What Is International Business?

Business transactions between parties from more than one country Parties may include
Private individuals Individual companies Groups of companies Governmental agencies

How Does International Business Differ from Domestic?

Currency conversion Legal systems Culture Availability of resources

Why Study International Business?

Large organizations Foreign-owned subsidiaries Small businesses Competitors Business techniques and tools Cultural literacy

Need for International Business

More and more firms around the world are going global, including: Manufacturing firms Service companies (i.e. banks, insurance, consulting firms film, and music companies)

Need for International Business

International business: results the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level

International Business Activities

Exporting and Importing International Investments Licensing, Franchising, and Management Contracts

Exporting and Importing

Exporting: selling of products made in ones own country for use or resale in other countries Importing: buying of products made in other countries for use or resale in ones own country

EPG Model
EPG Model is an International Business model including three dimensions
Ethnocentric, Polycentric and Geocentric.

These three dimensions allow executives to more accurately develop their firm's general strategic profile.

The Importance of the EPG Model

The firm should be aware and understand its specific focus. In performing an EPG analysis, a firm may discover that they are oriented in a direction that is not beneficial to the firm or misaligned with the firm's corporate culture and generic strategy. So it would be important for a firm to re-align its focus in order to ensure that it is correctly representing the firm's focus

Ethnocentrism

Polycentrism

Geocentrism

Definition

Based on Based on ethnicity political orientation Host Country Oriented Marketing

Based on geography

Strategic Home Country Orientation/Fo Oriented cus

Global Oriented R&D US and Europe

Function Product Geography

Finance

Consumer Industrial products goods Developing countries -

Ethnocentric
The word ethnocentrism derives from the Greek word "ethnos", meaning nation or people, and the English word center or centrism. Ethnocentrism is based on the attitude that ones own group is superior to others. The ethnocentric attitude is found in many companies that have many nationalities and culture groups working together. It is a natural tendency for people to act ethnocentrically because it is what they feel comfortable with. It is based on past experiences and learned behaviors and norms.

Ethnocentric
1. The ethnocentric approach to staffing policy fills key management positions with parent-country nationals It makes sense for firms with an international strategy Firms that pursue an ethnocentric policy believe that: there is a lack of qualified individuals in the host country to fill senior management positions it is the best way to maintain a unified corporate culture value can be created by transferring core competencies to a foreign operation via parent country nationals

The ethnocentric approach

The ethnocentric policy is no longer popular with most firms because: it limits advancement opportunities for host country nationals it can lead to "cultural myopia"

Tendencies of Ethnocentric Organizations

an organizations headquarters thats decision-making authority is relatively high. Home standards are applied to the evaluation and control of the organization. These standards are to ensure performance and product quality. Ethnocentric attitudes can be seen in the organizations communication process. This is evident when there is constant advice, and counsel from the headquarters to the subsidiary. This advice usually bears the message, This works at home; therefore it must work in your country".

Tendencies of Ethnocentric Organizations

Organizations that portray ethnocentrism usually identify themselves with the nationality of the owner. For example, Wal-Mart is seen as an American company because its headquarters are located in America. The crucial critical concept of ethnocentrism in international organizations is the current policy that recruits from the home country are hired, and trained for key executive position in the organization. The ethnocentric attitude is a centralized approach. With the centralized approach, the training originates at the headquarters and than corporate trainers travel to the subsidiaries, and often adapt to local situations.

Costs and Benefits of Ethnocentrism

Costs Ineffective Planning due to poor feedback Subsidiary valuable executive fight Benefits Simple organization

Greater communication and control

Fewer innovations
Inability to build a high caliber local org. Lack of flexibility and responsiveness

 Polycentrism can be defined as a host country orientation; which reflects host countries goals and objectives with respect to different management strategies and planning procedures with regard to international operations. Under a polycentric perspective, a companys management team believes that in international business practices local preferences and techniques are usually found most appropriate to deal with the local market conditions. It is the attitude
that culture of various countries are different, that foreigners are difficult to understand and should be left alone as long as their work is profitable.

