Foundation Of IBE

Unit-1
Why Go International?
 Higher rate of profits
 Production capacity beyond the demand of domestic country.
 Severe competition in the home country.
 Limited home market.
 Availability of technology & competent human resources
 High cost of transportation
 Nearness to raw materials
 Availability of quality HR at low cost.
 Liberalization & Globalization.
 To increase the market share.
 To achieve higher rate of economic development.
Types Of International Business
Various types
 Trading: it includes export & import.
 Various types of trading:
1) Direct Export
2) Indirect Export: the manufacturing company sells its product to
middleman who in turn export the same product to the target
foreign market.
3) Import
4) Barter Trade: exchange goods for goods
5) Third Country Trading: also known as offshore trading. Three
companies in three different countries are involved-two
companies would be doing trading and the third company would
be a manufacturer which will supply the goods.
 Manufacturing & Marketing: manufacturer exporter
are those who manufacture the goods and export the same.
1) Contract Manufacturing : under this, a company doing
international marketing contracts with firms in foreign
countries to manufacture & assemble the products while
retaining the responsibility of marketing the product.
2) Fully owned manufacturing: companies with long term
interest in the foreign market normally establish wholly
owned manufacturing facilities there.
 Assembly operations:
It’s a good idea to have assembly operations in foreign
country in selected markets, having assembly markets in
foreign markets is ideal when assembly operations are cheap
in the foreign country.

Outsourcing/BPO/KPO
Foreign market entry modes:
Licensing
Franchising
Joint Ventures
Management Contracts
Turnkey Projects
International Business Environment
Internal env.
 Organizational Structure
 Production
 Finance
 Marketing
 Human Resource
 R&D
External Environment
 External Micro Env.
1) Shareholders
2) Creditors
3) Bankers
4) Customers
5) Middlemen
External Macro Environment
 Economic factors
 Political factors
 Socio-Cultural factors
 Technology
 Geographic
 Legal
Risks In International Business
Global Trading System
Two types
 Protective Trade System
 Free Trade System
Protective Trade System
 Several Restrictions by the government
& no person can import or export without prior permission.
Methods of protection
 Tariffs
 Subsidies
 Import Quotas
 Voluntary export restraints
 Administrative policies: Monetary policies, environment
protection laws, foreign exchange regulations, custom &
entry procedures, diplomatic formalities etc.
Objectives of protection
 To protect domestic industries from foreign competitions.
 To give shape to the directions of global trade according to
national priorities.
 To promote indigenous R&D.
 To conserve the foreign exchange resources of the country.
 To make balances of payment positions favorable.
 To earn revenue for the govt.
 To discriminate against certain countries.
Arguments for protection
 Infant industry argument
 Diversification argument
 Terms of the trade argument
 Bargaining argument
 Anti dumping argument: selling product at lower prices than
in home country
 Employment argument
 National security argument
Demerits of protection
 It is against the interest of consumers as it increases the price
& reduces variety & choice.
 It encourages domestic monopolies.
 It reduces the volume of foreign trade.
 It discourage innovation.
 It encourages corruption.
Free trade system
 It refers to a trade that is free from any tariffs, quantitative
restrictions & other devises obstructing the movement of
goods between countries.
Arguments for free trade
 Optimum utilization of resources
 Wide markets.
 Prevent monopolies.
 Optimization of consumption.
 Education value.
 Maximization of output.
 Best policy for economic development.
WTO
Global Financial System
Sources of finance
Official Non – official
sources sources

The World
International
Bank: IFC,
Banks
IDA, MIGA

Securities
IMF
Market

ASEAN
Development
Bank

UNCTAD

EXIM Bank
 The World Bank:
1) IFC: International Finance Corporation- established in
1956 in order to provide finance to private sector in
developing countries, affiliation of world bank but separate
legal entity, funds & functions.
2) IDA: International Development Association
3) Multinational Investment Guarantee Agency
 IMF: Exchange Control
 ASEAN Development Bank- To supplement the work of
world Bank.
 UNCTAD- UN Conference on trade & Development
 EXIM Bank
UNIT-2
Country evaluation/selection
Decision concerning FDI & Portfolio
management
Factors affecting FDI
Supply Demand Political
Factors Factors factors
Production Costs Access to customer
Avoidance of trade
barriers
Marketing
Logistics
Advantage
Resource Competitive
Availability Advantage Economic
development
Access to incentives
Customer mobility
Technology
Portfolio investment
Control Methods in international
business
Control
 Control is management’s planning, implementation,
evaluation, and correction of performance to ensure the
organization meets its objectives
 Management must balance global needs while adapting to
country-level differences
 Control keeps a company’s direction or strategy on track
 Control Difficulties in International
Business
 Distance
 Diversity
 Market size
 Type of local competition
 Nature of product
 Labor cost
 Currency
International Control Process
 Planning
 Organizational structure
 Location of decision making
 Control mechanisms
 Special situations
Organizational Structure
 Separate vs. Integrated International structures
 Dynamic Nature of structures
 Mixed Nature of structures
 Nontraditional structures
Separate vs. Integrated International
Structures
1. International Division Structure
2. Functional Division Structure
3. Product Division Structure
4. Geographic Division Structure
5. Matrix Division Structure
Organizational Structure
 Separate vs. Integrated International structures
 Dynamic Nature of structures
 Mixed Nature of structures
 Nontraditional structures
 Nontraditional Structures

