2. Sr.
No.
1
Title of the Book
International Business –
Environments and
Operations
Authors
John D. Daniels, Lee H.
Radebaugh, Daniel P.
Sullivan, Prashant Salwan
Publication and
Edition
Pearson, 15th (2016)
2 International Business:
Text and Cases
P. Subba Rao Himalaya, Latest
Edition
3 International Business Charles Hill, Arun Kumar Jain McGraw Hill, 10th
4 Global Business Mike W. Peng and Deepak K
Srivastava
Cengage, Latest
Edition
5 International Business Simon Collison, Rajneesh
Narula, Alan M. Rugman
Trans Atlantic, 2016
3. LO1 Analyze the issues, challenges, and opportunities in the
business domain to achieve its global objectives.
LO2 Determine the effect of international trade theories, influencing
the role of government and develop effective ethical business
strategies.
LO3 Discover the importance of institutions that deal with foreign
exchange and its impact on current and future business
practices.
LO4 Create business plans and functional strategies to lead business
more competitive in the global world.
4. “How does
International
Business
impact you in
a personal
way?”
Think about what you are wearing,
what you ate for breakfast or
lunch.
Where these items are sourced or
who owns the companies.
Who made their purchase of these
items possible.
5. Imagine that you live on an
Island in the Pacific Ocean that
has never had contact with other
countries anytime in history.
Circle the things you might not
have experienced.
Tomatoes Fish Books in other
languages
Spices Wool Some kind of
Transport
Tourists Rice Coconut
Games Metal
Knives
Milk
8. GDP GNP GNI
Sum of value
added by
resident firms,
households &
Govt., operating
in an economy.
GDP plus
income from
non-residents
abroad.
Same as GNP
but the term
is used by
World Bank n
other
International
organizations
to supersede
the term GNP.
9. Overview:
• Meaning and Goal of International Business
• International Business Approaches (EPRG
Framework)
• Stages of Internationalization
• Difference between Domestic Business and
International Business
• Modes of Operations in International Business
Globalization:
• Difference between International business and
Global Business.
• Factors driving globalization
11. Meaning of
International
Trade
• International business refers to the trade
of goods, services, technology, capital
and/or knowledge across national
borders and at a global or transnational
scale.
• It involves cross-border transactions of
goods and services between two or more
countries. Transactions of economic
resources include capital, skills, and
people for the purpose of the
international production of physical goods
and services such as finance, banking,
insurance, and construction.
“International trade is the exchange of
goods and services between countries”.
12. Goal of
International
Business
• International businesses can improve a
company’s performance by increasing
profits and reducing costs. Both results
generate greater profits for the company.
• There are several objectives of international
business, each of which allows a company
to improve its performance.
Attract foreign demand
Utilize technology
Use of economic resources
International diversification
15. • EPRG full form stands as Ethnocentric, Polycentric, Regiocentric, and
Geocentric. It is a framework created by Howard V Perlmutter, Jerry Wind and
Douglas in 1969.
• The EPRG Framework helps organization choose which approach is most
suitable for it to achieve successful results in countries abroad.
• When organizations decide to go overseas in search of market expansion, they
need to adopt one of the styles as in ethnocentric, polycentric, regiocentric,
geocentric.
• EPRG model often is also called EPG Model in International Business.
• For example, it is important that different activities of the organization are
consistent between headquarter and SBUs situated in other part of world
at various stages. It is also important that the culture of organization, its
marketing strategy, financial strategy, operational strategy is consistent.
Only then, the organization can operate efficiently in the market.
16. Ethnocentric: means to apply
one’s own culture in social science
and anthropology. There is no
change in terms of
product specifications, price,
promotion, and other aspects and
is same as compared to the native
market.
The head office is given more
importance as compared to the
overseas subsidiaries or offices
situated in the international
markets. These companies ignore
the potent opportunities outside
the home country, and they are
referred to as domestic
companies.
17. Typical examples
are Japanese companies such as
Panasonic, Sony and Hitachi.
In Ethnocentric Approach, the key
positions in the organization are filled
with the employees of the parent
country.
All the managerial decisions viz.
Mission, vision, objectives are
formulated by the MNC’s at their
headquarters, and the same is to be
followed by the host company.
It is based on the rationale that; the
staffs of the parent country is best
over the others. In the host countries
in top position the organization
appreciates having parent country
employees at top.
18. Costs Benefits
Ineffective planning due to poor feedback Simple organization
Subsidiary 'valuable' executive flight
Better coordination between the host and
the parent company.
Fewer innovations
The parent company can have a close
watch on the operations of the subsidiary.
Inability to build a high caliber local org.
The culture of the parent company can be
easily transferred to the subsidiary
company, thereby infusing beliefs and
practices into the foreign country this also
help in controlling the subsidiary
effectively.
Lack of flexibility and responsiveness
19. Polycentric Orientation: Polycentric
approach of business can be defined as
host country orientation.
Here the host country’s customs,
behaviour, culture, language is considered
while doing business.
This approach lays a strong groundwork
because every subsidiary develops its
unique marketing and business strategies
for success and the country’s domestic
market is given equal importance.
This approach is best suited for the
developing countries in which certain
constraints on the front of finance,
political, and cultural front are
experienced.
20. The best example of polycentric
organization is McDonald. In India,
where many people do not eat beef,
McDonald’s offers the McAloo Tikki, a
vegetable patty with characteristic
Indian spices. European McDonald’s
often serve wine in addition to soft
drinks. Customers in the Netherlands
can order a Stroopwafel McFlurry, a
dessert that mixes in a popular Dutch
cookie treat.
The product offerings are fine-tuned
to individual country or regional
tastes, polycentric advertising
strategies are equally diverse, relying
on music, spokespeople, language
and cultural references that are
familiar to the local population.
21. The Google search engine is well-
known for its clever “Doodles” the
images and text that appear almost
daily to celebrate a particular person
or event in a country. Google
Doodles are made as per polycentric
approach. The doodles announce
events around the world; special
doodles are designed for Olympics,
Soccer World Cup, and Cricket World
Cup etc.
