International Business UNIT I

8/3/2019 International Business UNIT I

http://slidepdf.com/reader/full/international-business-unit-i 1/47

International Business

Mrs.Jayashree Patil-DakeBA (Eco-Hons), MA (Eco-Hons), MBA (Marketing),

NET, SET,

PhD (perusing)

Senior Faculty, MBA Dept and CoordinatorPGDMIB, BCPGC, Hyd-27



Introduction

• Globalization of Health Care



3.2 International BusinessUnit-I Global Imperative:

An Overview-IBA Global perspective-emergence of globalization-drivers of

globalization-Internationalization Process-stages in IB-Approaches to IB

The World of IB: Regional and Global Strategy-TheMultinational Enterprise-Triad and International Business-International Trade Theories; Environment of IB, CulturalEnvironment and Political Environment

References:

1. IB- Charles W L Hills & Arun K Jain, Tata McGraw Hills

2. IB- P. Subba Rao, Himalaya Publishing House

3. IB- Michael R. Chinkota, Cengage Learning etc

pl refer syllabus copy for details.



IB: Global Perspective

• IB is a process of focusing on theresources of the globe and

• objectives of the organization on globalbusinesses opportunities and threats,

• in order to produce, buy, sell or exchangeof goods/services world-wide.



Evolution of IB is as old as human civilization, however to simplify• 1) First phases of globalization began around 1870 and ended with WW-I

(1919): Industrial revolution in UK, Germany n USA- import of raw materialby colonial empires from colonies and exporting finished goods to overseas-resulted in sharp increase in volume of trade.( “vast game of beggar -thy-neighbour”.

• GDP/Trade ratio= 22.1 in 1913 and• GDP/Trade ratio= 9.1 in 1930

• Sharp decline in trade due to trade barriers, excess production to domesticdemand, decline in Int trade, breakdown of gold std leading to vacuum infield of Int trade.

• Hence there was a need felt for International co-operation in global tradeand balance of payments affairs. Efforts resulted in IMF and IBRD

Evolution of IB



• 2) Recession before WW-II in west, led to an internationalconsensus after the WW-II that different approach to Int Trade

is required. So 23 countries conducted negotiations in 1947 inorder to prevent the protectionist policies and to revive theeconomies from recession aiming at the establishment of ITO

• This attempt let to GATT- that provided framework for a seriesof „rounds‟ of negotiations by which tariffs were reduced.

• Efforts of IMF, WB and WTO to liberalize economies led toGlobalization. Globalization gave fill up to IB during 1990

• International Marketing

+

• International Trade=

• International Business

Evolution of IB, contd…



• 3) International Trade to International Marketing: Originally export was to neighboring countries and

then to far off. Then companies started operationsbeyond trade. (e.g. India: raw jute-jute products etc)

• During 1980; India could create markets for its

products along with mere exporting. Export Marketingcreated demand for Indian products like textiles, byarranging attractive distribution channels, attractivepackaging, product development, pricing etc.

• .




• 4) International Marketing to IB:• MNCs producing at home and marketing in foreign

countries before 1980s started locating their plantsand other manufacturing facilities in foreign/hostcountries. They later on started producing in oneforeign country and marketing in India. e.g. HLL; UniLever established its subsidiary co in India i.e.

Hindustan Lever Limited. HLL produces its productsin India and markets them in Bangladesh, Sri Lanka,Nepal etc. Thus scope of IB is expanded intointernational marketing and international marketing is

expanded into international business


http://www.google.co.in/imgres?imgurl=http://www.hebron.edu/AIRO/images/stories/internationalize.jpg&imgrefurl=http://www.hebron.edu/AIRO/index.php%3Foption%3Dcom_content%26view%3Dfrontpage%26Itemid%3D68%26limit%3D9%26date%3D2011-10-01&usg=__VCslylsQKQ2tMBxmbAMXHYxdvoo=&h=400&w=600&sz=27&hl=en&start=4&zoom=1&tbnid=_5EZPUL7XnL7JM:&tbnh=90&tbnw=135&ei=LnUxTubWMMKrrAeA_MCtCw&prev=/search%3Fq%3Dinternationalization%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1



