Mayank_kashyap@ymail.com Page 1

U-1

An Introduction To International Business

International business comprises all commercial transactions (private and governmental, sales, investments, logistics, and transportation) that take place between two or more regions, countries and nations beyond their political boundaries. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons.[1] It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc

Factors that influenced the growth in globalization of international business[edit]

There has been growth in globalization in recent decades due to (at least) the following eight factors:

Technology is expanding, especially in transportation and communications.

Governments are removing international business restrictions.

Institutions provide services to ease the conduct of international business.

Consumers know about and want foreign goods and services.

Competition has become more global.

Political relationships have improved among some major economic powers.

Countries cooperate more on transnational issues.

Cross-national cooperation and agreements.

Importance of International Business Education[edit]

Most companies are either international or compete with international companies.

Modes of operation may differ from those used domestically.

The best way of conducting business may differ by country.

An understanding helps you make better career decisions.

An understanding helps you decide what governmental policies to support.

Managers in international business must understand social science disciplines and how they affect all functional business fields.

EPRG model

Ethnocentrism Polycentrism Geocentrism

Definition Based on ethnicity Based on political orientation Based on geography

Strategic Orientation/Focus Home Country Oriented Host Country Oriented Global Oriented

Function Finance Marketing R&D

Product Industrial products Consumer goods -

Mayank_kashyap@ymail.com Page 2

Geography Developing countries - US and Europe

1. ETHOCENTRIC (home country orientation)

The general attitude of a firm's senior management team is that nationals from the organisation's home country are more capable to drive international activities forward than non-native employees working at its headquarters or subsidiaries. The practices and policies of headquarters and of the operating company in the home country become the default standard to which all subsidiaries need to comply. This mind set has as advantages that it overcomes a potential shortage of qualified managers in host nations by expatriating managers from the home country, creates a unified corporate culture and helps transfer core competences more easily by deploying nationals throughout the organisation. The main disadvantages are that an ethnocentric mindset can lead to cultural short-sightedness and to not promoting the best and brightest in a firm. Ex. Surf – Super washout in Japan- Unilever enters Japan Detergent Market

• It releases Surf Super concentrate washing powder in Japan

• Measured sachets for Convenience

• Fresh Smell

• WHAT WENT WRONG??

Un explored market

• Washing powder did not dissolve completely due to weather conditions

• Low agitation washing machines were more popular in Japan, in which the super concentrate surf washing powder did not wash completely

• Fresh smell was not very significant

Overseas marketing is looked after by home country nationals

No systematic research is conducted overseas

No major modifications are made to products sold in overseas markets

Prices are calculated on the same basis as in the home market with the addition of overseas distribution costs

Promotion and distribution strategies are similar to that employed in the home country

Strong reliance on export agents

Costs and Benefits of Ethnocentrism

Costs Benefits

Ineffective Planning due to poor feedback Simple organization

Subsidiary ‘valuable’ executive flight Greater communication and control

Fewer innovations

Mayank_kashyap@ymail.com Page 3

Inability to build a high caliber local org.

Lack of flexibility and responsiveness

2. POLYCENTRIC (host country orientation)

This world view has as dominant assumption that host country cultures are different making a centralised, one-size-fits-all approach unfeasible. Local people know what is best for their operation and should b given maximum freedom to run their affairs as they see fit. This view alleviates the chance of cultural myopia and is often less expensive to implement than ethnocentricity because it needs less expatriate managers to be send out and centralised policies to be maintained. The drawbacks of this attitude are that it can limit career mobility for both local and foreign nationals, isolate headquarters from foreign subsidiaries and reduces opportunities to achieve synergy. Ex- McDonalds – Veg burgers in India

Subsidiaries are established in overseas market

Each subsidiary operates independently with its own marketing objectives and plans

Marketing activities are organized on country by country basis

Marketing research is conducted independently in each country

Separate product lines are developed in each country

Home country products are modified to meet local needs.

Each subsidiary will have its own pricing and promotion policy

Sales personnel from those countries

Traditional channels of distribution of those countries

Costs and Benefits of Polycentrism[edit]

Costs Benefits

Waste due to duplication Intense exploitation of local markets

Localization costs of “universal” products Better sales due to better-informed local management

Inefficient use of home-country experience More initiative for local products

Excessive regard for local traditions at expense of global growth

More host government support

Good local managers with high morale

Mayank_kashyap@ymail.com Page 4

3. REGIOCENTRISM - A regional orientation--Recognizes regional commonalities and leads to the design of regional strategies. In regiocentric approach, the firm accepts a regional marketing policy covering a group of countries which have comparable market characteristics. The operational strategies are formulated on the basis of the entire region rather than individual countries. The production and distribution facilities are created to serve the whole region with effective economy on operation, close control and co-ordination.

For Example a US company that focuses on the countries included in the NAFTA is a Regiocentric Orientation.

Similarly, a European company that focuses its attention on the Europe is Regiocentric.

4. GEOCENTRIC (world orientation)

This orientation does not equate superiority with nationality. Within legal and political limits, executives try to seek the best men, regardless of nationality, to solve the company's problems wherever in the world they occur. This attitude uses human resources efficiently and furthermore helps to build a strong culture and informal management networks. Drawbacks are that national immigration policies may put limits to its implementation and it might be a bit expensive compared to polycentrism. It attempts to balance both global integration and local responsiveness

Costs and Benefits of Geocentrism[edit]

Costs Benefits

High communication and travel costs Integrated global outlook

Educational costs at all levels More powerful total company throughout

Time spent in consensus decision-making Better quality of products and services

International headquarters bureaucracy Worldwide utilization of best resources

“Too wide” distribution of power Improved local country management

Personnel problems, especially those of international executive reentry Greater commitment to global objectives

Higher global profits

Regiocentric and Geocentric

• Region or entire world as potential market

• Firm develops policies and organizes activities on a regional or worldwide basis

• Marketing personnel from the region or from any country

• Standardized product lines for regional or worldwide markets

• Regional or Global channels of distribution are also developed

Mayank_kashyap@ymail.com Page 5

INTERNATIONAL ENTRY MODES

Market entry strategy is influenced by the firm and product characteristics and the domestic and international environment.

A company using different strategies for the same product line in a particular market is common.

Choosing the Mode of Entry

Decision Criteria for Mode of Entry:

◦ Market Size and Growth

◦ Risk

◦ Government Regulations

◦ Competitive Environment/Cultural Distance

◦ Local Infrastructure

Classification of Markets:

Mayank_kashyap@ymail.com Page 6

Platform Countries (Singapore & Hong Kong)

Emerging Countries (Vietnam & the Philippines)

Growth Countries (China & India)

Maturing and established countries (examples: South Korea, Taiwan & Japan)

◦ Company Objectives

◦ Need for Control

◦ Internal Resources, Assets and Capabilities

◦ Flexibility

DIFFERENT ENTRY MODES

Exporting

Licensing/ Franchising

Contract manufacturing

Management contracting

Turnkey contracts

Fully owned manufacturing facilities

Assembly operations

Joint venturing

Third country location

Mergers and acquisitions

Strategic Alliances

Counter trade

Exporting( pg -2.14 maheshwari)

◦ Indirect exporting

◦ Direct Exporting

Exporting is appropriate when

◦ Vol. of foreign business is not large enough to justify production in the foreign market

◦ Cost of prod. In foreign market is high.

◦ Production bottlenecks in foreign markets.

◦ Political or other risks in foreign markets.

◦ Company has no permanent interest in foreign market.

Mayank_kashyap@ymail.com Page 7

◦ Ex: exports of spices, ready to eat food, chutneys, etc. for population in various countries

Licensing/Franchising

A firm in one country (the licensor) permits a firm in other country (the licensee) to use its intellectual property.

◦ The monetary benefit to the licensor is the royalty.

◦ The percentage sales of loyalty is often regulated by the government. In most of the developing countries, it does not exceeds 5% of the sales.

Cross-licensing – where there is a mutual exchange of knowledge and/or patents.

◦ A cash payment may or mat not be involved.

For ex: US apparel giant Tommy Hilfiger Corporation entered into a strategic licensing agreement with the Arvind group to market the Tommy Hilfiger brand in India.

For ex: Nike and Sierra (responsible for complete quality control, marketing, distribution operation and will pay Nike 5% royalty.

Advantages of licensing

◦ Licensor saves on capital investments and earns a return in the form of royalty.

◦ Licenses avoid R&D costs.

◦ Licensor has complete control over its intellectual property.

◦ Licensees carry some of the risk of the failure.

Disadvantages of licensing

◦ Profits are sacrificed by allowing other firms to make the parent company’s goods.

◦ Risk of licensee company entering into the competition after the license period has expired.

◦ Possible ambiguities and difficulties.

◦ Issue of controlling the license.

◦ Problems arising if the licensee turns out to be less competent.

◦ Numerous causes for disagreement and misunderstanding.

Types of licenses

Sole license –

◦ Retains the right but agrees not to extend license to anyone other than a single licensee during the period of agreements.

Exclusive License –

◦ Requires licensor not to use its patents trademarks etc. for their own businesses while licensing contracts are in force.

