International Business Management - BA9209 (1)

8/13/2019 International Business Management - BA9209 (1)

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VASAVI VIDYA TRUST GROUP OF INSTITUTIONSFACULTY OF MBA, SALEM 103

NAME: A.DURAIRAJ CLASS: II MBA

SUBJECT: INTERNATIONAL BUSINESS MANAGEMENT (BA9209 UNITS: !

UNIVERSITY NORMS: "! #OURS TA$EN: 3%

AUGUST SEPTEMBER OCTOBER OCTOBER&

NOVEMBERUNIT I

FROM 01.0'.12 TO

2".0'.12

INTRODUCTION

International Business Definition Internationalizing

business-Advantages Factors causing

globalization ofbusiness Internationalbusiness environment country attractivenessPolitical-Economic andcultural environmentProtection Vsliberalization of global

business environment.TOTAL #RS : '

UNIT & II (AUG&SEP

FROM 2!.0'.12

)31.0'.12

INTERNATIONAL

TRADE AND

INVESTMENT

Promotion of global

business te role of!A""#$"%

&ultilateral trade

negotiation and

agreements VIII ' I()

round discussions and

agreements

*allenges for global

business global trade

and investment

UNIT & II : CON*

FROM

03.09.12 TO

12.09.12

"eories of international

trade and teories of

international investment

+eed for global

com,etitiveness

egional trade bloc

"y,es Advantages and

disadvantages

"Bs across te globe brief istory.

TOTAL #RS : +

UNIT &III (SEP&OCT

FROM 1".09.12TO 29.09.12

/trategic com,ulsions-

/tandardization Vs

Differentiation

/trategic o,tions !lobal

,ortfolio management-

global entry strategy

different forms of

international business

Advantagesorganizational issues of


organizational structures

controlling of


a,,roaces to control

UNIT III: CON*

FROM :

01.10.12

) 03.10.12

Performance of globalbusiness- ,erformanceevaluation system.TOTAL #RS : +

UNIT IV :

FROM 0!.10.12

TO 20.10.12

PRODUCTION,

MAR$ETING,

FINANCIAL AND

#UMAN RESOURCE

MANAGEMENT OF

GLOBAL BUSINESS

!lobal ,roduction 0ocation scale ofo,erations- cost of

,roduction&ae or Buydecisions global su,,lycain issues 1ualityconsiderations-!lobalization of marets)mareting strategy *allenges in ,roductdevelo,ment ) ,ricing)

,roduction and cannelmanagement Investmentdecisions economic-Political ris sources offund- e2cange rate risand management strategicorientation selection ofe2,atriare managers-"raining and develo,ment com,ensation.TOTAL #RS : +

UNIT V

FROM 2!.10.12

TO 10.11.12

CONFLICT

MANAGEMENT AND

ET#ICS IN

INTERNATIONAL

BUSINESSMANAGEM

ENT

Disadvantages ofinternational business *onflict in international

business Disadvantagesof international business

*onflict in internationalbusiness "e role ofinternational agencies Etical issues ininternational business

Etical decision-maing.

TOTAL #RS : +

VASAVI VIDYA TRUST GROUP OF INSTITUTIONS, SALEM 103

3


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FACULTY OF MBA

NAME: A.DURAIRAJ UNIT& I CLASS: I MBASUBJECT: INTERNATIONAL BUSINESS MANAGEMENT DOI: 12&09&2011

INTERNATIONAL BUSINESS:

INTRODUCTION OF INTERNATIONAL BUSINESS MANAGEMENT:"e tecnology era since last t4o decades is bringing a fundamental sift in business around te

globe. "e national economies are o,ening u, and allo4ing cross border trade and investments."ecnologies are el,ing to reduce distances and im,rove

business metods. "ere is a gro4t of interde,endence andmutual co-o,eration.

Political boundaries of nations) states or regions are nolonger te fetters for business in te global economic ,aradigm."ere is a ,aradigm sift in te 4ay businesses are done no4. A

,roduct is seldom com,letely ,roduced in one country norconsumed in te same country. %n te oter and) its design)fabrication) assembling) stam,ing) etc are done in differentcountries and ten mareted 4orld over. "us ,roduction andconsum,tion are globally s,read for most ,roducts.

"at is te international as,ect of business 4eareconcerned 4it. Available data suggest tat &ultinational *om,anies 5&+*s6 or &ultinationalEnter,rises 5&+Es6 are vastly res,onsible for te gro4t of cross-border or international ,roduction andmareting.

Economics) trade and finance no4 no national borders. By teir nature tese are not confinabletroug man-made fetters for long time. Economics) trade and finance are truly international) multinational)global and transnational. $e see te continents of te 4orld and some nations are divided by 4aters. But)

beneat te de,ts of even te dee,est Pacific %cean) land mass unifies continents and nations. /o)geogra,ical divisions based on ,olitical as,ects are man-made. But te nature unifies. And tis a,,lies toglobal economy) of 4ic global trade and global finance are integral ,arts.

P-/ J44 N5 observed tat) 78istory today as ceased to be te istory of tis countryor tat. It as become te istory of manind because 4e are all tied u, togeter in a common fate9. $ata,,lies to istory is a,,licable to economy and business as 4ell. "oday9s economy as in fact ceased to beeconomy of tis or tat nation) but as become global economy. /imilarly business activities ave to beconceived) designed and e2ecuted 4it a global ,ers,ective.

"ere is tat muc of integration. "us business as sim,ly become international or global business.International or global business as become a large and gro4ing cun of total 4orld business. !lobalevents and com,etition affect almost all business firms large and small) because most firms sell out,uts to

and secure su,,lies from rest of te 4orld.International business is a term used to collectively describe te o,erations of firms 4it interests in

several countries. /im,ly) it is business beyond national or continental borders by firms. :ou ear very oftenterms suc as International com,etition) &ultinational cor,oration) "ransnational deals) !lobalization)&ulti-domestic business models) $orld4ide sales) dynamics of !lobal &aret ,lace and so on daily. Alltese ca,ture one or oter issues concerning international business. :ou no4 international business is temost com,etitive 4it mounting uncertainties.

/uccess in international business re;uires more business acumen tan managing a domestic firm. %fcourse o,,ortunities abound in te borderless 4orld. /o also te treats 4ield an intimidating future. Firmsmust be able to rea, te o,,ortunities 4ile ably negotiating 4it te attending treats.

Firms must not only deal 4it general business functions and values) but also understand and 4or

from a global ,ers,ective tat adds multi,le variables suc as divergent geo-,olitical dynamics) multi-cultural nuances) volatile-financial conditions) different time zones) and vast s,atialdistance issues to teinternational business management e;uation. Deftness and foresigtedness are muc needed for doing

business across te globe.


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LEARNING OBJECTIVES:

"o define international business.

"o ,resent te gro4t and gro4t causes ' concerns of international business and te ,atterns of

internationalization

"o analyze te trend in 4orld mercandize and services trade and 4orld investment flo4

"o e2,lain and evaluate different teorie

"o give te influence of $"% and egional agreements on trade # investment ,olicy "o ,rovide an account of e2,ort ,romotion measures in terms of = Fs) namely) Finance) Facilities)

Fiscal incentives) Favours and Felicitations

"o e2,lain te e2,ort documents for e2,ort by si,) land ' ,ost and te im,ort documents

"o ,resent legal and o,erational ,rocedures for e2,orts from India

"o no4 te basic conce,ts of foreign e2cange 5fore2) in sort6 and te nature and ty,es of fore2

maret

"o ,rovide an idea of te ty,es of foreign e2cange rates) te determinants of e2cange rate bet4een

t4o currencies and te models ' teories of e2cange rate determination

INTERNATIONAL BUSINESS DEFINITION:

6#AT DO YOU MEAN BY INTERNATIONAL BUSINESS7(OR DEFINE IBM 7!lobal business or international business is doing business across national ,olitical boundaries.

International business is defined as 8- );;5/4 - ?45 )


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6#AT ARE T#E VARIOUS ADVANTAGES OF INTERNATIONALIING

BUSINESS7 () DISCUSS T#E NATURE AND C#ARACTERISTICS OF IBM (OR

DISCUSS T#E SCOPE OF INTERNATIONAL BUSINESS7(1 #/> 4//-> 5 ) );5


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- International Business ,rovides for te flo4 of ra4 materials) natural resources) ' umanresources from te countries 4ere tey are in e2cess su,,ly to tose countries 4ic are in sortsu,,ly or need most.

- E2. Flo4 of uman resources from India. *onsumer goods from ) France) Italy to develo,ingcounties.

(12 C44 -/-)5-/ ??):

"e com,any after o,erating successfully in a foreign country tins of e2,orting to te neigbouring countries of te ost country.At tis stage) te foreign subsidiary considers te national environment5for e.g.) Asian environment lie la4s) cultural) ,olicies etc6 for formulating ,olicies and strategies.8o4ever) it marets more or less te same ,roducts designed under ,olycentric a,,roac in oter countriesof te region) but 4it different maret strategies.

G5)5-/ ??):

nder tis a,,roac) te entire 4orld is ust lie a single country for te com,any. "ey select teem,loyees from te entire globe and o,erate 4it a number of subsidiaries. "e ead ;uarters co ordinatete activities of te subsidiaries. Eac subsidiary functions lie an inde,endent and autonomous com,any

=


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in formulating ,olices) strategies) ,roduct design) uman resource ,olicies) o,erations etc.

6#AT IS T#E IMPORTANCE OF INTERNATIONAL BUSINESS7Every com,any is trying to e2,and its business by entering foreign marets. International business el,s inte follo4ing 4aysC-1. #54?< < >) : &!eogra,ic e2,ansion may be used as a business strategy. Even tougcom,anies may e2,and teir business at ome.