Goals of IB• To achieve higher rate of return

• Expanding the production capacities beyond the Demand of the

Domestic Company• Sever competition in the Home country

• Limited Home Market

• Political Stability Vs. Political Instability

• Availability of Technology and competent Human Resource• High cost of Transportation

• Nearness to Raw Materials

• Availability of Quality Human Resource at Less Cost

• Liberalization and Globalization• To increase Market Share

• To achieve Higher Rate of Economic Development

• Tariff and Import Quotas



Economy of Different Countries

US:-largest GDP($13.21bn,2006)-Ext Debt was $10 Tn or 79% of GDP

-Public Debt 65% of GDP=national debt-Mixed Economy: pvt firms decisionsare regulated by govt-High growth rate of GDP-low unemployment-high R&D investment

Canada:-dominated by service industry

-also has sizeable manufacturing sector-Logging and Oil are imp industries-International Trade major contributor toEconomy :especially natural resources-Free Economy

-Lower Per Capita GDP than US butHigher than many European Economies

Australia:

-western style market economy-dominated by service sector(68%of GD-yet agricultural and mining sector (8%)That account 65% of its exports-Rich natural resources-Major exporter of agri products,various metals, coal and natural gas

Japan:-industrialized, free economy-world’s 3rd largest PPP after US n China-2nd largest market exchange rates-International Trade is

Highly efficient and competitive-But low productivity in agri, distributionand services-Mastery of high technology-comparatively small defense allocation-extraordinary speed to be a large economy-10% population moved from

‘working age’ to ‘elderly age’

http://www.google.co.in/imgres?imgurl=http://www.savvysouls.com/images/services11.jpg&imgrefurl=http://www.savvysouls.com/service/services.php&usg=__pdmuZIRHx9bDQeH0XplEJ8naiAs=&h=400&w=400&sz=24&hl=en&start=15&zoom=1&tbnid=qFKvrEd9iS3IrM:&tbnh=124&tbnw=124&ei=tHYxTuDsNIXsrAfV6aj1Dg&prev=/search%3Fq%3Dservices%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1



Advantages of IB• Higher Living Standards

• Increased Socio-Economic Welfare

• Wider Market• Reduced Effects of Business Cycles

• Reduced Risks

• Large-scale Economies

• Potential Untapped Markets• Provides the Opportunity For & Challenge to Domestic

Business

• Division of Labour and Specialization

• Economic Growth of the world• Optimum and Proper Utilizations of World Resources

• Cultural Transformation

• Knitting the world into a closely interactive Traditional Village

http://www.google.co.in/imgres?imgurl=http://www.heavyparts.com/English/Image/export-import.jpg&imgrefurl=http://www.heavyparts.com/English/export.htm&usg=__DhWeBTPiXbgXjUMGkvIkBBL4Y8g=&h=377&w=375&sz=157&hl=en&start=4&zoom=1&tbnid=ZKx2Gt453dAQXM:&tbnh=122&tbnw=121&ei=S3YxTuK_CMnrrQfikLz1Dg&prev=/search%3Fq%3Dexport%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1

http://www.google.co.in/imgres?imgurl=http://www.istockphoto.com/file_thumbview_approve/9342995/2/istockphoto_9342995-economic-growth.jpg&imgrefurl=http://www.istockphoto.com/stock-photo-9342995-economic-growth.php&usg=__1GVbZQv2-SHwDV-QHpLxfy0WJDI=&h=358&w=380&sz=27&hl=en&start=6&zoom=1&tbnid=yWc8w6M0oQ72nM:&tbnh=116&tbnw=123&ei=_XYxTtfnJsnorAeqqLzSCw&prev=/search%3Fq%3Deconomic%2Bgrowth%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1

http://www.google.co.in/imgres?imgurl=http://www.facts-about-india.com/image-files/india-shipping-image.jpg&imgrefurl=http://www.facts-about-india.com/indian-shipping.php&usg=__amZWSUPT7JT37Jj2oVYu4KeYuLE=&h=419&w=640&sz=54&hl=en&start=1&zoom=1&tbnid=rs3rzV0w9IPtsM:&tbnh=90&tbnw=137&ei=EXYxTofnEcTqrAeZ9Iy5Cw&prev=/search%3Fq%3Dshipping%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1

