International business sept october 2012 - bba v sem -handout format- ps

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Syllabus

1. Introduction and Overview of IB

2. Firm Level Part I: Models for International Business

3. International Business Environment

4. International Finance and Economics

5. MNCs and Indian Global Organizations

6. Firm Level Part II: International Business Strategy

7. Case Studies

2. Firm Level Part 1: Models for

International Business

2.1 The decision to globalize

- Why should a firm go global?

- The Firm and Life Cycle of Products

- The Firm and Macro Forces of Globalization

2.2 Models of Foreign Entry

- Selecting Target Markets

- Methods of selecting Market Entry

- Factors determining Choice of Models for Entry

- Complex Entry Models












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2.1 The Decision to Globalize

• Why should a firm go Global?

– Extending and Exploiting Markets

– Extending Production Bases

– Product Life Cycle Considerations

Extending & Exploiting Markets

• Key reasons:

– Monopolistic advantage in Home Country, can be

leveraged in other markets

– High Capital Costs that can deter competition

– Proprietary Technology/ Know-how

– Specialized assets

Extending Production Bases

• Firms expand as they seek factors of

production for their products

– Natural Resources

– Labor and Human Resources

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Product Life Cycle Considerations

• Introduction/ Growth– High involvement, knowledge, finance, skills, R&D, high

flexibility

• Maturity– Development costs are recovered, expanded sales, need

for product/process innovation is low

– Firms may look at expanding to source raw material or lower costs or expand markets or a combination

• Standardization/Decline– Product is completely standardized, profit margins are

lower, production is shifted to lowest cost bases, and eventually product/ production asset is milked to generate cash for next cycle of innovation

The Product Life Cycle

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The PLC and

International

Business

The Firm and Macro Forces of

Globalization

• Globalization of Capital Markets

– volatility of currency markets and interest rates

• Reduced costs and higher speeds of

transportation

• Growth of Regional and International Trading

arrangements

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Michael Eugene Porter is the Bishop William

Lawrence University Professor at Harvard Business

School. He is a leading authority on company strategy

and the competitiveness of nations and regions.

Michael Porter’s work is recognized in many

governments, corporations and academic circles

globally. He chairs Harvard Business School's program

dedicated for newly appointed CEOs of very large

corporations.

5 Forces Model for Competitive Advantage

Value Chain Model

Michael Porter : A Brief Background

Competitive Advantage of Nations

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Firm Infrastructure (General Management)

Human Resource Management

Technology Development

Procurement

Inbound

LogisticsOps. Outbound

Logistics

Sales &

Marketing

Service and

Support

SUPPORT

ACTIVITIES

Porter’s Value Chain Model – A Basis for viewing Strategic Value

Chance Firm Strategy,

Structure and

Rivalry

Related and

Supporting

Industries

Demand

ConditionsFactor

Conditions

Government

Porter’s Diamond Model – Competitive Advantage of Nations

Selecting Target Markets

Porter: Competitive Advantage of Nations

• Factor Conditions: Does a Nation’s factors of production help a firm to compete successfully?

• Demand Conditions: Are local markets highly demanding in terms of price/non-price factors

• Related and Supporting Industries

• Firm Structure, Strategy and Rivalry

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Selecting Target Markets

Understanding Nations – some considerations

• Political System

• Collectivism & Individualism

• Economic Systems

• Market vs. Command vs. Mixed Economy

• Legal Systems – differences and Contract Law

• Property Rights

• Intellectual Property Rights

• Product Safety, Liability

• Determinants of Economic Development

• The Nature of Economic Transformation

Basic Approach

Low Level

EngagementEngage

AvoidDevelop Ability to

Access the Market

Country Potential

Company

Ability to

Develop the

Market in

target

Country

LO HI

LO

HI

Ansoff Matrix

New

Markets

Existing

Markets

Existing Products New Products

Market

Penetration

Product

Development

Market

DevelopmentDiversification

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The Foreign Country Entry: Modes and

Decision TreeCompetitive Advantage obtained by going International

(A)

Produce at home

and Export (A1)

Produce Internationally

(B)

Licensing / Contract Manufacturing

Internationally/ Franchising (B1)

Manage and Control Assets for

Manufacturing

Internationally (B2)

Joint Venture (B2.1) Majority or 100% Owned

Venture (B2.2)

Acquire or Merge (B2.2.1) Build from ground up (B2.2.2)

Project

Management (A2)

• Advantages: – Avoids costs associated with establishing manufacturing

operations in a foreign country.