22. Costs Benefits
Waste due to duplication Intense exploitation of local markets
Localization costs of "universal"
products
Better productivity due to better
knowledge about the host market;
the career opportunities for the
nationals of the host country
increases.
Inefficient use of home-country
experience
More initiative for local products
Excessive regard for local traditions at
expense of global growth
More host government support
The difficulty in the adjustment of
expatriates from the parent country
gets removed
23. Regiocentric Orientation is an approach
adopted by a firm wherein it adopts a
marketing strategy across a group of
countries, which have been grouped based
on their market characteristics; i.e., the
market characteristics of these countries
would be similar.
The management of the company records
the economic, social, cultural, and political
similarities between the native areas of the
overseas region to sell its products and
services to potential customers.
It is worth noting that the cultural and
regional identity of India, Pakistan, and
Bangladesh is quite similar whereas
Norway and Spain that both falls in Europe
are very different in terms of culture,
climate, and transport amongst other
aspects.
24. Coca-Cola and Pepsi
are regiocentric companies.
HSBC is one of the largest
banking and financial services
organizations in the world, with
well-established Businesses in
Europe, the Asia-Pacific region,
the Americas, the Middle East
and Africa.
Organization group countries
based on their market
characteristics; i.e., the market
characteristics of these countries
would be similar.
25. Costs Benefits
The managers in different regions may not
understand the viewpoint of the managers
employed at the headquarters.
Helps cultural fit. When organizations hire the
managers from the same region as that of the
host country may not encounter any problem
with respect to the culture and the language
followed there. It costs less in hiring the
natives of the host country.
There could be a communication barrier
because of different languages.
The managers work well in all the
neighbouring countries within the geographic
region of the business.
The manager selected from a particular region
may lack the international experience.
The nationals of host country can influence
the decision of managers at headquarters with
respect to the entire region.
It may lead to the confusion between the
regional objectives and the global objectives.
The regional managers may only focus on
accomplishing the regional targets and may
oversee the impact on the firm.
26. Geocentric Orientation: is practiced
when an organisation does not organise its
strategies based on country or regions.
They view the whole world as their market
and seek to identify global needs and
wants and create products and services.
Their HR policies for staffing and job
position approach to staffing assigns job
positions to any person best suited for the
position, regardless of the employee’s
background, culture or country of origin.
These organizations understand costing in
hiring in terms of immigration policies;
costs of worker relocation and diversity
management create pressure on HR
management.
27. • McDonalds is a global company
which follows Geocentric
approach because it perceives
world as a single market and tries
to offer low-cost products and
services everyone.
• Even MTV (24 hours music
channel) is a geocentric
organization. Another example is of
Apple, Microsoft.
28. Costs Benefits
High communication and travel costs Integrated global outlook
Educational costs at all levels
More powerful total company
throughout
Time spent in consensus decision-
making
Better quality of products and
services
International headquarters
bureaucracy
Shared learning, the employees, will
learn from each other’s experiences.
"Too wide" distribution of power Improved local country management
Personnel problems, especially those
of international executive reentry
Greater commitment to global
objectives
Higher global profits
29. Ethnocentrism Polycentrism Regeocentrism Geocentrism
Definition
Based on
preference for
employees from
the company's
home country
Based on
preference for
host country
nationals
(HCN)
Can see similarities amongst
a bunch of countries and
differences with the rest of
the world
Based on
preference for
those best suited
to the job
wherever they are
from.
Strategic
Orientation/Focus
Home Country
Oriented
Host Country
Oriented
Region Oriented Global Oriented
Function Finance Marketing Localization R&D
Product
Industrial
products
Consumer
goods
– –
Geography
Developing
countries
–
North America, Western
Europe Eastern/Central
Europe, Greater China, Japan
and emerging markets
US and Europe
30.
31. In International Business, EPRG stands for _________
a. Ethical, Political, Regional or Geographical orientation
b. Ethnographic, Polygraphic, Regiographic or Geographic
orientation
c. Ethnocentric, Polycentric, Regiocentric or Geocentric
orientation
d. Ethical, Political, Regional or Geometrical orientation
32. The EPRG classification by Perlmutter (1969) was one of the
first to specify the various approaches for international
market development. It highlights four approaches. Which of
the following is not an approach under EPRG classification?
1.Ethnocentric
2.Polycentric
3.Worldcentric
4.Regeocentric
33. Within the EPRG framework, firms that believe their domestic
strategies are superior to foreign strategies and thus leverage
their domestic strategy in all global markets are considered to
have a(n)________________ orientation.
1.Ethnocentric
2.Polycentric
3.Regeocentric
4.Geocentric
45. DIFFERENCES
BETWEEN
DOMESTIC
&
INTERNATIONAL
BUSINESS
1. Distance: The distance involved in export of goods in external
trade is generally greater than on the domestic trade.
2. Language differences: There are differences in the languages of
the nations of the world. The overseas traders should be very
careful in preparing the publicity material in the languages of the
trading country.
3. Cultural difference: A producer should have full knowledge
about the market of his products. For exporting goods particularly,
a thorough research is undertaken.
4. Technical difference: In the national market the difference in the
technical specification for goods and their requirements is not
wide.
5. Tariff barriers: In the national trade, there are no custom duties,
exchange restrictions, fixed quotas or other tariff barriers.
6. Documentations: In the home trade there are few documents
involved in the exchange of goods.
48. Top 10 Export Commodities
Petroleum
Products
Pearl, Precious,
Semiprecious
Stones
Drug
Formulations,
Biologicals
Gold and Other
Precious Metal
Jewellery
Iron and Steel
Electric
Machinery and
equipment
Organic
Chemicals
RMG Cotton
including
Accessories
Motor
Vehicles/ Cars
Marine
Products
Top 10 Countries to which
India exports the most
1.U S A
2.UAE
3.China PRP
4.Hong Kong
5.Singapore
6.United Kingdom
7.Netherland
8.Germany
9.Bangladesh PR
10.Nepal
15.88
9.13
5.07
3.94
3.51
2.83
2.79
2.70
2.67
2.3
49. Service
Exports: Top
Services
The composition of service
exports has remained largely
unchanged over the years.