2. #54?< /- ;->/-> ?) 4/5 45: &every ,roduct as to ,ass troug different stages of ,roduct lifecycle-4en te ,roduct reaces te last stages of life cycle in ,resent maret) it may get ,ro,er res,onse atoter marets.3. T5-)4)> ->5


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F) 5;?45, *ina dum,ed steel at cea, ,rices in te Indian maret and ,osed a treat to teIndian steel industry ,articularly to /AI0 and "I/*%.M5-/->:

Environment means surrounding. International business environment mean te factors#activitiestose surround#encircle te international business. In oter 4ords) business environment means te factorstat affect international business include.

36 /ocial and cultural factors


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In tis system only one dominant ,arty almost gets te o,,ortunity to control te government)

toug several ,arties e2ist.

E2am,leC Egy,t. Even in India) congress ,arty ruled te country until 3LL.

4. One party Dominated system:

In tis system) toug tere is more tan one ,arty) te dominant ,arty rules te government and

it does not allo4 any o,,osition ,arty to come u,.

"e former //) *uba) 0ibya are e2am,les of tis system.

L554 ) 5)-);/ 554)?;5- - ?)4//4


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GNP P5 ?/:$orld countries are divided into four categories on te basis of teir !+P ,er ca,ita.1. L) /-);5 )-/5


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I-4/)-:

Inflation means tat ,rices are going u,.

"e inflation rate is te ,ercentage increase in te cange in ,rices from one ,eriod to te te2t)

usually a year.

%nce of te indices used to measure te inflation rate is *PI 5consumer ,rice inde26

Inflation occurs because aggregate demand is gro4ing faster tan aggregate su,,ly. E.g. Pizza

8ut in Brazil.

S?4


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ncertainty of rains) cro, and tere by income in develo,ing countries over te years resulted in

te culture of saving for to te ne2t years.*. Dynamic:

*ulture goes on canging.

+e4 ideas are added and old ideas are dro,,ed.

a,anese tastes ave been canging from rice and fis to meat and dairy ,roducts.

S)/4 5-/)-;5-: /ocial environment consists of religious as,ects) language) customs) traditions) beliefs) tass and

,references) social institutes) living abits) eating abits) dressing abits etc.

It influences te level of consum,tion for e2am,le toug te economic ,osition of !ermans and

Frenc ,eo,le is more or less te same) culturally) consum,tion level of Frenc ,eo,le is moretan tat of !ermans.

R54/>/)-:

It is one of te im,ortant social institutions influencing business) 4ic ave s,read over large

areas of te 4orld.

eligions ,lay significant role in normal and etical standards in ,roduction and mareting of

goods and services.

"e Protestants9 influence is dominant in /A) *anada and Australia 4it regard to ,roductionand distribution.

Islam dominates nortern Africa) middle cast) &alaysia) Brunei) Indonesia in ,roibition of

li;uor.

Buddism and 8induism in Asia em,asis more on etics and moral values.

F;/4


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"ecnological environment) lie it9s counter,arts-,olitical and legal) and cultural-4ields considerableinfluence on global business. J $ G4@/ 5/-5< 5-)4)> <


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"e establisment of te $"% as te successor to te !A"" on anuary 3LLJ. In anuary 3LL=) te$"% com,letely re,laced te !A"". "e membersi, of te $"% increased from in 3LL= to 3


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Agreement on "IP/ - ,ertains to te ,rotection of follo4ing categories of intellectual ,ro,erty

rigts.a. *o,y rigt

b. "rademarc. !eogra,ical indicationsd. Industrial designse. Patentsf. Integrated circuits andg. "rade secrets.

ules and ,rocedures regarding dis,ute settlement.

Plurilateral "rade Agreements 5P"A6 - consists

Agreement on "rade in *ivil Aircrafts

Agreement on !overnment ,rocurement

International Bovine &eat Agreement and

International Dairy Agreement.

"rade ,olicy evie4 &ecanism.

6ORLD TRADE ORGANIATION (6TO:"e $orld "rade %rganization came into e2istence in 3LL=. "e $"% is te successor to te

!eneral Agreement on "ariffs and "rade 5!A""6 establised in te 4ae of te /econd $orld $ar. "eend of $orld $ar II 4as follo4ed by te beginning of multilateral initiatives for rebuilding te 4orldeconomy) giving rise to a ,letora of multilateral institutions. "e most im,ortant of tese 4as teestablisment of te $orld Ban and te International &onetary Fund 5I&F6. As te $orld Ban and I&Fcame into e2istence) te idea 4as to create a organization te International "rade %rganization 5I"%6 4it te obective of creating an e;uitable trading order and facilitating te orderly develo,ment of globaltrade) besides ensuring gro4t and develo,ment of all nations."e !A"" 4as te only multilateral initiative governing international trade from 3LJM until te $"% 4asestablised. Its main obective 4as to facilitate international trade for te overall develo,ment and gro4t of

member countries.

6 /< 6TO7"e $orld "rade %rganization 5$"%6 is an international organization tat establised rules forinternational trade troug consensus among its member states. It also resolves dis,utes bet4een temembers) 4ic are al signatories to its set of trade agreements."e $orld "rade %rganization 5$"%6 deals 4it te rules of trade bet4een nations at a global or near-global level. But tere is more to tan tat.1. A@)5 44, /< -5>)//-> );*. E


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Besides te benefits available from trade as brougt out by different teories of trade) tere are certain oterdynamic gains attaced to international trade. International trade can affect te gro4t ,rocess troug itseffects on te accumulation of ca,ital and on tecnological cange. In a standard >neoclassical? gro4tframe4or) 4ere tecnological cange is determined e2ternally international trade affects factor and

,roduct ,rices and) troug tis cannel) ,rovide incentives to accumulate ca,ital.

P/-/?45< ) 5 /-> -5>)//)-C lo4ering trade barriers is one of te most obvious meansof encouraging trade. "e barriers concerned include custom duties and measures suc as im,ort bans or

;uotas tat restrict ;uantities selectively.J. P5/@/4/ )> @/-/-> - -


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3. A>55;5- )- >/45C %ne of te im,ortant ,rovisions relate to agriculture. It deals 4it aframe4or for te long term reforms of agriculture trade and domestic ,olicies over te years to come) 4itte obective of introducing increased maret sare in agriculture trade.55;5- )- 5C "is ,rovides for ,asing out te im,ort ;uotas on te2tiles and cloting no4 inforce under te multi fiber arrangements since 3LJ) over a s,an of ten years) i.e. by te end of anuary H3)55;5- )- ;=5 5


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It is a set of rules and multilateral agreement 4it noinstitutional foundation

It is a ,ermanent institution 4it its o4n secretariat

Its rules mainly a,,lied to trade in goods $"% covers oter areas) suc as services)intellectual ,ro,erty) etc.

!A"" 8ad contracting members $"% ad members

A country could essentially folly domesticlegislation even if it violated a ,rovision of !A""

"is is not follo4ed by $"%

!A"" ,rovisions 4ere ,lurilateral and tereforeselective In $"% ) almost all agreements are multilateral innature involving commitment of te entiremembersi,

Agriculture) te2tiles and cloting 4ere not coveredunder te !A""

"e $"% also covers tese areas

"e dis,ute settlement system under !A"" 4asigly susce,tible to blocages

"e dis,ute settlement system under $"% isefficient) s,eedy and trans,arent.

MINISTERIAL CONFERENCE OF 6TO:After te ince,tion of $"% in 3LL=) si2 rounds of trade negotiations ave already taen ,laceC

1. S/->?)5 R)-:"e first round 4as /inga,ore round of negotiations 4ic 4as eld n /inga,ore in 3LLK. "e four

>/inga,ore issues?C"rans,arency in government ,rocurement) trade facilitation) trade and investment) and trade andcom,etition 4ere introduced in tis round. "ese issues 4ere ,used at successive &inisterial by teEuro,ean nion) a,an and orea and o,,osed by most of te develo,ing countries.

2. G5-5 R)-:"e second round 4as !eneva round of negotiations 4ic 4as eld in !eneva) /4itzerland during

3LLM. In te declaration) te minister agreed to establis a ,re,aratory ,rocess 7under te direction of te

!eneral *ouncil to ensure full and faitful im,lementation of e2isting agreements and to ,re,are for te"ird session of te &inisterial *onference9.

3. S545 R)-:"e tird round 4as /eattle round of negotiating 4ic 4as eld in /eattle) /A in 3LLL. A 4ee

before te meeting) delegates admitted failure to agree on te agenda) and te ,resences of dee,disagreements 4it develo,ing countries.

". D) R)-:"e fourt round 4as Doa round of negotiations 4ic 4as eld in Doa) 1atar in $)-> R)-:

"e si2t $"% ministerial conference 4as eld in 8ong ong in


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D/


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"e !A"" is a ,ermanent international organisation aving a ,ermanent council of re,resentativesat !eneva.O@5/5


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restriction on em,loyment of foreigners) com,ulsions to use local facilities etc. 8eavily ,rotected servicesin different counties include baning and insurance) trans,ortation) television) radio) film and oter forms ofcommunications and so on.

"e !A"/ defines services as te su,,ly of a service from te territory of one member 5country6into te territory of any oter member) in te territory of one member to te service consumer of any otermember@ by a service su,,lier of one member) troug commercial ,resence in te territory of any otermember@ or by a service su,,lier of one member) troug ,resence of natural ,ersons of a member in teterritory of any oter member.

In sort) te !A"/ cover four modes of international delivery of services.

*ross border su,,ly 5 transborder data flo4s) trans,ortation services6

*ommercial ,resence 5 ,rovision of services abroad troug FDI or re,resentative offices6

*onsum,tion abroad 5tourism6

&ovement of ,ersonnel 5entry and tem,orary stay of foreign consultants6.