– May achieve economies of scale

– May take advantage of local suppliers, resources

– Reduces Risks

• Disadvantages– May not be appropriate if lower cost bases exist elsewhere

– Costs of transportation increase

– Tariff Barriers

– Part of the value chain is outsourced which may create future competitors

Produce at home

and Export (A1)

• Applicable for firms who are engaged in planning, design, construction and start-up of projects in some industries – software, chemical plants, construction, petroleum/oil/gas and other forms of productive assets etc.

• Advantages:– Know –how to successfully manage projects is a valuable asset

– Control intellectual assets and are able to monetize it across various international markets

– Is effective in entering markets which may not have stable business environments

– Can obtain high value services

• Disadvantages– Interests are limited to the duration of the Project and can be short term

oriented

– May create competitors without having any revenue streams from the assets created

– Part of the value chain developed in-house at considerable cost may be used by other market participants

Project

Management (A2)

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• Licensing is an arrangement where a licensor grants rights to another entity for an intellectual property/know-how/process/ product for business use and in exchange derives a royalty/license fee.

• Advantages:

– Reduced capital expenses

– Can be used to go around/circumvent entry barriers

– Very good way to monetize intellectual property when the intellectual property holder’s core business is in another area

• Disadvantages:

– Limited control on how the licensee uses the know-how

– Creates competitors who can use this in forward/backward integration

– May restrict the intellectual property holders from competing directly with its licensees

• Note: Franchising is a special model of Licensing that overcomes some of the drawbacks of Licensing by having greater control on services/products offered by the licensee.

Licensing / Contract Manufacturing

Internationally/ Franchising (B1)

• A JV is the establishing of a firm that is jointly owned by tow or more independent entities.

• Advantages:– Combines know-how with local market expertise

– Development Costs/Investments are shared

– Risks are shared

• Disadvantages:– Gives control of its knowhow to an external partner

– Control is very limited

– Conflicts between JV partners tend to emerge as interests begin to develop in different directions

Joint Venture (B2.1)

• In this case, the firm owns 100% of the venture in the international target market

• Advantages:– Greatest control possible

– Protects Intellectual property and sources of competitive advantage

– Largest amount of value additions are retained with the firm/ subsidiary

• Disadvantages:– Costs high

– Risks high

Majority or 100% Owned

Venture (B2.2)

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Prosperity Performance, selected countries

Source : Michael E Proter, Advanced Management Program, HBS, April 2009

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Source:

McKinsey

Quarterly, Feb

2004

The Truth about

FDI in Emerging

Markets:Diana

Farrell, Jaana K.

Remes, and

Heiner Schulz

Source:

McKinsey

Quarterly, Feb

2005

The Right

Passage to India:

Kuldeep P. Jain,

Nigel Manson,

Shirish Sankhe

Syllabus

1. Introduction and Overview of IB

2. Firm Level Part I: Models for International Business


4. International Finance and Economics

5. MNCs and Indian Global Organizations

6. Firm Level Part II: International Business Strategy

7. Case Studies

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– Economics*

– Finance*

– Ethics and Law

– Social Systems, • History, Geography, Politics,

– Governance Systems• Regional/Multilateral/Global Systems

* Covered Separately in Unit 4

What is Ethics?

• Sociologist Raymond Baumhart asked business people, "What does ethics mean to you?" Among their replies were the following:

– "Ethics has to do with what my feelings tell me is right or wrong.“

– "Ethics has to do with my religious beliefs.“

– "Being ethical is doing what the law requires.“

– "Ethics consists of the standards of behavior our society accepts.“

– "I don't know what the word means."

Ethics and Law

• Ethics, also known as moral philosophy, is a branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct.– ‘Ethos’ (Greek) = Character

• Law is a system of rules and guidelines which are enforced through social institutions to govern behavior.– Laws are made by governments, specifically by their

legislatures.

– Law shapes politics, economics and society

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Indian Ethical System• Yama: Precepts of Social Discipline

– Ahimsa -- Non-violence. / Not harming

• People and other living beings, Oneself. Environment. Tolerance for even that which we

dislike.

