m 1 - international business - introduction
TRANSCRIPT
-
8/6/2019 M 1 - International Business - Introduction
1/48
4.2 International Business
Ashish J. Shah
97400989522009 11
-
8/6/2019 M 1 - International Business - Introduction
2/48
Course Brief
Learning Methodology:
Interactive lectures
C
ase studies Other Class work - individual and group,
Home work individual and group
Assignments
2
-
8/6/2019 M 1 - International Business - Introduction
3/48
Course Agenda
1. Introduction to International Business
2. International Business Environment
3. Global Business Strategic Management
4. Exim Trade
5. Control & Evaluation of InternationalBusiness
6. Conflict in International Business andNegotiations
3
-
8/6/2019 M 1 - International Business - Introduction
4/48
Assessment
Total = 25 marks
Attendance: 5 marks
75-79%: 1 marks
80-84%: 2 marks
85-89%: 3 marks
90-94%: 4 marks
+95%: 5 marks Tests: 2 x 5 marks = 10 marks
Individual Presentation (5 10 mins.): 10 marks
MPBIM - MBA, Entrepreneurship and NewVenture Creation, Ashish J Shah
-
8/6/2019 M 1 - International Business - Introduction
5/48
Module 1 Agenda
Introduction to International Business:
Definition
Trade and Investment Flow Theories of International Trade
Economic Theories
Forms of International Business
5
-
8/6/2019 M 1 - International Business - Introduction
6/48
International Business
History:
Greece, China: sent merchants to foreign lands
(BC)
1300 1500 AD: Black Death in Europe
1600s: conquests by colonial powers
1700s 1800s: age of mercantilism
1900s beginning of the golden era ofinternational trade
6
-
8/6/2019 M 1 - International Business - Introduction
7/48
Scope of International Business
www.peaceworks.com
7
-
8/6/2019 M 1 - International Business - Introduction
8/48
Scope of International Business
www.peaceworks.com
Daniel Lubetzky Social and commercial entrepreneur
not-only-for-profit enterprise
Profit with a Conscience: CAN BUSINESS BE "GOOD"?
Started with the aim of bringing peace between Arabsand Israelis
Theory of Economic Cooperation
Targets in-conflict parts of the world amongst others:Africa, Middle East
Range of cuisines and food segments catered to Ingredients sourced by multicultural teams from
various parts of the world
8
-
8/6/2019 M 1 - International Business - Introduction
9/48
Scope of International Business
www.peaceworks.com
Key impacts of PeaceWorks business model:
Commercial Cooperation across value network
Regional Participation Human Interaction
And this results in:
Job Creation and Export-led Growth
Employment & Technology
Peace Building
9
-
8/6/2019 M 1 - International Business - Introduction
10/48
International Business?
10
Van Der Waals Forces!
-
8/6/2019 M 1 - International Business - Introduction
11/48
Scope of International Business
What is Business? An action (s) between/among a party (s) that results in an
exchange ofvalue.
What is International Business?
Transactions across international boundaries. activities designed to direct flow of a company's goods and
services to consumers or users in more than one nation for aprofit
(attempt a definition of your own)
Difference between domestic and international business? Not just in the concept, but also in the environment in which
business must be conducted.
11
-
8/6/2019 M 1 - International Business - Introduction
12/48
Overview of Global Business and
Economy
China (11 %), India (8.5 %), US (4.5 %) fastestgrowing economies
However, US trade deficit @ 6 % of GDP weak dollar good for US, bad for rest of world
Globalisation:
Hyundai i10, Suzuki - Alto, iPad, Windows
Two way channel for participating countries Reforms in India aimed at aligning Indian economy
with global ones
12
-
8/6/2019 M 1 - International Business - Introduction
13/48
Overview of Global Business and
Economy Indian firms investing more than US $ 10 billion each
year overseas
Global companies (IBM) moved upto 2 million BPOjobs alone to India
Globalisation: highlights threats to companies with local market orientation
creates jobs and opportunities where none
is an expensive and complex process
Internationalisation, Competitiveness (FDI in 2004 China ($
44.2 bn), India ($ 3.4 bn)) Indian govt. Aiming at creating 8 10 million jobs
each year and maintain 8 % growth
13
-
8/6/2019 M 1 - International Business - Introduction
14/48
Overview of Global Business and
Economy
World Economies (2004)
US: Attracted max. FDI and grew by 4.4 %
Has high trade deficit expected to cross 40 % of its economyand financed by Asian banks
Chinese economy expected to slow down as a result and thisimpact on world economy
Europe (2004) Grew by 2.1 % Investment growth negative and consumption flat
UK managed to avoid recession impact till 2005
14
-
8/6/2019 M 1 - International Business - Introduction
15/48
Overview of Global Business and
Economy Japan (2004)
2.6 % growth after a decade of stagnation. But, after thequake last week?