EKPLAIN ABOUT TRADE RELATED INVESTMENT MEASURES (TRIMS7"I&s refer to certain conditions or restrictions im,osed by a government in res,ect of foreign

investment in te country. "I&s 4ere 4idely em,loyed by develo,ing countries. It relates to sucmeasures an investment in identified areas) level of foreign investment for treating foreign com,anies as ,ar

4it national com,anies) e2,ort obligations) and use of local ra4 materials. It ,revents te im,osition ofrestriction on areas of investment. It re;uires free im,ort of ra4 materials) com,onents and intermediates.T5/45/45:

"e Dunel Draft relates to tree areas in agricultureDomestic su,,ort or subside) broadly ,roviding assistance to ,roduction.E2,ort consum,tion

&aret access.S5/5


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"e !eneral Agreement on "ariffs and "rade 5!A""6 4as originally created by te Bretton $oods*onference as ,art of a larger ,lan for economic recovery after $orld $ar II. "e !A""/9s main ,ur,ose4as to reduce barriers to international trade. "is 4as acieved troug te reduction of tariff barriers);uantitative restrictions and subsidies on trade troug a series of different agreements te !A"" 4as anagreement not an organization.

"e !A"" as been te only multilateral body around) from 3LJM to 3LLJ tat ,rovided rules formuc of te $orld "rade. "e contracting ,arties of !A"" continuously e2,anded te area and sco,e of terules during te successive trade rounds and continue to do so.

"e functions of te !A"" ave been re,laced by te $orld "rade %rganization.

OBJECTIVES OF GATT:"e follo4ing are te obectives of !A"" s,elt out in its ,reambleC

"o raise te standard of living of te 4orld.

"o ensure full em,loyment and a large and steadily gro4ing volume of real income and effectivedemand)

"o develo, te full use of te resources of te 4orld.

"o e2,and ,roduction and international trade) and

"o settle te dis,utes troug consultation 4itin te frame4or of !A"".

6 /< 5 ??)reci,rocal and mutually advantageousarrangements directed to te substantial reduction in tariffs and oter barriers to trade and to teelimination of discriminatory treatment in international commerce? 4ould contribute to4ard tesegoals. Im,ortantly) >free trade? is not e stated obective of !A"".

"e role of !A"" in integrating develo,ing countries into an o,en multilateral trading system is alsoof maor conse;uence.

"ese negotiations 4ere critical to ensure te future ealt of te 4orld economy and te tradingsystem.

TRADE&ENVIRONMENT ROLE AND PROVISIONS OF GATT:M)


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C);?4/-< - 6/5


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S=/445 -5>)/)< may use a variety of tactics ranging from negotiation y,nosis) to a straigtfor4ard ,resentation of demands or setting of ,reconditions to more dece,tive a,,roaces suc as cerry

,icing 5cases or data to ,rove one9s line of argument as correct6. Intimidation and )//)-< @555- G)5-;5- - MNE5 )- toseregulations tey find unacce,table troug loo,oles) legal or illegal. For e2am,le) a firm9s ability to controla foreign subsidiary in s,ite of a country9s re;uirement for sared o4nersi, migt be ,ossible if tecom,any maes a side agreement 4it a local ,artner not to e2ercise te latter9s voting rigts. A)/-5 isavoiding doing business in te locale. It is negative. A sim,le tas. R5?//)- is te reverse ofcom,liance as te &+E decides not to follo4 te regulations or some of te same in a given locale and is

,re,ared to face conse;uences. "is is not only negative) but also ,rovocative.

O-5&55;5-< /4 5 )5 /- 5 )


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S>5< /- N5>)//)-:

A ten-stage negotiation ,rocess tat uni;uely combines tat ,uts togeter te best of many oter a,,roacesto negotiation is given belo4.

S>5 A/)-

P5?5- no4 4at you 4ant. nderstand tem.

O?5- - Put your case. 8ear teirs.

A>5- /u,,ort your case. E2,ose teirs.

E?4)5- /ee understanding and ,ossibility.

S/>-4 - Indicate your readiness to 4or togeter.

P=>5- Assemble ,otential trades.

C4)


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$"% members abolised ;uotas on trade in te2tile and cloting on 3 stanuary) /-> M=5:*om,etition is sar,er) 4it successful te2tiles and cloting ,roducers setting ne4 standard of service.

M5> );?-/5< )


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T5 -//- 55< ) TRIM< /-45C

Abolition of restriction im,osed on foreign ca,ital.

+o restriction on any area of investment.

%ffering e;ual rigts to te foreign investor e;ual to tose of te domestic investor.

!ranting of ,ermission 4itout restrictions to im,ort ra4 materials and oter com,onents.

E2,ort of te ,art of te final ,roduct 4ill not be mandatory.

. T5 /- S5/5


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"e Doa develo,ment tals 4ere launced in 5< ) >4)@4 @) - )


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"e +o.3 ,riority) by far) for most com,anies is generating to, line revenue gro4t. "is businessim,erative is affecting 8 agendas as com,anies see to bot increase revenues and control cost and ris."o meet te callenge of revenue gro4t) 8 is focused on increased recruitment of ey talent and saleseffectiveness) 4ic bot translate to bottom-line im,rovements in te sort term. %ver te long term) teir

,riority is com,ensation and benefit ,rograms.

2. D5;)>?/< -


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UNIT II CONT*.

VASAVI VIDYA TRUST GROUP OF INSTITUTIONS, SALEM 103

FACULTY OF MBA

NAME: A.DURAIRAJ UNIT& II)-* CLASS: II MBASUBJECT: INTERNATIONAL BUSINESS MANAGEMENT DOI: 0'&0'&2012

T#EORIES OF INTERNATIONAL TRADE AND T#EORIES OFINTERNATIONAL INVESTMENTS:

INTRODUCTION TO INTERNATIONAL TRADE T#EORIES:I-)/)-:

%n Valentine9s Day in 3LLK &r. Patric Bucanan) a e,ublican Presidential *andidate for te /A4ile ,urcasing a dozen roses to ,resent to is 4ife understood tat is country 4as im,orting roses from/out America. 8e too te occasion to ,re,are a s,eec denouncing te increasing im,ort of flo4ers from/out America causing ,roblems to te / farmers. In order to dra4 te attention of te voters.

+e2t day morning e indicated te same to is 4ife. 8is 4ife 4as a teacer in international Business.

/e told im) 7tis is te reason for international trade9. /e furter clarified tat to su,,ly Americans4eetearts 4it fres roses in February 54inter roses6 is very ard. !ro4ing flo4ers in 4inter is at a greate2,ense in terms of energy) ca,ital and oter scarce resources. "e / economy as been ,roducingcom,uters 4it tese resources rater tan roses. "e / economy as been e2,orting com,uters to /outAmerica four times of te value of its im,ort of roses from /out America. "is o,,ortunity cost ,rovided agreater advantage to bot te /A and /out America as / as te com,arative advantage in ,roducingcom,uters and /out America in case of roses.

International trade becomes ,ossible for mutual benefit to te t4o countries due to te differences ino,,ortunity costs. International trade bet4een t4o countries can benefit bot countries if eac country9se2,orts te goods in 4ic it as a com,arative advantage. 8o4ever) initially countries used to earn goldtroug international trade.

A number of teories ave been develo,ed by te international economists to e2,lain o4 doesinternational trade taes ,lace.

T5


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colonies ad to e2,ort less valued goods and im,ort more valued goods. "us colonies 4ere ,revented frommanufacturing. "is ,ractice allo4ed te colonial ,o4ers to enoy trade sur,lus and forced te colonies toe2,erience trade deficits. "e teory benefited te colonial ,o4ers and caused muc discontent in tecolonies. In fact) tis 4as te bacground situation for te American evolution.

"e &ercantilism teory suggests for maintaining favorable balance of trade in te form of im,ort ofgold for e2,ort of goods and services. But te decay of gold standard reduced te validity of tis teory.*onse;uently tis teory 4as modified in +eo mercantilism.

+eomercantilism ,ro,oses tat countries attem,t to ,roduce more tan te demand in te domesticcountry in order to acieve a social obective lie full em,loyment in te domestic country or a ,oliticalobective lie assisting a friendly country.

"is teory 4as attaced on te ground tat te 4ealt of a nation is based on its available goods andservices rater tan on gold. Adam /mit develo,ed te teory of absolute cost advantage 4ic says tatdifferent countries can get te advantage of international trade by ,roducing certain goods more efficientlytan oters.@ no4 4e sall discuss tis teory.

6RITE A S#ORT NOTE ABOUT ABSOLUTE ADVANTAGE T#EORY

OR (T#EORY OF ABSOLUTE COST ADVANTAGE 7

Adam /mit) te /cottis economist vie4ed tat mercantilism 4eaness a country. 8e advocatedfree trade among countries to increase a country9s 4ealt. Free trade enables a country to ,rovide a varietyof goods and services to its ,eo,le by s,ecializing in te ,roduction of some goods and services andim,orting oters. $ic goods sould a country ,roduce and 4ic goods it sould im,ort Adam /mit

,ro,osed a teory to ans4er tis ;uestion.Adam /mit ,ro,osed Absolute *ost Advantage teory of international trade 53K6 based on te

,rinci,le of division of labour. According to im a,,lication of tis ,rinci,le to international scenario el,ste countries to s,ecialize in te ,roduction of tose goods in 4ic tey ave cost advantage over otercountries.

According to Adam /mit) every country sould s,ecialize in ,roducing tose ,roducts 4ic can,roduce at less cost tan of oter countries and e2cange tese ,roducts 4it oter ,roducts ,roduced

cea,ly be oter countries. "rade bet4een t4o countries taes ,lace 4en one country ,roduces one ,roductat less cost tan tat of te anoter country and te oter country as an absolute cast advantage over tefirst country in ,roducing in any oter ,roduct.

S=/445 L@) - S?5/4//)- A->5:

*ountries ave absolute cost advantage due to te follo4ing reasonsC

Suitability of the skill of the labour of the country in producing certain products.

/,ecialization of labour in ,roducing certain ,roducts leads to iger ,roductivity and less labourcost ,er unit of out,ut.

Economies of scale 4ould reduce te labour cost ,er unit of out,ut.

N4 ->5:

In addition to te silled labour and s,ecialization advantage) countries do also ave naturaladvantage in ,roducing certain ,roducts due to climatic conditions) access to certain natural resources etc.for e2am,le) Indian climate suits te ,roduction of tea) rubber etc. te /A clima2 su,,orts te ,roductionof 4eat. *ountries 4it a natural advantage can ,roduce s,ecific ,roducts at lo4 co4 cost.

