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@Define key terms used in IB;
@Understand the concept, causes, nature, and
opportunities and problems of globalization;
@Learn the different modes of entry into IB;
1.1 


{ International Business (IB)

{ Multinational Business (MB)

{ Transnational Business (TB)

{ Global Business (GB)



{ × implies an organization operating in
 
 



{ u implies conduct of business in several countries whereby

subsidiaries are given considerable autonomy in terms of
their strategies w/c are largely À  
 À



À

{ £ involves conduct of business in a large range of countries

across the world with a single strategy that is 

À
 À 
 À À
½..

{ Πinvolves the situation where an orgn conducts bus

across national boundaries, with varying degrees of
coordination, integration and local differentiation of
strategy & operations, depending on market & bus
condns
1.2






-hat is Globalization?
@ Globalization is used to describe a range of related but
distinct, sociological, economic, political and business
phenomena

@ It refers to the development of global or worldwide business

activities, competition and markets and the increasing global
interdependence of national economies
½
{ Globalization of economies ² increasing interdependence b/n
national economies throughout the world

{ Globalization of markets ² increasing homogenization of

consumer tastes and product preferences in certain markets, as
evidenced by the popularity of global brands in certain markets

{ Globalization of industries ² the increasing globalization of the

productive process, with firms choosing to concentrate or
disperse value-adding activities around the world
½

{ Globalization of strategy ² the extent to w/c an IB

configures and coordinates its strategy globally
1.2.2½



{  apid acceleration in the 19th & 20th centuries
{ Technology: Manufacturing (industrial rev·n), transportation
(easy mov·t of people & products), infn & commn (easy flow
of infn)
{ Trade liberalization through GATT & its successor - the
-TO in the form of reduced tariff & other barriers
{  ising real income through increased dd for products





½ 
{ Π  

 Increased product preference

 Improved efficiency
 Low prices
 Increased global trade & wealth improved people life style
 Increased level of emp·t & wage levels in developing
countries
 ½ 
@ Π

 Gains in living standards in dev·d countries is at the

expense of dev·ping countries
 Global income of poorest people in the world fell
throughout the 1990s
 The gap b/n the rich & the poor is becoming even wider
 Increased use of child labor
 More monopoly of operations and closure of local
companies
  .
 Big transnational companies are considered as treats to
democracy
 Increased damage to ecological env·t
1.3

× 

u
 

1. Deciding to go abroad: reasons for internationalization
2. Scanning the intl mkting env·t (S-OT analysis)
3. Product suitability & choice of products for foreign mkts
4. Country mkt choice
5. Choosing the foreign mkt entry & dev·t strategy
6. Designing the intl mkting mix
7. Financing intl operations
 



{  

 (from reaction - to receive information, then act)
{ the company is responding to demand it discovers in another
location
{ it sees it competitors going to a particular place
{ regulations - environmental/work safety may be ´easierµ
overseas
{ costs of production at home force it to cheaper areas
{ chance occurrence
{ If a companies customers go international, then it may be
required to follow.
 



 actively look for an opportunity)
{ 

 (to

{ strategically seeking out advantages

{ launch and offense into a new market before
competitor does
{ power and prestige
{ incentives
{ lower costs of labour, production, energy
A
  
{ As costs of labour have increased in North America,
many assemblers and component parts mfg. have had to
move offshore

{ Also, another reason to go international is to gain

prestige which can be applied to customers at home - if a
company has overseas offices, it appears to be more
impressive at home ie. law firms,
Ë
!" 
..
Ë

 
    



  

Decide to operate abroad:
reasons for internationalization

Scanning the intl env·t for

opportunities & threats

Choice of country

Choice of market entry and servicing

strategy
 
 
ü 
 


 




 Π





² emphasizes rate of return of
d/t entry & dev·t modes

Π 
 À 


 ² related to d/t stages of
intlzn

 Π  
 


- target country market,
env·tal and prodn factors, home country prodn factor,
company resource factors
 
 ..
Π 

 
  
À 
 £



² when the global industry is
highly concentrated, companies will favor high-control
entry modes

£
   ² refers to shared utilization of
core competences among SBUs (ex- Honda·s transfer
of advanced engine tech from motor).
 £
 
 


  global strategic
motivations are set at corporate level for the purpose
of overall corporate efficiency maxn rather than
efficiency of individual national mkts
Ë


{ Cost
{  isk
{ Control

Ex-
@ Low cost, low risk, low control ² indirect exporting
@ High cost, high risk, high control ² FDI
½.
Ô 

  

À 

  

1. The nature of product provided

Ex- exporting products where transportation costs are low
- subcontracting for labor-intensive products (textile)
- FDI for technology intensive products to retain control over access to
know how
2. Management commitment
Ex ² small companies limited modes of entry due to restrictions to
managerial time & resources
3. Host country legislation
Ex- imposition such as import controls, restrictions on profit & royalty
pyts, control on tech transfer, incentives & disincentives for foreign
investors
½.
4. Marketing objectives
- If mkt share is important, more direct forms of entry may be
desirable
-
 #
!
$ %
{ simple export of the product
{ develop a joint venture to sell through an existing sales
company in similar business
{ sell license to foreign company and collect royalties
{ contract a foreign company to do the business for a % of the
sales
{ overseas office and subsidiary company set up
U½..
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1. Direct exporting
- exporting normally begins as domestic sales of a product
begin to slow down due to home mkt saturation.
   
üÀ

 
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Least expensive  emote from customers

Least complicated Lack of market knowledge

Profits do not have to be shared Difficult to control remotely

 isk is limited to the value of Distribution arrangements can be

shipment complex
½..
2. Contract arrangement ² licensing
- producer renting certain IP rights to licensee such as brand
name, a formulation, recipe, etc
- high control but less benefit
- mainly used in industries where branding is important such
as in FMCGs, in scientific industries like pharmaceuticals and
brewing
3. Contract arrangement ² franchising
- franchisee could use an entire business idea, including a
brand, set of procedures and systems
½..
- best works in retailing & is widely used in multiple chains
such as food, hotels, specialist chains, etc
Pros and cons of franchising

üÀ

 

À


Little capital outlay
Some control of operations
 isks are shared
Franchisee has local knowledge
Limited contact with customers
No direct control of operations
Profits must be shared with franchisee
½..
4. Contract arrangement ² management contract
- provide mgt services
- mainly used in airline industry, engineering & construction
mgt consultancies such as dams & bridges
ex- France telecom in Ethio-telecom
- Sheraton intl & Sheraton Addis
5. Contract arrangement ² contract mfg
- entering a foreign mkt by contracting local orgns to produce
some portion or all of a product
Ex- Chinese comp with B/Dar textile factory
½..
6. Contract arrangement ² turnkey operations
- involves constructing an entire production facility w/c is
handed over to recipient upon completion who then operates
it
7. Local assembly
- components are imported to the host country & assembled
into finished product and sold in the host country and other
mkts (Ex- US products in Mexico)
8. Local manufacture
Product is mfred partly or wholly in host country and sold in
the host country and other mkts
½..
9. Co-production
- Domestic & foreign bus enter into arrangement to produce a
certain product using domestic & foreign components
- advantage --- economies of scale, use of specialist
technologies
10. Establishing foreign subsidiaries
- parent company has total control of its overseas operations,
decision making & pfts
11. Joint ventures & strategic alliances
- no formation of a new company
½..
12. Mergers and acquisitions
- New company is formed
13. Global business
- many large companies configure their bus to max locational
advantages i.e. design and production are made in d/t
locations