module i international business
TRANSCRIPT
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Introduction to IB
International business is defined as any businessactivity or transaction that transcends thenational border.
International business takes different forms likeexporting, licensing, contract manufacturing,foreign assembly, foreign production, jointventuring etc.,
International marketing is an important aspectof international business.
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According to Terpstra and Sarathy, International
marketing is finding out what customers want
around the world and then satisfying these wants
better than other competitors, both domestic and
international
International marketing is defined as marketing in an
internationally competitive environment, no matterwhether the market is domestic or foreign.
Emerging competitive environment and how the
local, national and international firms are facing
competitive can be studied with the help of a figure
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The emerging competitive environment
Competition facing
local/national/internati
onal firms
Local
playersNational
Players
Foreign
players
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Why go international ?
The factors which motivate or provoke firms to gointernational may be broadly divided into twogroups, pull factors and push factors.
The pull factors are proactive reasons
Companies are motivated to internationalizebecause of the attractiveness of the foreignmarket, profitability and growth prospects.
The push factors are reactive reasons,compulsions of the domestic market for eg.,saturation of the market.
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Problems in International marketing
1. Political and legal differences
2. Cultural differences3. Economic differences
4. Differences in the currency unit
5. Differences in the language6. Differences in the marketing infrastructure-
Advtg
7. Trade restrictions
8. High costs of distance
9. Differences in trade practices
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International Orientations
The degree and nature of involvement in internationalbusiness or the orientations of company vary very widely.
The EPRG framework identifies four types of attitudes ororientations towards internationalization that are associated
with successive stages in the evolution of internationaloperations.
1. Ethnocentric orientation (home country orientation)
- overseas operations are viewed as secondary
- overseas marketing is administered by export department- reliance on export agents.
- Extension strategy
-same product in the international market
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2. Polycentric Orientation (host country
orientation)
- Subsidiaries are established in the overseas markets.
- Each of them operates independently with its own
marketing objectives and plans.
- Marketing is characterized by adaptation strategy
- Marketing segmentation based on country basis,
3. Regiocentrism (regional orientation)
- Views different regions as different markets
- A particular region with certain important marketing
characteristics is regarded as a single market, ignoring
the national boundaries
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Geocentric orientation
- views the entire world as a single market and develops
standardized marketing mix, projecting a uniform image of
the company and its products for the global market.
- Global orientation
- Standardization will not be successful in many cases.
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Internationalization Stages
Stages in the evolution of companies
Purely domestic company
Domestic company with some
foreign business (indirect/direct
export, licensing/franchising etc.,
International company
Multinational / Global company
Transnational company
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Globalization
The IMF defines globalization as the growing economic
interdependence of countries worldwide through increasing volume
and variety of cross border transactions in goods and services and
of international capital flows, and also through the more rapid and
widespread diffusion of technology. There are various factors responsible for the momentum to the
forces of globalization
- The sweeping political and economic policy changes in the
communist and socialist countries.
- Shifts in the economic policies
- Privatization in a number of market economies
- Liberalization of trade and investment fostered by the GATT/WTO
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Globalization, is not a new phenomenon.
The period of 187- to 1913 experienced a
growing trend toward globalization
The new phase of globalization started around
the mid 20th century
Globalization is considered at two levels, at
the macro level (globalization of the world
economy) and
The micro level (globalization of the business
and the firm)
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Globalization of world economy
The world economy has been emerging as a global ortransnational economy.
Globalization is a process of development of the worldinto a single integrated economic unit
The transnational economy is a borderless worldeconomy characterized by free flow of trade andfactors of production across national borders.
The transnational economy is different from theinternational economy ( characterized by the existenceof different national economies and the economicrelations are regulated by the national governments)
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Features of the transnational economy
According to Peter Drucker
1. The economy is shaped mainly by money flows rather
than by trade in goods and services.2. Management has emerged as the decisive factors of
production and the traditional factors aresecondary(prodn, land , labour)
3. The goal is market maximization and not profitmaximization
4. The decision making power is shifting from the nationalstate to the region (regional blocs, BRIC, NAFTA etc.,
5. It is organized by information which no longer knows
national boundaries.6. The entire world is a single market for production and
marketing of goods and services.
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Globalization of Business
Globalisation encompasses the following :
1.Doing or planning to expand business globally2. Giving up the distinction between the domestic market and foreign
market and developing a global outlook of the business
3. Irrespective of national considerations, locating the production and
other physical facilities on a consideration f the global business
dynamics.
4. Basing product development and product planning on the global
market considerations
5. Global sourcing of factors of production, raw materials, components
machinery/ technology , finance etc., are obtained form the bestsource anywhere in the world.
6. Global orientation of organizational structure and management
culture.
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For example:
Mazdas sports car,
was designed in California
Had its prototype created in England
Assembled in Michigan and Mexico
Electronic components invested in New Jersey
Fabricated in Japan
Financed from Tokyo and NewYork andmarketed globally
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Stages of Gobalisation
Ohame identifies five different stages in thedevelopment of a firm into a global corporation.
Stage I : Domestic company which moves into new
markets overseas by linking up with local dealersand distributors
Stage II : the company takes over these activities onits own
Stage III : the domestic based company begins tocarry out its own manufacturing, marketing andsales in the key foreign markets.
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Stage IV : R&D and engineering unit is set up.
The headquarters mentality continues to
dominate. Different local operations arelinked their relation to each other is
established by their relation to the centre
Stage V : the company moves toward agenuinely global mode of operation, global
localization,
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Essential conditions for globalization
There are some essential conditions to be satisfied on thepart of the domestic economy as well as the firm for
successful globalization of the business.1. Business freedom : there should not be unnecessary
government intervention, import restriction,restrictions on sourcing finances, foreign investments
etc.,2. Facilities : infrastructural facilities
3. Government support : policy and procedural reforms,R&D support, financial market reforms etc.,
4. Resources : It is one of the important factor whichdecides the ability of a firm to globalize. It includes,finance, technology, company and brand image,human resources etc.,
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Competitiveness: A firm may derive
competitive advantage from any one or more
of the factors, low costs, price, productquality, product differentiation, technological
superiority, after sales service, marketing
strength etc., Orientation : A global orientation on the part
of the business firms and suitable
globalization strategies are essential forglobalization
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Factors determining competitive advantage of nations
Demand
conditions
Factor conditions
Related andsupporting
industries
Firm strategy
structure and
rivalry
Chance
Government
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Benefits of Globalization
- it can make a substantial contribution to theeconomic development of the nation.
- Standard of living will grow up faster
-Increase in competition would make companies morecost and quality conscious and innovative
- Inflation is less likely to derail economic growth- Liberalization and global competition enhanceconsumer choice and consumer surplus.
- Globalization opens up enormous domestic and
global opportunities for firms in developing countries.- Unfettered capital flows give the country access toforeign investment and keep interest rates low.