A/5 ->5:

In addition to te silled labour and natural advantages) countries also ac;uire advantages trougtecnology and sill develo,ment. a,an ac;uired advantage in steel ,roduction troug te im,orts of bot

iron and coal. "e reason for tis success is tat due to te ability of Danis com,anies in develo,ingdistinctive ,roducts."ecnological advanced countries ac;uired abilities to develo, substitute ,roducts for number of

natural ,roducts.

H


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"us) countries ave absolute advantage I ,roducing certain ,roducts as discussed above. Fore2am,le) England ad te absolute advantage in ,roducing te2tiles 4ereas France ad te absoluteadvantage in ,roducing audio ta,e recorders.

A


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"us bot te countries are better off by ,roducing only one ,roduct in 4ic it as absolute costadvantage and trade 4it te anoter country for te second ,roducts.

I;?4//)-< ) A@


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a,an no4 ,roduces KH ,ens or K audio ta,e recorders ,er day of labour. a,an no4 as an absolutecost advantage in bot ,ens and audio ta,e recorders. For one day of labour) a,an can ,roduce 3H more

,ens 5KH minus =H Q 3H6 or J more audio ta,e recorders K < 6 tan India. a,an is more ,roductive tanIndia in bot te ,roducts. As suc no trade sould tae ,lace bet4een a,an and India based on absolutecost advantage teory.

a,an is tree times better tan India in audio ta,e recorder ,roduction and 3.< times better in ,en,roduction. Alternatively) India is only H. as good as a,an in audio ta,e recorder ,roduction but H.M asgood in ,en ,roduction) tus) com,aratively a,an is better in audio ta,e recorder ,roduction and India is

better in ,ens ,roduction.In te absence of trade bet4een t4o countries te labour of a,an can ,roduce eiter KH ,ens or K

audio ta,e recorders or alternatively H ,ens 5=HO of labour6 and 5=HO of labour6audio ta,e recorders./imilarly India can ,roduce =H ,ens or < audio ta,e recorders or alternatively


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s,ecialization) but a,,lies te o,,ortunity cost conce,t. It is also argued tat lo4er labour cost need not be asource of com,arative advantage. 8o4ever) icardo fails to consider te money value of cost of ,roduction.F.$. "aussig bridged tis ga, in com,arative cost advantage teory. +o4 4e sall discuss com,arativeadvantage teory 4it money.

EKPLAIN ABOUT T#E COMPARATIVE ADVANTAGE T#EORY 6IT#

MONEY7

&odern economy is money economy and almost all te transactions tae ,lace in te form of money."erefore) absolute differences in money ,rices determine international trade. According to F.$. "aussig)com,arative differences in labour cost of commodities can be translated into absolute differences in ,rices4itout affecting te real e2cange relations bet4een ,roducts.

Suppose the daily wage rate in !apan as on 1stmarch "##$ was %en &'#

/u,,ose te daily 4age rate in India as on 3stmarc


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E)-);/ 5//5-: "e goal of te nations in international trade is not necessarily economicefficiency. "e oter goals include el,ing te ,oor nations) trading 4it friendly nations etc.

D///-


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France *a,ital e;ui,ment 3.J!ermany &otor veicles


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/teffan 0inder a /4edis economist e2,lained te ,enomenon of Intra industry trade in 3LK3.According to 0inder) te similarities in consumer ,references in te countries tat are at te same stage ofeconomic develo,ment ,rovide te sco,e for intra industry trade among countries. For e2am,le) India and*ina are in te same stage of economic develo,ment. India ,rovides maret for lo4 cost motor cycles

,roduced in *ina due to te ,rice consciousness of te lo4er income grou, customers 4ereas *ina9sric income grou, customers ,rovide maret for India9s motor cycle due to teir ;uality consciousness."us) tis teory suggests tat intra industry trade taes ,lace bet4een te countries 4it similar levels ofdevelo,ment.

According tis teory) te com,anies tat develo, ne4 ,roducts for te domestic maret) e2,ort te,roducts to tose countries tat are at similar level of develo,ment after meeting te needs of te domesticmaret. &ost ,art of te global trade taes ,lace among develo,ed countries as o,,osed to less develo,edcountries as te former countries ave ac;uired advantage and te latter countries ave natural advantage

,articularly in agricultural ,roducts. "e value of ,roducts ,roduced troug ac;uired advantage #tecnology is significantly iger tan tose ,roduced toroug natural advantage. Advanced countries doalso s,ecialize in certain ,roducts to gain from ac;uired advantage toug tey ave similarities. Fore2am,le) /4itzerland s,ecializes in ,roducing ,armaceutical ,roducts) !ermany s,ecializes in macineryand e;ui,ment and Denmar in food ,roducts

EKPLAIN ABOUT T#E PRODUCT LIFE CYCLE T#EORY 6IT# EKAPMLES7

INTRODUCTION:

"e second firm based teory of international trade is te ,roduct life cycle teory. aymondVernon of te 8arvard Business /cool develo,ed te ,roduct life cycle teory. International ,roduct lifecycle teory traces te roles of innovation) maret e2,ansion) com,arative advantage and strategic res,onseof global rivals in international manufacturing) trade and investment decisions.

International ,roduct life cycle consists of four stages viz.) ew product introduction

!ro4t

&aturing ,roduct) and

Decline

S>5 1: N5 P)

irms innovate new products based on needs and problems in the domestic country.

5bserve the following examples-

Potoco,ier and ,ersonal com,uter 4ere innovated in te /A based on te ,erceived need.

/ firms became te leaders in te ,roduction of frozen food conse;uent u,on te large itcens)

cea, electricity and more number of 4oring 4omen.

Frenc firms develo,ed food ,acaging tat 4ould eliminate te need for refrigeration conse;uent

u,on small freezer com,artments

L)/)- ) /--)/)-:

"oug te innovated ,roduct can be ,roduced any4ere in te 4orld and mareted in te domesticmaret) te firm mostly locates te manufacturing facilities in te domestic country to ave immediatemaret feedbac to be able to modify and develo, te ,roduct accordingly and to save time and cost oftrans,ortation.

About L= ,er cent of innovations 5bot ,roducts and tecnology6 tae ,lace in industrially advancedcountries. "is is mostly due to severe com,etition) customer demands) availability of 'D facilitiesincluding scientist and engineers) financial ability of te firms etc.

S/>-//-5 ) /--)/)-:Innovation is te ,rime source of com,etitive advantage leading firms innovate continuously and

develo, te ,roducts continuously in order to be on te forefront as innovations are imitate and co,ied. "einnovations can be in ,roducts) manufacturing ,rocess and mareting te ,roduct. Develo,ing countries andave te utility of innovations by im,orting eiter tecnology or ,roducts from te 'D intensive countries.


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During tis stage te firms sell most ,art of teir ,roduct in domestic country and a limited ,art inoter countries. &icrosoft sold most ,art of its innovated soft4are in te /A and te remaining ,art invarious countries including India.

L@) < ;) /-?:Production ,rocess at tis stage is labour intensive. "is is because) te ,roduct in tis stage is

im,roved based on customer feedbac. 0! "V 4as modified more tan ten times during tis stage. "e,roduct is not yet standardized in tis stage. /tandard macinery and e;ui,ment to ,roduce te ,roductcannot be develo,ed due to fre;uent canges in te ,roduct design. As suc) ,roduction during tis stage islabour intensive. Even com,uter manufacturing 4as labour intensive during stage.

/A ,ays one of te igest salaries in te 4orld. It ,asses te igest labour cost to te customers4o 4ould be very eager to use te innovated ,roduct at tis stage. "e Pentium IV P* 4ic costs ust s.5 3: M/

$orld 4ide ,roductions increase during tis stage along 4it te demand for te ,roduct resulting indecline in e2,orts. "e increased com,etition results in increased ,roduct standardization and costreduction. "e ,roducers start gaining te economies of scale reducing te cost of ,roduction countries.

At tis stage tecnology becomes standard. "erefore) te ,roducers start locating teir ,lants indevelo,ing countries in order to tae te advantage of lo4er labour costs. "is factor furter reduces te costof ,roduction ,er unit and increases te com,etition based on cost.

S>5 ": D54/-5

&arets for te ,roduct at tis stage concentrate in less develo,ed countries as te customers inadvanced countries sift teir demand to furter ne4 ,roducts. "us most of te ,roduction ,lants at tisstage locate in develo,ing countries and e2,orts decline

considerably at tis stage.Even te original country may become net

im,orter during tis stage. "us te volume anddirection of international trade come do4n considerablyin tis stage.

S/@/4/ ) 5 5):

"e tests conducted to evaluate tis teoryfound tat tis teory 4as inconsistent for certainconsumer durables) syntetic materials and electronics.8o4ever) some studies ave found tat te ,roduction

movements did not tae ,lace as ,redicted in te,roduct life cycle 5P0*6 model

L/;//)-< ) ?) 4/5 45 (PLC 5)

M


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/ome studies indicate tat ,roduction movements do not tae ,lace as ,redicted in te P0* teory due to tefollo4ing limitations.

0roduction facilities do not move to foreign countries to achieve cost reduction due to

short product life cycle consequent upon very rapid innovations.

*ost reduction as a little concern to te consumer in case of lu2ury ,roducts.

E2,orts may not be in significant column 4ere cost of trans,ortation is very ig.

+on- cost strategies lie advertising may nullify te o,,ortunity to move to foreign countries for cost

minimization. e;uirement of s,ecialized no4ledge or e2,ertise reduce te cances of locating ,roduction

facilities in foreign countries. For e2am,le) te ,roduction of medical e;ui,ment could not be siftedfrom te /A and rotary ,rinting ,rocess could not be sifted from !ermany.

"e ra,id tecnological develo,ment may not sift te ,roduction to various foreign countries. For

e2am,le) microci, ,roduction 4ic moved to various countries returned to te /A.