◦ Leaving these rights entirely to licensees for pre-specified period.

Know how licensing –

Mayank_kashyap@ymail.com Page 8

◦ Means the licensing of confidential, but non-patented technological knowledge.

Assignments –

◦ Firm hands over all its property rights to a licensee.

Franchising –

◦ A form of licensing in which a parent company (the franchiser) grants another independent entity (the franchisee) the right to do business in a prescribed manner.

◦ This right can take the form of selling franchisor’s products using its name, production and marketing techniques or general business approach.

◦ Examples: coca cola supplying the syrup to the bottlers.

Advantages of Franchising

◦ Franchiser can enter global markets with low investment and low risk.

◦ Franchiser can get the information regarding the markets, culture, customs and environment of the host country.

◦ Franchiser learns more lessons from the experiences of the franchisees which he could not experience form home.

◦ Franchisee can also start a business with low risk.

◦ Franchisee gets the benefits of R&D with low costs.

Disadvantages of Franchising

◦ International franchising is more complicated than domestic franchising. Ex: Mc’Donalds told the Russian firms the method of growing potatoes to meet its standards.

◦ Difficulty in controlling the franchisee.

◦ Both the parties have the responsibility to maintain product quality and promotion.

◦ Problem of leakage of trade secrets.

Contract manufacturing

Contract manufacturing is a process that establishes a working agreement between two companies. As part of the agreement, one company custom produces parts or other materials on behalf of their client. In most cases, the manufacturer also handles the ordering and shipment processes for the client. As a result, the client does not have to maintain manufacturing facilities, purchase raw materials, or hire labor in order to produce the finished goods.

A contract manufacturer ("CM") is a manufacturer that contracts with a firm for components or products. It is a form of outsourcing. Many industries use this process, especially the aerospace, defense, computer, semiconductor, energy, medical, food manufacturing, personal care, and automotive fields.Ex- The iPad and iPhone, which are products from Apple Inc., are manufactured in China by Foxconn. Hence, Foxconn is a contract manufacturer and Apple benefits from a lower cost of manufacturing devices. Ex:

◦ Nike : South east Asia (athletic footwear's)

◦ Mega Toys : China

Mayank_kashyap@ymail.com Page 9

Business model

In a contract manufacturing business model, the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the parts based on processes, labor, tooling, and material costs. Typically a hiring firm will request quotes from multiple CMs. After the bidding process is complete, the hiring firm will select a source, and then, for the agreed-upon price, the CM acts as the hiring firm's factory, producing and shipping units of the design on behalf of the hiring firm.

Benefits

Cost Savings – Companies save on their cost of capital because they do not have to pay for a facility and the equipment needed for production. They can also save on labor costs such as wages, training and benefits. Some companies may look to contract manufacture in low-cost countries, such as China, to benefit from the low cost of labor.[1]

Mutual Benefit to Contract Site – A contract between the manufacturer and the company it’s producing for may last several years. The manufacturer will know that it will have a steady flow of business until then.[1]

Advanced Skills – Companies can take advantage of skills that they may not possess, but the contract manufacturer does. The contract manufacturer is likely to have relationships formed with raw material suppliers or methods of efficiency within their production.[2]

Quality – Contract Manufacturers are likely to have their own methods of quality control in place that helps them to detect counterfeit or damaged materials early.

Focus– Companies can focus on their core competencies better if they can hand off base production to an outside company.[2]

Economies of Scale – Contract Manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring raw materials by benefiting from economies of scale. The more units there are in one shipment, the less expensive the price per unit will be

Risks

Lack of Control – When a company signs the contract allowing another company to produce their product, they lose a significant amount of control over that product. They can only suggest strategies to the contract manufacturer; they cannot force them to implement them.

Relationships - It is imperative that the company forms a good relationship with its contract manufacturer. The company must keep in mind that the manufacturer has other customers. They cannot force them to produce their product before a competitor’s. Most companies mitigate this risk by working cohesively with the manufacturer and awarding good performance with additional business.

Quality concerns – When entering into a contract, companies must make sure that the manufacturer’s standards are congruent with their own. They should evaluate the methods in which they test products to make sure they are of good quality. The company has to rely on the contract manufacturer for having good suppliers that also meet these standards.

Intellectual Property Loss – When entering into a contract, a company is divulging their formulas or technologies. This is why it is important that a company not give out any of its core competencies to contract manufacturers. It is very easy for an employee to download such information from a computer and steal it. The recent increase in intellectual property loss has corporate and government officials struggling to improve security. Usually, it comes down to the integrity of the employees.

Mayank_kashyap@ymail.com Page 10

Outsourcing Risks – Although outsourcing to low-cost countries has become very popular, it does bring along risks such as language barriers, cultural differences and long lead times.[2] This could make the management of contract manufacturers more difficult, expensive and time-consuming.

Capacity Constraints – If a company does not make up a large portion of the contract manufacturer’s business, they may find that they are de-prioritized over other companies during highproduction periods. Thus, they may not obtain the product they need when they need it.

Loss of Flexibility and Responsiveness - Without direct control over the manufacturing facility, the company will lose some of its ability to respond to disruptions in the supply chain. It may also hurt their ability to respond to demand fluctuations, risking their customer service levels.

MANAGEMENT CONTRACTING

A management contract is an agreement between two companies whereby one company provides managerial assistance, technical expertise and specialized services to the second company of the agreement for a certain agreed period in return for monetary compensation.

It may include

◦ A flat fee

◦ Percentage over sales

◦ Performance bonus based on profitability sales growth, production or quality measure.

Advantages

◦ Foreign company earns additional income without any additional investment, risk and obligation.

◦ Additional income may be further used for expansion etc.

◦ Helps the company to enter other business areas in the host country.

◦ Provides organizational skills not available locally

Disadvantages

◦ Over dependence and loss of control.

◦ Some Indian companies like Tata Tea, Harrisons Malayalam etc have such contracts in Sri Lanka.

Turnkey Contracts

Contract under which a firm agrees to fully design, construct and equip a manufacturing/ business / service facility and turn the project over to the purchased when it is ready for operations for a remuneration.

Forms of remuneration

◦ A fixed price

◦ Payment on cost plus basis

International turnkey projects include nuclear power plant, air ports, oil refineries, national highways, etc.

Ex: Bharat Heavy Electricals Limited (BHEL) won a major contract for setting up Grid-Interactive solar power plants of 1100 kW capacity on a turnkey basis, in the Lakshadweep islands.

Fully owned Manufacturing Facilities

Mayank_kashyap@ymail.com Page 11

This method demands sufficient financial and managerial resources on the part of the company.

Advantages

◦ Complete control over production and quality

◦ Risk of developing potential competitors is comparatively less.

Disadvantages

◦ Cost of production in a foreign market is high initially.

◦ Problems like technology, non-skilled labor, production bottlenecks, etc.

◦ Not beneficial if the size of foreign market is small.

Assembly Operations

Many US firms adopt this method. They ship the parts and components to other locations for assembling and bring back the finished product even for domestic trade.

Advantages

Import duty is normally low on part components as compared to finished products.

Because of employment generation, foreign country govt. gives positive response.

Investment to be made is less.

Third Country location

When there is no commercial transaction between two nations because of political reasons or when direct transactions between two nations are difficult due to political reasons.

Ex: Taiwanese entrepreneurs found it easy to enter People’s Republic Of China through bases in Hongkong.

Ex: Xerox entered USSR through its Indian Joint Venture Modi Xerox.

Joint Ventures

Joint venture

A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

With individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are "co-venturers".

The venture can be for one specific project only - when the JV is referred to more correctly as a consortium (as the building of the Channel Tunnel) - or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for one-time contracts. The JV is dissolved when that goal is reached.

Joint ventures are collaborative arrangements between unrelated parties, which exchange or combine various resources while retain their separate and legal status.

Types

Mayank_kashyap@ymail.com Page 12

◦ Equity – each partner taking an equity stake in the venture, by setting up a joint subsidiary with its own share capital and legal status as a corporate equity.

◦ Contractual – there is an agreement for knowledge sharing, mutual licensing and other arrangements for resource sharing

Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson, Penske Truck Leasing, Norampac, and Owens-Corning.

A successful joint venture can offer:

access to new markets and distribution networks

increased capacity

sharing of risks and costs with a partner

access to greater resources, including specialised staff, technology and finance

The risks of joint ventures

Partnering with another business can be complex. It takes time and effort to build the right relationship. Problems are likely to arise if:

the objectives of the venture are not totally clear and communicated to everyone involved

the partners have different objectives for the joint venture

there is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners

different cultures and management styles result in poor integration and co-operation

the partners don't provide sufficient leadership and support in the early stages

Advantages

◦ Firms can expand into several foreign markets simultaneously.

◦ Local partner provides valuable knowledge of local market.

◦ By sharing distribution network premises and employees of local partner, cost and start time can be reduced.

◦ Business failures are shared.

◦ In case when govt. does not allow 100% FDI, JVs are good mode of entering foreign market.

Disadvantages

◦ JV risks giving control of its technology to its partner.