Software services constitute the
bulk of it at around 40-45 per
cent, followed by business
services at about 18-20 per cent,
travel at 11-14 per cent and
transportation at 9-11 per cent.
49
50. Crude petroleum
(21.6%)
Gold (5.9%)
Petroleum
products (5.8%)
Coal, coke and
briquettes (4.7%)
Pearl, precious
and semi-
precious stones
(4.7%)
Electronic
components
(3.4%)
Telecom
instruments (3%)
Organic
chemicals (2.5%)
Industrial
machinery
(2.5%)
Electric
machinery and
equipment
(2.3%)
Top Imports of India
1.China (13.7%)
2.United States of America (7.5%)
3.United Arab Emirates (6.3%)
4.Saudi Arabia (5.6%)
5.Iraq (5%)
6.Hong Kong (3.5%)
7.Switzerland (3.5%)
8.South Korea (3.3%)
9.Indonesia (3.1%)
10.Singapore (3.1%) 50
51. Service
Imports: Top
Services
Over the years, service imports in
relation to GDP have been steadily
rising putting pressure on BoP to
worsen.
However, the increase in service
imports to GDP ratio is inevitable given
a rising level of FDI and a gradual
upscaling of the Make in India program.
Business Services, Travel, and
Transportation are the three top service
imports.
51
55. Modes of Entry
into International
Business
Three basic decisions that a firm contemplate
while making foreign expansion
(a) Which markets to enter?
(b) When to enter those markets, and
(c) On what scale.
56. After deciding to go to foreign markets, the companies must decide the mode of entry. This dilemma
can be solved to some extent by considering the following factors:
• Ownership advantages - Ownership advantages are those benefits designed by a company by
owing resources. These benefits provide competitive advantages to the company over its
competitors. These advantages are both tangible and intangible.
• Location advantages - Certain locational factors grant benefit to the company when the
manufacturing facilities are in the host country rather than in the home country. These locational
factors include:
• Customer Ned, preferences and tastes
• Logistic requirements
• Cheap land acquisition cost
• Cheap labour
• Political stability
• Low-cost raw materials
• Climatic conditions
• Internationalization advantages - Internationalization advantages are those benefits that a
company gets by manufacturing goods or rendering services in the host country by itself rather than
through contract arrangements with the companies in the host country.
57.
58. EXPORTING
Exporting may be direct or indirect.
• Direct export – A company capitalizing on economies of scale in
production concentrated in the home country, establishes a proper
system for organizing export functions and procuring foreign sales.
E.g. Baskin Robbins initially exported its ice-cream to Russia in
1990 and later opened 74 outlets with Russian partners. Finally, in
1995 it established its ice-cream plant in Mascow.
• Indirect export- involves exporting through domestically based
export intermediaries. The exporter has no control over his product
in the foreign market. E.g. Himalaya Publishing House.
• Intra-corporate Transfers: Intra-corporate transfers are selling of
products by a company to its affiliated company in host country
(another country). E.g. Selling of products by Hindustan Lever in
India to Unilever in the USA. This transaction is treated as exports
in India and imports in the USA.
59. Types of Export Intermediaries include:
• Export Management: companies act as export department of the exporting firm (its client). These
companies act as commission agents for exports, or they take title to the goods.
• Co-operative society: The domestic companies desire to export the goods form a cooperative society,
which undertakes the exporting operations of its members.
• International Trading Company: This company is engaged in directly exporting and importing. It
buys the goods from the domestic companies and exports. Therefore, the companies can export their
goods by selling them to the international trading company.
• Manufacturers’ Agents: They work on a commission basis. They solicit domestic orders for foreign
manufacturers.
• Manufacturers’ export agents: These agents also work on a commission basis. They sell the domestic
manufacturers’ products in the foreign markets and act as their foreign sales department.
• Export and Import Brokers: The bankers bridge the gat between exporters and importers and bring
these two parties together.
• Foreign forwarders: Foreign forwarders help the domestic manufacturers in exporting their goods by
performing various functions like physical transportation of goods, arranging customs documents and
arranging transportation services.
60. Advantages –
▪ It helps in distribution of surplus
▪ It is less risky
▪ Under direct export the exporter has control over selection of market
▪ It helps in fast market access
Disadvantages –
▪ High start-up cost in case of direct exports
▪ In Indirect export, the exporter has no control over distribution of products
▪ Exporting through export intermediaries increase the cost of product
61. Piggybacking
• Piggyback is a form of distribution in foreign markets
in which a SME company (the “rider”), deals with a
larger company (the “carrier”) which already operates
in certain foreign markets and is willing to act on
behalf of the rider that whishes to export to those
markets.
• This enables the carrier to utilize fully its
established export facilities (sales subsidiaries) and
foreign distribution. The carrier is either paid
by commission and so acts as an agent or,
alternatively, as an independent distributor buying the
products. Piggyback marketing strategies are typically
used for products from unrelated companies that are
non-competitive (but related) and complementary
(allied).
• Although it is a low-risk method involving little capital,
some companies may not be comfortable with this
method as it involves a high degree of trust as well as
allowing the partner company to take a large degree
of control over how your product is marketed abroad.
62. LICENSING
Licensing is a method in which a firm gives permission to a person to use its
legally protected product or technology and to do business in a particular manner,
for an agreed period and within an agreed territory. It is a very easy method to
enter foreign market as less control and communication is involved.
Examples: Starbucks (licensor) and Nestle (licensee) for exclusive rights to sell
Starbuck’s product. Pepsi-Cola granted license to Heineken of Netherlands with
exclusive rights of producing and selling Pepsi-Cola in Netherlands.
Advantages –
✔Less investment is involved
✔Low cost of labor
Disadvantages-
× This method is time consuming
× Decline in product quality may harm the reputation of licensor
63. FRANCHISING
• It is a system in which semi-independent business owners (franchisees) pay fees and
royalty to a parent company (franchiser) in return for the right to be identified by its
trademark, to sell its product or services, and often to use its business format or
system. The franchisor provided the following services to the franchisee:
• 1. Trademarks,
• 2. Operating system,
• 3. Product reputations,
• 4. Continuous support systems like advertising, employee training, reservation
services, quality assurance programmes etc.