"e globalization of 4orld economies after 3LLH enabled te transnational global com,anies to

introduce innovations simultaneously in many countries 4ere tey o,erate.

&+*9s establis ,roduction ,rocess in many countries to tae te advantage of ra4 materials)

uman resources) trans,ortation cost etc. but not based on te ,redictions of P0* model.

EKPLAIN ABOUT T#E GLOBAL STRATEGIC RIVALRY T#EORY7/ airlines attracted bot te domestic and international ,assengers troug net4oring 4it oter

airlines) fre;uent scemes etc.) after liberalization in 3LM. *onse;uently) Euro,ean airlines lost significantbusiness. 0& entered into strategic alliance 4it +ort4est airlines) et Air4ays and a number of oterairlines trougout te globe in order to recover te loss.

"oug te international trade teories) 4e ave discussed so far) em,asize on te countries)international trade normally taes ,lace bet4een t4o com,anies of t4o. Furter) international trade taes

,lace only 4en te com,anies ave com,etitive advantage regardless of te com,etitive advantage of tecountries.

"is teory focuses on firms9 strategic decisions to ac;uire and develo, com,etitive advantage inorder to com,ete internationally.

&+*s ac;uire and develo, com,etitive advantage troug a number of means. "ey are broadlycategorized as follo4sC

5wing intellectual property rights

Investing in researc and develo,ment

Acieving large scale economies

E2,loiting te e2,erience curve.

O/-> /-54454 ?)?5 />5


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EKPLAIN ABOUT T#E NE6 TRIAT T#EORY PORTERS DIAMOND (OR

PORTERS NATIONAL COMPETITIVE ADVANTAGE T#EORY7

$at is te Diamond &odel Descri,tion"e Diamond &odel of &icael Porter for te com,etitive advantage of +ations offers a model tat canel, understand te com,arative ,osition of a nation in global com,etition. "e model can also be used for

maor geogra,ic regions.

T//)-4 )- ->5


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ac;uiring a stae in an e2isting firm or starting a oint venture in te foreign country. Direct investment andmanagement of te firms concerned normally go togeter.

If te investor as only a sort of ,ro,erty interest in investing te ca,ital in buying e;uities) bonds)or oter securities abroad) it is referred to as ,ortfolio investment. "at is) in te case of ,ortfolioinvestments) te investor uses ca,ital in order to get a return on it) but as not muc control over te use ofte ca,ital. FDIs are governed by long-term considerations because tese investments cannot be easilyli;uidated. 8ence) factors lie long-term ,olitical stability) government ,olicy) industrial and economic

,ros,ects) etc.) influence te FDI decision.8o4ever) ,ortfolio investments) 4ic can be li;uidated fairly easily) are influenced by sort-term

gains. Portfolio investments are generally muc more sensitive tan FDIs to sort term uncertainties.Foreign investment and foreign trade are related. KH - H O of 4orld trade is directly or indirectly connectedto FDI. =H O of 4orld trade is eiter 4itin te same organizational entity 5intra-firm trade6 or bet4een

,arties 4ic engage in co-o,erative relationsi,.

Speci$ic t#eories o$ nternational in"estment:

+o4 certain s,ecific teories of international investments be considered./ T5) ) C?/4 M)5;5-


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/ I-5-/)-4 P) L/5 C45 T5): According to te Product 0ife *ycle "eory develo,ed byR;)- V5-)- - L5/< T. 6544 53LL6 as attem,ted to formulate a general teory of international,roduction by combining te ,ostulates of some of te oter teories. It is generally acce,ted tat Dunning9so4nersi,locationinternalization 5%0I6 frame4or 5o4nersi,-s,ecific advantages) locational factors)and internalization6 is most useful in analyzing and e2,laining FDI. According to Dunning) foreigninvestment by &+*s) results from tree com,arative advantages 4ic tey enoy) viz) Firm s,ecificadvantages) Internationalization advantages and 0ocation s,ecific advantages. Firm s,ecific advantagesresults from te tangible and intangible resources eld e2clusively) at least tem,orarily) by te firm and4ic ,rovide te firm a com,arative advantage over oter firms. "e Firm s,ecific advantages 4ould not

result in foreign investments unless te firm internalizes tese advantages. Even 4en a firm internalizes itse2clusive resources it may be able to serve a foreign maret 4itout foreign investment) for e2am,le bye2,orting. "erefore) for te ,roduction to tae ,lace in te foreign country tere sould be some locations,ecific advantages.

/// O4/>)?)4//)-4 /-> @4)/)-4 T5 B4)=outside? forces@

"o ,romote regional security and ,olitical concerns or to develo, trade in suc as 4ay as to enance

te security in te region@

"o ,romote /out-to-/out trade) e.g.) bet4een Africa and Asia) and bet4een 0atin American

countries

A///5< ) T5 B4)=


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3.C);;)- M=5:In addition to free trade among members and uniform tariff ,olicy for non-members ina common maret) suc an arrangement ensures all restrictions on cross-border investments) movement oflabor) tecnology transfer) management and saring of ca,ital resources are eliminated.

". E)-);/ U-/)-C An economic union suc as te Euro,ean nion 5E6 enoys a muc greater level ofeconomic integration 4ere free e2cange of goods and services taes ,lace. "e member countries in aneconomic union maintain a fiscal disci,line) stability in e2cange) and interest rates by 4ay of unifiedmonetary and fiscal ,olicies.

!.P555-/4 T5 A>55;5-C P"A member countries in a P"A lo4er te tariff barriers to te im,ortsof identified ,roducts from one anoter. E2am,les of suc associations include te Economic *ommunity of$est African /tates 5E*% $A/6) te Bango Agreement) te !lobal /ystem of "rade Preferences 5!/"P6among develo,ing countries) and te *ommon &aret for Eastern and /outern Africa 5*%&E/A6.

%. P)4//4 U-/)-:As a culmination of economic integration te member countries strive to armonize teirsecurity and foreign ,olicies. A common ,arliament is created 4it te re,resentatives of te membercountries 4o 4or in syncronization 4it an individual country9s legislature. At tis stage) te member

countries are 4ill in to dilute teir national identities to a considerable e2tent to become a ,art of te union.

ADVANTAGES AND DISADVANTAGES OF TRADE BLOC$S:

ADVANTAGES OF RTB


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"e $orld "rade %rganization 5$"%6) for e2am,le) notes tat almost all of its 3J members aresignatories to regional trade agreements 4it oter countries. As of February 3LLL te !""#$"% as been

benefited of 3MJ regional agreements of 4ic 3HL are currently in effect. "ese regional trade grou,saccount for a,,ro2imately KH ,ercent of 4orld trade.

Among te most notable and im,act of tese trade arrangements include te +ort Amercian Free"rade Agreements 5+AF"A6 and te Euro,ean nion 5E6.

"e ,lan to establis te Asian-Pacific Economic *oo,eration !rou, by 55;5- (NAFTA"e +ort American Free "rade Agreement 5+AF"A6 came into being on anuary 3) 3LLJ. "e

most affluent nations of te 4orl) i.e.) te /A and *anada along 4it &e2ico a develo,ing countryoined togeter to form a trade bloc. A free trade agreement 4as signed by te /A and *anada in 3LML."is 4as e2tended to &e2ico in 3LLJ.+AF"A is e2,ected to eliminate all tariffs and trade barriers amongtese countries by


47/101

"e most ,rominent develo,ment in te field of economic integration as been te organization ofEuro,ean Economic *ommunity 5EE*6) no4 no4n as Euro,ean nion. Initially it 4as called Euro,ean*ommon "reaty of ome signed in &arc 3L= by te countries lie $est !ermany) France) Italy)Belgium) +eterlands and 0u2embourg.

/tarting 4it si2 members) te membersi, increased to nine 4en te nited ingdom) Denmarand Ireland oined it in 3L. /ubse;uently) !reece oined in 3LM3. Follo4ed by /,ain and Portugal in 3LMK.$it te entry often more countries on &ay 3)


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E/*AP as JM member9s countries and 3H Associate members. "e original name for tis 4as teE*%+%&I* *%&&I//I%+ F% A/IA ' "8E FA EA/" 5E*AFE6. "e E/*AP geogra,ical areacovers as follo4sC EastC *oo Islands@ $estC Azerbaian@ +ortC &ongolia and in te /outC Australia and

+e4 TealandE/*AP is te regional aim of te +%. It ,romotes te economic and social develo,ment of te region.

A/55;5-< ) ESCAP Promotes regional coo,eration remarably

8el,s in creating an integral communication infrastructure in te Asian regions

Establised Asian and Pacific *entre for transfer of tecnology

Assumed tat role of regional *entre for !ro4t.

'. O>-//)- ) P5)45; E?)/-> C)-/5< (OPEC%PE* is a 4idely no4n organization for commodity agreement. %PE* became a significant force

in te $orld economy in te 3LHs. In 3L) te Arab members of %PE* 4ere angered by / su,,ort forIsrael in te $ar in te &iddle East. In res,onse) te Arab members declared an embargo on te si,ment ofoil to te /A and also ;uadru,led te ,rice of oil@ i.e.) from tree dollars to t4elve dollars ,er barrela,,ro2imately. %PE* tactics included bot ,rice fi2ing and ,roducing ;uotas.$e sould no4 tat %PE* is Producer *artel 5a grou, of commodity ,roducing countries tat avesignificant control over su,,ly and tat band togeter to control out,ut and ,rice6 and te oil-ric countriesare ,erforming tat role to teir advantage.

9. L/- A;5/- F55 T5 A


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A/55;5-< ) SAARC:It is really a ,ity tat /AA* is far from acieving any of te lofty goals it set for itself. "e sare of

intra-regiional trade in te total trade of /AA* countries is very significant. "ere 4as in fact some fall inte intra-regional trade after te coming into effect of te Association. "e obective of /AA* is only in

,a,er and te member countries attend te /AA* meetings as a ritual ,eriodically tan doing anytingtangible.

