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INTERNATIONAL BUSINESS
Prof Bharat Nadkarni
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International Business Prof Bharat Nadkarni
International Organisation
Factors determining the International Organisation
Extent of commitment to International Business
Nature of International Orientation
Size of International Business & Expansion Plans
Number and Consistency of Product lines
Characteristics of the Foreign Markets
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International Business
International Business Corporate Approaches
1. Ethnocentric
2. Polycentric
3. Regiocentric
4. Geocentric
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International Business
SAARC (7):
South Asian Association for Regional Cooperation
India, Pakistan, Sri Lanka, Nepal, Bhutan, Bangladesh, Maldives
NAFTA (3) : North American Free Trade Agreement
USA, Canada, Mexico
LAFTA (9) : Latin American Free Trade Area
Argentina, Brazil, Mexico, Chile, Peru, Uruguay, Paraguay,Columbia, Ecuador
ASEAN (5) : The Association of South East Asian Nations wasformed by the Bangkok Declaration, 1967, by five countries, viz.,Indonesia, Malaysia, Philippines, Singapore and Thailand.
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International Business
EU (15) : European Union
Austria, Belgium, Britain, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,Sweden.
Euro : Common currency of the EU was launched by 11 memberson 1.1.1999, Britain, Denmark, Sweden didnt join. Greece joined in 1.1.2001
Maastricht Treaty of 1991 set the stage for the monetory union.
EU Additions
With effect from May 1, 2004 the total membership of EU increasedto 25. Following ten countries were inducted.
Estonia, Latvia, Lithuania, Poland, Czech Republic, Hungary,
Slovenia, Slovakia, Cyprus and Malta.Two more members, Bulgaria and Romania, were inducted in 2007,taking the tally to 27 countries.
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International BusinessBusiness Entry Strategy
Exporting Licensing & Franchising
Contract Manufacturing
Management Contracts
Turnkey Contracts
Fully owned manufacturing facilities
Assembly Operations
Joint Venturing
Counter Trade
Mergers & Acquisitions
Strategic Alliance
Third Country Locations
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International Business
Determinants of Business Entry Strategy
1. Cost of Logistics
2. Cost of Negotiation, Monitoring and Enforcement3. Comparative Advantages of
a. Land
b. Minerals
c. Labour
4. Comparative Advantage of
a. Capital
b. Technology
c. Technical know-how
d. Management expertise
e. Market expertiseSegmentation, Niche etc
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Strategies of Cooperation
Prof Bharat Nadkarni
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Mergers & Acquisitions
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International Business
Mergers & Acquisitions
M & A involve the combination of two organisations.The termmerger refers to the integration of two previously
independent organisations into a completely new organisation;
Acquisition involves the purchase of one organisation by
another for integration into the acquiring organisation.
Organisations have a number of reasons for wanting to acquire
or merge with other firms, including horizontal
or vertical integration, diversification ; gaining access to global
markets, technology, or other resources; and achievingoperational efficiencies, improved innovation, or resource
sharing. As a result, M&A have become a preferred method for
rapid growth and strategic change.
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International Business
Types of Mergers & acquisitions
1. Horizontal mergersex. Tata Steel acquiring Corus, Bridgestone and Firestone
2. Vertical mergers
ex. Tata Power acquiring Boomi coalmines
3. Concentric mergers
ex. Footware co merging with Hosiery co making socks.
4. Conglomerate mergersex. Reliance Textiles to petrochemicals or Mobile Telephony
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International Business
Domestic and Cross Border Mergers & acquisitions
M & A have been a very important market entry strategy aswell as expansion strategy. It may be noted that the major part
of the recent FDI has been driven by cross border M&As.
Between 1980 and 2000, the value of cross border M&As grew
at an average annual rate of over 40%. It continues to be a
powerful driver of international investment and globalisation.Several industries, such as automobiles, pharmaceuticals,
banking, telecom, etc. have undergone a global restructuring
as a result of cross border M&As.