Polycentrism

Polycentric policy
The polycentric staffing policy recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters It makes sense for firms pursuing a localization strategy The polycentric approach: can minimize cultural myopia may be less expensive to implement than an ethnocentric policy

Polycentric policy
There are two disadvantages to the polycentric approach: host country nationals have limited opportunities to gain experience outside their own country and thus cannot progress beyond senior positions in their own subsidiaries. a gap can form between host country managers and parent country managers

Costs and Benefits of Polycentrism

Costs Benefits Intense exploitation of Waste due to duplication local markets Better sales due to betterLocalization costs of informed local universal products management Inefficient use of home-country More initiative for local experience products
Excessive regard for local traditions at expense of global growth

More host government support

Good local managers with high morale

Polycentrism
A polycentric approach has its obstacles once implemented. A polycentric approach gives rise to the problems of coordination and control. Management usually loses coordination of its international subsidiaries usually because they are forced to operate independently of one another, and establish separate objectives and plans which meet the host countries criteria. Marketing of the companys products are organized on a country-by-country basis, and marketing research is conducted independently in each country. Management is unable to have total control over the company in the host country because it is found that local nationals have a better understanding and awareness of national market conditions, more so than home office personnel.

Polycentrism
This is very accurate in several aspects of the products delivery including pricing, customer service and well-being, market research, and channels of distribution. Therefore, the majority of control in the host countries practices is lost, and the company is forced to manage its operations from the outside. Local nationals occupy virtually all of the key positions in their respective local subsidiaries, and they appoint and develop their own people.

Geocentrism
A more world-orientated approach to multinational management. The main difference of geocentrism compared to ethno and polycentrism is that it does not show a bias to either home or host country preferences but rather spotlights the significance of doing whatever it takes to better serve the organization. This is evident in the sense that upper management does not hire or delegate responsibility to an individual because they best exemplify the host or home countries opinions. Instead, management selects the person best suited to foster the companies goals and solve problems world wide.

Geocentric policy
3. The geocentric policy seeks the best people, regardless of nationality for key jobs This approach is consistent with building a strong unifying culture and informal management network It makes sense for firms pursuing either a global or transnational strategy Immigration policies of national governments may limit the ability of a firm to pursue this policy

The geocentric approach

Enables the firm to make the best use of its human resources Builds a cadre of international executives who feel at home working in a number of different cultures Can be limited by immigration laws Is costly to implement

The purpose of Geocentrism

The sole goal of geocentrism is to globally unite both headquarters and subsidiaries To build an organization in which the subsidiary is not only a good citizen of the host nation but is a leading exporter from this nation in the international community and contributes such benefits as (1) an increasing supply of hard currency, (2) new skills and, (3) a knowledge of advanced technology

Geocentrism
If one company is to enter a new country or market it forces rivals to do the same in order to maintain pace. There is a large amount of customers available to MNCs internationally that require a geocentric approach in order to effectively targeted. A third force causing this movement is the abundance of growing world markets, occurring in areas such as income earning age population, rising GDPs, and escalating disposable income in areas such as China and Korea. Geocentrism is an ideology that must be accepted by any corporation operating globally in order for any sort of success and long term stability to attain. However, there are certain aspects of the business life in which ethnocentrism and polycentrism are more adequate models to follow, but functional smoothness and success in both home and host countries is dependent upon upper managements ability to select individuals who are world orientated as apposed to home or host country centered.

Costs and Benefits of Geocentrism

Costs Benefits High communication and travel Integrated global outlook costs Educational costs at all levels More powerful total company throughout Time spent in consensus Better quality of products and decision-making services International headquarters Worldwide utilization of best bureaucracy resources Too wide distribution of power Improved local country management Personnel problems, especially Greater commitment to global those of international objectives executive reentry Higher global profits

Internationalization Approach

Motives for Globalization

To leverage core competencies To acquire resources and supplies To seek new markets To better compete with rivals

Environmental Change and Globalization

Changes in Political Environments

Technological Changes

POLITICAL ENVIRONMENT :
POLITICAL ENVIRONMENT The policies and attitudes towards business are a government idea of how best to promote the national interest, considering its own resources and political philosophy. A government control's and restricts a company's activities by encouraging and offering support or by discouraging and banning or restricting its activities depending on the government

Political Environment Example :

Political Environment Example A change in the government does not always mean change in the level of political risks. In Italy the political parties have changed 50 times since the end of World War II but the business continues to go on as usual inspite of the political turmoil. In comparison is India, where the government has changed 51 times since 1945 but however much of the government policies remain hostile to foreign investments