International BUSINESS--ToPIC 1--Introduction to International Business

8/3/2019 International BUSINESS--ToPIC 1--Introduction to International Business

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INTRODUCTION TOINTERNATIONAL BUSINESS


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WHAT IS INTERNATIONAL

BUSINESS?


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ANY BUSINESS ACTIVITY THAT TAKES PLACETHROUGH NATIONAL BORDERS

THE EXCHANGE OF GOODS AND SERVICES BETWEENINDIVIDUALS, ENTERPRISES, ORGANIZATIONS AND

GOVERNMENTS FROM DIFFERENT COUNTRIES.

HBR Business Dictionary

INTERNATIONAL BUSINESS ARE THE COMMERCIALTRANSACTIONS (INCLUDING SALES, INVESTMENTS

AND TRANSPORTATION) THAT TAKE PLACE BETWEENINDIVIDUALS, ORGANIZATIONS, INSTITUTIONS ANDGOVERNMENTS FROM TWO OR MORE COUNTRIES.

John Daniels


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HISTORICALLY.

Mesopothamia

Phoenicia

Greece

Trade routes in the Mediterranean Sea

International business are not something new:

3100-539

b.c..

1550-300

b.c..

500 b.c..-

330 a.d.


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Trade routes to American and AsianColonies

England

Spain

Netherlands


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INDUSTRIAL

REVOLUTION

Increase of production levels(mass production) and theefficiency of raw materialsfacilitating internationalbusiness


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INCREASE IN THE DEMAND OF SUPPLIES

INCREASE IN THE AVAILABILITY OF RAW MATERIALS

INCREASE FACILITY OF TRANSPORTATION

INCREASE IN THE MOBILITY OF CAPITAL FLOWS,PROMOTING REVENUES AND NEW INVESTMENTSBOTH IN THE COLONIES AND IN DOMESTICEUROPEAN MARKETS.

WHY?

INDUSTRIALIZATION


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INVESTMENT INDOMESTIC

PRODUCTION

INCREASE OFPRODUCTION

CAPACITY

INCREASE INTHE

AVAILABILITYOF PRODUCTS

INCREASE OFREVENUES

AVAILABILITY

OF NEWRESOURCES

INCREASEMOBILITY OF

REVENUES ANDCAPITAL FLOWS


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INDUSTRIAL

REVOLUTION

TECHNOLOGY


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Towards 1880 the Industrial Revolution peaks, both inEurope as in the United States.

The productions of goods grew to high levels, pushingthe creation and discovery of new inventions andscientific advances, the development of new energysources , increases in the efficiency levels of production

processes and better communication andtransportation.

TECHNOLOGY ADVANCES ARE THE GREATESTACCELERATOR OF INTERNATIONAL BUSINESS
http://upload.wikimedia.org/wikipedia/commons/0/00/Early_General_Electric_logo_1899.png


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Development and commercialproduction of electricity

Development and commercialproduction of gasoline automobiles (KarlBenz, Gottlieb Daimler & Maybach)

First comercial production and sales of

phonographs and phonographicrecordings

First structures of steel for sky-scrapers

A French company starts the constructionof the Panama Cana.

HomeInsuranceBuilding,

Chicago, 1894

Ferdinand deLesseps
http://upload.wikimedia.org/wikipedia/commons/0/00/Early_General_Electric_logo_1899.png


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DEVELOPMENT OFINTERNATIONAL MARKETS

DOMESTIC

PRODUCTION

DomesticMarket

demand fullycovered

InternationalMarkets


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WHY DO COMPANIES START BECOMING GLOBAL?

Communications allow long-distance controlTransportation and communication costs are lower,therefore facilitating international operationsinternacionales

GLOBALIZATION, INTERNACIONALIZATION,TRANSNACIONALIZATION... Exchangable terms, but

they are not the same

INTERNATIONAL BUSINESS

Faster transportation


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After the Industrial Revolution,

a new kind of economicentity is born, with theobjective of doing

INTERNATIONAL BUSINESS

CREATION OF MULTINATIONAL ENTERPRISES


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1- Internationalization

2- Transnationalization

3- Globalization

When exports start growingfaster than the GDP (% ofexports grows faster than

production: the market isrequesting products faster than

you can produce them)

FDI processes start and relocationis more and more common

Worldwide networks ofinformation and production


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Multinational corporations came to be at the end ofthe 19th. And the beginning of the 20th. centuries

From the beginning they had different and definedobjectives:

1) PLACE EXCESSIVE DOMESTIC PRODUCTION

(Singer, International HarvesterNavistar,Remington, etc.)
http://upload.wikimedia.org/wikipedia/commons/d/dc/Singer_2007Trans.jpghttp://upload.wikimedia.org/wikipedia/en/c/c9/Singer-logo_old.pnghttp://en.wikipedia.org/wiki/File:Navistar_international_corporation_logo.png


