2011 IB Notes

9/16/2011

1

INTERNATIONAL BUSINESS DR.MANOHAR PANDIT No unaothorised distribution

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2

INTERNATIONAL BUSINESS

International Business is all commercial

transactions – private and governmental -

between two or more countries

• Private companies transact for Profits

• Government may or may not

• Transactions may include Sales, Investments,

Services - Transportation

No unaothorised distribution

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International Business is an attitude of mind, approach of the company with a global outlook, seeking profits around the world on a planned and systemic basis


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International Business - Large and

Growing Portion of World Business

Growing Importance of International

Business

Business carried out to

• Expand Sales

• Acquire Resources

• Minimize Risk No unaothorised distribution

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Expand Sales

Diversify Source of Sales and Supplies

Domestic Market Constraints

Market on Decline

Domestic Recession

Scarcity of Resources

International Market Opportunities

Number of People

Amount of Purchasing Power

Better Availability of Resources


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Acquire Resources

Better Quality & Profits

Foreign Capital

Finance, Technology, HR

Monopoly Power

IPR, Licences

Govt. Policies & Regulations

Tax Benefits, Incentives


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Minimize Risk

Situational Advantage

Business Cycles

Recession & Expansion

Minimize Impact of Price Swings

Minimize Impact of Shortages

PLC

Competition

Counter Competition Effectively No unaothorised distribution

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Growth Factors

Increase in Global Competition

Global Opportunities for Domestic

Manufacturers and Suppliers

Faster Availability of New Product

Technology

Multiple Manufacturing Locations

Uniformity in quality and price


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Technology Production, Promotion Telecommunication Revolution Better Transportation Cost Reductions - Telecom & Transport

Liberalisation Lower Government Barriers Consumer Desire Affluence Competition in Domestic Manufacturers


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Responsible Growth Factors

Development of Supporting Institutions

Insurance

WTO

Banking

Shipping

Trade Associations

Consular Services

Government Agencies


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International Business Decisions Co. Objectives

Vision Co.’s Decision

Present & Future

Opportunities in Domestic

and International Market

Resources of the Company

Skills / Technology

Finance

Experience

Production Capabilities

Marketing Capabilities


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Corporate Mission à Objectives à Strategy

Major Operating Objectives

Profit Motives

Growth Opportunities

For the Company

For the Country

Expand Sales

Capacity Utilisation

Low Production Cost No unaothorised distribution

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Spin-off Benefits

Duty-free Imports

Capital Goods Imports

Improved Domestic Production

Non-profit Motives

Philanthropic

NGOs – Education, Health, Wild Life

Political

Spread of Ideologies, New base No unaothorised distribution

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Operating Mode

Export and Import

Merchandise Exports and Imports

Visible Exports and Imports

Tangible Goods

Less Complicated

Need Not Be Manufacturer or Actual User

Good Growth Opportunities


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Operating Mode

Export and Import

Service Exports and Imports

Invisible Exports and Imports

Intangible Goods

More Complicated

Mostly Manufacturer or Actual User

Good Growth Opportunities


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Operating Mode

Export and Import

Service Exports and Imports includes

Entertainment, Travel, Tourism

Performance of Services

Banking, Insurance, Rental,

Management, Engineering,

Software, Turnkey Projects,

Construction, Manpower


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Operating Mode

Export and Import

Service Exports and Imports includes

Use of Assets

Licensing Agreements

Trademarks, Patents, Copyrights

Franchising Agreements

Royalties and Fees

Use of Capital Assets


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Operating Mode

Investments

FDI

JV, Strategic Alliances

Portfolio Investment

Stocks

Short-term Loans


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Domestic vs. International Business

Controllable

Product Price Promotion Distribution Channel

Domestic Environment (Uncontrollable) Political / Legal Forces Competitive Forces Economic Climate

Foreign Environment (Uncontrollable) Political / Legal Forces Economic Forces Cultural Forces Competitive Forces Geography & Infrastructure Level of Technology Structure of Distribution


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International Orientations

Ethnocentrism Home Country Orientation

Polycentrism Host Country Orientation

Reginocentrism Regional Orientation

Geocentrism World Orientation


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International Business has been present

throughout much of history

Silk Route, Amber Route

Sun never sets on British Empire

Migrations, Immigrations, Manpower

Exports

No Passport, No Visa, No Forex

Different complexities in each era No unaothorised distribution

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External Influences

Political Science Political Policies

Law Legal Practices

Anthropology Values

Sociology Attitudes

Psychology Beliefs

Economics Economic Forces

Geography Geographical Influences

Competition Competitive Strategies


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External Influences


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External Influences Political Environment

Political Systems

Types of Government Parliamentary (Open)