http://www.google.co.in/imgres?imgurl=http://copexe.com/images/international_trade_consulting.jpg&imgrefurl=http://copexe.com/TradeServices.aspx&usg=__mWxDbaTYAF1riX-jzbcaHmtjA7Q=&h=450&w=600&sz=106&hl=en&start=17&zoom=1&tbnid=KtJQi0ovPdgMrM:&tbnh=101&tbnw=135&ei=VnUxTse6AsurrAe4_uTLCw&prev=/search%3Fq%3Dinternational%2Btrade%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1

http://www.google.co.in/imgres?imgurl=http://www.savvysouls.com/images/services11.jpg&imgrefurl=http://www.savvysouls.com/service/services.php&usg=__pdmuZIRHx9bDQeH0XplEJ8naiAs=&h=400&w=400&sz=24&hl=en&start=15&zoom=1&tbnid=qFKvrEd9iS3IrM:&tbnh=124&tbnw=124&ei=tHYxTuDsNIXsrAfV6aj1Dg&prev=/search%3Fq%3Dservices%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1



Competitive Advantages of Global Setting

• Acc to Pitts and Snow, Competitive Advantage is, “any feature of a businessfirm that enables it to earn a higher return on investment, despite counterpressure from competitors” Competitive advantage is gained at thecorporate level through synergy and strategic business unit level thoughmarket share.

• Large firms can grow further by entering into new markets of variouscountries. They can enjoy advantages like:- large scale economies: low cost, effective utilization , experts andspecialists etc- ability to expand and diversify activities- ability to bear political and commercial risks- paying lower rate of interest to its creditors, underwriters- ability to bargain with suppliers, achieving favorable terms of trade- providing customer service efficiently and economically

- paying less taxes to govt. by shifting funds from one business to another- changing and varying tastes and preferences of customers at varyingdegrees across the globe-different levels of economic development, social and cultural development,technological development of world courtiers



Advantages contd...

- mobility of labour forces across the globe.- use of portfolio planning for synergistic advantage by allocating moreresources to those portfolios/products which have higher mkt demand and

by reducing resources to those products with low market demand.(reducing/stopping further investments in Dogs, diverting income from CashCows to problem children and Star portfolios.)- Economics of Scale- Latest Technology- Human Resources

-continuous up gradation of employees through training- Computer-aided design, product process, e-commerce, business processre-engineering and enterprise resource planning would also sources forcompetitive advantages- product and process innovation and development

- acquiring market power to understand, monitor and control suppliers ofinputs, customers, dealers or market intermediaries and competitors- cheap sources of raw materials, finances etc. in various foreign countries

http://www.google.co.in/imgres?imgurl=http://www.hebron.edu/AIRO/images/stories/internationalize.jpg&imgrefurl=http://www.hebron.edu/AIRO/index.php%3Foption%3Dcom_content%26view%3Dfrontpage%26Itemid%3D68%26limit%3D9%26date%3D2011-10-01&usg=__VCslylsQKQ2tMBxmbAMXHYxdvoo=&h=400&w=600&sz=27&hl=en&start=4&zoom=1&tbnid=_5EZPUL7XnL7JM:&tbnh=90&tbnw=135&ei=LnUxTubWMMKrrAeA_MCtCw&prev=/search%3Fq%3Dinternationalization%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1

http://www.google.co.in/imgres?imgurl=http://www.treehugger.com/virtues-of-free-trade-image&imgrefurl=http://www.treehugger.com/files/2009/02/heres_why-free-trade-absolutism-hinders-environmental-goals-compromise-will-help-planet-increase-jobs.php&usg=__eZM-LNLGcgEjt77P849nSPwbnug=&h=535&w=539&sz=62&hl=en&start=3&zoom=1&tbnid=JlYrVLmCtAMBgM:&tbnh=131&tbnw=132&ei=i3YxTqTZOMPjrAe01cXRCw&prev=/search%3Fq%3Dtrade%26um%3D1%26hl%3Den%26rlz%3D1W1ADFA_en%26tbm%3Disch&um=1&itbs=1