– Satya -- Truthfulness. Satya also means not intending to deceive others in our thoughts,

as well as our words and actions.

– Asteya -- Non-stealing. Not taking that which is not given.

– Brahmacarya – Gender responsibility. Regarding others as human beings rather than as

male and female bodies.

– Aparigraha – Non-covetousness Not coveting that which is not ours and avoidance of

unnecessary acquisition of objects not essential to maintaining life or spiritual study.

• Niyama: Precepts of Invididual Discipline

– Saucha -- Cleanliness. Not only external cleanliness of the body, but attending to

internal cleanliness such as avoiding the impurities of anger and egoism.

– Santosh -- Contentment. Not complacency, but acceptance of the external situation we

are allotted in this life.

– Tapas -- Austerity. Deep commitment to (yoga )practice.

– Svadhyaya -- Self-study. Self-education. Contemplation and application of knowledge

to chosen path.

– Isvara pranidhana -- Surrender of the self to God. Acknowledgement that there is a

higher principle in the universe than one's own self. Modesty. Humility.

Another Framework Determining Ethical Foundations : Moses’ Commandments

1. You shall have no other gods before me.

2. You shall not make for yourself any carved image, or any likeness of anything that is in heaven

above, or that is in the earth beneath, or that is in the water under the earth; you shall not bow

down to them nor serve them. For I, the Lord your God, am a jealous God, visiting the iniquity

of the fathers on the children to the third and fourth generations of those who hate me, but

showing mercy to thousands, to those who love Me and keep My commandments.

3. You shall not take the name of the Lord your God in vain, for the Lord will not hold him

guiltless who takes His name in vain.

4. Remember the Sabbath day, to keep it holy. Six days you shall labor and do all your work, but

the seventh day is the Sabbath of the Lord your God. In it you shall do no work: you, nor your son, nor your daughter, nor your manservant, nor your maidservant, nor your cattle, nor your

stranger who is within your gates. For in six days the Lord made the heavens and the earth, the

sea, and all that is in them, and rested the seventh day. Therefore the Lord blessed the Sabbath

day and hallowed it.

5. Honor your father and your mother, that your days may be long upon the land which the Lord

your God is giving you.

6. You shall not murder.

7. You shall not commit adultery.

8. You shall not steal.

9. You shall not bear false witness against your neighbor.

10. You shall not covet your neighbor’s house; you shall not covet your neighbor’s wife, nor his

manservant, nor his maidservant, nor his ox, nor his donkey, nor anything that is your

neighbor’s.”

Western Philosophical Ethics

• Straw Men

– 4 approaches : Friedman Doctrine, Cultural Relativism, Righteous Moralist, Naïve Moralist

• ALL of them have some value BUT unsatisfactory

• Utilitarian & Kantian Ethics

– Utilitarian Approach: Moral worth is determined by the consequences, and actions need to be justified if they have ‘good’ consequences; “greatest good for greatest no. of people”

– Kantian Ethics: People should not be treated as instruments or machines; people have dignity & need to be respected as such

• Rights Theories

– Human Rights/ Individual Rights ( Obligations not comprehensive, although mentioned).

• Justice Theories

– John Rawls theory under veils of ignorance has 2 principles:• Principle 1: Each person is allowed maximum amount of basic liberty

• Principle 2: Once basic liberty is assured, inequality in income/ wealth distribution / opportunities can be allowed.

Reference: 172-178, Hill & Jain, IB – 6th Edition

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Trust

You can’t have success without trust. The word trust embodies everything you can strive for that will help you succeed. You tell me any human relationship that works without trust, whether it is marriage or a friendship or a social interaction; in the long run, the same thing is true about business, specially businesses that deal with the public.

Jim Burke,

former Chairman & CEO

Johnson & Johnsom

Reference: The Speed of Trust, Sephen M R Covey with Rebecca R Merrill



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The Economics of Trust

Trust = Speed Cost

Trust = Speed Cost

Transcendent values like trust and integrity

literally translate into revenue, profits and

prosperity.

- Patricia Aburdene, Author of Megatrends 2010


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Root of Unethical Behavior

Ethical

Behavior

Decision

Making

Process

Leadership

Unrealistic

Performance

Goals

Organization

Culture

Personal

Ethics

Reference: Hill & Jain, p 169