◦ JV does not give a firm the tight control over its subsidiaries.

Mayank_kashyap@ymail.com Page 13

◦ Shared ownership arrangements can lead to conflicts and battles for control between the investing firms.

◦ It may difficult to withdraw from a JV agrements.

◦ Not successful if there is lack of close coordination and trust between firms.

◦ Profits are required to be shared.

Mergers and Acquisitions

Merger is defined as a combination of two or more companies into a single company. A merger can take place either as an amalgamation or absorption.

Acquisition involve buying the assets of another company. These assets may be tangible assets like a manufacturing unit or intangible assets like brands. In such acquisitions, the acquirer company can limit its acquisitions to those parts of the firm that coincide with the acquirer’s needs.

The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations. From a legal point of view, a merger is a legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner (in which case the target company still exists as an independent legal entity controlled by the acquirer). Either structure can result in the economic and financial consolidation of the two entities. In practice, a deal that is an acquisition for legal purposes may be euphemistically called a "merger of equals" if both CEOs agree that joining together is in the best interest of both of their companies, while when the deal is unfriendly (that is, when the target company does not want to be purchased) it is almost always regarded as an "acquisition".

Types of M&A by functional roles in market[edit]

The M&A process itself is a multifaceted which depends upon the type of merging companies.

A horizontal merger is usually between two companies in the same business sector. The example of horizontal merger would be if a health care system buys another health care system. This means that synergy can obtained through many forms including such as; increased market share, cost savings and exploring new market opportunities.

A vertical merger represents the buying of supplier of a business. In the same example as above if a health care system buys the ambulance services from their service suppliers is an example of vertical buying. The vertical buying is aimed at reducing overhead cost of operations and economy of scale.

Conglomerate M&A is the third form of M&A process which deals the merger between two irrelevant companies. The example of conglomerate M&A with relevance to above scenario would be if health care system buys a restaurant chain. The objective may be diversification of capital investment.

Arm's length mergers[edit]

An arm's length merger is a merger: 1. approved by disinterested directors and 2. approved by disinterested stockholders:

″The two elements are complementary and not substitutes. The first element is important because the directors have the capability to act as effective and active bargaining agents, which disaggregated stockholders do not. But, because bargaining agents are not always effective or faithful, the second element is critical, because it gives the minority stockholders the opportunity to reject their agents' work. Therefore, when a merger with a controlling stockholder was: 1) negotiated and approved by a special committee of independent directors; and 2) conditioned on an affirmative vote of a majority of the minority stockholders, the business judgment standard of review should presumptively apply, and any plaintiff ought to have to plead particularized facts that, if true, support an inference that, despite the facially fair process, the merger was tainted because of fiduciary wrongdoing.″[16]

Strategic Mergers[edit]

Mayank_kashyap@ymail.com Page 14

A Strategic merger usually refers to long term strategic holding of target (Acquired) firm. This type of M&A process aims at creating synergies in the long run by increased market share, broad customer base, and corporate strength of business. A strategic acquirer may also be willing to pay a premium offer to target firm in the outlook of the synergy value created after M&A process.

So-called 'Acqui-hires'[edit]

An acquisition is sometimes referred to as an acqui-hire when the acquiring company seeks primarily to obtain the target's staff, which may have expertise in a particular area in which the acquiring company sees itself as weak. This type of acquisition is common in the technology industry.

Advantages of Mergers

Reducing competition

Getting access to proprietary products or services

Gaining access to new products and services

Access to technical expertise

Access to an established brand name

Economies of scale

Diversification of business risk

Disadvantages of Mergers & Acquisitions

Incompatibility of top management

Clash of corporate cultures

Operational problems

Increased business complexity

Loss of organizational flexibility

notable M&A deals from 2010 to 2013 include

Year Purchaser Purchased Transaction value (in USD)

2011 Google Motorola Mobility 9,800,000,000

2011 Microsoft Corporation Skype 8,500,000,000

2011 Berkshire Hathaway Lubrizol 9,220,000,000

2012 Deutsche Telekom MetroPCS 29,000,000,000

2013 Softbank Sprint Corporation 21,600,000,000

2013 Berkshire Hathaway H. J. Heinz Company 28,000,000,000

2013 Microsoft Corporation Nokia Handset & Services Business 7,200,000,000

Mayank_kashyap@ymail.com Page 15

Strategic Alliance(more explanation on chap-6 maheshwari)

In a strategic alliance both parties contribute to their joint venture their respective resources and capability

Aim is to add greater value to their respective positions

By doing so, to

◦ Increase their financial return

◦ To access the capability of their partner which they themselves lack

◦ To acquire skills that they themselves may lack

Characteristics of Inter’l Strategic Alliance

1. Number of partners may be two or more

2. Industry characteristics of partners may or may not be different

3. Size of partners: same or divergent

4. Nationality of partners: Local or Foreign

5. Formality of alliance ; Formal/Informal

6. Equity or non-equity

7. Nature and extent of commitment of parties to an alliance: Equity or Commitment (Intensity)

8. 8. Length of association: depends on mutuality

9. 9. Number of foreign markets for joint activity depends on agreement

10. 10. Initiating source: from inside the alliance or Govt Intervention

11. 11. Importance of alliance partners: Minor/ significant

12. 12. Nature of alliance goals: Technological, market entry/expansion, competition, and access to resources, etc.

Stages of Alliance Formation

1. Strategy Development: feasibility, objectives and rationale

2. Partner Assessment

3. Contract Negotiation

4. Alliance Operation

5. Alliance Termination

Objectives of a SA

1. To Enhance Capability and Competence: Nissan sources Maruti’s A-Star small car from its Manesar factory and sells them as Nissan Pixo in Europe

2. To Enhance Value Creation: Maruti & Volks Wagon have planned joint action in product development & mfg. in India.

• To Leverage Resources – Hamel & Prahlad have suggested that strategic alliances may be used to -

• concentrate resources

Mayank_kashyap@ymail.com Page 16

• accumulate resources

• Complement resources

• Conserve resources

• Recover resource

• 4. To Enhance Market Position and Achieve Business Development

• 5. To Achieve Globalisation

• 6. Risk Management: to maximize the inputs of competence and experience to projects that are novel, uncertain or ambiguous

Types of Strategic Alliances

• Equity and Non-equity Alliances (cooperative alliances)

• Equity alliance can be in the form of separately contributing in the equity of a joint venture or reciprocal minority participation in one or each other’s equity.

• Functional or cooperative Alliances:

– Product and Service Alliances - jointly market complementary products or a new product/service, Star Alliance

– Promotional Alliances: PepsiCo forged alliance with Adidas, Microsoft, Yahoo! And Indian Partners for World Cup Cricket 2007

– Logistical Alliances: Ford Motor Company’s alliance with United Parcel Company to facilitate the delivery of vehicles from Ford plants to dealers and customers in North America.

– Research and Development Alliances: Hero Motocorps has joined hands with the US-based Eric Buel Racing (EBR) and Austria-based AVL to source technology for building products and engines of different categories.

– Acquisition Alliance: Shell and the Indian Consortium led by state-run ONGC have entered into an alliance to acquire 20% stake in a giant offshore field in Mozambique.

Benefits of SA

• Flexibility through collaboration – Small funds

• Risk and cost are also shared

• Synergy leads to achieve co-specialisation: IBM-Cisco alliance

• Scope of internationalisation broadens due to Cheaper and comfortable market entry

• Achieving necessary cost and differential advantages by reconfiguring its value activities

• Brings in technology to the marketplace faster

• Facilitate the learning experience

• To position against a potential powerful rival: Yahoo & e-bay against Google

Costs associated with Strategic Alliances

1. Cost of coordinating the often divergent interests of the partners.

2. Alliance may create potential competitors.

Mayank_kashyap@ymail.com Page 17

3. Alliance can create an adverse bargaining position when one partner captures a greater share of the value added.

4. Alliances may consume an inordinate amount of management time to sort out likely differences.

Conflicts in SA

• Language and cultural differences may lead to differences in communication styles and conflict handling.

• Staff appointments to the alliance.

• Disagreements over alliance autonomy, strategy and policy, and a host of operational aspects.

• Use of transfer pricing and profit remittances by foreign partner as damaging to the performance of alliance.

• The utilization and security of technology and intellectual property.

• Conflict between the ‘parents’.

Suitability of International SA

• Local Partners Knowledge Pool - Honda entered India, it formed a joint venture with Hero group, Samsung entered India in December 1996, it formed a joint venture with Videocon.

• Host country’s Regulations and Requirements – MBRT Cap of 51%

• Sharing Risks among the Partners: Airbus

• Sharing technology : Ericson & Soni

• Economies of Scale : Toyota with Kirloskar

• Different Objectives: CItoh Japan), Tyson Foods (United States) and Provemex (Mexico) for yakitori.

Managing Strategic Alliances

• Partner Selection: Strategic fit (complementary skills and resources), organisational fit (in terms of structures, processes, and history), & cultural fit (sharing norms and values), level of internationalisation, broader scope of products, and competitive intensity (levels of competition)

• Developing Appropriate processes –designing structures and processes include the extent to which management addresses the level of internalisation of the partners, scope economies and competitive intensity. Assessment of learning trajectories fostering transparency, and building trust.