Indian Software Industry: Sources for US and European Business

India:- protectionist policies since independence- 1990‟s foreign exchange crisis led to globalization

- Led to IT revolution in India- Successful Educational System to produce good engineers, medicos, MBAs,Scientists etc- India is producing more than 2.5 million graduates including 120000 IT professionals- Indian middle class highly educated in IT, biotech, medicine, pharma and management- Top educational institutions are world class

- 50% of Indian population is in age group of 25-30,which is highly energetic.- this group is endowed with challenging, competitive attitude- India is largest English speaking country in world- cost of professional is 10-15 times less than US and European labour markets- All these favorable factors led to Software industry growth with world class std.- Satellite communication helped serving global business

without software companies going global- Software and other firms around world depend on Indian by Outsourcing- Indian Software and service export crossed $23.4 Bn in 2006and it targets to cross $60 bn by 2010



Problems of IB• Political Factors

• Huge Foreign Indebtedness• Exchange Instability

• Entry Requirements

• Tariffs, Quotas and Trade Barriers

• Corruption

• Bureaucratic Practices of Governments

• Technological Pirating

• Quality Maintenance

• High Cost



Drivers of Globalization• Former communist and socialist economies opened

themselves to rest of the world

• After 1990 shifts from globalization to IB have beenfaster. The external environmental factors have beencontributing significantly for remarkable strides inglobal business.

• Drivers to globalization/factors contributing toglobalization include: – establishment of WTO, – emergence and growth of regional integration, – decline in trade barriers, – decline in investment barriers, – increase in FDI, – technological changes and – growth of MNCs.

I t ti l B i M d l



International Business ModelStages:• Domestic• International

• Multinational• Global• Transnational

Influences:

•Social

•Technological

•Economic

•Political

Domestic Business International Business

Approaches:

•Ethnocentric

•Polycentric

•Regiocentric

•Geocentric

Influences:

•Exports

•Direct Investment

•Licensing

•Franchising

•Turnkey Projects

•Joint Ventures

•Mergers & Acquisitions

Goals:

Market Share

High Profits

Risk Avoidance

Resources Acquisition

Expand Business

Expand Business Capacities

Advantages:

Low price

Variety of Goods

High Living Std

Economic Growth

Competitive Advantage

Problems:

Political risks

Foreign Debt

Exchange instability

High Cost

D i t l b li ti /f t t ib ti



Drivers to globalization/factors contributingto globalization

– establishment of WTO, – emergence and growth of regional integration,

– decline in trade barriers,

– decline in investment barriers, – increase in FDI,

– technological changes and

– growth of MNCs.

E bli h f WTO



Establishment of WTO

• 1994: govts of member countries of GATT

concluded Uruguay round negotiations on 15th

Dec 1994.

• Final draft was singed in Marrakesh, Moroccoon 15th April 1994; declaring results of Uruguay

round would, “strengthen the world economyand lead to more trade, investment,employment and income growth thought-out theworld”.

• The value of exports increased by 245% andimport increased by 1014% after theestablishment of WTO (during1995-2006)



Emergence and Growth of Regional Integration

• The regional integration of countries of same region orareas increase the size of market, aggregate demandfor products and services, quantity of production,employment and ultimately the economic activity ofthe region.

• People of the region get variety of products atcomparatively lower prices.

• This enhances purchasing power and living std ofpeople

• The significant regional integrations (trade blocks)include EU, NAFTA, ASEAN,EFTA,APEC,MERCOSUR and ANDEAN.

D li i T d B i



Decline in Trade Barriers• Int trade occurs when free flow of goods and services across

countries.

• Govt. impose trade barriers like quotas and tariffs to protectdomestic business from competition of IB

• After WW-II advanced countries agreed to reduce tariff in orderto encourage free flow of goods.

• Member countries of GATT in various rounds of negotiations

agreed to reduce tariff rates• Uruguay round negotiations contributed to further reduction of

TBs and extension covered manufactured goods and services

• USA reduced rate of tariff from 44% in 1913-14% in 1950 to

4.8% in 1990 and to 3.9% in 2000. also Japan reduced t.b.• Most advanced countries reduced tariff rates to 3.9% in 2000.