Example: Burger king, McDonald, Tricon Global Restaurants (the parent of Pizza
Hut, Kentucky Fried Chicken, and Taco Bell), and Hilton Hotels etc..
64. FRANCHISING
Advantages –
o It is less risky
o Advantage of expertise of franchiser
o Highly motivated employees
Disadvantages-
o Difficulty in keeping trade secrets
o Franchisee may become a future competitor
o A wrong franchisee may ruin company’s name and goodwill
65. Self Assessment
• Fill in the blanks:
• 1. Exporting may help a firm achieve …………………. and
………………….
• 2. …………………. projects are a way of earning great economic returns
from the assets.
• 3. The optimal entry mode for the firms depends to some degree on the
nature of their ………………….
• 4. …………………. barriers can make exporting uneconomical.
• 5. …………………. is often used when a firm wishes to participate in a
foreign market but is prohibited from doing so by barriers to investment.
68. FOREIGN DIRECT INVESTMENT
It is a mode of entering foreign market through investment.
Investment may be direct or indirectly through financial institutions.
FDI influences the investment pattern of the economy and helps to
increase overall development. The extent to which FDI is allowed in a
country is subjected to the government regulations of that country.
Advantages –
❖Modifications can be made at any point of time
❖It is an easy mode of entry
Disadvantages-
❖The government policies may not be helpful
❖The return on investment may be low
69.
70.
71.
72. CONTRACT MANUFACTURING
When a foreign firm hires a local manufacturer to produce their product or a part of
their product it is known as contract manufacturing. This method utilizes the skills
of a local manufacturer and helps in reducing cost of production. The marketing
and selling of the product is the responsibility of the international firm. Example:
Foxconn Technology (Local manufacturer) group that supplies product to high
profile companies like Microsoft. Apple and Amazon
Nike has contracted with several factories in
south-east Asia to produce its athletic footwear
and it concentrates on marketing.
Bata also contracted with several cobblers in India
to produce its footwear and concentrate on
marketing.
Mega Toys- a Los Angels based company
contracts with Chinese plants to produce toys and
Mega toys concentrates on marketing.
73. Advantages –
₊ Low cost of production
₊ Development of medium and small-scale industries
₊ No dilution of control
Disadvantages –
- Difficulty in maintaining quality standards
- Local manufacturers in foreign market may lose
business
74. In turnkey projects, the contractor agrees to
handle every detail of the project for a foreign
client, including the training of operating
personnel. At completion of the contract, the
foreign client is handed the “key” to a plant that
is ready for full operation.
Typically, these projects are large public sector
project such as urban transit stations,
commercial airport and telecommunications
infrastructure.
Sometimes a turnkey project such as an urban
transit system takes the form of a built-
operate-transfer or a built-own-operate-transfer
project.
A sophisticated type of counter trade, in which
the builder operates and may also own a
Turnkey Project
Advantages of Turnkey Projects:
•They are a way of earning great economic
returns from the know-how required to
assemble and run a technologically
complex process.
•Less risky than conventional FDI.
Disadvantages of Turnkey Projects:
•The firm that enters a turnkey deal will
have no long-term interest in the foreign
country.
•The firm that enters a turnkey project may
create a competitor. If the firm’s process
technology is a source of competitive
advantage, then selling this technology
through a turnkey project is also selling
competitive advantage to potential and/or
actual competitors.
75. JOINT VENTURE
It is a strategy used by companies to enter a foreign market by joining hands
and sharing ownership and management with another company. It is used when
two or more companies want to achieve some common objectives and expand
international operations.
Example: Uber (a taxi company) and Volvo (heavy vehicle co.)
The common objectives are –
⮚ Foreign market entry
⮚Risk/reward sharing
⮚Technology sharing
⮚Joint product development
⮚It is useful to meet shortage of financial resources, physical or managerial
resources
76. • A joint venture is a legal partnership between two (or more) companies where in
they both make a new (third) entity for competitive advantage.
• With a JV you will have something more than simple governance; you'll have a
completely new entity with a board, officers, and an executive team.
• Effectively a JV is a completely new organization but owned by the founding
participants. The board of directors generally is constructed with representatives of
the founding organizations.
• This new company will "do business" with the founding entities-usually as suppliers.
Joint venture is a temporary business activity.
• In joint venture, profits and losses are shared in agreed proportion. If there is no
agreement regarding the distribution of profit, they will share profit equally.
Examples
• Uninor was a joint venture between Unitech(India) and Telenor(France) and KPIT
Cummins is a joint venture between KPIT and Cummins Infosystems.
In both the above cases, the resulting company is a new independent company with
its own set of executives and even name.
77.
78.
79. Advantages –
❑Technological competence
❑Optimum use of resources
❑Partners can learn from each other
Disadvantages –
❑Conflicts over asymmetric investment
❑Cultural and political stability may pose a threat to
successful operations
❑Conflicts in management
80. STRATEGIC ALLIANCE
It is a voluntary formal agreement between two companies to pool
their resources to achieve a common set of objectives while remaining
independent entities. It is mainly used to expand the production
capacity and increase market share for a product. Alliances help in
developing new technologies and utilizing brand image and market
knowledge of both the companies.
81. Characteristics of a Strategic Alliance
Independence of
Participants
Shared
Benefits
Ongoing
Contributions
Markets
Benefits
Control Products
Technology
14-23
82. Strategic Alliances…
• Partnerships between competitor,
customers, or suppliers that may
take various forms
• Aims to achieve
• Faster market entry and start-up
• Access to new
• Products
• Technologies
• Markets
• Cost-savings by sharing
• Costs
• Resources
• Risks
• Advantages:
• Facilitate entry into market.
• Share fixed costs.
• Bring together skills and assets
that neither company has or can
develop.
• Establish industry technology
standards.
• Disadvantage:
• Competitors get low-cost route
to technology and markets.