• Designing controls and coordination mechanisms.

Some examples of Strategic Alliances

In R&D:

Microsoft and Nokia-a software partnership for Nokia’s Windows Phones.

CISCO Systems’ agreement with China’s biggeston- line commercial company Alibaba, to explore business services for SMEs.

Claris (India) manufacturer of sterile injectables has an out-licensing agreement with pfizer to develop products for the US.

Manufacture :Chrysler–Fiat partnership to build compact and subcompact jeeps

GSK- Dr.ReddyLabs: The Indian company will manufacture nearly100 products mainly under GSK brand name for sale in some emerging markets.

Mayank_kashyap@ymail.com Page 18

Marketing: Abbott(US)’s alliance with Zydus-Cadila of Ahmadabad whereby Abbott will license 24 branded generics of Zydus in 15 emerging markets.

WIPRO-GE jointventure to distribute approximately 85% of GE’s healthcare products and solutions in India.

Pfizer and Biocon: To market Biocon’s insulinbiosimilar products in world markets.

For Market Entry:

Tommy Hilfiger/PHV group last October acquired a stake inMurjani group’s Arvind Murjani Brands in a possible move to bring the former’s brands in to India

Transcend Information Inc, a global player in many telecom accessories has an agreement with Bharti Teletech to distribute the entire portfolio of Transcend products in India

For Sales:

Nestle and General Mills (US) agreement whereby the product Honey net Cheerios was made in General Mills’ US plants,

Counter Trade

Countertrade means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money.

Ex: In 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to UN approval under Article 50 of the UN Gulf War sanctions, that would facilitate 300,000 barrels of oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were valued at about $22 a barrel. In 2001, India agreed to swap 1.5 million tonnes of Iraqi crude under the oil-for-food program.

It is a form of trade in which a seller and a buyer from different countries exchange merchandise with little or no cash.

Mayank_kashyap@ymail.com Page 19

Counter Trade accounts for nearly 20 % of world trade.

Types of Countertrade

Barter- direct exchange of goods or services having equivalent values without a cash transaction.

Counter purchase: Sale of goods and services to one company in other country by a company that promises to make a future purchase of a specific product from the same company in that country.

Buyback or compensation: involves repayment in the form of goods derived from directly from, or produced by, the technology, plant, or equipment provided by the seller

Offsets: involves an arrangement whereby the seller is required to assist in or to arrange for the marketing of products produced by the buying country or to allow some portion of the exported product to be assembled or manufactured by producers located in the buying country.

Why countertrade?

shortage of hard currency

lack of credit

BOP problems

low commodity prices - low export income

surplus capacity

lack of a well developed private sector

lack of international trading experience

LDCs - low share of manufactured goods in intl trade

Benefits of Countertrade

Allows entry into difficult markets

Increases company sales

Overcomes currency controls & exchange Problems

Increases sales volume

Overcomes credit difficulties

Allows fuller use of capacity

Allows disposal of declining products

Provides sources of attractive inputs

Gain competitive edge over competition

Disadvantages of Countertrade

No “in house” use of goods offered by Customers

Time consuming and complex negotiations

Uncertainty

Increase costs

Mayank_kashyap@ymail.com Page 20

Difficult to resell goods by offsets

Brokerage costs

Getting businesses in which firm may have no knowledge

Foreign Market Entry Barriers

Barriers to entry are designed by any government policy or regulation to block potential entrants from entering a market profitably.

They seek to protect the monopoly power of existing firms and therefore maintain supernormal profits long run.

They affect the market structure in long run.

Types

Tariffs

Import License

Export License

Import Quotas

Subsidies

Voluntary Export Restraints

Local Content Requirement

Embargo

A. Tariffs Tariffs refer to the tax imposed on Imports. Although they can also be imposed upon Exports. Types of Tariffs:

a. Specific Tariffs (are levied as a fixed charge for each unit of the product imported). b. Ad Valorem (are levied as a proportion of the value of the imported goods.)

Purpose of the tariffs is to protect the domestic industry by increasing the cost of imported goods. Govt. of India imposed tariffs to protect domestic automobile industry, sugar industry, cement industry and steel industry. Parties gaining from the Tariffs

Govt. of Importing Countries. Industry of Importing Countries. Jobs in the importing countries

Parties Adversely affected by the tariffs

Consumers of the domestic country. Industry of exporting country.

B. Import License

It is a document issued by a national government authorizing the importation of certain goods into its territory.

They are considered to be Non-Tariff Barriers to trade when used as a way to discriminate against another country’s goods in order to protect domestic industry.

Mayank_kashyap@ymail.com Page 21

Each license specifies the volume of imports allowed. Total volume allowed should not exceed the quota.

C. Export License

A document indicating that a government has granted a licensee the right to export specified goods to specified countries.

D. Import Quotas

It is a direct restriction on the quantity of goods which are imported into a country.

Quotas may lead to corruption, smuggling and higher prices for consumers.

Example, Under the Multifibre Arrangement,begun in 1974, import quotas restricted the amount of nearly every textile and apparel product that was imported to Canada, the European countries, and the United States. These countries limited their textile imports to protect their own domestic firms producing those products. With the end of the MFA, China was ready to enjoy greatly increased exports—but this did not occur. The threat of import competition from China led the United States and Europe to negotiate new import quotas with China

E. Subsidies

In order to encourage domestic production or to protect the domestic producers from the foreign competitors, government pays to a domestic producer by reducing operational costs. These are called subsidies.

Subsidies help the domestic producers in following way: o Have all the advantages of low cost producer. o Compete with a foreign producer in domestic market. o Enter the foreign market. o Not only the developing nations , but developed nations also provide subsidies to domestic firms like

UK, USA, Japan, Italy etc. Advantages:

International competitiveness. Economics of scale and low cost production.

Example, Dr. Reddy’s lab got the advantage of low cost producer and the first mover advantage to Asian and African countries. Disadvantages:

Subsidies are the national costs. Sometimes, subsidies protect the inefficiency and lethargy of the domestic firms.

Subsidies are necessary for sustainability of agricultural sector and small scale industrial sectors in developing countries.

F. Embargo

An embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it.

Philippines (by Hong Kong), consumer goods, enacted 2010.

Libya (by United Nations), weapons, enacted 2011 after mass killings of Libyan protesters/rebels.

Japan, animal shipments due to lack of infrastructure and radiation issue after the 2011 9.0 earthquake aftermath.

Pakistan (by UK), nuclear exports restriction, enacted 2002.

Georgia (by Russia), agricultural products, wine, mineral water, enacted 2006

Mayank_kashyap@ymail.com Page 22

g. Antidumping Duties

Anti-dumping duties are assessed generally in an amount equal to the difference between the importing country's FOB price of the goods and (at the time of their importation) the market value of similar goods in the exporting country or other countries.

Example, India has imposed anti-dumping duty of up to USD 1.41 per kg on imports of a gas, used primarily for refrigeration purpose, to protect domestic players from cheap Chinese and Japanese shipments.

h. Countervailing duties (CVDs)/ Anti Subsidy duties

A "countervailing duty" is a special duty levied, in addition to the regular duty and other charges, by an importing country on its imports which have been found to be subsidized in the country of origin or exportation.

Additional import duty imposed to offset the effect of concessions and subsidies granted by an exporting country to its exporters. Imposition of a countervailing duty is an attempt to bring the imported price to its true market price, and thus provides a level playing field to the importing country's producers.

imposed under WTO Rules to neutralize the negative effects of subsidies.

Petitions for remedies may be filed by domestic manufacturers or unions within the domestic industry, however the law requires that the petitioners represent at least 25% of the domestic production of the goods for which competition is causing material injury.

I.local content requirement

A rule concerning the content of manufactured goods which must contain a certain proportion of material which is locally produced and not imported. In free-trade areas goods which are exempt from tariffs must contain a certain percentage of material from member countries of the area.

A minimum level of local content is sometimes a requirement under trade laws when giving foreign companies the right to manufacture in a particular place.

Example: In Nigeria, the government with the help of major oil companies such as Chevron has increased local content and indigenous participation in the oil and gas sector.

j. VOLUNTARY EXPORT RESTRAINTS

A trade restriction on the quantity of a good that an exporting country is allowed to export to another country.

This limit is self-imposed by the exporting country.

Typically, VERs are a result of requests made by the importing country to provide a measure of protection for its domestic businesses that produce substitute goods. VERs are often created because the exporting countries would prefer to impose their own restrictions than risk sustaining worse terms from tariffs and/or quotas.

The most notable example of VERs is when Japan imposed a VER on its auto exports into the U.S. as a result of American pressure in the 1980s. The VER subsequently gave the U.S. auto industry some protection against a flood of foreign competition.

However, there are ways in which a company can avoid a VER. For example, the exporting country's company can always build a manufacturing plant in the country to which exports would be directed. By doing so, the company will no longer need to export goods, and should not be bound by its country's VER.

