IBE(II) DOC Introduction Lecture1 S2011 Li

8/2/2019 IBE(II) DOC Introduction Lecture1 S2011 Li

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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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IBE(II) DOC Introduction Lecture1 S2011 Li

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