• Int trade b/w 1950 and 2077 was about 28 fold. Thesereduction in tariff and other trade barriers contributed for growthof global trade.

Decline in Investment Barriers



Decline in Investment Barriers• Global business firm invest capital to establish manufacturing

and other facilities in foreign countries.

• Foreign govt. impose barriers on foreign investment in orderto protect domestic industry.

• Various countries have been removing these barriers on FDIin order to encourage growth of global business

• Various govts made 1238 changes in FDI governing laws b/w1991-2007

• Out of which 95% amendments were in favour of FDI.

• Additionally, bilateral treaties increased from 181 as of 1980to 1856 as of 2000 in 160 countries.

• These treaties were designed to promote and protectinvestment among countries, enable fast growth ofglobalization of trade and production also.

• Consequently, global production increased by 9 fold b/w

1950-2007

I i FDI



Increase in FDI• “FDI” is an investment made by a company in new manufacturing and/or marketing

facilities in a foreign country.• FDI increased due to:

– Increase in sales and profits

– Enter into rapidly growing markets – Reduces costs – Consolidate trade blocks – Protect domestic markets – Protect foreign markets – Acquire technological and – Managerial know-how

• FDI flows have increased in last 25 yrs with rapid growth during 1990a.• The outflow of FDI was more than 15 times after 1990s compared to during 1970s.• FDI increased from US $ 564 bn in 1980 to US$8981 bn in 2007• FDI flow is expected to increase further once world economy picks up from recent

recession in advanced countries• DCs i.e. Advanced countries major players in FDI flows. They were predominate

providers and recipients of FDI; as 84% of FDI was provided by DCs they received69% of FDI in 2007. Indicates that DCs provide only 16% of total FDI and received31% total global FDI in 2002. USA was largest provider as well as recipient of FDIfollowed by UK in 2007.

• Emerging economies are now receiving high FDI than 1980s. However, Vienna, HK,Brazil, Mexico, India and Singapore are receiving over 50% FDI among DCs. Growthand spread of FDI enlarged globalization of production and marketing.

Strides in Technolog



Strides in Technology• Technological change is amazing and phenomenal after

1980s.Revolution in telecommunication, IT, Transporting

Technology, etc• Microprocessor and Telecom: high power, superior speed,low cost of computing, handling vast amount of info

• Internet and WWW: backbone for future global business. Theusage of search engine to down load info on product designs,

specifications, models, prices, services to customers, marketinfo• On-line Globalization: info regarding changes in raw

material, customer preferences, changes in product designscan be sent easily.

• Transportation Technology: commercial jet aircraft, superfighters, containers etc development in transportationtechnology reduced distance among countries drastically.Transshipment from one mode to another became easier andreduced travel time.

•

G th f MNC



Growth of MNCs• A multinational corporation/company is an

organization doing business in more than one country.

• Transnational company produces, markets, investsand operates across world.

• MNCs & TNCs have been growing and spreading their

operations due to market, financial and othersuperiorities and expansion of international markets.

• EU had 163 out of 500 top MNCs in world(2007)followed by USA(162) and Japan(67).

• MNCs of developing countries have been increasing incontrast to developed countries. India had six MNCsamong top 500 MNCs.

I fl f IB



Influences of IB

• Political

• Social• Cultural

• Economic factors

These factors differ from country to countrywhich makes conducting and managing IBcrucial venture. Africa and Europe

preferences to price and quality etc

E i H bi i I l d P l d



Eating Habits in Italy and Poland

Poland:

-Mediterranean country-3 means a day

-Eat lot of meat, fats, potatoes(like Germans)-Eating habits are unlike otherMediterranean regions-Now a days,eating is just a routine

Italy:

-Typical Mediterranean country-climate, nature etc-morning: light meals-biscuits, milk,

juice etc-Afternoon: pasta, beef with veg,drink white wine-Italians eat during night-eating is way to spend time with familyand friends