83. Examples
• Gallo, the world’s biggest maker of wine, does not grow a single
grape.
• Similarly, Nike, the world’s largest producer of athletic foot-wear,
does not produce a single shoe.
• Boeing, the giant aircraft company, makes little more than
cockpits and wing bits.
These organizations, like several other businesses nowadays, have
created strategic alliances with their suppliers to do much of their
actual production for them.
84. Starbucks
• In 1996, Starbucks partnered with Pepsico to bottle, distribute and sell the popular coffee-
based drink, Frappacino. A Starbucks-United Airlines alliance has resulted in their coffee
being offered on flights with the Starbucks logo on the cups and a partnership with Kraft
foods has resulted in Starbucks coffee being marketed in grocery stores. In 2006, Starbucks
formed an alliance with the NAACP, the sole purpose of which was to advance the
company's and the NAACP's goals of social and economic justice.
Apple
• Apple has partnered with Sony, Motorola, Phillips, and AT&T; in the past. Apple has also
partnered more recently with Clearwell in order to jointly develop Clearwell's E-Discovery
platform for the Apple iPad. E-Discovery is used by enterprises and legal entities to obtain
documents and information in a "legally defensible" manner.
Hewlett-Packard and Disney
• Hewlett-Packard and Disney have a long-standing alliance, starting back in 1938, when
Disney purchased eight oscillators to use in the sound design of Fantasia from HP founders
Bill Hewlett and Dave Packard. When Disney wanted to develop a virtual attraction called
Mission: SPACE, Disney Imagineers and HP engineers relied on HP's IT architecture, servers
and workstations to create Disney's most technologically advanced attraction
85. Some more examples of Strategic Alliances
In R&D: Microsoft and Nokia - a software partnership for Nokia’s
Windows Phones.
o CISCO Systems’ agreement with China’s biggest on-line commercial
company Alibaba, to explore business services for SMEs.
o Claris (India) manufacturer of sterile injectables has an out-licensing
agreement with pfizer to develop products for the US.
Manufacture: Chrysler – Fiat partnership to build compact and
subcompact jeeps o GSK – Dr. Reddy Labs: The Indian company will
manufacture nearly 100 products mainly under GSK brand name for sale
in some emerging markets.
86. Marketing:
Abbott (US)’s alliance with Zydus - Cadila of Ahmadabad whereby Abbott will license 24
branded generics of Zydus in 15 emerging markets.
o WIPRO – GE joint venture to distribute approximately 85% of GE’s healthcare products
and solutions in India.
o Pfizer and Biocon: To market Biocon’s insulin biosimilar products in world markets.
For Market Entry:
Tommy Hilfiger / PHV group last October acquired a stake in Murjani group’s Arvind
Murjani Brands in a possible move to bring the former’s brands into India
o Transcend Information Inc, a global player in many telecom accessories has an agreement
with Bharti Teletech to distribute the entire portfolio of Transcend products in India.
For Sales:
Nestle and General Mills (US) agreement whereby the product Honeynet Cheerios was made
in General Mills’ US plants, shipped in bulk to Europe for packaging at a Nestle plant and
then marketed in France, Spain and Portugal.
Equity (participation) alliance:
o Ford’s 33.4% share in Mazda
o Daimler Chysler’s acquisition of 34% in Mitsubishi
87. MERGERS & ACQUISITIONS
A merger is a combination of two or more district entities
into one, the desired effect being accumulation of assets and
liabilities of distinct entities and several other benefits such
as, economies of scale, tax benefits, fast growth, synergy and
diversification etc. The merging entities cease to be in
existence and merge into a single servicing entity.
Company A+ Company B= Company C
Example: Vodafone and Idea formed a new company VI
Acquisition implies acquisition of controlling interest in a
company by another company. It does not lead to dissolution
of company whose shares are acquired. It may be a friendly or
hostile acquisition or a bail out takeover. Company A+
Company B= Company A.
Example: LIC Acquire IDBI Bank
88. Suzlon-RePower: $1.7
billion
• May 2007
• Acquisition deal
• Energy sector
• Suzlon is now the
largest wind turbine
maker in Asia
• 5th largest in the world.
Image: Tulsi Tanti, chairman &
M.D of Suzlon Energy Ltd.
89. • January 30, 2007
• Largest Indian take-
over
• After the deal TATA’S
became the 5th
largest STEEL co.
• 100 % stake in
CORUS paying Rs
428/- per share
Image: B Mutharaman, Tata Steel
MD; Ratan Tata, Tata chairman; J
Leng, Corus chair;
and P Varin, Corus CEO.
Tata Steel-Corus: $12.2 billion
90. RIL-RPL merger: $1.68 billion
• March 2009
• Merger deal
• amalgamation of its
subsidiary Reliance
Petroleum with the
parent company Reliance
industries ltd.
• Rs 8,500 crore
• RIL-RPL merger swap
ratio was at 16:1
Image: Reliance Industries'
chairman Mukesh Ambani.
91. MERGER ACQUISITION
DIFFERENCE BETWEEN MERGER AND ACQUISITION:
i. Merging of two organization in
to one.
ii. It is the mutual decision.
iii. Merger is expensive than
acquisition(higher legal cost).
iv. Through merger shareholders
can increase their net worth.
v. It is time consuming, and the
company must maintain so
much legal issues.
vi. Dilution of ownership occurs in
merger.
i. Buying one organization by
another.
ii. It can be friendly takeover or
hostile takeover.
iii. Acquisition is less expensive
than merger.
iv. Buyers cannot raise their
enough capital.
v. It is faster and easier
transaction.
vi. The acquirer does not
experience the dilution of
ownership.
92. Difference between Merger, Acquisition & Joint Venture
• Merger = two companies come together "permanently" for mutual gains
or to reduce competition
• Acquisition = one company buys another company which may or may
not be doing well
• Takeover = same as "acquisition", but generally a company buys another
company which is not doing well or has gone bankrupt.
• Joint Venture = two companies come together "temporarily" for mutual
gains for a particular project/job. after the project/job is completed, the
joint venture is dissolved.