International business strategy International business strategy refers to plans that guide commercial transactions taking place between entities in different countries. Typically, international business strategy refers to the plans and actions of private companies rather than governments; as such, the goal is increased profit.

Mayank_kashyap@ymail.com Page 23

The three most prevalent philosophies of international business strategy are:

industry-based,[2]

which argues that conditions within a particular industry determine strategy;

resource-based,[3]

which argues that firm-specific differences determine strategy;

institution-based,[4]

which argues that the industry- and resource-based views need to be supplemented by accounting for relevant societal differences of the types mentioned above.

Strategic choices

Four basic strategies to enter and compete in the international environment:

◦ International strategy

Create value by transferring valuable core competencies to foreign markets that indigenous competitors lack

Centralize product development functions at home

Establish manufacturing and marketing functions in local country but head office exercises tight control over it

Limit customization of product offering and market strategy

Strategy effective if firm faces weak pressures for local responsive and cost reductions

◦ Multi domestic strategy

Main aim is maximum local responsiveness

Customize product offering, market strategy including production, and R&D according to national conditions

Possess high cost structure

Example: Toyota

◦ Global strategy

Focus is on achieving a low cost strategy by reaping cost reductions that come from experience curve effects and location economies

Production, marketing, and R&D concentrated in few favorable functions

Market standardized product to keep cost’s low

Effective where strong pressures for cost reductions and low demand for local responsiveness

semiconductor industry, Dr. Reddy’s

◦ Transnational strategy

To meet competition firms aim to reduce costs, transfer core competencies while paying attention to pressures for local responsiveness

Transnational company produces, markets, invests, and operates across the world.

It is an integrated global enterprise that links global resources with global markets at profit.

Global learning

Valuable skills can develop in any of the firm’s world wide operations

Mayank_kashyap@ymail.com Page 24

Transfer of knowledge from foreign subsidiary to home country, to other foreign subsidiaries

Example : Coca- Cola, Pepsi

Organizational structure

An organizational structure consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organizational aims.[1] It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment

Organization Design may be defined as the total pattern of structural elements and patterns used to manage the overall organization

Organizational Design should be seen as a tool for the implementation of organizational strategies and the attainment of organizational goals.

Organizational structure types

Pre-bureaucratic structures[edit]

Pre-bureaucratic (entrepreneurial) structures lack standardization of tasks. This structure is most common in smaller organizations and is best used to solve simple tasks. The structure is totally centralized. The strategic leader makes all key decisions and most communication is done by one on one conversations. It is particularly useful for new (entrepreneurial) business as it enables the founder to control growth and development.

They are usually based on traditional domination or charismatic domination in the sense of Max Weber's tripartite classification of authority

Bureaucratic structures[edit]

Weber (1948, p. 214) gives the analogy that “the fully developed bureaucratic mechanism compares with other organizations exactly as does the machine compare with the non-mechanical modes of production. Precision, speed, unambiguity, … strict subordination, reduction of friction and of material and personal costs- these are raised to the optimum point in the strictly bureaucratic administration.”[5] Bureaucratic structures have a certain degree of standardization. They are better suited for more complex or larger scale organizations, usually adopting a tall structure. The tension between bureaucratic structures and non-bureaucratic is echoed in Burns and Stalker's[6] distinction between mechanistic and organic structures.ex-mcdonalds

Ideal bureaucracy has following characteristics:

Each organization

◦ should create an absolute and clear division of labor and staff each job with an expert in that particular staff.

◦ Should establish a hierarchy of position

◦ Should establish a concise and consistent set of rules and regulations

◦ Should establish specific personnel policies and practices

◦ Managers should conduct business in an impersonal manner, maintaining an appropriate social distance from their sub ordinates

◦ Clear defined roles and responsibilities

◦ Respect for merit

Post-bureaucratic

Mayank_kashyap@ymail.com Page 25

The term of post bureaucratic is used in two senses in the organizational literature: one generic and one much more specific.[7] In the generic sense the term post bureaucratic is often used to describe a range of ideas developed since the 1980s that specifically contrast themselves with Weber's ideal type bureaucracy. This may include total quality management, culture management and matrix management, amongst others. None of these however has left behind the core tenets of Bureaucracy. Hierarchies still exist, authority is still Weber's rational, legal type, and the organization is still rule bound. Heckscher, arguing along these lines, describes them as cleaned up bureaucracies,[8] rather than a fundamental shift away from bureaucracy. Gideon Kunda, in his classic study of culture management at 'Tech' argued that 'the essence of bureaucratic control - the formalisation, codification and enforcement of rules and regulations - does not change in principle.....it shifts focus from organizational structure to the organization's culture'.

The Behavioral Model

Reflects the social and psychological implications of organizational life

Following are the two behavioral models of OD:

◦ Socio Technical systems theory---Establishes two premises for OD:

◦ a social system that provides the framework for all the human interactions that sustain both the formal and informal organizations

◦ a technical system that provides the framework for the tasks that produce the organizations goods and services

◦ Likert’s Systems 4 organization---- Rensis Likert’s research deals with the following eight characteristics of organizations:

◦ The Leadership Process

◦ The Motivation Process

◦ The communication Process

◦ The Interaction Process

◦ The Decision Process

◦ The Goal Setting Process

◦ The Control Process

◦ The Performance Goals

Functional structure

Employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering department would be staffed only with software engineers. This leads to operational efficiencies within that group. However it could also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.

Divisional structure[edit]

Also called a "product structure", the divisional structure groups each organizational function into a division. Each division within a divisional structure contains all the necessary resources and functions within it. Divisions can be categorized from different points of view. One might make distinctions on a geographical basis (a US division and an EU division, for example) or on product/service basis (different products for different customers: households or companies). In another example, an automobile company with a divisional structure might have one division for SUVs, another division for subcompact cars, and another division for sedans.

Mayank_kashyap@ymail.com Page 26

Each division may have its own sales, engineering and marketing departments.

Matrix structure

The matrix structure groups employees by both function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department. Matrix structure is amongst the purest of organizational structures, a simple lattice emulating order and regularity demonstrated in nature.

Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project. The functional managers maintain control over their resources and project areas.

Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing of power is a delicate proposition.

Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.

Organizational circle: moving back to flat[edit]

The flat structure is common in small companies (entrepreneurial start-ups, university spin offs). As companies grow they tend to become more complex and hierarchical, which leads to an expanded structure, with more levels and departments.

Team[edit]

One of the newest organizational structures developed in the 20th century is team. In small businesses, the team structure can define the entire organization.[15] Teams can be both horizontal and vertical.[17] While an organization is constituted as a set of people who synergize individual competencies to achieve newer dimensions, the quality of organizational structure revolves around the competencies of teams in totality.[18] For example, every one of the Whole Foods Market stores, the largest natural-foods grocer in the US developing a focused strategy, is an autonomousprofit centre composed of an average of 10 self-managed teams, while team leaders in each store and each region are also a team. Larger bureaucratic organizations can benefit from the flexibility of teams as well. Xerox, Motorola, and DaimlerChrysler are all among the companies that actively use teams to perform tasks.

Network[edit]

Another modern structure is network. While business giants risk becoming too clumsy to proact (such as), act and react efficiently,[19] the new network organizations contract out any business function, that can be done better or more cheaply. In essence, managers in network structures spend most of their time coordinating and controlling external relations, usually by electronic means. H&M is outsourcing its clothing to a network of 700 suppliers, more than two-thirds of which are based in low-cost Asian countries. Not owning any factories, H&M can be more flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy.[20] The potential management opportunities offered by recent advances in complex networks theory have been demonstrated [21] including applications to product design and development,[22] and innovation problem in markets and industries.[23]

Virtual[edit]

Virtual organization is defined as being closely coupled upstream with its suppliers and downstream with its customers such that where one begins and the other ends means little to those who manage the business processes within the entire organization. A special form of boundaryless organization is virtual. Hedberg, Dahlgren, Hansson, and Olve (1999) consider the virtual organization as not physically existing as such, but enabled by software to exist.[24] The virtual organization exists within a network of alliances, using the Internet. This means while the core of the

Mayank_kashyap@ymail.com Page 27

organization can be small but still the company can operate globally be a market leader in its niche. According to Anderson, because of the unlimited shelf space of the Web, the cost of reaching niche goods is falling dramatically. Although none sell in huge numbers, there are so many niche products that collectively they make a significant profit, and that is what made highly innovative Amazon.com so successful.

Unit-2 Global Human Resource Management IHRM

International human resource management is all about the world wide management of human resources – Process of sourcing, allocating, and effectively utilizing their skill, knowledge, ideas and plan.

“The process of procuring, allocating and effectively utilizing human resources in an international business” is called International Human Resource Management or IHRM.

Process of acquiring, developing, allocating and utilizing human resources in a global corporation to achieve organizational objectives irrespective of geographical boundaries.

IHRM is the process of procuring, allocating, and effectively utilizing human resources in a multinational corporation.

How IHRM is different from HRM?

1. Encompass more functions—requires a much broader perspective on even the most common HR activities.

2. Have more heterogeneous functions—

International taxation: Expatriates are subject to international taxation, and have both domestic (i.e., home-country) and host-country tax liabilities.