Absolutist (Closed) Two Party USA, UK Monarchy Saudi, UAE Multiparty India, France, Israel Dictatorship Saddam in Iraq Single Party Egypt, Syria, Mexico Dominated one party USSR, Cuba, Libya Parliamentary with Monarchy UK, Japan


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External Influences Economic Systems

Communism: All resources owned and shared by people

for the benefit of the society Government Controls

Productive Resources Determines Jobs

Production Prices

Education And Everything Centrally Planned Economy

USSR, North Korea, Vietnam, Eastern Europe, China – Non -market Economy, Weak Economy, Large Foreign Debt


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External Influences

Economic Systems

Socialism

Poland and France, two ends of socialism spectrum

Sweden in the middle

Sweden gave generous benefits to employees which

were misused

Govt. control less than communism

Govt. owns & operates large enterprises

Small business have private ownership No unaothorised distribution

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External Influences Economic Systems

Capitalism

Free Market System Allows Competition Freedom To Customers As Well As

Manufacturers USA Managerial Capitalism UK Personal Capitalism Germany Cooperative Capitalism Ideal Free Trade Market Is Hong Kong World’s Freest Economy No unaothorised distribution

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External Influences

Political Risks

Confiscation

Expropriation

Nationalisation

Domestication

General Instability Risk

Ownership / Control Risk

Operation risk

Transfer Risk

Privatisation


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External Influences

Political Risks

Includes any national or international political factors which may affect an organisation’s decision making, planning, implementation, and control mechanisms. Marketers have to work within the political framework of the host country What role does the target market’s government play in the economy?


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External Influences

Political Risks

Three Types of Political Risks: §Ownership risk §Operating risk §Transfer risk

What are the International Relations of the target market’s government? Does it belong to a trading block or free trade area?


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External Influences

Political Risks

Indicators Of Political Instability

• Social Unrest

• Attitudes of Nationals

• Policies of Host Government

• War

Management of Political Risk

• Avoidance

• Insurance No unaothorised distribution

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External Influences

Political Risks

Measures To Minimize Political Risk Stimulation of Local Economy Local Sourcing Exports FDI

Employment Of Nationals Jobs, Contracts

Sharing Ownership Cathay Pacific in China No unaothorised distribution

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External Influences

Political Risks

Measures To Minimize Political Risk Being Civic Minded Microsoft

Singapore Airlines Political Neutrality Behind the Scenes Lobby

Observation of Political Mood and Reduction in Exposure Other Measures Adapting Culture McDonalds No Beef


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External Influences

Economic Systems

Market Economy Resources Allocated &

Controlled by Consumers

Mechanism Involves Interrelationship of Price, Quality, Supply

& Demand

Economic Freedom – From Govt Restrains. Legal & Inst.

Framework


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External Influences

Economic Systems

C P E Govt. Control

Govt. Sets Goals and Decides Price and Quantity to be

Produced

Mixed Economy Mix of Mkt. & C P E

Different Mixtures of Market and Central Planning Control.

Public and Private Ownership of Recourses. Classified as

Free and Not Free with Categories as Partly Free and

Mostly Not Free


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External Influences Country Classifications Factor Conditions / Production Factors Physical Resources Human Recourses Knowledge Resources Capital Resources Infrastructure Demand Conditions Composition of Home Demand Size

and Growth Pattern of Home Demand Internationalisation of Demand


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Country Classifications

Economic Indicators

GNP The Market Value of Final Goods and Services Newly Produced by Domestic Factor

of Production at Home or Abroad GDP The Value of Production That Occurs Within Country's Borders, Whether Done by

Domestic or Foreign Factors of Production GNP & GDP are Similar GDP is More Accurate to Reflect Economic Activity World Bank Considers GNP Low Income, Lower Middle Income, Higher Middle Income, High Income


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Distribution of Wealth Log on to World Bank to get new figures Low Income USD 875 and less (54) Lower Middle USD 876 – 3465 (58) Higher Middle USD 3466 – 10725 (40) Higher Income USD 10726 and more (56) As classified in 2005 of 208 countries with population of more than 30,000. Includes 184

member countries of World Bank

Low and Middle Income are Grouped as Developing Countries Except East European Non-Market Economies CEIT (Countries with Economies in Transition) Moving from CPE to Market Economy Israel, Hong Kong, Kuwait, Singapore and UAE Termed as Developing Countries by

UN, Though in High Income No unaothorised distribution

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DR.MANOHAR PANDIT

GLOBAL MARKETING

Ranking Economy (US dollars) 1 Monaco 1,97,460 2 Liechtenstein 1,36,540 3 Bermuda .. 4 Norway 85,380 5 Qatar .. 6 Luxembourg 79,510 7 Switzerland 70,350 8 Cayman Islands .. 9 Isle of Man ..