-Kitchen is element of culture-Pizza, Pasta symbol of Italian culture

Impact of Culture on Switzerland Housewives on Marketing of



Impact of Culture on Switzerland Housewives on Marketing ofDishwashers

- Foreign Dishwashers expected rapid sales of Washing Machines

as in western Europe- No market research was conducted before entering into market- Market research conducted after entry; it was found that:. Swiss housewife had different set of values than French and English. She was very conscious of her role as strict and hardworking

. more responsible towards health of her family. Calvinistic work ethics conflicted with Dishwashers asit makes life easier.. So advertising and promoting was changed keeping this in mind. Dishwasher was advertised and promoted as hygieneand health rather than ease and convenience

. It was projected that temperature and process used ishygienic than hand wash.. So they could sell automatic dishwashers in Switzerland

Ch i i F f IB



Characteristic Features of IB

• Accurate Information: Europe Shoes-Bata

• Timely Information: US co entering

Indian software markets

• Size of Business: size if IB house should be

able to impact foreign companies

• Market Segmentation: generally, Geographical Mkt Segmentation

Daewoo segmented as North America, Europe, Africa,

Indian Sub-continent and Pacific markets

Potentiality of Markets



Potentiality of Markets• Int markets are more potential

• Wider in scope, varied in consumer tastes, preferences and

purchasing abilities, size of population (IBM sales more inforeign countries than in US, similarly Coca-cola sales,P&G, Satyam, sale more other than home countries

• World population is on rise. Size of population may notdetermine size of market due to backwardness, low

purchasing power etc( Eritrea-an African country roughlyequals to UK in terms of Land, Size of Population. But percapita income of Eritrea is only US $ 150 pa.

• Willingness to buy and ability to buy is important

• Many MNCs entered in India with expectations but theyfailed due to heavy inflow of goods and decline in size ofmiddle class led to slump

-Wider Scope:

-Inter-country comparative study:

Diff i G t P li i L d



Difference in Govt Policies, Laws andRegulations

-Host country‟s monetary system -National security policies of Host country

-Cultural factors

-Language

-Nationalism and Business policy



Changing Scenario of IB• Globalization of various economies including

communist and socialistic states

• WTO

• IT revolution

• Transport Technology revolution

• EU: 15 members to 27 members• High growth rates of BRIC, Mexico, S. Korea,

Singapore, Malaysia, Thailand

• Increase in business alliances: M&A JVs etc

• Globalization of Cultures

• Increase in Education Opportunities, career-orientation in china India etc- growth of MNCs

Stages of Internationalization



Stages of Internationalization

1. Domestic Company2. International Company

3. Multinational Company

4. Global Company5. Transnational Company

1 D ti C



1. Domestic Company• Domestic company limits operations, mission, vision to national

political boundaries.

• Focus on domestic market opportunities• Domestic suppliers

• Domestic financial companies

• Domestic customers

• Analyses national environment of country, formulates strategyto exploit opportunities offered by environment.

• Unstated motto: “if it is not happening in the home country, it isnot happening”

• Never thinks growing globally. If it grows beyond presentcapacity, it selects diversification strategy of entering into newdomestic markets, new products, technology etc.

• It does not select strategy of expansion/penetrating intointernational markets etc

2 International Company



2. International Company• Some domestic companies grow beyond their production or domestic

marketing capacities, thin of internationalizing their operations. Who decideto exploit the opportunities outside the domestic country are stage two:international companies

• These companies remain ethnocentric or domestic country oriented. Believepractices adopted in domestic business, people, product of domesticbusiness are superior to those of other companies. The focus of thesecompanies is domestic but extends the wings to the foreign countries

• Select strategy of locating branch in foreign markets and extend same

domestic operation. Extend domestic product, domestic price, promotion andother business practices to foreign markets

• Internationalization process of many companies start with this stage twoprocess. They follow this strategy due to limited resources to learn fromforeign markets gradually before becoming global company without muchrisk.

• International Companies hold marketing mix constantly and extendsoperations to new countries. Thus, the intentional company extendsdomestic country marketing mix and business model and practices to foreigncountries.

3 Multinational Company



3. Multinational Company• International company learns extension strategy (extending domestic product, price, promotion

to foreign mkt) will NOT work.