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2) GET RAW MATERIALS ABROAD TO SATISFY THEIRDOMESTIC DEMAND

(Standard Oil, US Rubber Co. , United Fruit, etc.)
http://en.wikipedia.org/wiki/File:Amoco_logo.svghttp://en.wikipedia.org/wiki/File:Chevron_Logo.svghttp://upload.wikimedia.org/wikipedia/en/3/38/Standard_Oil_Logo_1911.png


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3) TECHNOLOGY MNES THAT ARE LOOKING FOR MAKETSFOR THEIR NEW PRODUCTOSS (KODAK, WESTINGHOUSE,SONY, APPLE, ETC.)
http://www.westinghouse.com/home.html


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HOW DO YOU DOINTERNATIONAL BUSINESS?


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Forms of International Business

Franchising and License agreements

Exports-Imports

Direct Investment

Financial (portfolio)investments

Turn-key projects

1 E t d I t


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1. Exports and Imports

Is the internationalization process that requires the lesser level of

commitment and effort from the company, in terms of the resourcesneeded to service a foreign market.

Basically, the company starts using its installed production, managerialand distribution capacities, allocating portions of its production to thetarget foreign market. It produces locally and then sends its productsacross its countrys borders.

Quite frequently exports start as a fluke - an order placed by a newclient. At other times, the company identifies an opportunity in aforeign market and takes action to introduce its products into it.

Direct Exporter = The company is in charge of all aspects of the sale andtransportation of the merchandise to the new foreign client (it sellsdirectly to the foreign buyer)

Indirect Exporter = The company hires an expert to facilitate theexchange of its products. There are different types of facilitators:exports agents, foreign representatives, brockers, etc.


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2. Foreing Direct Investment

A company invests directly in a foreign country, committingcapital, personnel, infrastructure, etc.

Foreign Investment = property outside domestic borders inexchange for a financial revenue (interests and dividends)

It gives the investor a controlling interest in a foreigncorporation. It does not have to be a 100%

It is done to gain access to foreign markets, foreignresources or to own a property abroad.


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3. Financial (portfolio) investments

Claim in a company, but no control over it.Ownership of financial titles of corporations, credit,etc.

It can be done buying shares of a corporation orbuying debt (bonds, IOUs, etc.

It gives you financial gains in the short term.

4 Liscensing


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4. Liscensing

It is the process through which the licensor gives the

licensee some sort of intangible right such as the use of aprocess, a patent, a program, a brand, etc.

The Licence can or can not be exclusive. Its advantagesare:

FOR THE LISCENSOR: a. It receives the additional revenues;b. It gives him the possibility of extending the life of aproduct; c. it increases its revenues by licensing other assetsdifferent from its products and d. has the possibility of

becoming a supplier of spare parts, thus increasing evenmore its revenues.

FOR THE LICENSEE: a. it acquires the rights over a technologythat allows him to avoid Research and development (R&D)expenses

4 Franchising


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4. Franchising

Is the practice of using another firm's successful business

model.The franchiser escorts the franchisee in the operation ofthe franchise, providing raw material, training, infrastructure,etc.

Generally the franchiser has more control over the quality ofthe product than the licensor.

Businesses for which franchising work best have the following

characteristics:

Businesses with a good track record of profitability.

Businesses which are easily duplicated.


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5. Turn-key Operations

Type of project that is constructed by a developer andsold or turned over to a buyer in a ready-to-usecondition.

The owner organizes the overall project with a turnkeyfirm and 'receives' the project on its completion and canthen start to operate it.


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TYPES OF MULTINATIONALCORPORATIONS

TYPES OF MULTINATIONAL


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TYPES OF MULTINATIONALCORPORATIONS

As International Businesses started developing, specializing and

getting more and more complicated, experts have defined differenttypes of Multinational Corporations:

INTERNATIONAL CORPORATIONS

Those that have operations outside their national borders


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MULTINATIONAL CORPORATIONS (MNCS OR MNES)Any company that has production or marketing operations

in more than one country

This companies have a global view of markets and foreignproduction. They are willing to consider manufacturing and

marketing of their products in any location of the world.

?


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TRANSNATIONAL CORPORATION (TNC)Companies that are owned and managed by nationals ofdifferent countries.