UUUUUE+D %F +I" II UUUUU

UNIT& III

STRATEGIC COMPULSIONS:

6#AT ARE T#E VARIOUS STRATEGIC COMPULSIONS OF INTERNATIONAL

BUSINESS7"e global maret,lace consists of a 3H billion ,eo,le 4ic is e2,ected to reac 33 billion by


50/101

International business strategy can be defined as te business strategies engaged by te businesses)com,anies or firms o,erating in an international business environment and serving consumers trougoutte 4orld. International business strategies are closely related to te business develo,ing strategies ado,ted

by businesses to meet teir sort and long term obectives."e sort term goals of te business 4ould be related to im,roving te day-to-day o,erations of te

com,any 4ile te long term obectives are generally targeted to4ards increment of te ,rofits) sales andearnings of te com,any in te long run ensuring gro4t and stability of te business and dominance overte national or regional maret.

STANDARDIATION VS DIFFERENTIATION:

EKPLAIN ABOUT STANDARDIATION IN INTERNATIONAL BUSINESS

STRATEGY7 "e ,oint 4ere an international business strategy differs from a national business develo,ment

strategy as different oter factors suc as ,roduct standardization and ada,tation come in.

"e factors of ,roduct differentiation and diversification are relevant in te case of bot national andglobal business strategy in te 4ae of rising com,etition in bot te national and internationalmaret.

International business strategies ave emerged as a result of globalization and internationalizationestablised domestic com,anies 4ic is ,ur,orted to increase te value of te com,any in ;uestion.

Increasing ,ressure of globalization and te rising global com,etition ave ,rom,ted managers andacademicians to retin te formulation of international business strategy.

/tandardization of ,roduction by firms 4o engage in global business entails ,roducing te same,roduct of te national as 4ell as te international marets 4it only minor canges in attribute.

T5 >;5-< /- ) ) 5 >4)@4 @


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A com,etitive advantage is an advantage over com,etitors gained by offering consumers greatervalue) eiter by means of lo4er ,rices or by ,roviding greater benefits and service tat ustifies iger

,rices.*om,etitive Advantage is defined by te API*/ dictionary asC >"e advantage a com,any as over its rivalsin attracting customers and defending against com,etitors. /ources of te advantage include caracteristicssuc as a manufacturing tecni;ue) brand name) uman sill set) etc.) tat a com,etitor cannot du,licate4itout substantial cost and ris.?

C);?5//5 S5>/5generic business strategies tat could be ado,ted in order to gain com,etitive advantage."e four strategies relate to te e2tent to 4ic te sco,e of businesses) activities are narro4 versus broadand te e2tent to 4ic a business sees to differentiate its ,roducts.

T5 ) /5< 5 5 @54):1. S5> D/55-//)-C "is strategy involves selecting one or more criteria used by buyers in amaret and ten ,ositioning te business uni;uely to meet tose criteria. "is strategy is usually associated4it carging a ,remium ,rice for te ,roduct often to reflect te iger ,roduction costs and e2tra value-added features ,rovided for te consumer. Differentiating is about carging a ,remium ,rice tat more tancovers te additional ,roduction costs) and about giving customers clear reasons to ,refer te ,roduct overoter) less differentiated ,rocessE;?45< ) D/55-//)- S5>C &ercedes cars@ Bang ' %lufsen.

2. S5> C) D/55-//)- F) C)


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8y,er com,etition and over-communication are ey features of te ne4 economy. $at used to benational marets 4it local com,anies com,eting for business as become a global maret 4iteveryone com,eting for everyone9s business every4ere.

$it te enormous com,etition marets today are driven by coice your targeted customers avetoo many coices) all of 4ic can be fulfilled instantly.

*oosing among multi,le o,tions is al4ays based on differences) im,licit or e2,licit) so you ougtto differentiate in order to give te customer a reason to coose your ,roduct or service.

*reate differentiation 4itin your o4n ,roducts or services. If you ave an assortment of ,roducts orservices to offer) you may ave identified your differentiation already.

D/55-//)- < S5>

"e differentiation strategy of a business is a ,redetermined set of actions designed to ,roduce anddeliver goods or services to customers 4o ,erceive te com,any9s offerings as different. +ot ustdifferent) but different in a 4ay tat is im,ortant to te customer.

$it y,er-com,etition in a global maret) being uni;ue and aving a strong business differentiationstrategy are im,ortant. Any com,any as t4o basic 4ays to com,eteC eiter 4it lo4 ,rices or 4it astrong differentiation strategy tat allo4s iger ,rices. Because of te global maret tere 4illal4ays be someone 4o can sell your ,roduct or services for less. Differentiation terefore becomesnecessary for business survival.

Differentiation strategy involves addressing te ,oint of ,ain or ,erformance ga, felt by buyers in amaret. A 4ise business o4ner 4ill meet te criteria and ten ,osition te com,any uni;uely to meette needs of buyers. "ese ,roducts are often >to, of te line? and to reflect increJased cost to tecom,any) ,rices are usually at a ,remium.

"e ey ,arts of a business differentiation strategy) include ,ositioning) trust building anda4areness. "e first element of te strategy is te idea tat maes your business different. "e ne2tcallenge is e2,laining 4y you can deliver 4at you can ,romise. &any com,anies find it el,fulto include testimonials and credentials.

$en you ave te ability to vie4 your business and com,etition from an obective vie4,oint) tedifferentiation necessary to se,arate yourself and your ,roduct or service becomes clear. First)

determine ,recisely 4at your current ,ositioning is and o4 you could im,rove.

STRATEGIC OPTIONS

EKPLAIN ABOUT T#E STRATEGIC OPTIONS7"e callenge facing com,anies 4it as,irations to become truly effective global ,layers a,,ears to

be turning global ,resence into global com,etitive advantage.

6 /< S5>/ O?/)-7

/trategic o,tions are creative alternative action-oriented res,onses to te e2ternal situation tat anorganization faces. /trategic o,tion taes advantage of facts and actors) trends) o,,ortunities and treat ofte outside 4orld. /trategic o,tions can be identified after an institutional assessment) ee,ing in mind teas,irations of an organization.A /trategic %,tion is a set of related o,tions tat form a ,otential strategy. For instance) it migt be ano,tion to enter a ne4 maret in a ne4 country. For instance) it migt be an o,tion to enter a ne4 maret in ane4 country.

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I- >5-54:

&areting obectives and strategies are more readily standardized tan o,erational maretingdecisions.

$itin te mareting mi2) ,roducts are most easily standardized) ,romotion less so and distributionand ,ricing 4it difficulty.

"e more o,erational te decision te more liely it is to be differentiated.*onse;uently te elements of mareting management sould be seen as being at different ,oints of a

continuum of standardization) 4ere te ,roduct and service image is generally easier to standardize tan,ricing.T?5< ) S5>/ O?/)-< ) I-5-/)-4 B


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". T- 557

0earning effects refer to cost savings tat from learning by doing. 0abor) for e2am,le) learns by re,etitiono4 to carry out a tas) suc as assembling airframes) most efficiently. 0abor ,roductivity increases overtime as individuals learn te most efficient 4ays to ,erform ,articular tass.

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*ustomize ,roduct offerings andmareting in accordance 4itlocal res,onsivenessea, benefits of global learning

GLOBAL PORTFOLIO MANAGEMENT GLOBAL ENTRY STRATEGY:

G4)@4 5- :"e five strategies used by firms for entry into ne4 foreign maretsC

"ecnical innovation strategy ,erceived and demonstrable su,erior ,roducts.

Product ada,tation strategy modification to e2isting ,roducts.

Availability and security strategy overcome trans,ort riss by countering ,erceived riss.

0o4 ,rice strategy ,enetration ,rice and)

"otal ada,tation and conformity strategy foreign ,roducer gives a straigt co,y.

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"is is usually a cea,er o,tion tan going troug a distributorT5 /5< 5:

esearc needed for legal and ta2ation issues

&ay cost you a fee to determine agreement!. F/- F)5/>- D/5< 5C

0ocal ,resence

0ocal e2,ertise /ales net4or in ,lace

+o e2,ensive foreign offices

+o local ta2es

Distributor is usually res,onsible for local legal issuesT5 /5< 5:

:ou lose control over your sales strategies

Distributors are generally more e2,ensive tan sales agents

"o end a distributor agreement you need to give notice

%. D554)? F-/5< 5: 0ocal ,resence

0ocal e2,ertise

Possibility of mutual benefit if a good fit

Eac ,artner ee,s te o4nersi, is side of te oint-venture

Fle2ible structure.T5 /5< 5C

+eed to researc te legal res,onsibilities and im,lications involved.

%,ens your intellectual ,ro,erty to ris.

DIFFERENT FORMS OF INTERNATIONAL BUSINESS

6#AT ARE T#E DIFFERENT FORMS IN INTERNATIONAL BUSINESS

MANAGEMENT7Different forms of international business are an institutional mecanism by 4ic a firm e2,ands its

o,erations overseas. Various forms for e2,anding a firm9s business may be classified as trade related)contractual) and investment forms.1. 5&545 );< ) /-5-/)-4 @


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2. C)-4 );5< ) 5?)/->:

&anufacturing is ome based tus) it is less risy tan overseas based

!ives an o,,ortunity to >learn overseas marets before investing in brics and mortar

educes te ,otential riss of o,erating overseas."e disadvantage is mainly tat one can be at te >mercy? of overseas agents and so te lac of control asto be 4eiged against te advantages. For e2am,le) in te e2,orting of African orticultural ,roducts) teagents and Dutc flo4er auctions are in a ,osition to dictate to ,roducers.E2,orting metods include direct or indirect e2,ort. In direct e2,orting te organization may use an agent)distributor) or overseas subsidiary) or act via a !overnment agency in direct e2,orting te maor ,roblem istat of maret information.

