Professional Documents
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Ib Iii Unit
Ib Iii Unit
CHAPTER
INTERNATIONAL BUSINESS
Referred by Charles W.L. HILL, Arun K Jain Dr.R.Chandaran.
(2) High Transportation costs can make exporting uneconomical, particularly for bulk products.
Example: Many Multinational Chemical firms manufacture their products regionally, serving several countries from one facility. (3) Tariff barriers by the host country government can make exporting uneconomical & very risky.
ADVANTAGES OF JOINT VENTURES: (1) A Firm benefits from a local partners knowledge of the host countrys competitive conditions, culture, language, political systems, and business systems. Example: Thus, for many U.S. firms Joint Ventures have involved the U.S. company providing Technological know- how & products and the local partner providing the marketing expertise and the local knowledge necessary for competing in that country. (2) When the Development costs & risks of opening a foreign market are high, a firm might gain by sharing these costs & risks with local partner. (3) In many countries, political considerations make joint ventures the only feasible entry mode. Research suggests joint ventures with local partners face a low risk of being subject to nationalization or other forms of adverse government interference. (4) JV partner may also have important skills or contracts of value to the International firm.
(1) It reduces cost of production as the host countrys companies with their relative cost advantage produce at low cost.
(2) Small & Medium industrial units in the host country can also develop as most of the production activities take in the units. (3) The International Company gets the locational advantages generated by the host countrys production. (4) International business can focus on competence.
Kellogg, Pepsi, Coca Cola & the Hyatt Group of hotels are willing to invest even if the profits are returned after a long gestation period.
Generally, Foreign Investment takes place on full swing in developing countries only in the past two decades. China, Taiwan, India, Brazil, Argentina & other developing countries have started attracting huge Foreign Investment in specific sectors like Infrastructure, Mining, Marine technology & Agro processing. ADANTAGES OF FOREIGN DIRECT INVESTMENT High Profit potential. Maintain control over operations. Avoid tariffs. Acquire knowledge of local market. DISADVANTAGES OF FDI: High exposure to political risk. Vulnerable to restrictions to foreign investment. Greater Managerial Complexity.
Example: 1. Proctor & Gamble entered Mexico and became leaders in 5 yrs by acquiring Loreto. 2. Coca-Cola entered Indian market instantly by acquiring the Parle and its Bottling units.
ASSEMBLY OPERATIONS
By Assembly Operations, the International firm locates a portion of the manufacturing process in the foreign country. Assembly consists only of the last stages of manufacturing & depends on the ready supply of manufactured or Components parts to be shipped in from Another country. Example: (1) Motor vehicle manufacturers have made extensive use of assembly operations in numerous countries. (2) General Motors has maintained major integrated production units only in the U.S., Germany, U.K. BRAZIL and AUSTRALIA. (3) In many countries, disassembled vehicles arrive in assembly operations that produce the final product on the spot. Assembling the cars in Local markets is also used extensively by Ford Motor company, American Motors jeep subsidiary & most European & Japanese Car manufacturers.
ASSEMBLY OPERATIONS
Assembly usually involves heavy use of labour rather than extensive investment in capital outlays or equipment. The companies take the advantage of low range costs by shifting the labour intensive operation to the foreign market. The results in a lower final price of the products. In many cases, it is the local government that forces the setting up of assembly operations by sometimes banning the Imports of fully assembled products by charging excessive tariffs on imports.