International

Business
 Globalization

Globalizationis the system of interaction

among the countries of the world in order
to develop the global economy.
Globalization refers to the integration of
economics and societies all over the world.
Globalization involves technological,
economic, political, and cultural
exchanges made possible largely by
advances in communication,
transportation, and infrastructure.
Implications of Globalization

1. Improvement of International Trade.

2. Technological Progress
3. Increasing Influence of Multinational
Companies
4. Power of the WTO, IMF, and WB
5. Greater Mobility of Human Resources
across Countries
6. Greater Outsourcing of Business
Processes to Other Countries
7. Civil Society
Globalization of Markets
and Production
Globalization of Markets:

Globalization of markets refers to the

process of integrating and merging of
the distinct world markets into a single
market.
This process involves the identification
of some common norm, value, taste,
preference and convenience and slowly
enables the cultural shift towards the
use of common product or service.
Reasons for Globalization of
Market:

Large scale industrialization enabled

mass production . Company in order to
reduce the risk diversify the
portfolio of countries
To cater to the demand for their
product in foreign market .Companies
globalize markets in order to increase
their profits and achieve company
goals.
Globalization of Production:

Factors influencing the location of

manufacturing facilities vary from
country to country.

They may be more favorable in foreign

countries rather than in home country.
Reasons for globalization of
production:
Imposition of restrictions on imports by
the foreign countries forces the MNCs to
establish manufacturing facilities in other
countries.
Availability of high quality raw materials.
Availability of inputs at low cost in foreign
countries.
To reduce the cost of transportation and
easy logistic management.
Drivers of Globalization
Drivers of globalization
include:
1.Advances in technology: Improved
shipping capabilities, improved
communication technologies, and
globally available Internet stores.
Cont

2.The difference in countries

governing laws: can also create
reasons for companies to globalize.
Lower environmental standards,
absence of minimum wage laws and
lower working age regulations create
advantages for companies that do
business in other nations.
Cont

3.Another important driver of

globalization is the need for
depleting natural resources.
Countries without a sufficient oil
supply must trade to sustain a high
quality of life. Precious stones and
metals are also examples of natural
resources that may be hard to attain
without global trade opportunities.
Difference Between Domestic
and International Business
International Domestic Business
Business 1. The Domestic
1. It is extension of Business Follow
Domestic Business the marketing
and Marketing Principles
Principles remain 2. No such
same. difference. In a
2. Difference is large countries
customs, cultural languages like
factors India, we have
many languages
Examples :

With language one should consider whether or not

the national culture is predominantly a high context
culture or a low context culture (Hall and Hall 1986).

In China in 2007 (which was the year of the pig)

all advertising which included pictures of pigs was
banned. This was to maintain harmony with the
country's Muslim population of around 2%. The ban
included pictures of sausages that contained pork,
and even advertising that included an animated
(cartoon) pig.
Cont

For example, in France workers tend to

take vacations for the whole of August,
whilst in the United States employees may
only take a couple of week's vacation in an
entire year.
Trevor Baylis launched the clockwork radio
upon the African market. Since batteries
were expensive in Africa and power
supplies in rural areas are non-existent.
The clockwork radio innovation was a huge
success
International Domestic Business
Business

3. Conduct and selling 3.Selling Procedures

procedure changes remain unaltered
4. Will have to face 4. These have little or no
restrictions in trade impact on Domestic
practices, licenses and trade
government rules. 5. No such changes are
5. Working necessary
environment and
management practices
change to suit local
conditions.
International Domestic Business
Business

6.Long Distances and 6.Short Distances, quick

hence more business is possible.
transaction time.
7.Currency, interest 7.Currency, interest
rates, taxation, rates, taxation,
inflation and economy inflation and economy
have impact on trade. have little or no
impact on Domestic
8.MNCs have perfected Trade.
principles, procedures 8.No such experience or
and practices at exposure.
international level
 International Domestic Business
Business

9.MNCs take advantage 9.No such advantage once

of location economies plant is built it cannot
wherever cheaper be easily shifted.
resources available.
10.Large companies enjoy 10.It is possible to get
benefits of experience this benefit through
curve collaborators.
11.High Volume cost 11.Cost Advantage by
advantage. automation, new
methods etc.
 International Domestic Business
Business

12.Global 12.No such advantage

Standardization
13.Global business seeks 13.No such advantage
to create new values
and global brand
image.
14.Can Shift production 14. No such advantage
bases to different and get competition
countries whenever from some spurious or
there are problems in SSI Unit who get
taxes or markets patronage of
Government.
Entering International
Business

The firm needs to consider carefully all

the available options, costs, possible
loss of control and risk involved.
The market entry methods have to
relate to the companys overall strategy,
goals and the time periods in which it
wishes its objectives to be achieved.
Modes of entry into
international Business
1. Exporting
There aredirectandindirectapproaches to
exporting to other nations.
Direct exporting is straightforward.
On the other hand, if you were to employ a
home country agency (i.e. an exporting
company from your country - which handles
exporting on your behalf) to get your
product into an overseas market then you
would be exporting indirectly.
Examples of Indirect
Exporting include:
Piggybackingwhereby your new product
uses the existing distribution and logistics
of another business.