3. Involves constantly changing perspectives

4. Requires more involvement in employees personnel lives

Many multinationals have an ‘International HR Services’ section that coordinates administration of various programmes and provides services for PCNs and TCNs such as handling their banking, investments, home rental while on assignment, coordinating home visits, and final repatriation.

5.Involves a greater level of risk—

If HR policies antagonize host-country unions or important political group, the MNC may be asked to leave the country.

Terrorism is another aspect of risk exposure relevant to IHRM—HR department may need to devise emergency evacuation procedures for highly volatile assignment locations.

Dimensions of IHRM

According to P.V. Morgan: IHRM is the interplay among 3 dimensions:

1. HR Activities: Broad activities of IHRM – procurement, allocation and utilization of human resources cover all the six activities of domestics HRM i.e., HR planning, Employees Hiring, Training and Development, Remuneration, Performance Management and Industrial Relations.

2. Types of countries: The three national or country categories involved in IHRM activities are:

- The host country where subsidiary may be located

- The home country where the company has its head quarters

Mayank_kashyap@ymail.com Page 28

- Other countries that may be sources of labor or finance

3. Types of Employees: of an international business are -

– Parent Country Nationals (PCNs) , Host Country Nationals (HCNs) and Third Country Nationals (TCNs).

ISSUES IN IHRM

• Managing international assignments

• Employee and family adjustment

• Selecting the right person for a foreign assignment

• Managing a multicultural workforce

• Developing managerial talent in a global business environment.

• Language and communication

Approaches to IHRM

Ethnocentric, Polycentric, Regiocentric, Geocentric

Global Marketing Management

Marketing is “ the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange that satisfy individual and organisational objectives.

Marketing involves customer satisfaction and their current and future needs.

Marketing is much more than selling and involves the entire company.

Within marketing strategies, companies are always under competitive pressure to move forward both reactively and proactively.

Extension of these activities across the globe is refereed to as International Marketing.

Why Global Marketing is Imperative

Saturation of domestic markets: Domestic-market saturation in the industrialized parts of the world and marketing opportunities overseas are evident in global marketing.

Global competition: Competition around the world and proliferation of the Internet are on the rise.

Need for global cooperation: Global competition brings global cooperation.

Internet revolution: The Internet and electronic commerce (e-commerce) are bringing major structural changes to the way companies operate worldwide.

The term “global” epitomizes both the competitive pressure and expanding market opportunities.

Whether a company operates domestically or across national boundaries, it can no longer avoid competitive pressures from around the world.

Mayank_kashyap@ymail.com Page 29

Marketing Strategy

Standardization (Global Integration Pressures)

Adaptation (Local Responsiveness Pressures)

Buyer behavior (cultural, economic influence, brand perception--country of origin idea)

Laws, regulations

Local environment needs

Responsiveness to local condition shifts

Explain International Marketing Mix: Product,price,place promotion , New Product Development,

Grey Marketing- A grey market (also spelled gray market), or parallel market,[1]

is the trade of a commodity through

distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer. The most common type of grey market is the sale of imported goods (brought by small import companies or individuals not authorized by the manufacturer) which would otherwise be more expensive in the country they are being imported to. An example is drugs being imported into nearby wealthier nations where the drug manufacturer charges a higher price for a similar or equivalent product.

Hofstede's cultural dimensions theory

is a framework for cross-cultural communication, developed by Geert Hofstede. It describes the effects of a society's culture on the values of its members, and how these values relate to behavior, using a structure derived from factor analysis

Dimensions of national culture

Power Distance Index Power distance is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more versus less), but defined from below, not from above. It suggests that a society's level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that "all societies are unequal, but some are more unequal than others".

Uncertainty avoidance index (UAI): "a society's tolerance for uncertainty and ambiguity". It reflects the extent to which members of a society attempt to cope with anxiety by minimizing uncertainty. People in cultures with high uncertainty avoidance tend to be more emotional. They try to minimize the occurrence of unknown and unusual circumstances and to proceed with careful changes step by step planning and by implementing rules, laws and regulations. In contrast, low uncertainty avoidance cultures accept and feel comfortable in unstructured situations or

Mayank_kashyap@ymail.com Page 30

changeable environments and try to have as few rules as possible. People in these cultures tend to be more pragmatic, they are more tolerant of change

Individualism (IDV) vs. collectivism: "The degree to which individuals are integrated into groups". In individualistic societies, the stress is put on personal achievements and individual rights. People are expected to stand up for themselves and their immediate family, and to choose their own affiliations. In contrast, in collectivist societies, individuals act predominantly as members of a lifelong and cohesive group or organization (note: "The word collectivism in this sense has no political meaning: it refers to the group, not to the state"). People have large extended families, which are used as a protection in exchange for unquestioning loyalty.

Masculinity (MAS), vs. femininity: "The distribution of emotional roles between the genders". Masculine cultures' values are competitiveness, assertiveness, materialism, ambition and power, whereas feminine cultures place more value on relationships and quality of life. this dimension is often renamed by users of Hofstede's work, e.g. to Quantity of Life vs. Quality of Life.

Long-term orientation (LTO), vs. short term orientation: First called "Confucian dynamism", it describes societies' time horizon. Long term oriented societies attach more importance to the future. They foster pragmatic values oriented towards rewards, including persistence, saving and capacity for adaptation. In short term oriented societies, values promoted are related to the past and the present, including steadiness, respect for tradition, preservation of one's face, reciprocation and fulfilling social obligations.

Indulgence versus restraint (IVR): The extent to which member in society try to control their desires and impulses. Whereas indulgent societies have a tendency to allow relatively free gratification of basic and natural human desires related to enjoying life and having fun, restrained societies have a conviction that such gratification needs to be curbed and regulated by strict norms

Edward T Hall's cultural factors

Edward T. Hall was an anthropologist who made early discoveries of key cultural factors. In particular he is known for his high and low context cultural factors..

Space--Some people need more space in all areas. People who encroach into that space are seen as a threat. is an example Personal

space of a mobile form of territory and people need less or greater distances between them and others. A Japanese person who needs

less space thus will stand closer to an American, inadvertently making the American uncomfortable.

Some people need bigger homes, bigger cars, bigger offices and so on. This may be driven by cultural factors, for example the space in America needs to greater use of space, whilst Japanese need less space (partly as a result of limited useful space in

Japan).

Mayank_kashyap@ymail.com Page 31

High territoriality

Some people are more territorial than others with greater concern for ownership. They seek to mark out the areas which are theirs

and perhaps having boundary wars with neighbors.This happens right down to desk-level, where co-workers may do battle over a

piece of paper which overlaps from one person's area to another. At national level, many wars have been fought over boundaries.

Low territoriality

People with lower territoriality have less ownership of space and boundaries are less important to them. They will share territory

and ownership with little thought.

Cultural Adaptation Through Sensitivity Training

Sensitvity Training is about making people understand about themselves and others reasonably which is done by developing in them social sensitivity and behavioral flexibilty.

Addresses concerns like:

- Gender sensitivity

- Multicultural Sensitivity

- Sensitivity towards those who are disabled in some way

Procedure of Sensitivity Training

Unfreezing the old values

Development of new values

Freezing the new values.

Unfreezing the old values

Steps:

1. Unstructured group of 10-15 people is formed.

2. Group then without any objective looks at the trainer for the guidance.

3. But the trainer refuses the guidance and assumes leadership.

4. Trainees are motivated to resolve the uncertainty.

5. They then try to form some hierarchy. Some try to assume leadership role which may not be liked by others.

6. They start realizing that what they desire to do and realize the alternative ways to deal with the situation.

Development of new values

With the trainers support, trainees begin to examine their interpersonal behavior and give each other feedback.

Reasoning of the feedbacks are discussed which motivates trainees to experiment with the range of new behavior and values.

Refreezing the new values

This step depends upon how much opportunity the trainees get to practice their new behaviors and values at their workplace.

Objectives of Sensitivity Training

Increased understanding about ones own behavior and its impact on others.

Better interpretation of verbal and non verbal cues.

Better understanding of group and inter- group processes.

Increased diagnostic skills in interpersonal and inter group situations.

Improvement in individualistic ability own and other people's behavior.

Cultural Sensitivity

Ability to be open to learning about and accepting of different cultural groups.

Mayank_kashyap@ymail.com Page 32

PATH OF INTERCULTURAL LEARNING

Ethnocentricity – This is a state of relying on our own, and only our own, paradigms based on our cultural heritage. We view the world through narrow filters, and we will only accept information that fits our paradigms. We resist and/or discard others.

Awareness – This is the point at which we begin to realize that there are things that exist which fall outside the realm of our cultural paradigms.

Understanding- This is the point at which we are not only aware that there are things that fall outside our cultural paradigms, but we see the reason for their existence.

Appreciation/Value- This is the point where we begin seeing the worth in the things that fall outside our own cultural paradigms.

Selective Adoption - This is the point at which, we begin using things that were initially outside our own cultural paradigms.

Multiculturation- This is when we have begun integrating our lives with our experiences from a variety of cultural experiences.