Toyota, Japan• Toyota in 1957 couldn't sell cars in USA, produced for Japan in Japan-overpriced,

underpowered, tank built and unsold cars were shipped back to Japan)• Toyota learnt from this failure. Designed new model cars suitable for US mkts. Int co turned into

MNC when they started responding to specific needs of different markets regarding product,price and promotion

• This stage of internationalization is called multi-domestic. company formulating diff strategiesfor diff mkts. Orientation shifts from ethnocentric to polycentric.

• Orientation shifts from ethnocentric to polycentric Under polycentric orientation

offices/branches/subsidiaries of MNC work like domestic company in each country where theyoperate with distinct policies and strategies suitable to the country concerned. They operate likea domestic company of country concerned in each of their markets.

Phillips, Netherlands• was multi-domestic company formulating diff strategies for diff mkts during 1960s.. With

autonomous national organizations and formulation of strategies separately for each country. Itworked until Japanese companies and Matsushita started competing based on global strategywhich was based on focusing the company resources to serve the world market.

• Phillips strategy was to work like domestic company and produce number of models of product.It increased cost of production, price But Matsushita‟s strategy was to give value, quality,design, low price to customer. Philips lost its market share as Matsushita offered more value tocustomer

• Consequently, Philips changed its strategy and created “industry main groups” in Netherlandswhich are responsible for formulating a global strategy for producing, marketing and R&D

4 Global Company



4. Global Company• Global company has either global marketing strategy or global

strategy.

• Global company either produces in home country or in a singlecountry and focuses on marketing these products globally, orproduces products globally and focuses on marketing theseproducts domestically.

• Harley designs and produces Super heavy Motorcycles in US

and markets in global market. Dr. Reddy‟s lab designs andproduces drugs in India and markets globally. Both have globalmarket focus.

• Gap procures products in global countries and market products

through its retail organization in US. Thus Gap is example ofglobal sourcing company

• Harley Davidson designs and produces in USA and gainscompetitive advantage as Mercedes in Germany.

• The Gap understands the US consumer and gets competitive

advantage

5 T ti l C



5. Transnational Company• Transnational company produces, markets, invests and

operates across the world. It is integrated global enterprise

that links global resources with global markets at profit.• There is no pure transnational corporation• However, most of them satisfy many of the characteristics of

global corporations, Coca-cola, Pepsi-cola etc.• Its geocentric in orientation thinks globally and acts locally,

adopts global strategy but allows value addition to customerof domestic country. This company allows adaptation to addvalue to its global offer.

• The assets are distributed throughout world, independent andspecialized. R&D facilities are spread in many countries, but

specialized in each country based on local needs andintegrated in world R&D projects. Production facilities arespread but specialized and integrated.

• Caterpillar, manufacturing and assembly facilities are locatedin may courtiers. Components are shipped for assembly andassembled product is shipped to place of the customer.

Features of Transnational Company



Features of Transnational Company

• Geocentric orientation: think globally act locally

• Scanning or Information Acquisition: PEST analysis• Vision and Aspirations: global to grow ahead of others

• Geographic scope: SWOT for global strategy

• Operating Style: operations are globalized

• Adaptation: adapt products, Mkting, functional strategies toconcerted mkts‟ environmental factors

• Extension: for products which need no change (pen)

• Creation through Extension: Rothmans Cigarettes extended toEuropean & African countries, created global and nationalbasis.

• Human Resource Management Policy: not restricted bynationality, political, legal constraints but reserving Keypositions to nationals.

• Purchasing: procures world-class material from best sources

Stages of International Business



Stages of International BusinessStage andCompany

1.Domestic 2. International 3.Multidomestic 4. Global 5.Transnational

Strategy Domestic International Multidomestic Global Global

Model N.A.