Export Management Houses (EMHs)that

act as a bolt on export department for
your company. They offer a whole range of
bespoke services to exporting
organizations. e.g.. Indian Export house
 Cont

Consortiaare groups of small or medium-sized

organizations that group together to market related,
or sometimes unrelated products in international
markets.
Trading companieswere started when some nations
decided that they wished to have overseas colonies.
They date back to an imperialist past that some
nations might prefer to forget e.g. the British,
French, Spanish and Portuguese colonies. Today they
exist as mainstream businesses that use traditional
business relationships as part of their competitive
advantage.
Cont

2.Licensing:
Licensing is where your own
organization charges a fee and/or
royalty for the use of its technology,
brand and/or expertise.
3.Franchising
Franchisinginvolves the organization
(franchiser) providing branding,
concepts, expertise, and infact most
facets that are needed to operate in an
overseas market, to the franchisee.
Management tends to be controlled by
the franchiser. Examples
includeDominos Pizza, Coffee Republic
and McDonald's Restaurants.
Cont

4.Turnkey Contracts
Turnkey contractsare major
strategies to build large plants. They
often include the training and
development of key employees where
skills are sparse - for
example,Toyota's car plant in
Adapazari, Turkey. You would not own
the plant once it is handed over.
5.Mergers:
A Merger is a voluntary and
permanent combination of business
whereby one or more firms integrate
their operations andidentities with
those of another and
henceforth work under a common
name and in the interests of the
newly formed amalgamations.
6.Acquisitions
Domestic company may purchase the
foreign company and acquires its
ownership and control.
It provides immediate accessto
international manufacturing facilities
and marketing network.
For example,Oracle Corporation is
very famous for its acquisitions.
Oracle acquires companies and not
merge with them.
Oracle acquired
Siebel,BEA,Peoplesoft and more
recently SUN through friendly or
hostile take overs.
 Cont

7.Joint Venture
Two or more firm join together to create a
new business entity that is legally separate
and distinct from its parents.
It involves shared ownership.
It provides strength in terms of required
capital.
This act improves the local image in
thehost country..

Strategic Alliance

An arrangement between two companies that

have decided to share resources to undertake
a specific, mutually beneficial project.
A strategic alliance is less involved and less
permanent than a joint venture, in which two
companies typically pool resources to create a
separate business entity. In a strategic
alliance, each company maintains its autonomy
while gaining a new opportunity.
 For example;
An oil and natural gas company might form a
strategic alliance with a research
laboratory to develop more commercially
viable recovery processes.
A clothing retailer might form a strategic
alliance with a single clothing manufacturer
to ensure consistent quality and sizing.
A major website could form a strategic
alliance with an analytics company to
improve its marketing efforts.
Example to differentiate between Joint
venture and Strategic alliance
In July 2011, Facebook announced a strategic alliance
with Skype, which had been recently acquired by
Microsoft.
This allowed Microsoft to quickly move into the social
networking space, Skype received access to a large
number of new users and Facebook could leverage
Skype's technology to enable video chat without
making the investment in building it.
By contrast, Dow Chemical formed a joint venture
that same month with Japanese firm Ube to create a
factory for a particular high-tech battery. They will
share the technology and the risk of new product
development.
Contract Manufacturing

The CM process is essentially

outsourcing production to a partner
who privately brands the end product,
There are a number of different
business ventures that can make use
of a contract manufacturing
arrangement.
 For Example;
There are a number of examples
ofpharmaceutical contract
manufacturingcurrently functioning today,
as well as similar arrangements in food
manufacturing,
the creation of computer components and other
forms of electronic contract manufacturing.
Even industries likepersonal care and hygiene
products, automotive parts, and medical supplies
are often created under the terms of a contract
manufacture agreement.
Subsidiary

Subsidiary means individual body

under parent body.
This Subsidiary orindividual body as
per their own generates revenue.
Theygive their own rent, salary to
employees, etc.
Butpolicies and trademark will be
implemented from the Parent body.
For Example;

holding companies such as Berkshire

Hathaway, Time Warner, orCitigroup
as well as more focused companies
such as IBM, orXerox Corporation.
These, and others, organize their
businesses into national or functional
subsidiaries, sometimes with multiple
levels of subsidiaries.
The Globalization Debate-
arguments for and against
Pros of Globalization

1. Productivity grows in countries that open

up their markets and integrate with
outside economies, as they gain access to
wealthy economies where they can sell
their goods and services.
2 .Lesser Developed Nations benefit from
the increase in investment from foreign
countries both financially and through
jobs.
Cont

3 .Global competition and cheap

imports help to keep inflation down.
4. Open economies help to spur
innovation and new ideas on a global
level, creating an effective
globalization of ideas.
5. Through globalization, countries
can specialize more in what they
produce and what they do best.
Cons of Globalization

1. Wages and working conditions

everywhere are pushed downwards as
companies gravitate towards countries
where the wages are the lowest and the
workers rights are the worst.
2. The environment suffers, as production
moves to places where they have less strict
rules and regulations about controlling
pollution and deforestation etc.
Cont

3. Many jobs are outsourced from more

developed nations, like the USA, to lower
wages economies, such as those in Indian
and China, resulting in high unemployment
in the Western countries.
4. Globalization means that economic
problems in one part of the world can
spread easily and create a worldwide
recession.
 Cont

5. Many of the deals made by more economically

developed nations with lesser developed countries are
unfairly weighted in favor of the more developed
nations. For instance, subsidies to agricultural
production by the more developed nations are often
kept, making the competition unfair.