Continuum of Cultural Competency in the Workplace

Cultural Destructiveness is the most negative. It is the attitudes, policies, and practices that are destructive to cultures and the individuals within these cultures. A system that adheres to a destructive extreme assumes that one race or culture is superior and eradicates lesser cultures because of their perceived sub-human condition. Intolerance coupled with vast power allows the dominant group to disenfranchise, control, exploit, or systemically destroys the less powerful population.

Cultural Incapacity occurs when agencies do not intentionally seek to be culturally destructive, but rather have no capacity to help people from other cultures. This system remains extremely biased, and believes in the superiority of the dominant group.

Cultural Blindness is characterized by a well intended philosophy; however, the consequence of such a belief can often camouflage the reality of ethnocentrism. This system suffers from a deficit of information and often lack the avenues through which they can obtain needed information.

While these agencies often view themselves as unbiased and responsive to the needs of minority people, their ability to effectively work with a diverse population maybe severely limited.

Cultural Pre-competence implies movement towards reaching out to other cultures. The pre-competent agency realizes its weaknesses in working with people of other cultures and attempts to improve that relationship with a specific population.

Cultural Competence is characterized by acceptance of and respect for differences, continuing self assessment regarding culture, careful attention to the dynamics of differences, and continuous expansion of cultural knowledge and resources.

Cultural Proficiency is the culmination point on the continuum is characterized by holding culture in high esteem. These agencies actively seek to hire a diverse workforce.

Global Financial Management

Functions of FM

1. Acquisition of funds - Financing

2. Investment of those funds – Wealth maximisation

Factors affecting Equilibrium Exchange Rate

• Relative Inflation rates

• Relative Interest rates

• Relative Economic Growth Rates

• Political & Economic Risk

• Central Bank Reputation & Currency values/ Currency Boards (Estonia, Hong Kong, Lithuania, Argentina dropped in 2002)

Mayank_kashyap@ymail.com Page 33

Currency Control Measures

• Reduction of certain remittances – dividends/royl.

• Ceilings on FDI

• Controls on overseas Portfolio investments

• Import Restrictions

• Surrender of export receipts to central bank

• Limitations on prepayments for imports

• Deposits by importers in interest-free a/c

• Ceilings on granting credit to foreign firms

• Imposition of taxes on foreign-owned bank deposits

• Multiple Exchange Rates

Unit-3

International Competitive advantage

Mayank_kashyap@ymail.com Page 34

Competitive advantage seeks to address some of the criticisms of comparative advantage. Competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. These attributes can include access to natural resources, such as high grade ores or inexpensive power, or access to highly trained and skilled personnel human resources. New technologies such as robotics and information technology can provide competitive advantage, whether as a part of the product itself, as an advantage to the making of the product, or as a competitive aid in the business process (for example, better identification and understanding of customers).

Competitive Advantage Cycle.

Step 1. Source of Competitive Advantage

Superior assets

Super Capabilities

Key Success Factor

Step 2. Barriers to Imitation

higher the barrier to entry to company

When the new business opportunity

coming from the Market which enters

first mover advantage

barriers to imitation

Step 3. Value proposal form of competitive advantage

Operational Excellence

Product Leadership

Customer Intimacy

Step 4.Eencroachment prevents of competitive advantage

New competitive advantage position construction effort encroachment prevents of competitive advantage

Reinvestment of profit

asset and capability accumulation

resource strengthen of competitive advantage

“Competitive strategy is about being different. It means deliberately choosing to perform activities differently

or to perform different activities than rivals to deliver a unique mix of value.”

-- Michael Porter

Source of Global competitive advantage

Adapting to local market differences

Exploiting economies of global scale

Exploiting economies of global scope

Tapping the optimal

locations for activities and

resources

Maximizing knowledge

transfer across location

Mayank_kashyap@ymail.com Page 35

Competitive Strategies/advantages

Cost Leadership Strategy

The goal of Cost Leadership Strategy is to offer products or services at the lowest cost in the industry. The challenge of this strategy is to earn a suitable profit for the company, rather than operating at a loss and draining profitability from all market players. Companies such as Walmart succeed with this strategy by featuring low prices on key items on which customers are price-aware, while selling other merchandise at less aggressive discounts. Products are to be created at the lowest cost in the industry. An example is to use space in stores for sales and not for storing excess product.

Differentiation Strategy

The goal of Differentiation Strategy is to provide a variety of products, services, or features to consumers that competitors are not yet offering or are unable to offer. This gives a direct advantage to the company which is able to provide a unique product or service that none of its competitors is able to offer. An example is Dell which launched mass-customizations on computers to fit consumers' needs. This allows the company to make its first product to be the star of its sales.

Innovation Strategy

The goal of Innovation Strategy is to leapfrog other market players by the introduction of completely new or notably better products or services. This strategy is typical of technology start-up companies which often intend to "disrupt" the existing marketplace, obsoleting the current market entries with a breakthrough product offering. It is harder for more established companies to pursue this strategy because their product offering has achieved market acceptance. Apple has been a notable example of using this strategy with its introduction of iPod personal music players, and iPad tablets. Many companies invest heavily in their research and development department to achieve such statuses with their innovations.

Operational Effectiveness Strategy

The goal of Operational Effectiveness as a strategy is to perform internal business activities better than competitors, making the company easier or more pleasurable to do business with than other market choices. It improves the characteristics of the company while lowering the time it takes to get the products on the market with a great start. State Farm Insurance pursues this strategy by promoting their agents as "good neighbors" who actively help customers.

Unit-4

EMERGING GLOBAL PLAYERS

• Definition:

o Nations with social or business activity in the process of rapid growth or industrialization.

o In a transitional phase between developing and developed status.

• In the 1970s, "less economically developed countries" (LEDCs) was the common term.

• New terms have emerged to describe the largest developing countries.

• BRIC, BRICS, BRICM, BRICK, CIVETS.

• These countries do not share any common agenda.

• The Big Emerging Market (BEM) economies.

• Leading emerging markets will continue to drive global growth.

o Estimates show that 70% of world growth will be derived by emerging markets.

o China and India accounting for 40% of that growth.

o GDP of emerging markets could overtake that of the developed economies as early as 2014.

o Emerging markets already attract almost 50% of foreign direct investment (FDI) .

o Brightest spots for FDI continue to be Africa, the Middle East, and Brazil, Russia, India and China (the BRICs).

Mayank_kashyap@ymail.com Page 36

• Emerging market leaders will become a disruptive force:

o Emerging market companies will continue to be critical competitors.

o Working to serve customers of limited means.

o A case in point: India's Tata Motors' US$2,900 Nano.

o These companies possess a more innovative, entrepreneurial culture.

o Developed greater flexibility.

• Rising population and prosperity drive new consumer growth and urbanization:

o Combined purchasing power of the global middle classes is estimated to more than double by 2030 to US$56 trillion.

o Over 80% of this demand will come from Asia.

o Most of the world's new middle class will live in the emerging world.

o Emerging markets will become the new battleground.

• Global influence grows

o BRICs' growing economic strength.

o 6% of voting shares in the IMF to dynamic emerging countries such as China.

BRIC Economies

• BRIC is a grouping acronym that refers to the countries of Brazil, Russia, India and China.

• They are all deemed to be at a similar stage of newly advanced economic development.

• Alternatively known as the "Big Four".

• The acronym has come into widespread use as a symbol of the shift in global economic power away from the developed G7 economies towards the developing world.

• Mexico and South Korea were the only other countries comparable to the BRICs, but their economies were excluded because they were considered already more developed, as they were already members of the OECD.

• Goldman Sachs has argued that, since the four BRIC countries are developing rapidly, by 2050 their combined economies could eclipse the combined economies of the current richest countries of the world.

• These four countries, combined, currently account for more than 25% of the world's land area and more than 40% of the world's population.

• BRIC has not organized themselves into an economic bloc, or a formal trading association, as the European Union has done.

• However, there are some indications that the four BRIC countries have been seeking to form a 'political club' or 'alliance‘.

• On June 16, 2009, the leaders of the BRIC countries held their first summit in Yekaterinburg (Russia).

• Since then they have met in Brasília in 2010 and met in Sanya (China) in 2011.

Thesis

• Goldman Sachs argues that the economic potential of Brazil, Russia, India and China is such that they could become among the four most dominant economies by the year 2050.

• The thesis was proposed by Jim O'Neill, global economist at Goldman Sachs.

• BRIC currently hold a combined GDP (PPP) of 18.486 trillion dollars.

• These four countries are among the biggest and fastest growing emerging markets.

Mayank_kashyap@ymail.com Page 37

• Goldman Sachs predicts that China and India, respectively, will become the dominant global suppliers of manufactured goods and services, while Brazil and Russia will become similarly dominant as suppliers of raw materials.

• Brazil remains the only nation that has the capacity to continue all elements, meaning manufacturing, services, and resource supplying simultaneously.

ETHICAL ISSUES IN INTERNATIONAL BUSINESS

ETHICS – Standards for right conduct or morality.

