservices or on foreign firms themselves when they
enter or leave the host economy
Import duties
Export taxesQuotas
Bans on foreign investment in certain industries
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13 Stephen Guisinger 2000
Develop Vision andStrategy
Market and Sell
ManageEnvironmental and
Social Issues
Manage Information,Financial and
Physical Resources
ManageHuman Resources
ManageSupply Chain
Make Goodsand Services
Manage Alliances andExternal Relationships
Develop Vision andStrategy
Manage Alliances andExternal Relationships
ManageEnvironmental andSocial Issues
Manage Information,Financial and
Physical Resources
ManageHuman Resources
ManageSupply Chain
Make Goodsand Services
Market and Sell
Start with DomesticBest Practices End With GlobalBest Practices
Competitors
International Business ChessNational Governments and World
Organizations (e.g., WTO, IMF)
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Trade Flows Among World Regions,
2005 (in billions of dollars or percent)
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Source: Rugman & Verbeke
(2004, Journal of InternationalBusiness Studies)
Global versus Regional Multinational Firms:
A Triad-based Perspective
(1) Home region oriented: at least 50% of the subsidiaries (or sales) arelocated in the home region of the Triad (i.e., Americas including both Northand South America)
(2) Host region oriented: At least 50% of the subsidiaries (or sales) are
located in the host region of the Triad (i.e., Europe including Mideast andAfrica, or Asia-Pacific)
(3) Bi-regional: At least 20% of the subsidiaries (or sales) are located in twoTriad regions each, and none of the three Triad regions has more than 50%of the subsidiaries.
(4) Global: At least 20% of the subsidiaries (sales) are located in each of thethree Triad regions, but less than 50% in any one region of the Triad.
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Few Global Firms
North Asia-
America Europe Pacific500 Revenues F/T % intra % of total % of total % of total
Rank Company Region in bn US$ Sales regional sales sales sales
1 19 Intl. Business Machines North America 85.9 64.8 43.5 43.5 l 28.0 m 20.0
2 37 Sony Asia-Pacific 60.6 67.2 32.8 29.8 z 20.2 32.8 j
3 143 Royal Philips Electronics Europe 29.0 na 43.0 28.7 a 43.0 21.5
4 147 Nokia Europe 27.9 98.5 49.0 25.0 l 49.0 26.0
5 162 Intel North America 26.5 64.6 35.4 35.4 z 24.5 40.2
6 190 Canon Asia-Pacific 23.9 71.5 28.5 33.8 l 20.8 28.5 j
7 239 Coca-Cola North America 20.1 na 38.4 38.4 22.4 m 24.9
8 388 Flextronics International Asia-Pacific 13.1 na 22.4 46.3 z 30.9 22.4
9 459 LVMH Europe 11.0 83.4 36.0 26.0 z 36.0 32.0
Weighted Average 30.9 38.2
Total 309.2
Source: Braintrust Research Group, The Regional Nature of Global Multinational Activity, 2003.
(www.braintrustresearch.com)
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Source: Lei Li & Dan Li (2007)
Global vs. Regional: A Comparison by
industrySubsidiary-based Sales-based
Period InternationalStrategy
Computerand Office
Equipment
Soap,cleansers
& toilet
products
Computerand Office
Equipment
Soap,cleansers
& toilet
products
Home-region 241
(48.39%)
112
(78.32%)
344
(80%)
91
(88.35%)Host-region 73
(14.66%)
4
(2.80%)
31
(7.21%)
6
(5.83%)
Bi-regional 128
(25.70%)
27
(18.88%)
39
(9.07%)
6
(5.83%)
Global 56
(11.24%)
0
(0%)
16
(3.72%)
0
(0%)
1999-
2004
Total 498
(100%)
143
(100%)
430
(100%)
103
(100%)
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Source: Lei Li (2003)
Internationalization and Firm
Performance
Degree of Internationalization
FirmPe
rformance
ce
0.275 0.77
Effective Zone ofInternationalization
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IBE(II): Key Learning
Objectives and Assessment
To help students to gain a comprehensiveunderstanding of the complexity of theinternational business environment and the
impact thereof on firm international strategiesand operations.
Assessment: Exam (60%) and Term Project(40%)
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Term Project: Part I
Part 1 is a systemic IBE analysis of the primary industry(e.g., computer, appliances, etc.) in which the companyhas been involved.
Elaborate on the impact of the ECLIPTER factors on theindustry. Which ECLIPTER factors are most critical forthis particular industry?
Examine the roles of the multilateral institutions such as
WTO and the regional agreements such as NAFTA, EUand ASEAN+3 in this industry. Do they facilitate the globalor regional expansion of the company?
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Term Project: Part II
Part 2 is to study closely the impact of the major ECLIPTER factors on thecompanys business functions of your interest, and formulate an international
adaptation plan for the company.
Based on Part 1, what would be your assessment of the companys overall
international expansion strategy and process?
Choose one or two specific business functions of the company (e.g.,
marketing, human resource management, manufacturing, supply chainmanagement) that was particularly affected by the major ECLIPTER factors.
Evaluate the impact of the major ECLIPTER factors on the businessfunction(s).
How did the company try to deal with the impact of the ECLIPTER?
Did the company ever try to take advantage of the multilateral institutions suchas WTO and/or the regional agreements such as NAFTA, EU and ASEAN+3?
If the companys international adaptation of the business functions has not
been effective, you need to recommend an adaptation plan accordingly.
If the company has been adapting the business functions to the internationalbusiness environment well, what can be learned from its successful
experience?
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Important Deadlines
Team FormationYou are required to form diverseteams if at all possible. For example, a team shouldideally have both Chinese and non-Chinese students;
a team should also show a gender balance, adiversity of majors etc.Please email me the names ofmembers on your team no later than Friday 11thMarch.
Report Submission DeadlineFriday 13th May 2011.
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