Advantages of M&As1. Market entry
2. Possession of marketing infrastructure
3. Achieving economies of scale
4. Increasing the market power
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International Business
5. Diversification
6. Acquisition of technology7. Use of surplus funds
8. Optimum utilization of resources and facilities
9. Product mix optimisation
10. Pre-emptive strategy (to block competitor from acquisition)
11. Horizontal or Vertical integration12. Tax benefits
13. Logistical factors
14. Acquisition of brands
15. Minimisation of Risk16. Regulatory factors
Ex. Asian Paints takeover of Singapore based Berger paints
entry to 11 countries incl China. Tata SteelCorusentry to
Europe and Latin America.
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International Business
Disadvantages of M&As
1. Indiscriminate acquisitions land several companies in financial
and other problems
2. When company is taken over, its problems are also often
inherited
3. If adequate homework was not done and the evaluation was not
right, the acquisition decision could be wrong.4. Some of the units acquired would have problems such as old
plant, obsolete technology, surplus or demoralised labour
5. The company may not have the experience and expertise to
manage the unit taken over if it is in an entirely new field.
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International Business
How Mergers & Acquisitions take place?
Spell out the objectives
Indicate how the objective would be achieved?
Assess managerial quality
Check the compatibility of business styles
Anticipate and solve problems early
Treat people with dignity and concern
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International Business
Hostile takeoversWhere a takeover is resisted, or expected to be opposed, bythe existing management or professionals, follow a different
route. Here, the shares are picked up from open markets andcontrolling interests obtained. With the tacit help of othermajority shareholders (usually one or more of the financialinstitutions) , a bid is made to enter companys board and toacquire control. Resistance is offered by the existing
management by refusing to register the transfer of shares, orto forestall the moves by deals through court orders andinjunctions. It is believed that political support matters a lot inthe measure of success achieved in a bid to takeover a firm.ArgumentsThat professionalism gets replaced by money power, thattakeovers do not create any real assets for the society and aredetrimental to the national economy, the interests of theminority shareholders is not protected and avoidable stressesand strains are created in the companies taken over or
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International Business
exposed to the threat of takeovers. Besides, takeovers reduce
competition and thereby facilitate monopolistic or oligopolistic
tendencies among firms, increase of price and job losses foremployees. Also, there could be difficulties in the cultural
integration of the merging firms and while dealing with the
hidden liabilities of the target firms.
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International Business
Joint Venture Strategies
A joint venture could be considered as an entity resulting from
a long term contractual agreement between two or moreparties, to undertake mutually beneficial economic activities,exercise joint control and contribute equity and share in theprofits or losses of the entity.
The technical definition of Joint venture by the RBI is :a foreign concern formed, registered or incorporated inaccordance with the laws and regulations of the host country inwhich the Indian party makes a direct investment, whethersuch investment amounts to a majority or minorityshareholding.
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International Business
Conditions for Joint ventures
Joint ventures may be useful to gain access to new business,
mainly under four conditions:
1. When an activity is uneconomical for an organisation to do alone.
2. When the risk of the business has to be shared and, therefore, is
reduced for the participating firms.3. When the distinctive competence of two or more organisations
can be brought together.
4. When setting up an organisation requires surmounting hurdles
such as import quotas, tariffs, nationalistic-political interests andcultural roadblocks.
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International Business
Triggers for Joint venture
Technology
Geography
Regulation
Sharing of risk and capital Intellectual exchange
Benefits and drawbacks in Joint Ventures
Change of strategy by one partner Regulatory changes Success of Joint venture Having partner, hampers growth Lack of transparency
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International Business
Strategic alliances
Characteristics:
1. Two or more firms unite to pursue a set of agreed upon goals, butremain independent subsequent to the formation of the alliance.
2. The partner firms share the benefits of the alliance and control
over the performance of assigned tasksperhaps the mostdistinctive characteristic of alliances and the ones that makesthem so difficult to manage.
3. The partner firms contribute on a continuing basis, in one or morekey strategic areas, for example, technology, product and so
forth.
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International Business
Reasons for Strategic Alliances
Entering new markets
Reducing manufacturing costs
Developing and diffusing technology
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Thank you