10 Denmark 58,980

GNI 2010


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DR.MANOHAR PANDIT

Economies are divided according to 2010 GNI

per capita, calculated using the World Bank

Atlas method

The groups are

Low income $1,005 or less

Lower middle income $1,006 - $3,975

Upper middle income $3,976 - $12,275

High income $12,276 or more

GLOBAL MARKETING


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DR.MANOHAR PANDIT

GLOBAL MARKETING

Ranking Economy (thousands) 1 China 13,38,300 2 India 11,70,938 3 United States 3,09,712 4 Indonesia 2,32,517 5 Brazil 1,94,946 6 Pakistan 1,73,383 7 Bangladesh 1,64,425 8 Nigeria 1,58,259 9 Russian Federation 1,41,750

10 Japan 1,27,380

Pop 2010


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Distribution of Wealth High Income 21% of Economies 15.2% of Population 79.5% of GNP Middle Income 48.3% of Economies 28.1% of Population 15.6% of GNP Low Income 30.6% of Economies 56.7% of Population 4.9% of GNP


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Macroeconomic Issues Economic Growth 9 / 11 1997 Asian Financial Crisis Dot Com Burst Global Terrorism Emerging Economies May Have a Higher Growth With

Dangers of Political Instability

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Macroeconomic Issues Macroeconomic Issues Inflation CPI (Consumer Price Index) PPP (Purchasing Power Parity)

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Culture What is culture? What its characteristics are? How culture affects consumer behaviour?

• Culture plays significant role in influencing consume perception, influences preference and purchase. Marketing Mix can be effective as long as it is relevant to given culture

• Culture – Set of traditional beliefs and values, transmitted and shared in a given Society. Culture is a total way of life and thinking pattern that is passed on from generation to generation


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Culture

Culture Its Characteristics Prescriptive - Purchase Decisions That

Are Socially Acceptable Socially Shared - Based On Social

Interaction & Creation Facilitates - Advertising & Communication

Communication Learned - Not Genetically Passed

on, Learned & Acquired No unaothorised distribution

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Culture Culture Its Characteristics

Subjective - Different Ideas About Same Object. Unique & Arbitrary

Enduring - Shared & Passed From Generations To Generations

Cumulative - Broader Based, Adapts New Ideas, Discards Old

Dynamic - Adapts To New Situations And Knowledge


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Culture Influence On Consumption – Food

Consumption Of Beef In US And In India, Cold Cuts In Russia

Chinese Eat Reptiles, Raw Beef In Ethiopia

French Eat Snails, Americans Prefer Fried Chicken, Indian Food -

Tandoori

Halal For Muslims Pork For Non Muslims, Fish Head In Bengal


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Culture

Influence On Consumption –Food/ Dress

Non Alcoholic Beer In Saudi Arabia

Parsi’s & Sikhs Do Not Smoke

Concept Of Vegetarian Food

Dressing Styles In Different Countries

Bindi, Mangalsutra In India, Wedding Rings In West


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Culture

Influence On Thinking Process SRC - Self Reference Criterion Influence On Communication Process Low-context Culture - North America,

North Europe High-context Culture - Japan, France,

Spain, Italy, Asia, ME Asia, Africa


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Culture Verbal Communication

Same language in different markets - 6000 dialects

American Vs. UK English

Chinese, Japanese Vs. English

02.06.02 Vs. 06.02.02, Addresses


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Culture Non-verbal Communication Body language - Movements, appearance,

dress, facial expression, gestures, postures, touch, silence, timing, distance etc.

Waving hand - Normal in US, rude in Japan Eye contact - Rude in Japan, Avoidance

considered rude in US Gesture - OK in USA, Money in Japan,

Rudeness in Brazil, Vulgar in Latin America

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Culture • Language of Space

• Language of Time

• Language Of Agreement

• Language of Friendship

• Language of Negotiations

• Language of Religion

• Language of Superstition

• Language of Colour

• Language of Gift


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External Influences

Technology

Technological Advance

Impact on Manufacturing – Process, Inventories

Marketing – Promotion

- Distribution, Logistics

- Pricing

Suitability of environment for use of the product

Impact of Technology on Infrastructure

Impact of Technology on different sectors


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INTERNATIONAL BUSINESS External Influences

Legal Environment Legal Systems Legal Systems in Different Countries Multiplicity of Legal Environments Civil Law Civil law is the most widespread system of law in the world, also

known as European Continental law, codified law Codifications in a constitution or statute passed by legislature Civil law systems mainly derive from the Roman Empire Civil law partly influenced by religious laws such as Canon law and

Islamic law


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INTERNATIONAL BUSINESS External Influences

