International Business : Challenges in a Changing World International Business Lecture 1: The business enterprise in the international environment: introduction

International Business: Challenges in a Changing World

International Business

Lecture 1:

The business enterprise in the international

environment: introduction


Aims of the lectureAims of the lectureTo identify key characteristics of international business

To appreciate the role of entrepreneurship

To gain an understanding of the nature of the company, along with roles within the company

To identify the main business functions of the organization in the international context

To highlight the role of co-operative arrangements in international business

To gain an overview of key players in the international business environment


Figure 1.1: Comparison of the local, national and international

business


Personal relations for operations

and for reaching the customers

Small local firm

Local customers

Sourced through local

suppliers

Local business

Countrywide organization with local and regional

units

Diverse customers within

the national environment

More complex products and distribution

Use of national media to reach the customers

National business

Global media to manage inter-

national activities and reach customers

Domestic and foreign

customers

Organization based in a home

country with foreign and

regional links

Sourcing of products across national borders

International business

Size

Cus

tom

ers

Prod

ucts

Seek

ing

the

Cus

tom

ers


Figure 1.2: Dimensions of the international environment


EntrepreneurshipEntrepreneurship

• Successful entrepreneurship involves identifying opportunities, pursuing new ideas and securing financial support.

• It includes start-up businesses, as well as the re-focusing of existing enterprises.

• Levels of entrepreneurial activity differ from country to country, and are influenced by culture.

• Governments can encourage (or discourage) entrepreneurs.

• The born-global company takes an international approach from the outset.


Small-to-medium size enterprise Small-to-medium size enterprise (SME)(SME)

• An SME is usually defined as an organization employing fewer than 249 employees.

• SMEs provide the bulk of jobs in most countries.

• The franchise provides a means for an SME to benefit from the brand and support of an established MNE.

• Franchising is often used by MNEs as a means of international expansion.


Figure 1.3: Early Stage entrepreneurial activity 2006


Figure 1.4: The global entrepreneur


Strategic Crossroads 1.1: McDonald’s (page 11)

What reasons lie behind the comparative success of McDonald’s franchise outlets over the company-owned ones?

How does the development license fit in with McDonald’s overall revitalization program?

In the franchise outlets, the franchisee invests more of his or her own resources and has a more entrepreneurial approach to the business. Managers of the company-owned outlets, by contrast, have less sense of ownership and a lower level of entrepreneurial drive. This question can be broadened into a discussion of an entrepreneurial approach generally, which can bring in country differences in entrepreneurial environments.

The nature of the new developmental licenses should be highlighted at the start. They provide that the underperforming outlets should be sold to local entrepreneurs, who would invest their own capital to a greater extent than under McDonald’s usual arrangements. The new owners would be imbued with a greater entrepreneurial approach, but would still benefit from the strong brand and supply chain arrangements. Whether these new owners deliver improved financial performance depends on their competitiveness in their local markets. McDonald’s executives are stressing the importance of the revitalization program to win new customers. They look to the new owners to deliver these improvements, reflecting the success of the revitalization program in the US.


Dynamics of the companyDynamics of the company

• Forming a company offers advantages of separate legal identity to the owners.

• Companies are registered in particular countries, in accordance with their national laws.

• Private companies are often family owned.• In contrast, public companies …

– Have numerous shareholders and tradable shares– Have a chief executive officer (CEO) and directors

who are accountable to the shareholders– Are increasingly international in their ownership

profiles


Figure 1.5: Roles within the public company


Figure 1.6: Changing ownership of UK equities


The multinational enterprise (MNE)The multinational enterprise (MNE)

• Pursues opportunities and co-ordinates businesses across national borders.

• As it grows in size, it evolves a more complex organizational structure, often based on parent company and subsidiaries.

• MNEs differ in the degree of centralized control or local autonomy in various locations.


Figure 1.7: MNE multi-tiered ownership structure


International business functionsInternational business functions

• International operations

• Accounting and finance for international business

• International marketing

• International HRM

• Research and development (R&D)

◊ These functions may be centralized or decentralized, depending on the organization’s overall culture and strategy.


Figure 1.8: Business functions in the international context


Corporate governanceCorporate governance

• Corporate governance concerns the company’s decision-making structures and processes.

• ‘Shareholder’ model predominates in the US and UK: – It has a single-tier board and focuses on maximizing

shareholder value.• ‘Stakeholder’ model is prevalent in the 2-tier boards

in Europe and Japan:– It takes a wider perspective, encompassing

employees in particular.• Wider stakeholder interests are now recognized in

most companies, as corporate social responsibility (CSR) impacts on governance.


Figure 1.9: Executive managers and company stakeholders


Alliances, networks and joint Alliances, networks and joint venturesventures

• All are co-operative arrangements which contribute to international strategy.

• Alliances (often called strategic alliances) offer opportunities for pooling resources and skills in differing environments.

• Networks may be intra-firm or inter-firm; both organizations and individual staff can benefit. They can be important for SMEs in their strategic expansion.

• Joint ventures offer international opportunities through the formation of a new enterprise, benefiting from the strengths of both founding partners.


Figure 1.10: Alliances, networks

and joint ventures


Key players in the Key players in the international environmentinternational environment

• National governments, which play both direct and indirect roles.

• Regional institutions, such as the European Union (EU).

• International governmental organizations, such as the World Trade Organisation (WTO).

• Voluntary organizations, such as trade unions, non-governmental organizations (NGOs).

• Stakeholders in the MNE.


Figure 1.11: MNE interactions


Figure 1.12: The European Union and eurozone


ConclusionsConclusions• Businesses change in their organization and strategy as

they become more international.

• As more countries become integrated into global business, MNEs face challenges in adapting to diverse cultural environments.

• Firms’ interactions with business partners, governments, international organizations and groups in society grow as their operations develop in different locations.

• Managing stakeholder interests, including shareholders, customers and communities, is a key challenge for today’s international managers.

Documents

International Business : Challenges in a Changing World International Business Lecture 1: The business enterprise in the international environment: introduction