Topic 1 Introduction to Internationa Business Management

International Business and Its Environment

Significance; Nature and Scope of International Business

(Francis Cherunilam, 2003) Business is increasingly becoming international or global in its competitive environment, orientation, content and strategic intent.

Competition – New encounter by firms regardless of whether they are; Local, National or foreign.

Competitions in term of new products that are produce cheaply in other countries are being imported and competing with local producers.

Liberalisation – Challenging opportunities to improve it competitiveness and scope of business by global sourcing of technology, materials, finance, human resources etc.

Globalization – operations are done on a global perspective to improve competitiveness. This has led to globalization progressing at a very fast rate and international business growing rapidly.

·         Advantages of the above factors to consolidate and expand business.

·         Competition at home is pushing many companies overseas

·         Companies are exporting their products into new markets

·         Companies are coming with global orientation mission statement and corporate strategies.

Peter Drucker in his book Management Challenges for the 21^st Century stated; “All institutions have to make global competitiveness a strategic goal. No institution, whether a business, a university or a hospital, can hope to survive let alone to succeed, unless it measures up to the standards set by leaders in its field, any place in the world”

Keegan; “A company that fails to go global is in the danger of losing its domestic business to competitors with lower costs, greater experiences., better products and in a nutshell, more value for the customer”

Nature and Dimensions of International Business

Let us look at Globalization again. In our course GAM, we looked at globalization where the world is integrated or intertwined together economically, socially, politically and culturally. How?  Through the advances of Technology; Transportation; Communication and Science Research and Development.

Globalization is necessitated, facilitated and nourished by trans nationalization of World Economy and developed by corporate strategies.

Globalization is an attitude of mind and how the world is viewed by multinationals as a single market. (Global orientation approached)

Globalization encompasses the following;

·         Planning to expand globally

·         Developing global outlook (Differences between domestic and foreign market)

·         Production facilities and market considerations on a global basis, irrespective of national considerations

·         Product development and production planning on a global market considerations

·         Global sourcing of factors of production (raw material, labour, technology and capital)

·         Organizational structure and management culture are global orientation. 

Companies that have adopted a global outlook have stop “thinking of themselves as national marketers who venture abroad and start thinking of themselves as global marketers”. Here you will noticed top management and staff are involved in the;

·         planning of worldwide manufacturing facilities,

·         marketing policies,

·         financial flows and

·         Logistic systems.

A truly global corporation views the entire world as a single market. It does not differentiate between domestic market and foreign markets. There is only one market, the Global Market.

Evolution of International Business

·         The origin of international business goes back to human civilization.

·         Integration of economies and societies dates back to the 19^th century.

·         First phase of globalization began around 1870 and ended with WW2 driven by the industrial revolution

·         1944 Bretton Wood conference resulting in the establishment of the IMF, WB and International Trade Organization and others

Types of International Business

(Francis Cherunilam, 2003) Looked at international business and the different type of activities within the following categories;

Trading – Import and export of goods and services have been growing very fast. Examples in Japan there are trading houses that transact large volume of business such as The Export House, Star Trading Houses and Super Star Trading Houses and many others.

Manufacturing and Marketing –Manufacturing exporters are those who export goods manufactured by them. Many international firms whether large and small carry out these type of business operations across international boundaries.

Sourcing and Marketing – There are many firms that are outsourcing their products at home and abroad.

Global Sourcing for Production – Many firms source globally their raw materials for manufacturing

Services – Servicing is becoming a fast growing sector of international business. You can find such businesses within the tourism industry, financial sector, insurance industry, information and technology etc.

Investments – International Investment portfolio are being carried out by international businesses.

 

Subba Rao (2012) Stages of Internationalisation

Stage 1 – Domestic Company – Limits its operations, mission and vision to the national political boundaries. Such companies focus its view on the domestic market opportunities, domestic suppliers, domestic financial companies, domestic customers etc. A domestic company never think of growing globally. If the company grows beyond its present operations, it may enter into new domestic markets.

Stage 2 – International Company – Those companies who decide to exploit the opportunities outside the domestic country are the stage two companies. These companies remain ethnocentric or domestic country oriented. These companies believe that the practices adopted in domestic business, the people and products of domestic business are superior to those of other countries. The focus of these companies is domestic but extends the wings to the foreign country with a domestic orientation.

Stage 3 – Multinational Company – These are companies that have moved from stage 2 to next level and companies that progress into stage 3 are those that have learnt to adopt and modify their products to suit the local environment. When companies start responding to the specific needs of the different country markets regarding product, price and promotion, than you know they have moved from international to multinational.

Subba Rao (2012) This stage of multinational company is also referred to as multidomestic. Multidomestic company formulates different strategies for different markets; thus the orientation shift from ethnocentric to polycentric takes place. For example; the offices/branches/subsidiaries of a multinational company work like domestic company in each country where they operate with distinct policies and strategies suitable to the country concerned.

Stage 4 – Global Company – This is a company which has either global marketing strategy or a global strategy. These types of company produce in home country or in a single country and focus it marketing globally.

Stage 5 – Transnational Company – produces, markets, invest and operates across the world. It is an integrated global enterprise that links global resources with global markets at profit.

 

Characters of a Transnational Company;

Characters of transnational company include the following;

A)    Geocentric Orientation.

·         Thinks globally and acts locally.

·         Adopt global strategy but allows value addition to the customer of a domestic country.

·         Assets are distributed through-out the world.

·         Independent and specialized.

·         Research and Development are spread in many countries.

·         Create and develop the knowledge in all functions and share among them

·         Experience and knowledge are shared jointly

 

B)    Scanning or Information Acquisition
C)    Visions and Aspirations
D)    Geographic Scope
E)     Operating Style 
F)     Adaptation
G)    Extensions
H)    Creation through extensions 
I)       Human Resource Management Policy
J)       Purchasing

International Business Approaches

·         Ethnocentric Approach

·         Polycentric Approach

·         Regiocentric Approach

·         Geocentric Approach

Mode of Entry

·         Direct and Indirect Exporting

·         Licencing arrangement

·         Franchising arrangement

·         Contract manufacturing

·         Management contract

·         Turnkey Projects

·         Direct Investment

·         Joint Ventures

·         Mergers and Acquisition

Goals of International Business

·         To achieve or maximize profits

·         Expand production to meet demand beyond domestic markets

·         High Cost of Transportation

·         Near raw market source

·         Quality of HR at lower cost

·         Increase market share

·         Liberalization and Globalization

·         Economies of Scale

Advantages of International Business

·         High living standards

·         Increase socio-economic (Welfare)

·         Wider markets

·         Reduced Risks

·         Untapped markets

·         Economic growth

·         Cultural transformation

 

Sources:

International Business Environment by Francis Cherunilam, (2009) Himalaya Publishing House
International Business by P Subba Rao, (2012) Himalaya Publishing House.