Federation

Coordinated Federation

Decentralized Hub Centralized Network

Integrated

View of WorldMarkets

Home country Extension or Resources

National and Resources

Global Markets

Global Markets

Orientation Ethnocentric Ethnocentric Polycentric Mixed Geocentric

Key AssetsHomecountry

Located in centralized,other dispersed

Core and self sufficient

Decentralized country except marketing or sourcing

All in home Interdepend ent and specialized

Dispersed

Role ofCountry Units

Single country Adopting and Leveraging

Exploiting local Opportunities

Marketing or sourcing worldwide

Contribution s to company

Knowledge Home country centre and

transferred

Created at operating units

Retained within developed jointly

and shared

Marketing developed

jointly and shared

All functions

Domestic and International Business



Domestic and International BusinessDomestic Business International Business

Ethnocentric Approach Polycentric or Regiocentric

Geographic scope within boundaries Min two countries max to entire globe

Operations ltd to domestic Operations could be spread to entire globe

Analyzes and scans domestic business Analyzes and scans international environment

Tariff rates do not affect Tariff and Quotas do affect internationalbusiness

Foreign exchange don't affect domesticbusiness directly

Foreign exchange and its fluctuations directlyand significantly affect IB

Domestic culture affects operations andproduct designs

Many cultural of many countries affect

No impact of EXIM procedures directly EXIM procedure directly affect IB of various

nations.

HR in not complicated task HR task is more complicated

Domestic companies meet needs ofdomestic customers and markets

IB should understand customers and marketsof various countries.

IB Approaches



IB Approaches

• IB approaches are similar to stages of

Internationalization or globalization

1. Ethnocentric

2. Polycentric

3. Regiocentric

4. Geocentric

Ethnocentric



Ethnocentric• Maintenance of domestic approach towards international

business is called ethnocentric approach.• Under Ethnocentric Approach the domestic companies

view foreign markets as an extension to domestic markets.• The company exports the same product designed for domestic

markets to foreign countries under this approach.• This approach is suitable to the companies during the early

days of internationalization and also to the smaller companies.

Managing Director

ManagerR&D

ManagerFinance

ManagerProduction ManagerHR ManagerMarketing

Asst. ManagerNorth India

Asst. ManagerSouth India

Asst. ManagerExports

Polycentric



Polycentric• Under polycentric approach, companies establish foreign subsidiary and

empowers its executives.• Domestic companies which are exporting to foreign countries using ethnocentric

approach find at the later stage that foreign markets need am altogether differentapproach.

• The company establishes foreign subsidiary company and decentralizes all theoperations and delegates decision-making and policy making authority to itsexecutives.

• In fact, company appoints executives and personnel including a chief executive whoreports directly to Managing Director of the company.

• Company appoints key personnel from the home country and all other vacancies are

filled by the people of the host country.• The executive of the subsidiary formulate policies and strategies, design the product

based on the host country‟s environment (culture, customs, laws, governmentpolicies etc.) and the preferences of the local customers.

• Thus polycentric approach mostly focuses on the conditions of the host country inpolicy formulations, strategy implementation and operations.

Managing DirectorCEO

Foreign Subsidiary(Uganda)

ManagerR&D ManagerFinance ManagerProduction ManagerHR ManagerMarketing

Regiocentric



Regiocentric• The company operating successfully in foreign country, thinks

of exporting to neighboring countries of the host country.

• At this stage, foreign subsidiary considers the regionalenvironment (e.g. Asian environment like laws, culture, policiesetc) for formulating policies and strategies.

• However, it markets more or less the same product designedunder polycentric approach in other countries of the region, but

with different market strategies.• Under Regiocentric approach, subsidiaries consider

regional environment for policy/strategy formulation.

Managing DirectorCEO, Subsidiary

South Africa

ManagerR&D ManagerFinance

ManagerProduction

ManagerHR ManagerMarketing

Marketing(Lesotho)

Marketing(Botswana)

Marketing(Namibia)

Geocentric



Geocentric• Under geocentric approach, the entire world is just like single country for the

company.• They select employees from the entire globe and operate with a number of

subsidiaries

• The headquarters coordinate activities of the subsidiary.• Each subsidiary functions like independent and autonomous company in

formulating policies, strategies, product design, human resource policies,operations etc.

• Under geocentric approach, companies view, the entire world as asingle country.

SubsidiaryNamibia

SubsidiaryKenya

SubsidiaryLesotho

SubsidiaryPapua New Guinea

Managing Director

SubsidiaryIndia



• Thank You

Documents

International Business UNIT I