6. Globalization undermines national sovereignties and

national governments, as individual countries become
increasingly at the mercy of international markets, and
multinational corporations grow more powerful and
influential.
Multinational Corporation
Multinational Corporation

As defined by I. L. O. or the
International Labor Organization, a
M. N. C. is one, which has its
operational headquarters based in one
country with several other operating
branches in different other countries.
The country where the head quarter is
located is called the home country
whereas, the other countries with
operational branches are called the host
countries.
Features of MNCs:

1. MNCs have managerial headquarters in

home countries, while they carry out
operations in a number of other (host)
countries.
2. A large part of capital assets of the
parent company is owned by the citizens of
the company's home country.
3. The absolute majority of the members
of the Board of Directors are citizens of
the home country.
4. Decisions on new investment and the
local objectives are taken by the parent
company.
5. MNCs are predominantly large-sized
and exercise a great degree of economic
dominance.
6. MNCs control production activity with
large foreign direct investment in more
than one developed and developing
countries.
7. MNCs are oligopolistic in
character. It is sustained by modern
technologies, management skill,
product differentiation and enormous
advertising.
8. MNCs are not just participants in
export trade without foreign
investments.
The Organization and Structure of a
Multinational Company

Multinational companies are faced with two

opposing forces when designing the structure of
their organization.
They are faced with the need for differentiation
that allows them to be specialized and
competitive in their local markets.
They are also faced with the need to integrate.
The structures adopted therefore have to find a
balance between these opposing needs and also
remain in strategic alignment for the company to
thrive.
Multinational companies have therefore
evolved many structural permutations
to suit their business needs:
Top Structure

The president or chief executive officer sits at the

top of a multinational organizational chain.
Beneath him are other chiefs, such as the chief
financial officer and chief operations officer.
The structure branches out from there. In a
multinational company, this often identified by
geographic regions.
For example, command layers may include marketing
executive, Europe and marketing executive, Asia.
They perform the same function, but for different
parts of the world.
Middle Structure

Under the executives come directors,

assistant directors, managers and
supervisors who are situated in the middle
structure of a multinational organization.
These individuals are responsible for
overseeing their respective departments,
and are stationed with their departments
so they may be readily available for their
direct reports.
Lower Structure

A company's line staff make up the

lower portion of an organizational
structure.
These individuals do not have direct
reports, but rather are responsible for
carrying out various job duties.
In a multinational company, some
individuals may have to work together
remotely from opposite ends of the
world.
Subsidiary Model

Owning foreign subsidiaries is one of the most basic

structural models of a multinational company.
The subsidiaries are self-contained units with their own
operations, finance and human resource functions.
Thus the foreign subsidiaries are autonomous allowing
them to respond to local competitive conditions and
develop locally responsive strategies.
The major disadvantage of this model however is the
decentralization of strategic decisions that makes it
difficult for a unified approach to counter global
competitive attacks
 Product Division

Organizational structure of the multinational company

in this case is developed on the basis of its product
portfolio.
Each product has its own division that is responsible
for the production, marketing, finance and the overall
strategy of that particular product globally.
The product organizational structure allows the
multinational company to weed out product divisions
that are not successful.
The major disadvantage of this divisional structure is
the lack of integral networks that may increase
duplication of efforts across countries.
Area Division

Organization using this model is again divisional in

nature, and the divisions are based on the geographical
area.
Each geographical region is responsible for all the
products sold within its region.
Therefore all the functional units for that particular
region namely finance, operations and human resources
are under the geographical region responsibility.
This structure allows the company to evaluate the
geographical markets that are most profitable. However
communication problems, internal conflicts and
duplication of costs remain an issue.
Matrix Structure

Matrix organizational structure is an overlap between the

functional and divisional structures.
The structure is characterized by dual reporting
relationships in which employees report both to the
functional manager and the divisional manager.
Work projects involve cross-functional teams from
multiple functions such as finance, operations and
marketing.
The members of teams would report both to the project
manager as well as their immediate supervisors in finance,
operations and marketing.
Cont

The advantage of this structure is

that there is more cross-functional
communication that facilitates
innovation.
The decisions are also more localized.
However there can more confusion
and power plays because of the dual
line of command.
Transnational network

Evolution of the matrix structure has led to the

transnational network.
The emphasis is more on horizontal communication.
Information is now shared centrally using new
technology such as "enterprise resource planning
(ERP)" systems.
This structure is focused on establishing
"knowledge pools" and information networks that
allow global integration as well local
responsiveness.
Thank you