Legal Environment Legal Systems Legal Systems in Different Countries Multiplicity of Legal Environments Civil Law Only legislative enactments, rather than judicial precedents are

considered legally binding. However, in reality courts do pay attention to previous decisions, especially from higher courts

• French Civil Law • German Civil Law • Scandinavian Civil Law • Chinese Law is a mixture of civil law & socialist law


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Legal Systems

Legal Systems in Different Countries Multiplicity of Legal Environments Common Law Common law based on tradition , precedent, customs and usage Common law developed in England Common law inherited by the Commonwealth of Nations and almost every former colony of the British Empire The doctrine of stare decisis or precedent by courts is the major difference to codified civil law systems


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Legal Systems Legal Systems in Different Countries Multiplicity of Legal Environments

Common law is currently in practice in Ireland, most of the United Kingdom, Australia, India, South Africa, Canada*, Hong Kong and the United States** etc

In addition several others have adapted the common law system into a mixed system Pakistan and Nigeria operate largely on a common law system, but incorporate religious law

In the European Union the Court of Justice takes an approach mixing civil law

*excluding Quebec, **excluding Louisiana No unaothorised distribution

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Legal Systems Legal Systems in Different Countries Multiplicity of Legal Environments Theocratic Law

The main kinds of religious law are Sharia in Islam, Halakha in Judaism and Canon law in some Christian groups

Sharia Law governs a number of Islamic countries, including Saudi Arabia, Malaysia and Iran, though most countries use Sharia Law only as a supplement to national law

It can relate to all aspects of civil law, including property rights, contracts or public law Islamic Law


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Legal Systems Legal Systems in Different Countries Multiplicity of Legal Environments Legal Systems divided into • Civil • Criminal Pluralistic systems • Civil law and common law • Civil law and religious law • Common law and religious law


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Legal Systems Legal Systems in Different Countries Multiplicity of Legal Environments

International Law • Public Law or Law of Nations • International Commercial Law

International Court of Justice • International Conventions, Rules of States • International Customs for Acceptance of Law • General Principles of Law Recognised by Civilised Nations • Judicial Decisions of Most Highly Qualified No unaothorised distribution

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External Influences

Form of the Company

Pvt., Ltd, Inc, France S.A.(societe anonyme), Germany GmbH, AG,

KK in Japan EC is Encouraging PLC Branch, Subsidiary, JV


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Impact of Laws on Business National Laws Affect All Local Business Activities Including

Elements of Management

Law is not appropriate for everything. What is unethical

may not be illegal

Law is slow to emerge in developing areas

Law is often based on morality and values can change

Law needs testing by courts


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Impact of Laws on Business Law embodies many of a country’s moral beliefs and is a

guide for governance Law provides clearly defined set of rules, helps develop

precedent. Makes people follow the law for the fear of penalty

Law contains enforceable rules. All are on level

playfield. FCPA, USA

Law is outcome of experiences, deliberations and

precedents


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Impact of Laws on Business

National Laws Affect All Cross Border Activities

National Laws Govern Contractual Relationships

Health, Environment, Defence, Labour Laws Needs

Special Attention

International Treaties and Conventions

Govern Cross Border Transactions


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External Influences

Key Legal Issues

HR, Contracts, Fees

IPR Trademark, Copyright, Patents Infringement, Unfair competition Counterfeiting Gray Market


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Key Legal Issues

Trade and Investment Regulations

Financial Flow Regulations

Taxation

Reporting Requirements

Ownership Regulations

Dispute Resolutions


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External Influences

Visa Bribery Banned by US Govt., FCPA Bribing To Speed Up The Work To Get Contract To Prevent Competition

Cooperation Money In Indonesia No unaothorised distribution

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Reconciliation of International Differences

Cultural Awareness No Foolproof Method Awareness and Sensitivity Samsung Junior Executives Grouping Countries Language, Ethnicity, Geographical Location Group Countries by Attitudes and Values Seemingly Similar Countries May Not Be Similar As

In ME Asia


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Formulating & Implementing Political Strategies

More Complicated Than Formulating Competitive Marketing Strategy

Marketing Issues Resolved by Voluntary Agreements

Political Issues Resolved by Power Center and by Those Who Structure the Conditions Under Which Market Participants Operate

Many of the Components Implemented in Public View


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Formulating & Implementing Political Strategies Watch For Identify Issue - Protectionism, Environment, Worker’s Rights Define – Nature of Politics of the Issue Assess Possible Action of Other Companies and Interest Groups Identify Important Individuals and Key Institutions Formulate Strategies – Objectives, Major Alternatives Determine Impact of Implementation – Public Reaction Select Appropriate Strategy and Implement


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2011 IB Notes

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