strategic

International ManagementInternational Management

Session 1

Introduction

Evolution of IB

Why, How, When & Where of IB

Indian IB Story

Amar KJR Nayak/IB/XIMB

International Business (IB)

Commercial Activities that cross National Frontiers

International Movement of Goods, Capital, Technology, & Services …


Growth Phase: 1880s - 1920

Ownership / Control of many of the world’s natural resources - IB

Trading companies, banks and utilities had created a global infrastructure

Movement of the latest and the newest technological products

IB: Prominent in chemicals, machinery and branded consumer products.


The Great Depression, 1920 - 1930

Collapse of primary commodity prices

World Political Uncertainties – Break of the Second World War

Halted the growth of international trade for nearly a decade.

IB could not retain its momentum as prior to the 1920s


Limited Growth Phase, 1930 – 1950In 1930s, IB in the world economy haltedFrom 1930s IB expanded in the automobiles

FDI: dominated by USA, Britain and the Netherlands

International cartels: to restrict output, maintain prices, and to transfer technologies across borders

Limited flow of FDI to the less industrialized nations

Many host countries of FDI freed themselves from colonial rule

US MNEs: latest innovation in petrochemicals, computers and semi-conductors to other industrialized countries

The new independent nations sought to control of the nation’s strategic natural resources and utilities from the foreign companies

IB from the 1950s: numerous borders


Growth Restricted, 1950 – 1970

Service MNEs were the worst affected by such policies

Foreign ownership of energy, communication and utilities – challenged and prohibited

Vertical integration strategies of MNEs started to get fragmented

Vertical integration strategies of MNEs started to get fragmented

Multinational investment in airlines was impossible

Trading firms found a firm role in these industrialized nations

The Sogo Shosha functioned as Japan’s leading MNEs

Significant growth in areas like advertising agencies, accounting, hotels, fast food restaurants in the industrialized nations


New Growth Phase, 1970 -

Germany, France and Japan re-emerged as major outward investors

Newly industrialized countries in Asia emerged as new sources multinational investment.

IB entered a new environment and a new growth phase

Regained the level of importance that of period before the 1920s

China and Eastern Europe also were open for FDI

India


Key Features

Multinational investment overtook trade as the driving force

Air transportation, Utilities, Natural Resources – opened up for FDI

New forms of international borders: Regulations and control

Contracts and Joint Ventures: Means to control


Sectoral distribution (%) of IB

Sector 1914 1978 1992

Natural Resources 55 22 11

Manufacturing 15 52 39

Service 30 26 50


International Business

A striking mixture of continuities and discontinuities

Change has been the most key feature of IB

The Why, How and Impact of International Business

Why - The Driving Force:

Is there a single driving force?

Nineteenth century – need for raw materials and foodstuffs in the industrialized world.

Maturing markets in the industrialized countries

High transaction costs in many markets and the capital intensity

Firms want to Become Multinational corporation?



How it happenedImprovement in transport and communications

•Reduced the problem of co-ordination of business in different countries

•It reduced the time and cost of traversing space

Strong and dynamic organizational structure were critical

Protection of proprietary technology, and brands

Complexity of written contracts for intricate technologies

Modes of investment (joint venture, equity and non-equity) International cartels (as in the 1930s)


The Impact

Major facilitators of trade flows

Transferred technologies and organizational skills across borders

Raised problems for local industries

Draining of profits out of a country

Risk of resource transfer from home economies to other economies

Significance to Managers:

Business in most industries have crossed the national boundaries

Have to fight for the global market share to remain competitive

Understanding International Business

Developing capabilities to operate in the international market


Corporate Managers and Business Managers need to know the dynamics of IB


International Business & IndiaNature & Scope Investment of foreign companies

in India (1901-2000)

1900-1920: British Dominated Growth

1920-1940: Indian companies assert, British co. enter mfg.

1940-1960: American & other European companies rush in

1960-1980: Controlled Growth, Committed survived

1980-2000: Gates opened, Flooding of FDI