Companies that have different capacities and abilitiesaround the world, but they develop and integrate their

world-wide operations.
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GLOBAL CORPORATION

Globally-integrated corporations.Companies that integrate operaations from different

locations around the world, but has a home-base strategicdecission making process


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Rank CompanyRevenues Profits($ millions) ($ millions)

1 Wal-Mart Stores 408,214 14,3352 Royal Dutch Shell 285,129 12,5183 Exxon Mobil 284,650 19,280

4 BP 246,138 16,5785 Toyota Motor 204,106 2,2566 Japan Post Holdings 202,196 4,8497 Sinopec 187,518 5,7568 State Grid 184,496 -3439 AXA 175,257 5,01210 China National Petroleum 165,496 10,27211 Chevron 163,527 10,483

12 ING Group 163,204 -1,30013 General Electric 156,779 11,02514 Total 155,887 11,74115 Bank of America Corp. 150,450 6,27616 Volkswagen 146,205 1,33417 ConocoPhillips 139,515 4,85818 BNP Paribas 130,708 8,106

19 Assicurazioni Generali 126,012 1,82020 Allianz 125,999 5,97321 AT&T 123,018 12,53522 Carrefour 121,452 45423 Ford Motor 118,308 2,71724 ENI 117,235 6,07025 J.P. Morgan Chase & Co. 115,632 11,728

Source: Fortune 500 2010 BiggestMultinationals

ADVANTAGES AND DISADVANTAGES


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ADVANTAGES AND DISADVANTAGESOF MULTINATIONAL CORPORATIONS

The success of a multinationalcorporation is based in knowing howto overcome its disadvantages and

seize its advantages

Ad t d Di d t f


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Advantages and Disadvantages ofMNCS

The success of MNCs lies in its ability to overcome

disadvantages and seize its advantages.

Advantages:

1) Higher technical knowledge: Maybe the most important

advantage of a MNC. The technical know-how theypossess gives the international competitiveness.

The biggest MNCs have access to high-tech advances,either their own developments or acquired, in production,

management, processes or services.The ability to apply these technologies give the MNC a

competitive advantage in international markets, thattranslate in high technological level products, low prices

and efficient production.

ADVANTAGES


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ADVANTAGES

2) Bigger size and economies of scale:Most of MNCs are big companies, some of them(Wal-Mart or ExxonMobil) have sales bigger than

the GDPs of many countries.This allow them to create economies of scale sincethe volume of production decreases fixed costs perunit, that impacts the final consumer price. Thissituation is clearly observed in capital intensivesectors such as steel, petrochemicals andautomobiles)


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R+D

Increasedproduction

Lower thecost of

products

Increasedsales

Higher

revenues

Increasedresources for

R+D

ECONOMIESOF SCALE


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ADVANTAGES

3) Decreasing prices in raw materials.

The bigger size of MNEs and their level ofproduction makes them acquire bigger

quantities of supplies and raw materials, andthis gives them the chance to get lower pricesand discounts.


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4) Ability of getting supplies virtually anywhere inthe world.

Aside from better prices, their size and production

volume allows them to create monopolies of rawmaterials, offering technology in exchange forexclusive access to those raw materials.

ADVANTAGES

ADVANTAGES


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ADVANTAGES5) Creation of economies of scale regarding transportation,distribution and promotion.

Once again, the production volume allows the MNEs tonegotiate better prices with providers of services.

In some cases, the size of the company allows it to cater to

its own needs buying its own ships, establishing its owndistribution channels, etc.

This translate in the final costs of their products, usuallylowering them.

Nowadays, the tendency is to standardize services likepromos, commercials, etc. For example: global advertisingcampaigns, regional campaigns, eliminating the need totropicalize (adequate) ads and commercials.

6) Ability to move production abroad


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6) Ability to move production abroad.

In order to increase their competitiveness, MNCshave the ability to relocate their production outsidetheir national borders, seizing the advantagesoffered by low production costs and low prices ofraw materials and supplies.

In many cases, they seize the benefits offered byforeign governments that are eager to attractforeign direct investments. Sometimes this benefitsare not accessible to domestic companies, or arenot offered in the home country of the MNE.

Some of the most attractive countries to relocateMNEs are: China, Brazil, India, Indonesia and

Mexico.

ADVANTAGES


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ADVANTAGES

7) Brand Recognition and good name:

Lines of products can have specific advantagesderived from international brand recognition and

reputation in regards to quality, value andservice.

International reputation helps MNCs get into new

markets a lot easier and increase its prices basedon the good name of its brand, since consumersare already convinced of the quality of saidbrand.


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8) Access to low-cost financing:

Usually, a MNC has good credit records, whichmakes them favored clients for financial institutions.

MNCs can access preferential financing in differentcountries, according to its own convenience.

ADVANTAGES


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9) Financial flexibility:

MNCs can manipulate their earnings and movethem to locations that have more favorablerevenue laws (Luxembourg, Cayman Islands,etc.)

ADVANTAGES


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10) Advantages derived from better access to keyinformation

MNCs usually have a global vision of the marketand the ability and resources to gather, process

analyze and exploit information from many differentsources and locations.