ETHICAL BEHAVIOUR – Personal behaviour that should be in conformity with the rules or standards for right conduct or morality.

EMPLOYMENT PRACTICES –

◦ When the work conditions in a host nation are clearly inferior to those in a multinational’s home nation, what standards should be applied?

◦ Firms should establish minimal acceptable standards that safeguard the basic rights and dignity of employees.

HUMAN RIGHTS –

◦ Basic human rights are taken for granted in the developed world such as freedom of association, freedom of speech, freedom of movement and so on.

◦ These are still not respected in many nations and are found violated.

◦ If foreign trade and investment bring about improvement in the living standards, human rights abuses would be contained.

INTERNATIONAL LABOR ISSUES –

◦ These can be linked with human rights, especially regarding matters of forced labor and child labor.

◦ Certain labor practices may be legal and commonplace in the host country but do not necessarily represent fair and equitable treatment of the workforce.

◦ The issue facing an international company is: does it maximize its competitive advantage by locating in a low-cost/low-regulation country and adopt local practices or adopt higher standards and more ethical practices.

SAFETY AND ENVIRONMENTAL ISSUES –

◦ When the environmental regulations in host nations are far inferior to those in the home nation, ethical issues arise.

◦ This might result in higher levels of pollution from the operations of multinationals than would be allowed at home.

◦ MNCs should abide by the local customs so long as they are tolerable by its own standards.

ISSUE OF CORRUPTION –

ISSUE OF CONSUMERISM –

◦ In developed countries, a lot of consumer protection activities take place.

◦ But in developing countries, they are lacking.

◦ MNCs should care for social responsibility wherever they operate.

◦ They should apply home country norms in order to abide by ethical norms.

ISSUE OF TRANSFER PRICING –

Mayank_kashyap@ymail.com Page 38

◦ Transfer pricing lowers the tax burden of the firm as a whole and smoothens the firm’s international cash management.

◦ But it is unethical, as it brings about loss to the exchequer in both the home country and the host country.

◦ In many countries , there are strict rules restricting transfer pricing.

International Business & Social Responsibility

Issues:

An organization’s responsibility for its activities that effect society, both positively & negatively.

Extent of responsibility that should be born by an organization to solve social problems

Obstructionist Stance

Do as little as possible to address social or environmental problems

Deny or avoid responsibility

Examples

Astra

Nestle

Danone

Defensive Stance

Do what is required legally, but nothing more

Corporate responsibility is to generate profits

Mayank_kashyap@ymail.com Page 39

Example

Philip Morris

Accommodative Stance

Meet ethical and legal requirements and more

Agree to participate in social programs

Match contributions by employees

Respond to requests from non-profits

No proactive behavior to seek such opportunities

Proactive Stance

Strong support of social responsibility

Viewed as citizens of society

Seek opportunities to contribute

Examples

McDonald’s

The Body Shop

Ben & Jerry’s

Mayank_kashyap@ymail.com Page 40

Negotiations ( pg 8.19 mahesh rp)

In international business negotiations have to be made to arrive at mutually acceptable point of view. It is negotiations which may create trust or distrust or empathy, the ability to put oneself in another’s shoes, the distinguishing traits of effective inter-cultural negotiations. The negotiation or communication can be verbal, para-verbal and non-verbal. How Negotiation helped Google?

Four months ago, one of Google’s negotiators wanted their fibre-optic installation done in Southern US. The price was $6 million. The Google negotiator went to vendor for a discount and asked him “what can Google do for you? The vendor in turn said that if he received a letter of reference from Google, he could grow his business on the basis of it and in turn , reduce the price.

Google agreed, and in exchange for a letter of reference, the vendor decided to give Google a price of $6,000. The vendor gave the company a 99.9% discount.

Mayank_kashyap@ymail.com Page 41

Source: Diamond, ‘When people get emotional, they won’t trade or be persuaded’, Business Standard, The Strategist, 22 July, 2013.

Factors influencing cross-cultural negotiations

Negotiating Goal and Basic Concept: How is the negotiation being seen? Is mutual satisfaction the real purpose of the meeting? Do we have to compete? Do they want to win? Different cultures stress different aspects of negotiation. The goal of business negotiation may be a substantive outcome (Americans) or a long-lasting relationship.

Protocol: There are as many kinds of business etiquette as there are nations in the world. Protocol factors that should be considered are dress codes, number of negotiators, entertainment, degree of formality, gift giving, meeting and greeting, etc.

Communications: Verbal and non-verbal communication is a key factor of persuasion. The way we express our needs and feelings using body language and tone of voice can determine the way the other side perceives us, and in fact positively or negatively contributes to our credibility. Another aspect of communication relevant to negotiation is the direct or indirect approach to exchanging information. Is the meaning of what is said exactly in the words themselves? Does "...it's impossible" really mean impossible or just difficult to realize ? Always use questions to identify the other side's needs, otherwise assumptions may result in you never finding common interests.

Risk-Taking Propensity - Uncertainty Avoidance: There is always risk involved in negotiations. The final outcome is unknown when the negotiations commence. The most common dilemma is related to personal relations between counterparts: Should we trust them? Will they trust us? Certain cultures are more risk averse than others, e.g. Japan .It means that less innovative and creative alternatives are available to pursue during the negotiation, unless there is a strong trust-based relationship between the counterparts.

View of Time: In some cultures time is money and something to be used wisely. Punctuality and agenda may be an important aspect of negotiation. In countries such as China or Japan, being late would be taken as an insult. Consider investing more time in the negotiating process in Japan. The main goal when negotiating with an oriental counterpart is to establish a firm relationship, which takes time. Another dimension of time relevant to negotiation is the focus on past, present or future. Sometimes the past or the distant future may be seen as part of the present, especially in Latin American countries .

Decision-Making System: The way members of the other negotiating team reach a decision may give us a hint: who we shall focus on providing our presentation. When negotiating with a team, it's crucial to identify who is the leader and who has the authority to make a decision.

Form of Agreement: In most cultures, only written agreements stamp a deal. It seems to be the best way to secure our interests in case of any unexpected circumstances. The 'deal' may be the contract itself or the relationship between the parties, like in China, where a contract is likely to be in the form of general principles. In this case, if any unexpected circumstances arise, parties prefer to focus on the relationship than the contract to solve the problem.

Power Distance: This refers to the acceptance of authority differences between people. Cultures with low power distance postulate equality among people, and focus more on earned status than ascribed status. Negotiators from countries like Britain, Germany and Austria tend to be comfortable with shared authority and democratic structures. When we face a high power distance culture, be prepared for hierarchical structures and clear authority figures.

Personal Style: Our individual attitude towards the other side and biases which we sometimes establish all determine our assumptions that may lead the negotiation process towards win-win or win-lose solutions. Do we feel more comfortable using a formal or informal approach to communication? In some cultures, like America, an informal style may help to create friendly relationships and accelerate the problem solving solution. In China, by comparison, an informal approach is proper only when the relationship is firm and sealed with trust.

Coping with Culture

1. Learn the other side's culture

2. Don't stereotype

3. Find ways to bridge the culture gap

Mayank_kashyap@ymail.com Page 42

LEADERSHIP ISSUES IN GLOBALIZATION

Globalization has affected leadership through…

• Market and customer base

• International employee transfer rates

• An increase in opportunities

• Planning

• Personnel

LEADERSHIP SKILLS TO BE SUCCESSFUL GLOBALLY

• Strong business knowledge

• Awareness and sensitivity to cultural differences and standards

• Courage

• Commitment

• Good work ethics

• Personal and professional integrity.

• Building Strategy

• Effective Communication

• Gathering And Using Data

OLI Paradigm

A framework for analyzing the decision to engage in FDI, based on three kinds of advantage that FDI may provide in

comparison to exports: Ownership, Location, and Internalization.The eclectic paradigm is a theory in economics and

is also known as the OLI-Model or OLI-Framework.[1][2]

It is a further development of the theory of internalization and

published by John H. Dunning in 1980

For Dunning, not only the structure of organization is important.[3]

He added 3 more factors to the theory:[3]

Ownership advantages[1]

(trademark, production technique, entrepreneurial skills, returns to scale)[2]

Ownership

specific advantages refer to the competitive advantages of the enterprises seeking to engage in Foreign direct

investment (FDI). The greater the competitive advantages of the investing firms, the more they are likely to engage

in their foreign production.[4]

Location advantages [5]

(existence of raw materials, low wages, special taxes or tariffs)[2]

Locational attractions

refer to the alternative countries or regions, for undertaking the value adding activities of MNEs.The more the

immobile, natural or created resources, which firms need to use jointly with their own competitive advantages, favor

a presence in a foreign location, the more firms will choose to augment or exploit their O specific advantages by

engaging in FDI.[4]

Internalization advantages (advantages by own production rather than producing through a partnership

arrangement such as licensing or a joint venture)[2]

Firms may organize the creation and exploitation of their core

competencies. The greater the net benefits of internalizing cross-border intermediate product markets, the more

likely a firm will prefer to engage in foreign production itself rather than license the right to do so

Managing the Multibusiness Corporation

Mayank_kashyap@ymail.com Page 43