China (2004) 9.5 % growth Explosive growth in industry may lead to frequent boom-
and-bust cycles due to overcapacities in China
India (2004) 7 % growth
Fourth best buying power Many corporates now part of the $ billion club
Economic outlook marred due to geopolitical tensions withneighbours
15
-
8/6/2019 M 1 - International Business - Introduction
16/48
Scope of International Business
Internationalisation of Businesses JLR-TATA,
Arcelor-Mittal, Daimler-Chrysler, MTR-Orkla
Micro environment price, product, promotion,channels
Macro environment(domestic) - PESTLED
Macro environment incountry A PESTLED
Macro environment in
country B PESTLED
16
-
8/6/2019 M 1 - International Business - Introduction
17/48
Scope of International Business
Need for International Business
Characteristics of International Business
Importance of International Business
Approaches of International Business
Ethnocentric
Polycentric Regiocentric
Geocentric
17
-
8/6/2019 M 1 - International Business - Introduction
18/48
Scope of International Business
International Business Decisions The International Business Decision
Market Selection Decision
Entry and Operating Decision
Marketing Mix Decision
Marketing Organisation Decision
Internationalisation Process License
Export via Agent or Distributor
Export through own sales rep or sales subsidiary
Local packaging and assembly
FDI
18
-
8/6/2019 M 1 - International Business - Introduction
19/48
Scope of International Business
Driving Forces of International Business Economies of Scale
Meet Demands and Expectations of Markets
Culture
Leverage Experience
Technology Resource utilisation
Strategic vision
Competition and costs
Economic growth
Quality improvement
Economic integration and free markets
Living standards
Emergence of WTO
Role of MNC / MNE
19
-
8/6/2019 M 1 - International Business - Introduction
20/48
Scope of International Business
Restraining Forces of International Business Culture
Market competition in host country
Costs
National controls Nationalisation
War and Terrorism
Short-sightedness of management
Organisational history
Domestic forces Conflict with companies and within international organisation
Lack of home country support
20
-
8/6/2019 M 1 - International Business - Introduction
21/48
Scope of International Business
Aspects of the Domestic Environment: PESTLED (international) - generally uncontrollable factors
both at home and in target countries have +ve & -ve impact
+ve: US gives PNTR (Permanent Normal Trade Relations) status to
China (Boeing & Motorola) and lifts Apartheid sanctions on SA -ve: US sanctions on Iran, Iraq, Libya, South Africa impacts IBM,
Exxon
PESTLED (domestic)
US goods faced low exports because of a strong US Dollar in the80s. This changed in the 90s.
Rajiv Gandhi and Manmohan Singh brought in economic reformsand opening up of the Indian economy
Local competition Kodak hit by Fuji Film entry
21
-
8/6/2019 M 1 - International Business - Introduction
22/48
Scope of International Business
Aspects of the Foreign Environment Analyses involves PESTLED shocks
Dynamic changes complicate PESTLED issues further e.g. Chinasdynamic legal system and Coca Cola
Industrial practice gaps amongst developed, developing andunder-developed worlds to be factored e.g. understanding of theconcept of preventive maintenance of machines
Alien status of a business in the foreign country complicatesmatters e.g. Coca Cola in India asked to reveal formula or leave;returned to be troubled again by PESTLED factors
Political bias: tendency of domestic firms to receive favourabletreatment from local governments than alien firms
22
-
8/6/2019 M 1 - International Business - Introduction
23/48
Scope of International Business
Environmental Adaptation Needed
PESTLED (esp. culture) understanding and itsimpact a must for international business.
Cultural understanding and adjustment mostchallenging for international businesses
A modifiable frame of reference necessary as aculture platform to establish understanding and
proceed e.g. white colour has differentconnotations in India and the west, hand gestures
Cultural conditioning = iceberg (just 1/10th visible)
23
-
8/6/2019 M 1 - International Business - Introduction
24/48
Theories of International Trade
Theory of Mercantilism
Measures wealth of a nation by the size of its treasures
Aims at creating trade surplus to increase treasury andbuild a powerful army and infrastructure e.g. USA, UKengaged in many wars for the past century
Limitations:
Win-lose partnership where other trading partners are exploited
No contribution to global wealth
Restrictive trade policies ensure subsidised production and exportsbut limit imports to protect local industry. This creates highlyrestrictive trade practices around the world
Vast price disparity between purchase price of raw material andselling price of finished goods
24
-
8/6/2019 M 1 - International Business - Introduction
25/48
Theories of International Trade
Theory of Absolute Advantage Adam Smith An Inquiry into the Nature and Causes
of the Wealth of Nations wealth is in per capita andquality of living and not in physical treasures alone
Absolute Advantage: ability of a nation to produce agood more efficiently and cost-effectively than anyother nation; therefore specialisation e.g. China.