1. Network organizations

2. Lead Subsidiary Organizations

International Control Process
 Planning
 Organizational structure
 Location of decision making
 Control mechanisms
 Special situations
Location of Decision-making
 Pressures for Global Integration vs. Loacal responsiveness
 Capabilities of Headquarters vs. Subsidiary personnel
 Decision Expediency and Quality
 Pressures for Global Integration vs.
Loacal responsiveness

1. Resource Transference
2. Standardization
3. Systematic Dealings with Stakeholders
4. Transnational Strategy
Location of Decision-making
 Pressures for Global Integration vs. Loacal responsiveness
 Capabilities of Headquarters vs. Subsidiary personnel
 Decision Expediency and Quality
 Decision Expediency and Quality

1. Cost and Expediency: quality of being

convenient & practical despite possibly being
improper or immoral

2. Importance of the Decision

International Control Process
 Planning
 Organizational structure
 Location of decision making
 Control mechanisms
 Special situations
 Control Mechanisms

 Corporate culture

 Coordinating Methods

 Reports
Reports
1. Types of Reports
2. Visits to Subsidiaries
3. Management Performance Evaluation
4. Cost and Accounting Comparability
5. Evaluative Measurements
6. Information Systems
International Control Process
 Planning
 Organizational structure
 Location of decision making
 Control mechanisms
 Special situations
Control in Special Situations
 Acquisitions

 Shared Ownership

 Changes in Strategies
International Planning Process
 Set long-range strategic intent
 Analyze internal corporate resources
 Set international corporate objectives
 Analyze local conditions
 Implement strategy
 Select alternatives and priorities
 Analyze internal corporate resources
I. Financial resources
a. Immediate and future cash flow and needs
b. Capital availability, including borrowing
c. Ability to transfer funds
d. Profit and divident targets
II. Human resources
a. General versus product skills
b. Specific functional skills
c. Transferability of people
d. Capacity use
e. Ability to acquire additional resources
f. Attitudes toward foreign activity
III. Product resources
a. Capacity use and bottlenecks
b. Monopolistic characteristics
c. Adaptations needee for foreign sales
d. Primary versus derived demand
e. Transport practicality
f. Cost savings through scale and scope
IV Environmental effects
a. Supply and cost changes, including foreign trade
b. Long-run and cyclical changes in demand
c. Comparison with competition
d. Societal attitudes
Set international corporate objectives
I. Sales objectives
a. Maintain volume
b. Expand volume
c. Increase markup
d. Spread fixed costs
II. Resource acquisition objectives
a. Reduce direct costs
b. Gain tax advantages
c. Gain complementary resources
III. Diversification objectives
a. Diversify markets
b. Diversify supplies
IV. Competetive risk minimization objectives
a. Acquire scarce resources
b. Prevent competitors’ advantage
 Analyze local conditions
I. Same factors as in Analyze internal corporate resources, plus
II. Financial factors
a. Local evalutaion methods
b. De facto and de jure tax systems
c. Timing of receivables and pavables
d. Needs for financing cuppliers and customers
e. Governmental priorities for funds’ use
III. Marketing factors
a. Cost and availability of market data
b. Distribution methods and costs
c. Nature of competition
d. Government regulation of price, advertising, etc.
IV. Other factors
a. Attitudes toward business in general
b. Attitudes toward foreign business
c. Political and economic stability
 Select alternatives and priorities
I. Alternatives
a. Location of value-added activities
b. Location of sales targets
c. Level of involvement
d. Product/services strategy
e. Global versus multidomestic marketing
f. Country moves as part of global strategy
g. Factor movement and start-up strategy
II. Setting priorities among alternatives
Implement strategy
I. Set target results/goals
a. Production amount
b. Costs
c. Sales
II. Do reports showing deviations from target
III. Do environmental analysis that might change results
IV. Make corrections if possible
V. Move to contingency plan