93. Outsourcing
“Offshoring” is a company’s
relocation of a business
process from one country to
another. This typically involves
an operational process, such
as manufacturing, or a
supporting process, such as
accounting. Even state
governments employ
offshoring. More recently,
offshoring has been associated
primarily with the sourcing of
technical and administrative
services that support both
domestic and global operations
conducted outside a given
home country by means of
internal (captive) or external (
outsourcing ) delivery models.
Related terms include “nearshoring,” “inshoring,” and
“bestshoring,” otherwise know as “rightshoring.”
Nearshoring is the relocation of business processes
to lower cost foreign locations that are still within
close geographical proximity (for example, shifting
United States-based business processes to
Canada/Latin America).
Inshoring entails choosing services within a country,
while bestshoring entails choosing the “best shore”
based on various criteria.
Business process outsourcing (BPO) refers to
outsourcing arrangements when entire business
functions (such as Finance & Accounting and
Customer Service) are outsourced.
More specific terms can be found in the field of
software development; for example, Global
Information System as a class of systems being
developed for/by globally distributed teams.
94. • Tata Took over Air India from Government for 18000 cr, on 27th Jan 2022.
95. WOS/Greenfield investment is a mode of entry
where the firm starts from scratch in the new
market and opens own stores while using their
expertise.
It involves the transfer of assets, management
of talent, and proprietary technology and
manufacturing know-how.
It requires the skill to operate and manage in
another culture with different business
practices, labor forces and government
regulations. The degree of risk varies according
to the political and economic conditions in the
host country. Despite these risks many
companies prefer to use this mode of entry
because of its total control over strategy,
operation and profits.
For example, LG Electronics has set up LG India
as its wholly owned manufacturing subsidiary
unit.
Wholly owned subsidiary/Greenfield Investment
Advantages of Greenfield investment:
•WOS gives a firm the tight control over operations in
different countries that are necessary for engaging in
global strategic coordination.
•Local production lessens transport/import-related
costs, taxes & fees.
•Availability of goods can be guaranteed, delays may
be eliminated.
•More uniform quality of product or service.
•Local production says that the firm is willing to adapt
products & services to the local customer requirements.
Disadvantages of Greenfield investment:
•Higher risk exposure namely political risk and
economic risk.
•Heavier pre-decision information gathering & research
evaluation.
•“Country-of-origin” effects can be lost by
manufacturing elsewhere.
•Establishing a wholly owned subsidiary is generally the
costliest method of serving a foreign market.
96. Examples
• Volkswagen Group of America, Inc., including distinguished brands
such as Audi, Bentley, Bugatti, Lamborghini and Volkswagen, is a
wholly owned subsidiary of Volkswagen AG.
• Marvel Entertainment and EDL Holding Company LLC are wholly
owned subsidiaries of The Walt Disney Company.
• Starbucks Japan is a wholly owned subsidiary of Starbucks Corp.
97. Caselet - Euro Disney
Different modes of entry may be more appropriate under different
circumstances, and the mode of entry is an important factor in the success of
the project. Walt Disney Co. faced the challenge of building a theme park in
Europe. Disney’s mode of entry in Japan had been licensing. However, the firm
chose direct investment in its European theme park, owning 49% with the
remaining 51% held publicly.
Besides the mode of entry, another important element in Disney’s decision was
exactly where in Europe to locate. There are many factors in the site selection
decision, and a company carefully must define and evaluate the criteria for
choosing a location. The problems with the Euro Disney project illustrate that
even if a company has been successful in the past, as Disney had been with its
California, Florida and Tokyo theme parks, future success is not guaranteed,
especially when moving into a different country and culture. The appropriate
adjustments for national differences always should be made.
100. According to WHO, globalization
can be defined as ” the increased
interconnectedness and
interdependence of peoples and
countries.
• It is generally understood to
include two inter-related
elements:
the opening of international
borders to increasingly fast
flows of goods, services,
finance, people and ideas;
the changes in institutions and
policies at national and
international levels that
facilitate or promote such
flows.”
Globalization
101.
102. Globalization vs
Internationalization
Globalization Internationalization
Task/Result
Globalization is a result which is desired by the
global economies
Internationalization is the task/process with which
globalization can be achieved.
Set and Subset
Globalization is the structure that people want to
set up.
Internationalization is part of that structure, hence
can be termed as a subset of Globalisation
Related to
Globalization is more related to the economies of
the nation
Internationalization is more related with the
individual, firm or business for their goods and
services
Factors that affect
Infrastructural setup, telecommunications,
logistics, etc. highly affect the globalization
process
Cultural tastes and preferences, Local traditions,
etc. plays a major role in the internationalization
Example
Eliminating 1. visa obligations for visitors, 2. tariff
and non-tariff trade barriers, 3. Liberalization of
investment regulations etc.
Sourcing, producing and selling materials from one
or more countries, set up of branch or subsidiaries
in other countries for carrying out business, etc.
Process It is an economic process It is an improvisation process
Organizations handle
International Monetary Fund, World Bank, World
Trade Organisations, etc. are handling
globalization implementation
European Union, Asia Pacific Economic
Cooperation, North American Free Trade
Agreement, etc. work for boosting
Internationalization.
105. 1) Technological drivers
Innovations in the transportation technology revolutionized the industry. The
most important developments among these are the commercial jet aircraft and
the concept of containerization in the late 1970s and 1980s.
Inventions in the area of microprocessors and telecommunications enabled highly
effective computing and communication at a low-cost level. Finally, the rapid
growth of the Internet is the latest technological driver that created global e-
business and e-commerce.
2) Political drivers
Liberalized trading rules and deregulated markets lead to lowered tariffs and
allowed foreign direct investments in almost all over the world. The institution of
GATT (General Agreement on Tariffs and Trade) 1947 and the WTO (World Trade
Organization) 1995 as well as the ongoing opening and privatization in Eastern
Europe are some examples of latest developments.