This allows them to create strategies aimed to

overcome obstacles sometimes before theyactually appear (commercial intelligence,government/politics related information, politicalrisks analysis, etc. )

ADVANTAGES

ADVANTAGES


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ADVANTAGES

11) Global access to managerial expertise:

Because MNCs work simultaneously in manycountries, they have the ability to absorb themanagerial experience in a global way,

adopting the best practices of each location.

At the same time, its executives and managers

acquire a global view of entrepreneurialactivities and are better equipped to facecultural differences, stress and company crisis.

ADVANTAGES


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12) Diversification of Risks:

The simultaneous presence of an MNC in manycountries at once allows them to face moreefficiently the economic cycles, that generally

dont present themselves everywhere at once.

They are able to diversify the political,economic, social risks entailed by theiroperation.

ADVANTAGES

DISADVANTAGES


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DISADVANTAGES

1)Business Risks:MNCs have to face risks that naturally arise

from doing business in several currencies.

This makes them more vulnerable tocurrency fluctuation. Most MNCs usemechanisms such as currency swap to

minimize short-term currency exchangerisks.

DISADVANTAGES


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2) Local regulations

MNCs are bind by the regulations of eachindividual country in which they operate.

Most of these regulations differ from one countryto the next, so MNCs specially at the beginningof their operations have to become familiar withlaws and rulings, as well as with the ways to make

business particular to each location, many timesthey have to modify or change the way theyusually operate.

DISADVANTAGES

DISADVANTAGES


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3) Differences regarding laws and law

enforcement:The MNC has to operate under differentlegal systems. In many cases the degree of

legal certainty is quite law, judicialprocesses are slow and complicated andeven some practices that are normal in the

home country may be forbidden in aforeign location.

DISADVANTAGES

DISADVANTAGES


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4) Political Risks:

There is very little an MNC can do if the

host country is bound to act against itor its operations.

The political risk increases in countries

where governments are unstable orchange frequently, as well as withextremists.

DISADVANTAGES

DISADVANTAGES


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DISADVANTAGES

5) Difficulties with the operation

MNCs operate in a multitude of businessenvironments, thus increasing the difficulties oftheir overall operations: they may face strange

or unknown customs and business practices withwhich they are not familiar.

The MNC most adjust its corporate culture to the

culture of the host country or risks losing business


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6) Cultural differences:

They are the cause of the biggest, toughest

problems in International businesses. Many MNCsfind that their expatriate executives are lessefficient because they can not adjust to the localculture, either professionally or personally, and local

executives have problems communicating insideThe decreased ability to understand and respondto local culture could mean the failure of the

business. Lack of knowledge and understanding oflocal culture, local business ethics, social rules, etc.means problems with local clients, authorities andemployees.


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FIRST RESEARCH ASSIGNMENTDue Date: MONDAY, AUG. 29TH.

WEDNESDAY, AUG. 31STTHURSDAY, SEPT. 1ST.

Topic.: International Business and Multinational Corporations

Activities:1. Research practical examples (cases) regarding each type of

International Businesses, including: NAME OF THE CORPORATION, BRIEF

HISTORICAL ANALYSIS OF ITS INTERNATIONALIZATION PROCESS, RESULTS,CONCLUSSIONS.

2. Research ONE EXAMPLE that shows each advantage anddisadvantage of multinational corporations, including: NAME OF THECOMPANY, BRIEF HISTORICAL ANALYSIS, ADVANTAGE OR

DISADVANTAGE OF THE CORPORATION, WAY IT WAS SEIZED OROVERCAME, RESULTS, CONCLUSSIONS

On the due date, each team will present one type of internationalbusiness and one advantage ordisadvantage randomly selected by theteacher.


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PRIMER TRABAJO DE INVESTIGACIN YCONSOLIDACIN TEMTICA

Fecha de Entrega: LUNES 29 DE AGOSTOMIERCOLES 31 DE AGOSTOJUEVES 1 DE SEPTIEMBRE

Tema: Negocios Internacionales y Empresas Multinacionales

Actividad:1. Realizar una investigacin sobre casos prcticos de cada uno de los

tipos de negocios internacionales sealando: NOMBRE DE LA EMPRESA,BREVE ANALISIS HISTRICO DE SU PROCESO DEINTERNACIONALIZACIN, RESULTADOS, CONCLUSIONES

2. Investigar 1 caso real que ejemplifique cada una de las ventajas ydesventajas de las empresas multinacionales sealando:NOMBRE DE LA EMPRESA, BREVE HISTORIA, EXPOSICIN DE LA VENTAJA

O DESVENTAJA, FORMA EN LA QUE SE ATAC, RESULTADOS,CONCLUSIONES

Las actividades se realizarn en equipos de 5 personas. El da de laentrega del trabajo, cada equipo expondr un tipo de negociointernacional, una ventaja y una desventaja, que sern seleccionadas

Documents

International BUSINESS--ToPIC 1--Introduction to International Business