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C)-55:

By far te largest indirect metod of e2,orting is counter trade. *om,etitive intensity means moreand more investment in mareting. In tis situation te organization may e2,and o,erations by o,erating inmarets 4ere com,etition is less intense but currency based e2cange is not ,ossible."e + defines countertrade as >commercial transactions in 4ic ,rovisions are made) in one of a series ofrelated contracts) for ,ayment by deliveries of goods and or services in addition to) or in ,lace of financial

settlement?.*ounter trade can tae many forms. Basically t4o se,arate contracts are involved) one for tedelivery of and ,ayment for te goods su,,lied and te oter for te ,urcase of and ,ayment for te goodsim,orted. "e ,erformance of one contract is not contingent onto oter altoug te seller is in effectacce,ting ,roducts and services from te im,orting country in ,artial or total settlement for is e2,orts."ere is a broad agreement tat counter trade can tae various forms of e2cange lie barter) counter

,urcase) s4itc trading and com,ensation.

B5 is te direct e2cange of one good for anoter) altoug valuation of res,ective commodities isdifficult) so a currency is used to under in te item9s value.

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I-5-/)-4 )- ;-/->:

In order to tae advantage of lo4er costs of ,roduction) a firm may sub-contract manufacturing in a foreigncountry. International sub-contracting arrangements may involve su,,ly of in,uts) suc as ra4 materials)semi-finised goods) com,onents and tecnical no4-o4 to a local manufacturer in a foreign country. "econtract manufacturer limits itself to ,roduction activities 4ereas mareting is taen care of by teinternationalizing firm. A ,rocessing fee is ,aid to a foreign-based manufacturer 4o is ,rimarilyres,onsible for ,rocessing or assembly.*ontract manufacturing as also been used as a strategic tool for economic develo,ment in a number ofcountries) suc as India) orea) &e2ico) "ailand) *ina) etc.

A->5< ) )- ;-/->:

"is metod considerably reduces te cost of ,roduction) as te relative cost advantage of te ostcountry 4ill be more and te outsourcing com,any can effectively concentrate on mareting side4it distinctive advantage.

/mall and medium industrial units in te ost country can also develo,) as most of te ,roductionactivities tae ,lace in tese units.

"e international com,any gets te location advantage generated by te ost country9s ,roduction.

*ontract manufacturing ,rovides an e2cellent o,,ortunity to firms located in develo,ing countries)

including India) to tae advantage of teir strategic strengt of lo4 labor cost and am,le availabilityavailable in international marets.

D/5< ) )- ;-/->:

8ost country9s com,anies may not strictly adere to te ,roduction standards and designs. "ese4ill result in ;uality and design ,roblems affecting te re,utation of te mareting com,any

8ost country9s com,anies may also tae u, te mareting activities) indering te interest of teinternational com,any.

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In lo4-income countries) manufactures often do not ,ossess enoug financial resources or necessaryforeign currency to ,ay for e;ui,ment and macinery. A firm can e2,and its business by leasing out ne4and used e;ui,ment to a manufacturing firm in suc countries. "e o4nersi, of te ,ro,erty retains 4itte leasing firm 5i.e.) lessor6 trougout te lease ,eriod during 4ic te foreign-based user 5i.e.) lessee6

,ays fee. 0easing ,rovides international business o,,ortunities by ra,id maret access using idle andobsolete e;ui,ment in an efficient manner.International 0ease Finance *or,oration 5I0F*6) 8ead;uartered in 0os Angles) is te largest aircraft lessor

by value tat ad an inventory of about 3HHH aircrafts by 5< ) 4/5-:

!ood 4ay to start in foreign o,erations and o,en te door to lo4 ris manufacturing relationsi,s. 0inage of ,arent and receiving ,artner interests means bot get most out of mareting effort.

*a,ital not tied u, in foreign o,eration and

%,tions to buy into ,artner e2ist or ,rovision to tae royalties in stoc.

D/5< ) 4/5-:

0imited form of ,artici,ation to lengt of agreement) s,ecific ,roduct) ,rocess or trademar

Potential returns from mareting and manufacturing may be lost

Partner develo,s no4-o4 and so license is sort.

I-5-/)-4 F-/:Francising at te international level is also a form of licensing. nder tis) an inde,endent

organization called te francisee o,erates te business under te name of anoter com,any called tefranciser. nder tis agreement) te francisee ,ays a fee to te franciser. "e franciser ,rovides tefollo4ing services to te franciseeC "rademars) %,erating system) Product re,utations) *ontinuoussu,,ort system lie advertising em,loyee training) ;uality assurance ,rogramme) etc.

International francising as gro4n substantially and tis is very ,o,ular in /A. Fast foodcom,anies lie &cDonalds) Dairy 1ueen francised restaurants 4orld4ide. +II" as te francisedcom,uter training centers in India. Pizza 8ut) F* ave francised restaurants 4orld4ide. 8otels lie8ilton and &arriot) rental cars lie 8ertz and Avis also ave international francisees.

A->5< ) -/:

Franciser can enter global marets 4it lo4 investment and lo4 riss.

Franciser can get te information regarding te marets) culture) customs and environment of teost country.

Franciser learns more lessons from te e2,erience of te francisees) 4ic e could not e2,eriencefrom te ome country9s maret.

Francisee can easily start a business 4it lo4 riss) as e selects and establised and ,roven,roduct and o,erating system.

Francisee gets te benefit of esearc and Develo,ment 4it lo4 ris and lo4 cost.

Francisee esca,es from te ris of ,roduct failure.

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International francising is not an easy affair. It is more com,licated tan domestic francising. Forinstance) &cDonald ad to teac te ussian farmers in te efficient metods of gro4ing ;uality

,otatoes to meet its standard.

It is very difficult to control te international francisee

"ere is lot of sco,e for misunderstanding bet4een te ,arties.

F)5/>- D/5 I-55< ) FDI:

!enerally) te customers of a country ,refer teir o4n country9s ,roduct 4it national a4areness

lie 7Be Indian and Buy Indian goods9. 7Be American and buy American9 etc. in suc cases FDIel,s a lot in gaining foreign maret access.

Purcase &anagers of most of te com,anies ,refer to buy local ,roduction in order to ensurecertainty of su,,ly) faster services) ;uality) de,endability and ;uicer contact 4it te su,,lier.

"e com,any can ,roduce based on te local environment) canging according to te ,references ofte customers)

D/5< ) FDI:

FDI e2,oses te com,any to te 4ims and fancies of te ost country9s government ,olicies),olitical riss and economic dangers.

/ome countries discourage te entry of foreign com,anies troug FDI) in order to ,rotect tedomestic industry.

Furter) FDI e2,oses te com,any to te e2cange rate fluctuations.

M)5 ) FDI /) A44/-5

"e term !reen Field /trategy refers to te starting of business in te foreign land 4it a virgin green siteand ten building on it. "e com,any starts it o,erations rigt from scratc in a foreign maret. "ecom,any conducts maret surveys) selects location or leases land) constructs buildings) erects te macineryand starts te o,erations and mareting activities.

A->5< ) G55-/54 S5>:

"is metod gives te advantage of selecting te best suitable site from te vie4 ,oint of tecom,any after maing a detailed ins,ection and survey.

"e com,any can avail all te incentives) concessions and rebate offered by te ost governmentsincluding local governments. "e firm can also successfully negotiate 4it tJ government offoreign country to e2tend additional infrastructural facilities.

"e com,any can ado,t its o4n ,olicies in recruitment and management of uman resources.

D/5< ) G55- F/54 S5>:

/ince tis strategy involves starting from scratc) it 4ill tae a very long time for te successfulim,lementation of te entire ,roect. It is a metod beset 4it long gestation ,eriod to get ade;uate

returns to ustify suc a uge investment. "is metod re;uires lot of ,atience and sill. In some cases) toug te ost country9s government is 4illing for te ,roect) te com,any may not

get suitable land in te location of its coice.

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"e com,any ad to follo4 lot of rules and regulations im,osed by te ost government in teconstruction of te factory building) environment factors arising out of ,ollution) safety measuresetc.

M)5 ) FDI / S5>/ A44/-5: M5>5< - A/


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4olly o4ned subsidiaries el, te internationalizing firm ,rotect its tecnology and sills from e2ternalsaring.

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%rganizational structure means tree tingsC536 te formal division of te organization into subunits) 4ic 4e sall refer to as orizontal differentiation@

5;5-< ) D55-4//)-:

"ere are five main arguments for decentralization"ere are five main arguments for decentralization.

First) to, management can become overburdened 4en decision maing autority is centralized) and tiscan result in ,oor decisions.

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/econd) motivational researc favors decentralization. Beavioral scientist ave long argued tat ,eo,le are4illing to give more to teir obs 4en tey a greater degree of individual freedom and control over teir4or.

"ird) decentralization ,ermits greater fle2ibility more ra,id res,onse to environmental canges- becausedecisions do not ave to be >referred? u, te iercary? unless tey are e2ce,tional in nature.

Fourt) decentralization can result in better decisions. In a decentralized structure) decisions are made closerto te s,ot by individuals 4o ave better information tan managers several levels u, in a ierarcy.

Fift) decentralization can increase control. Decentralization can be used to establis relatively autonomous)self-contained subunits 4itin an organization.

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D/5< ) -/)-4 //fle2ible? matri2 structures based more on firm

4ide net4ors and a sared culture and vision tan on a rigid ierarcical arrangement. $itin succom,anies te informal structure ,lays a greater role tan te formal structure.

CONTROLLING OF INTERNATIONAL BUSINESS &APPROAC#ES TO

CONTROL :

A maor tas of a firm9s leadersi, is to control te various subunits of te firm 4eter tey bedefined on te basis of function) ,roduct division) or geogra,ic area to ensure teir actions are consistent4it te firm9s overall strategic and financial obectives.

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A??)5< ) )-)4:

Four main ty,es of control systems are used in multinational firmsC ,ersonal controls) bureaucratic controls)out,ut controls) and cultural controls. In most firms) all four are used) but teir relative em,asis caries 4itte strategy of te firm.

