MGW2351: International Business

Anti-Globalisation/Free trade arguments

Jobs and Income Inequality: job losses, job insecurity and lower wage and growing income inequality
Labor Policies and the Environment:
- Human rights/labor law violation,
- Environmental degradation and global warming
National Sovereignty/Security: shift

Pro-Globalisation/Free trade arguments

Benefits outweigh costs
Economic growth of developing countries: enables developing countries to increase their economic growth rates and become richer
Efficient use of resources: globalisation helps to use natural resources evenly all across the globe, a

Political Factors (PEST)

formal and informal rules under which the firm must operate. E.g., tax policy, employment law, environmental regulations, trade restrictions and tariffs.

Economic factors (PEST)

interest rates, exchange rate, inflation rate and economic growth.

Socio-cultural factors (PEST)

the demographic and cultural aspects of the external macro-environment. E.g., health consciousness, population growth rate, level of education, career attitude, and emphasis on safety.

Technological factors (PEST)

R&D activity, automation, rate of technological change, and reaching customers rapidly.

Core competencies and entry mode

The optimal entry mode depends to some degree on the nature of a firm's core competencies:
- Technological know-how
- Management know-how

Pressures for cost reductions and entry mode

The greater the pressures for cost reductions, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries.

Entry Modes

Exporting
Licensing
Franchising
Foreign direct investment
- Joint ventures with a host-country firm
- Wholly owned subsidiary in the host country
- Mergers & Acquisitions
- Countertrade

Advantages of Exporting

- Less risky, less-resources and flexible entry mode
- Avoids the substantial cost of establishing manufacturing
- may also help a firm achieve experience curve and location economies.
- can enhance economies of scales, revenue and profit

Disadvantages of Exporting

- Transporting from the firm's home market may not be appropriate if lower-cost locations for manufacturing the product can be found abroad.
- High transport costs can make it uneconomical.
- Tariff barriers can also make it uneconomical.
- Agents in a fo

Joint Ventures

A popular mode for entering a new market.
Objectives - market entry, risk/reward sharing, technology sharing, joint product development and conforming to government regulations

Advantages of Joint Ventures

- Benefits from a local partners knowledge
- A firm can share the costs/risks
- Learning from one another

Disadvantages of Joint Ventures

- Control issues
- Conflicts issues

Advantages of Mergers & Acquisition

- it helps reshape a firm's strategic direction.
-Human asset networks: access to key people or known quantity.
-Increased speed to market: quickly access to a new markets with new products.
- Lower risk compared to developing new products (R&D)
- Low sha

Disadvantages of Mergers & Acquisition

- Integration difficulties
- Inadequate evaluation of target
- Large or extraordinary debt
- Public relations problems

Porter's Diamond of National Competitive Advantage

Factor Endowments

a nation's position in factors of production such as skilled labor force, capital, and infrastructure

Demand Conditions

related to the nature of home demand for a industry's product/service

Relating and Supporting Industries

related to the presence or absence of supplier industries, and other related industries that are internationally competitive

Firm strategy, structure and rivalry

the conditions governing how companies are created, organised and managed, and the intensity of domestic competition.

Primary activities in the value chain

Creating the product, marketing and delivering the product to buyers, and providing support and after-sale service to the buyers of the product (procurement, production, marketing, after-sales service, R&D).

Support activities in the value chain

they provide the inputs that allow the primary activities of production and marketing to occur (HR, Info System).

Advantages of firms that operate internationally

- expand the market for their domestic product offerings by selling those products in int'l markets
- realise location economies by dispersing individual value-creation activities to locations around the globe where they can be performed most efficiently

Two types of competitive pressures in the global marketplace

- Pressures for cost reductions
- Pressures to be locally responsive

Where pressures for cost reductions are greatest

- in industries producing commodity-type products that fill universal needs (needs that exist when the tastes and preferences of consumers in different nations are similar if not identical) where price is the main competitive weapon
- when major competito

Where pressures for local responsiveness arise from

- differences in consumer tastes (Milo in Asia vs hot chocolate in West)
- differences in traditional practices and infrastructure (ie. Saudi Arabia)
- differences in distribution channels (outlets, boutique, e-commerce)
- host government demands (Malaysi

Four basic strategies to compete in the international environment

- Global standardisation strategy (low local responsiveness pressures, high cost reductions pressures)
- International strategy (low local responsiveness pressures, low cost reductions pressures)
- Transnational strategy (high local responsiveness pressur

Global standardisation strategy

- focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects and location economies.
- The strategic goal is to pursue a low-cost strategy on a global scale.
- This strategy mak

Localisation strategy

- focuses on increasing profitability by customising the firm's goods or services so that they provide a good match to tastes and preferences in different national markets.
- most appropriate when there are substantial differences across nations with rega