106. 3) Market drivers
As domestic markets become more and more saturated, the opportunities for growth are limited
and global expanding is a way most organizations choose to overcome this situation. As large
corporate customers themselves become global, they often seek to standardize and simplify the
suppliers they use in different countries for a wide array of business-to- business services.
e.g. The global acceptance of consumer products such as Citicorp credit cards, Coca-Cola, Levi’s
jeans, Sony Walkmans, Nintendo game players, and McDonald’s hamburgers are all considered as
prototypical examples of this trend.
4) Cost drivers
Sourcing efficiency and costs vary from country to country and global firms can take advantage of
this fact. Other cost drivers to globalization are the opportunity to build global scale economies
and the high product development costs nowadays. Lower operating costs for telecommunications
and transportation, accompanied by improved performance, serve to facilitate entry into global
markets.
e.g. Consider the Boeing Company’s latest commercial jet airliner, the 777. The 777 contains
132,500 major component parts that are produced around the world by 545 suppliers. Eight
Japanese suppliers make parts for the fuselage, doors, and wings; a supplier in Singapore makes
the doors for the nose landing gear; three suppliers in Italy manufacture wing flaps; and so on.
107. 5) Competitive drivers
With the global market, global inter-firm competition increases, and organizations
are forced to “play” international. Strong interdependences among countries and
high two-way trades and FDI actions also support this driver. customers who operate
around the world are known to value global provision of services; a firm may be
obliged to follow its competitors into new markets in order to protect its position in
existing markets.
E.g. Coca-Cola’s rivalry with Pepsi is a global one, as are rivalries between Ford and
Toyota, Boeing and Airbus, Caterpillar and Komatsu, and Nintendo and Sega. As rivals
follow rivals around the world, these multinational enterprises emerge as an
important driver of the convergence of different national markets into a single, and
increasingly homogenous, global marketplace. Boeing also outsources some
production to foreign countries to increase its chance of winning significant orders
from airliners based in that country.
109. Practical
Insight 1: FDI
in Brazil
• By the end of the 1990s, many of the world’s
leading motor manufacturers had assembly plants in
Brazil. Some, like Volkswagen and General Motors,
had come to Brazil much earlier, attracted by the
size and opportunities of the Brazilian market and
the difficulties in exporting to a country with
punitive import tariffs.
• The 1990s saw a new wave of investment by
companies such as Renault and Hyundai, attracted
by Brazil’s growing economy and membership of
Mercosur, South America’s largest regional
economic grouping formed in 1991. Clearly, Brazil
also offers a low-cost location for foreign investors
from the developed countries.
Question: How important as a motive for foreign
investment in Brazil are costs of production likely to
have been relative to market access?
110. Why Brazil can nowadays be considered one of the world´s best
investment opportunities include, amongst others, a strong economy,
clean energetic matrix and a large domestic market. International
investors know Brazil best for its rich natural resources.
Brazil also has a relatively stable economy. World’s leading producer of
tin, iron ore and phosphate. Stability-oriented monetary policy and sound
banking system . Mainly unaffected by international economic crises.
The GoB actively encourages FDI – particularly in the automobile,
renewable energy, life sciences, oil and gas, and transportation
infrastructure sectors – to introduce greater innovation into Brazil's
economy and to generate economic growth.
111. • HSBC ranked the fifth largest bank in the world with revenue of $146.5 billion in
2008. The company started its life in Hong Kong in 1865 as the Hong Kong and
Shanghai Banking Corporation. Today, HSBC has operations in all the main regions of
the world, a position it has reached largely through whole or partial equity
investments in other banks. The group’s corporate headquarters were moved to
London in January 1993, after the takeover of the UK’s Midland Bank the previous
year. Key functions including strategic management, human resource management,
legal affairs, and financial planning and control are now centralized in London, but
other operations are decentralized. The HSBC Group has also adopted common
technology throughout its banking operations and a uniform international brand and
logo. The global and local aspects of its mission are encapsulated in the strap line:
‘The world’s local bank’.
Question: What do these characteristics suggest about the type of multinational
enterprise HSBC has become?
Practical Insight 2: HSBC
112. HSBC (Hongkong and Shanghai Banking Corporation Limited) is
one of the world's largest banking and financial services
organizations. They serve more than 40 million customers through
their global businesses: Wealth and Personal Banking, Commercial
Banking, and Global Banking & Markets. HSBC has offices in 64
countries and territories across Africa, Asia, Oceania, Europe, North
America, and South America, serving around 40 million customers.
HSBC is a transnational company, usually has an actual operation or
outlets in multiple countries. It also means that HSBC performs
centralized and decentralized approach.
113. Case Study: Terminalmarkets.com
From Wall Street stockbroker to vegetable importer to Internet entrepreneur, Sinan Talgat has trusted
his serendipitous career wherever it has led him. It all started with a mango farm venture in South
America. A friend persuaded Talgat to sell the produce in New York. So, he solicited interested buyers
at Hunts Point Terminal Produce Cooperative in the Bronx, which is the largest produce marketplace
in the world. But El Niño hit Ecuador hard, wiping out the mango crop and Talgat’s chances. Still, the
produce market intrigued Talgat. To him, Hunts Point was “like the floor of the New York Stock
Exchange.” He formed Fortune Fruit Ltd. and imported fresh basil and asparagus. But the stockbroker
in him kept wondering: Is there a more efficient way to do this? A way that more closely resembles a
securities exchange?
Six months ago, Talgat developed his strategy for Terminalmarkets.com, a fruit and vegetable
exchange for the global wholesale produce industry and a culmination of all his experience. He plans
to have the site operating in three months.
A terminal marketplace that handles perishable items including produce, meat, and flowers, it forms
the hub in the supply chain that takes the product from the farm to the consumer. Every city has one.
About $18 billion worth of produce currently travels through various terminal markets. No one
wholesaler controls more than 1 percent of the market. “The market is completely fragmented and
completely inefficient,” Talgat says.
114. New York-based Terminalmarkets.com will serve all the major players in the wholesale
produce industry. The site will provide wholesale produce buyers, producers, and truckers
with timely and improved price information, reducing all their transaction costs. Wholesalers
will sort of act as market makers and selling will be based on supply and demand.
Buyers will be able to determine all sellers currently carrying the product, request prices from
these sellers, compare prices on a single page, examine seller reputations, and complete
transactions.