Advantages could be: Natural: climate, geography e.g. India
Acquired Advantage: e.g. Industrial production capability->auto parts for Audi made in India, gem stone processing inJaipur, Surat, Navasari, Mumbai
25
-
8/6/2019 M 1 - International Business - Introduction
26/48
Theories of International Trade
Theory ofComparative Advantage
Principles ofPolitical Economy and Taxation, DavidRicardo
A country benefits from international trade even if it isunable to produce more than one good moreefficiently than other countries by focusing on thegood(s) that it can most efficiently manufacture anddoing away with the goods it is less efficient at
manufacturing, thus gaining absolute advantage in themanufacture of one good rather than two or moregoods. E.g. Germany and solar tech
26
-
8/6/2019 M 1 - International Business - Introduction
27/48
Theories of International Trade
Limitations:
Countries have otherpriorities and focus areas; hencefocus on achieving efficiency in one area of operationmay be difficult to achieve e.g. Gulf countries are oiltraders, but have focused extensively in becomingself-reliant in agriculture
Overall efficiency is better achieved whenmultipleproducts vis--vis a single product are manufactured
as resources are better utilised Assumption that labouris the only resource used in
production is invalid. Other resources are required too
27
-
8/6/2019 M 1 - International Business - Introduction
28/48
Theories of International Trade
Division of gains is often unequal amongst tradingpartners leading to alienation of partners gettinglower returns
Theory stands good for more than two countriesparticipating and not alone for two countries asproposed in theory
Logistics costs are ignored in theory for
international trade Economic production quantities (EPQ) and
production pattern has not been discussed
28
-
8/6/2019 M 1 - International Business - Introduction
29/48
Theories of International Trade
Factor Endowment Theory
Heckscher and Ohlin discussed type of products in
which countries can have an advantage, otherwise not
discussed by earlier theories e.g. bamboo, jute fromIndia, Bangladesh
Nations will export products that can be
manufactured using the abundant and cheap
resources possessed by it and will import thoseproducts otherwise requiring the use of its scarce and
expensive resources e.g. Kazakhstan and Uranium
29
-
8/6/2019 M 1 - International Business - Introduction
30/48
Theories of International Trade
Factor Endowment Theory suggests three types ofrelationships: Land-Labour Relationship - country would specialise in
production of labour-intensive goods as labour is cheap relativeto the cost of land e.g. India
Labour-Capital Relationship where labour is expensive andcapital available, countries would specialise in the production ofcapital-intensive goods than labour-intensive goods e.g. ICs,defence equipment (EU)
Technological Complexities products produced using differenttechnologies have different cost competitiveness; optimum useof technology is made to mitigate higher production costs e.g.evolution of solar PV panels
30
-
8/6/2019 M 1 - International Business - Introduction
31/48
Theories of International Trade
Summary:
countries with cheap labour will produce and
export labour-intensive goods while those with
access to capital but impacted by high labour
costs will produce and export capital-intensive
goods
31
-
8/6/2019 M 1 - International Business - Introduction
32/48
Theories of International Trade
Theory of the International Product Life Cycle
Depends on the market size of the country
A large market e.g. USA, India, China ensures a largedomestic production base to achieve cost efficiency andenables international competitiveness through economiesofscale
Smaller countries outsource/offshore their requirementsand are competitive by economies ofscope through
expansion into international markets e.g. UK However, globalisation has rendered this theory less
tenable where products are globally launched andmanaged simultaneously e.g. USA and Germany
32
-
8/6/2019 M 1 - International Business - Introduction
33/48
Theories of International Trade
Theory ofCompetitive Advantage
Porters The Competitive Advantage of Nations
Porters Diamond theory of competitive
advantage advocates the home-country as being
the source of competencies and innovations
Model helps understand the comparative position
of a nation amongst other competitive nations
33
-
8/6/2019 M 1 - International Business - Introduction
34/48
Theories of International Trade
Porter argues that native factors and resources
not necessarily only/main source of competitive
advantage
Instead, proposes a cluster concept e.g. SiliconValley and that competitive advantage is a result
of a complex network of suppliers, manufacturers
and industries
competitive advantage is an outcome of four
interlinked factors
34
-
8/6/2019 M 1 - International Business - Introduction
35/48
-
8/6/2019 M 1 - International Business - Introduction
36/48
Theories of International Trade
Porters Diamond Firm Strategy, Structure and Rivalry: Competition in
the market pushes firms to improve productivity andremain innovative
Factor (Input) Conditions: key and non key factors skilled labour (specialised) and unskilled labour (nonkey). Key factors are not inherited, but created
Demand Conditions: demand in domestic market andshare of power between buyers and sellers i.e. sellers
or buyers market? Demand pressure from buyers willdetermine the extent to which a firm will/will not beinnovative to maintain demand levels
36
-
8/6/2019 M 1 - International Business - Introduction
37/48
Theories of International Trade
Related and Supporting Industries: support base forproduction companies can improve the productivityand innovation of firms e.g. JIT for auto firms
Chance: factors beyond control of firms, industry andgovernments e.g. currency fluctuations, internationaltrade agreements
Government: policies, laws, assistance, catalyst tofirms. Will not only assist firms but will also challenge
their way of working to maintain competition in themarket. May introduce barriers or create new avenuesfor firms.