Transnational strategy

- tries to simultaneously achieve low costs through location economies, economies of scale and learning effects, and differentiate the product offering across geographic markets to account for local differences.
- makes sense when cost pressures and press

International strategy

- involves taking products first produced for the domestic market and then selling them internationally with only minimal local customisation.
- most appropriate when there are low cost pressures and low pressures for local responsiveness

Changes in strategy over time

- international strategy may not be viable in the long term.
- To survive, firms may need to shift to a global standardisation strategy or a transnational strategy in advance of competitors.
- localisation may give a firm a competitive edge, but if the fi

Ethical issues in international business

- Corruption
- employment practices
- human rights
- environmental regulations
- the moral obligations of multinational companies
(rooted in the fact that political systems, law, economic development and culture vary significantly from nation to nation)

Corruption

- International businesses can and have gained economic advantages by making payments to those officials
- In the United States, the Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain busi

Employment Practices

- When work conditions in a host nation are clearly inferior to those in a multinational's home nation, companies must decide which standards should be applied: those of the home nation, those of the host nation, or something in between

Human Rights

- they are taken for granted in the developed world (i.e., freedom of association & speech, freedom of assembly & movement, and so on, are by no means universally accepted.

Environmental Regulations

- Issues arise when these regulations in host nations are inferior to those in the home nation.
- Many developed nations use substantial regulations for governing the emission of pollutants, but such regulations are often lacking in developing nations.

Moral Obligations of MNC's (CSR)

- Social responsibility refers to the idea that business people should take the social consequences of economic actions into account when making business decisions, & in favour of decisions that have both good economic and good social consequences
- The r

The Roots of Unethical Behaviour

- personal ethics
- decision making processes
- organisation culture
- unrealistic performance expectations
- corporate governance and leadership

Personal ethics

- Business ethics reflect personal ethics (the generally accepted principles of right and wrong of individuals)
- Expatriates may face pressure to violate their personal ethics (because they are away from their ordinary social context and supporting ethic

Decision Making Processes

- Business people may apply a straightforward business calculation to what they perceive to be a business decision, forgetting that the decision may also have an important ethical dimension.
- The fault lies in processes that do not incorporate ethical co

Organisation Culture

In firms with an organisation culture (the values and norms that are shared among employees of an organisation) that doesn't stress on ethical business culture.

Unrealistic Performance Expectations

Pressure from the parent company to meet performance goals that are unrealistic, & can only be attained by cutting corners or acting in an unethical manner, can cause unethical behaviour.

Corporate Governance and Leadership

Another root cause of corporate failure is poor corporate governance and unethical behaviour by the leadership.

Market Segmentation

involves identifying distinct groups of consumers whose purchasing behaviour differs from others

Market segments that transcend national borders

- Consumers with compelling similarities that lead to similarities in purchasing behaviour.
- More likely to exist in industrial products than in consumer products.
(Otherwise firms must customise to the local market)

Product attributes

A product is a bundle of attributes; Products sell well when their attributes match consumer needs.
If consumer needs were the same everywhere, a firm could sell the same product worldwide.
But consumer needs do vary from country to country, depending on

Cultural Differences (Product attributes)

Countries differ along a range of cultural dimensions, including tradition, social structure, language, religion, education.

Economic Development (Product attributes)

- A country's level of economic development has important marketing implications.
- Firms based in highly developed countries tend to build extra product performance attributes: Mazda
- Consumers in less developed nations tend to prefer more basic product

Product and Technical Standards (Product attributes)

- National differences in product and technological standards force firms to customise the marketing mix
- Differing government-mandated product standards can rule out mass production and marketing of a standardised product
- Differences in technical stan

Distribution Strategy

- A firm's distribution strategy is a critical element of the marketing mix
- If a firm manufactures its product in a particular country, it can sell directly to the consumer, to the retailer or to the wholesaler
- The same options are available to a firm

Differences between countries in distribution strategy

- Retail concentration (a few or many retailers);
- Channel length (the number of middlemen);
- Channel exclusivity (distributor is more focused with a few brands to sell);
- Channel quality (expertise to sell);

Communication channels available to a firm

- Direct selling
- Sales promotion
- Direct marketing
- Advertising

Negative factors affecting effectiveness of a firm's international communication

- Cultural barriers
- Noise levels

Factors affecting choice between push vs pull strategies

- Product type
- consumer sophistication
- channel length
- media availability.

Pricing Strategy

a vital part of the overall international marketing mix (market penetration vs. market skimming)

Price discrimination

- charging consumers in different countries different prices for the same product
- for it to work the firm must be able to keep national markets separate and different price elasticities of demand must exist in different countries