Terminalmarkets.com has already signed up 60 percent of the wholesalers at Hunts Point,
which generates almost $2 billion in annual revenues. Talgat reports that wholesalers in the
terminal markets in Boston, Philadelphia, Baltimore, and St. Louis have asked to link up with
Terminalmarkets.com.
The site will also include an auction site for surplus produce, industry news reports, third-
party inspection services, an employment board, and a truck brokerage service.
Terminalmarkets.com will generate revenues through transaction fees.
Question: What issues of international business are being addressed in this case? Do you think
that Talgat’s idea was a good one or not? Why?
115. One of the models of a Terminal Market is a Hub-and-Spoke
model wherein the Terminal Market is the hub which is to be
linked to several collection centers - the spokes.
It has addressed the detailed market segmentation by company,
region (country), by Type, by application, by component, deployment
model, end-user and geography.
The market has started trying to find different funding sources and
business approaches to sustain on both the regional and global
platform.
Shares information related to market growth, future updates, business
prospects, upcoming developments, and future investments.
117. Thirty years ago, Starbucks was a single store in Seattle's Pike Place Market selling
premium-roasted coffee. Today it is a global roaster and retailer of coffee with some
16,700 stores, 40 percent of which are in 50 countries outside of the United States.
Starbucks set out on its current course in the 1980s when the company's director of
marketing, Howard Schultz, came back from a trip to Italy enchanted with the Italian
coffeehouse experience. Schultz, who later became CEO, persuaded the company's
owners to experiment with the coffeehouse format-and the Starbucks experience was
born.
The strategy was to sell the company's own premium roasted coffee and freshly
brewed espresso-style coffee beverages, along with a variety of pastries, coffee
accessories, teas, and other products, in a tastefully designed coffeehouse setting.
The company focused on selling "a thirdplace experience,'' rather than just the coffee.
The formula led to spectacular success in the United States, where Starbucks went
from obscurity to one of the best-known brands in the country in a decade. Thanks to
Starbucks, coffee stores became places for relaxation, chatting with friends, reading
the newspaper, holding business meetings, or (more recently) browsing the web.
118. In 1995, with 700 stores across the United States, Starbucks began exploring foreign
opportunities. The first target market was Japan. The company established a joint
venture with a local retailer, Sazaby Inc. Each company held a 50 percent stake in
the venture, Starbucks Coffee of Japan. Starbucks initially invested $10 million in
this venture, its first foreign direct investment. The Starbucks format was then
licensed to the venture, which was charged with taking over responsibility for
growing Starbucks' presence in Japan. To make sure the Japanese operations
replicated the "Starbucks experience" in North America, Starbucks transferred
some employees to the Japanese operation.
The licensing agreement required all Japanese store managers and employees to
attend training classes similar to those given to U.S. employees. The agreement
also required that stores adhere to the design parameters established in the United
States. In 2001, the company introduced a stock option plan for all Japanese
employees, making it the first company in Japan to do so. Skeptics doubted that
Starbucks would be able to replicate its North American success overseas, but by
the end of 2009 Starbucks had some 850 stores and a profitable business in Japan.
119. After Japan, the company embarked on an aggressive foreign investment program. In
1998, it purchased Seattle Coffee, a British coffee chain with 60 retail stores, for $84
million. An American couple, originally from Seattle, had started Seattle Coffee with
the intention of establishing a Starbucks-like chain in Britain. In the late 1990s,
Starbucks opened stores in Taiwan, China, Singapore, Thailand, New Zealand, South
Korea, and Malaysia. In Asia, Starbucks' most common strategy was to license its
format to a local operator in return for initial licensing fees and royalties on store
revenues.
As in Japan, Starbucks insisted on an intensive employee training program and strict
specifications regarding the format and layout of the store. By 2002, Starbucks was
pursuing an aggressive expansion in mainland Europe. As its first entry point,
Starbucks chose Switzerland. Drawing on its experience in Asia, the company entered
into a joint venture with a Swiss company, Bon Appetit Group, Switzerland's largest
food service company. Bon Appetit was to hold a majority stake in the venture, and
Starbucks would license its format to the Swiss company using a similar agreement to
those it had used successfully in Asia. This was followed by a joint venture in other
countries.
120. As it has grown its global footprint, Starbucks has also embraced ethical sourcing policies and
environmental responsibility. Now one of the world's largest buyers of coffee, in 2000
Starbucks started to purchase Fair Trade Certified coffee. The goal was to empower small-scale
farmers organized in cooperatives to invest in their farms and communities, to protect the
environment, and to develop the business skills necessary to compete in the global
marketplace. In short, Starbucks was trying to use its influence to not only change the way
people consumed coffee around the world, but also to change the way coffee was produced in
a manner that benefited the farmers and the environment. By 2010, some 75 percent of the
coffee Starbucks purchased was Fair Trade Certified, and the company has a goal of increasing
that to 100 percent by 2015.
Case Discussion Questions
1. Where did the original idea for the Starbucks format come from? What lesson for
international business can be drawn from this?
2. What drove Starbucks to start expanding internationally? How is the company creating value
for its shareholders by pursuing an international expansion strategy?
3. Why do you think Starbucks decided to enter the Japanese market via a joint venture with a
Japanese company? What lesson can you draw from this?
4. Is Starbucks a force for globalization? Explain your answer.
121. 1. Where did the original idea for the Starbucks format come from? What
lesson for international business can be drawn from this?
The lesson learned from this is that sometimes it is easier and faster reach a new market
via joint venture, even though the profit will be less, but the company can save a lot of
money in studying the new market trying to understand the new culture and how they
purchase and also it can minimize the risk because there is a national brand supporting
the new international brand, which gives confidence and security to the customers.
122. 2. What drove Starbucks to start expanding internationally? How is the company
creating value for its shareholders by pursuing an international expansion
strategy?
123. 3. Why do you think Starbucks decided to enter the Japanese market via a joint
venture with a Japanese company? What lesson can you draw from this?
124. 4. Is Starbucks a force for globalization? Explain your answer.