37
-
8/6/2019 M 1 - International Business - Introduction
38/48
Economic Theories
Monopolistic Advantage Theory
Stems from Stephen Hymers dissertation in the 60s
Showed FDI occurs more in oligopolistic industries
rather than those with near-perfect competition
Incoming companies into new markets therefore need
to overcome knowledge gaps of the target market
Advantages that MNCs must create are:
Superior tech
Superior marketing, management and finance knowledge
38
-
8/6/2019 M 1 - International Business - Introduction
39/48
Economic Theories
Product and Factor Market Imperfections
Caves (Harvard economist) expanded on Hymerswork
Showed superior knowledge permitted MNCs toproduce differentiated products that promptedconsumers to choose MNC products to localproducts, thus giving advantage to MNCs over
local firms Noticed that MNCs investing overseas were
generally engaged heavily in R & D and marketing
39
-
8/6/2019 M 1 - International Business - Introduction
40/48
Economic Theories
Financial Factors
Aliber imperfections in forex market may be
responsible for foreign investment
Companies with overvalued currencies attracted
to invest in countries with undervalued ones
Portfolio Theory: suggests that international
operations allow for a diversification of risk andhence tend to maximise expected ROI
40
-
8/6/2019 M 1 - International Business - Introduction
41/48
Economic Theories
International PLC
FDI is a natural stage in the life of a product
Company often forced to invest overseas in
production facilities to avoid losing competitive
advantage in those markets
This move is heightened during third and fourth
stages of the IPLC
41
-
8/6/2019 M 1 - International Business - Introduction
42/48
Economic Theories
Follow the Leader
Knickerbocker
When one firm, especially the leader in an
oligopolistic industry, enters a market, others
follow
This theory considered defensive and reactive as
firms feel insecure about losing market share tonew investor in their export markets
Also, a feeling of better safe than sorry
42
-
8/6/2019 M 1 - International Business - Introduction
43/48
-
8/6/2019 M 1 - International Business - Introduction
44/48
Economic Theories
Internationalisation Theory
Extension of the market imperfection theory
A firm may have superior knowledge, but due to
inefficiencies in external markets, may extract ahigher price for the knowledge by utilising theknowledge itself in developing products instead ofselling the knowledge
Firms thus able to realise superior return oninvestment, particularly as this knowledge is alsoembedded in products made and sold by company
44
-
8/6/2019 M 1 - International Business - Introduction
45/48
Economic Theories
Dynamic Capabilities
Linked to RBV of a firm
Ownership of specific knowledge necessary, but not
enough for success in intl markets
Firm must be able to effectively create and exploit
dynamic capabilities for quality and/or quantity
deployment, which must be transferable to
international environments
Companies typically develop centres of excellence to
develop DCs to be applied to future investments
45
-
8/6/2019 M 1 - International Business - Introduction
46/48
Economic Theories
Dunnings Eclectic Theory of International
Production (OLI model)
Attempts to explain why firms prefer FDI to other
modes of entry such as exports, licensing, JVs,
strategic alliances
A firm investing overseas must have 3 advantages:
Ownership-specific advantages Location-specific advantages
Internationalisation
46
-
8/6/2019 M 1 - International Business - Introduction
47/48
Economic Theories
Observation from theories:
Major FDI made by large, research-intensive firms
in oligopolistic industries
47
-
8/6/2019 M 1 - International Business - Introduction
48/48
Forms of International Business
Exports
Channel partners exim partners, agents,
marketers, stockists, distributors
Outsourcing
Offshoring
JVs, strategic alliances, hostile takeovers, buy-out
FDI
48