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PERFORMANCE EVALUATION SYSTEM:

First) te ty,e of incentive used often varies de,ending on te em,loyees and teir tass. Incentivesfor em,loyees 4oring on te factory floor may be very different from te incentives used for seniormanagers te incentives must be matced to te ty,e of 4or ,erformed.

/econd) te successful e2ecution of strategy in te multinational firm often re;uires significant

coo,eration bet4een managers in different subunits. For e2am,le) as noted earlier) some multinational firmso,erate 4it matri2 structures 4ere a country subsidiary migt be res,onsible for mareting and sales in anation) 4ile a global ,roduct division migt be res,onsible for manufacturing and ,roduct develo,ment.

"ird) te incentive systems used 4itin a multinational enter,rise often ave to be adusted toaccount for national differences in institutions and culture.

Finally) it is im,ortant for managers to recognize tat incentive systems can ave unintendedconse;uences. &angers need to carefully tin troug e2actly 4at beavior certain incentives encourage.

P5);-5 ;@/>/:

Performance ambiguity e2ists 4en te causes of a subunit9s ,oor ,erformance are not clear."is is not uncommon 4en a subunit9s ,erformance is ,artly de,endent on te ,erformance of otersubunits@ tat is) 4en tere is a ig degree of interde,endence bet4een subunits 4itin te organization."e level of ,erformance ambiguity is a function of te interde,endence of subunits in an organization.

S5>, /-55?5-5-5, - A;@/>/:

+o4 let us consider te relationsi, among international strategy) interde,endence) and ,erformanceambiguity.

In multi domestic firms) eac national o,eration is a stand- alone entity and can be udged on its o4nmerits. "e level of ,erformance ambiguity is lo4.

In an international firm) te level of interde,endence is some4at iger. Integration is re;uired tofacilitate te transfer of core com,etencies and sills. Because te success of a foreign o,eration is ,artlyde,endent on te ;uality of te com,etency transferred from te ome country) ,erformance ambiguity cane2ist.

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$en ,erformance ambiguity maes it difficult to udge te ,erformance of subunits as stand-aloneentities) lining te incentive ,ay of senior managers to te entity to 4ic bot subunits belong can reducete resulting ,roblems.

END OF UNIT III

UNIT& IVGLOBAL PRODUCTION & LOCATION:

EKPLAIN T#E CONCEPT OF GLOBAL PRODUCTIONAND ITS VARIOUS

LOCATIONS7

I-)/)- G4)@4 P)/)-:Production is defined as te activities involved n creating a ,roduct. "e term ,roduction denotes

bot services and manufacturing activities) since one can ,roduce a service or ,roduce a ,ysical ,roduct.

"e global ,roduction functions of an international firm ave a number of im,ortant strategic

obectives. %ne is lo4er costs. Dis,ersing ,roduction activities to various locations around te 4orld 4ereeac activity can be ,erformed most efficiently can lo4er costs.

"e second strategic obective global ,roduction is to increase ,roduct ;uality by eliminatingdefective ,roducts from manufacturing ,rocess.

I-5-/)-4 )?5/)-< ;->5;5- - )?)5 :%,erations management of an international business needs to be integrated 4it te firm9s cor,orate

strategy. "e central role of o,erations management is to create te ,otential for acieving su,erior value forte firm.

If o,erations management taes s. 3HH 4ort of in,uts and brings out ,roduct 4ort s. 3=H) it ascreated considerable value for te firm. "erefore) te 4ay in 4ic te firm structures and manages itso,erations management function bot influences and is influenced by strategies.

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Production activity sould be located 4ere a firm can be most ,roductive) and yield te igest revenues,er unit of investment. A igly ,roductive ,lantC

Is one tat is near to te maret) so tat te demand for units of out,ut is ig relative to costs ofmaing tat in,ut

%ne tat locates to ig value ra4 materials. "e furter materials ave to travel te lo4er te,roductivity of te ,lant 4ill be.

O?/)-< ) >4)@4 4)/)- ) ?)/)-:"e traditional teory of location suggest tat if te in,uts account for a large sare in te value of te

final ,roduct or if te ra4 material carries eavy 4eigt but loses its 4eigt during te manufacturing,rocess) te manufacturing unit sould be located near te source of in,uts.

%n te oter and) if in,ut does not matter very muc) from te vie4,oint of cost or trans,ortation) temanufacturing unit sould be located near te maret.

8o4ever) te decision regarding te location of an international firm is com,le2 insofar as) firstly) tesefirms) tese firms are s,read over a far 4ide geogra,ic areaC second) tey source te in,uts globallyC andtirdly) teir maret is s,read over different countries.

An international firm may ave te follo4ing various alternatives regarding te location ofmanufacturing activities.

*entralization of te manufacturing o,erations at te ,arent unit or any one of te subsidiaries. It4ill el, rea, eiter te economies of scale or te location s,ecific advantage in te form of climatic)cultural) governmental) and oter factors.

Decentralization of manufacturing o,erations at different subsidiaries and distribution of te ,roductin te res,ective areas.

0ocation of te different ,arts of te manufacturing ,rocess at different subsidiaries under avertically integrated frame4or vertical integration may be of t4o ty,es.

"ey areCI. "e different units are lined in a cain-lie se;uence.

II. Different units manufacturing s,ares and com,onents e2,ort te out,ut to a ,articular unitengaged in assembling tem. It is common tat te s,are ,arts of a ,roduct are ,roduced in acountry 4it abundance of ca,ital and te assembly ,art is located in a labor sur,lus country.

F)< @5/- 545/)- ) >4)@4 ?)/)- 4)/)-:"e follo4ing are te factors beind te selection of a locationC

S/5:size and gro4t of maret and te degree of com,etition in te maret.

R ;5/4C Availability of ra4 material and labor force of re;uired sill. /ome ra4 materials,articularly agricultural out,ut lie sugar cane) fruits) vegetables lose teir fresness and ence com,aniesusing tese ra4 materials as in,ut locate teir ,lant close to te sources of in,uts.

C5-:state of logistics and te degree of currency fluctuation

P)4//4:,olitical and legal environment

C44:cultural and linguistic environment

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M=5:if a maret is large and ,romising) te ,lant may be located close to te maret. *om,onents ofautomobiles can be manufactured in any ,art of te 4orld. 8ence) te automobile assembling facilities arelocated close to te marets.

L@)C If labor is cea, in a ,articular country) te ,lant may be located tere 4itout considering,ro2imity to te maret.L)>/ R/):Value to 4eigt ration refers to te sare of trans,ortation costs in

te total costs. Electronic com,onents and ,armaceuticals ave ig value to 4eigt ratiosC tey aree2,ensive but do not 4eigt muc.

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*orrect information

6 /< ;5- @ 45 /5; ?)/)-C s,ecialist bicycle manufactures may and mae bicycles for ,rofessional cyclist orfor ,eo,le 4o ave te money to ,ay for a 7one off9. A fasion designer may be commissioned to designand mae a s,ecial of individual ,iece of cloting) tis is single item ,roduction.

SCALE OF OPERATION&inimum efficient scale of o,eration

"e conce,t of economies of scale tells us tat as ,lant out,ut e2,ands) unit costs decrease.

"e reasons include te greater utilization of ca,ital e;ui,ment and te ,roductivity gains tat come4it s,ecialization of em,loyees 4itin ,lant.

8o4ever) beyond a certain level of out,ut) fe4 additional scale economies is available. "us) te>unit cost curve? declines 4it out,ut until a certain level is reaced) at 4ic ,oint furter increasesin out,ut realize little reduction in unit costs.

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SOURCING AND VERTICAL INTEGRATION:

/ourcing) also called ,roducing refers to a series and ,rocesses of a firm uses to ac;uire te differentcom,onents it needs to ,roduce its o4n goods and services."e famous mae or buy decision becomes relevant in tis conte2t. An international firm can mae) inouse) all its needed ,arts or may decide to outsource tem from su,,liers 4o can ,rovide tem moreefficiently) regardless of 4ere tey are geogra,ically located.

T5 >;5-< ) ;=5 - ) ) @:

If te international business decides to mae all te com,onents in ouse) it is aving verticalintegration. Vertical integration means o4ning or controlling all te su,,ly sources or te cannels troug4ic te firm9s ,roducts or services are distributed. "e former is called bac4ard integration) 4ile telatter is called for4ard integration."e arguments tat su,,ort vertical integration and te riss associated 4it outsourcing.

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lo4er costs) facilitate investments in igly s,ecialized assets) ,rotect ,ro,rietary ,roduct tecnology) andfacilitate te sceduling of adacent ,rocesses.

0o4er cost

Facilitating s,ecialized investments

Pro,rietary ,roduct tecnology ,rotection

Im,roved sceduling

6 5 5 ->5< ) @ 5/design) ,lanning) e2ecution) control) and monitoring of su,,ly cainactivities 4it te obective of creating net value) building a com,etitive infrastructure) leveraging4orld4ide logistics) syncronizing su,,ly 4it demand) and measuring ,erformance globally.?

6 /< >4)@4 5;5-"e /*& in te globalization era can be caracterized by te attention given to global systems of

su,,lier relationsi,s and te e2,ansion of su,,ly cain over national boundaries and into oter continents4it te goal of increasing teir com,etitive advantage) value-adding) and reducing costs troug globalsourcing.

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Because global su,,ly cain management usually involves a ,letora of countries) it also usually comes4it a ,letora of ne4 difficulties and issues tat need to be dealt 4it a,,ro,riately.

*ost

E2cange rate

"ime

$eater conditions

*ustoms

/ourcing ,lan

/u,,lier selection

I-);/)- 5-)4)> - >4)@4 5;5-

$it com,etitive demands to ,roduce ig-;uality ,roducts ;uicly and efficiently) manage inventorylevels ,roficiently) communicate effectively 4it su,,liers) and meet customer demand ade;uately)

com,anies are coming to rely more and more on information tecnology to meet teir needs. 0et us no4discuss te various com,onents of I" used in global su,,ly cain.

Electronic data intercange 5EDI6

Enter,rise

Documents

International Business Management - BA9209 (1)