Welcome to

final class ofInternational Business

Dr. Satyendra Singh

Objectives

Objectives• To

– Understand the concept of conducting businesses in international environment, and factors such as economical, cultural, financial, marketing, operational, among other

– Evaluate the impact of trading blocks around the globe– Understand the foreign exchange mechanism and its impact on IB– Identify and analyze potential international markets– Evaluate IB in light of theories and practices– Run the airline business

Course Outline

Course Outline• Term test on management aspects of IB• Class participation • Research and simulation-based group project• Individual presentation• Group presentation• Final exam on the whole book!• + whiteboard, color pens, handouts, computer,

journal articles, websites

Others• Reviewed/ helpful rapid feedback/main points• Extended office hours• Sensitive students needs• Encouraged and respected your viewpoint• Emphasized difficult points• Promoted intellectual curiosity• Clarity/repeated• Interesting/practical examples• Encouraged to speak• Working a group in a respectful manner• Marking

The International Business Model

The World Marketplace

The World Marketplace…

• Free Trade Area (FTA)– Members do not have tariffs, but keep their external tariffs

• Custom Union (CU)– Common external tariff to an FTA

• Common Market (CM)– Mobility of services, goods and people within the union

• Complete Economic Integration (CEI)– Integration on both economic and political levels

The world marketplace• United Nations

– General assembly• Made up of all member nations – one vote– regardless of size, wealth or power

• Security Council – Main policy setting body– 5 permanent members (China, France, USSR, UK, USA)– 10 on a 2-year term

• 5 from Africa and Asia• 1 East Europe• 2 west Europe• 2 Latin America

• Economic and Social Council (ECOSOC) – UN body concerned with economic and social issues such as trade,

development, education and human rights

Socio-cultural Forces…• Marketing

– Attitude towards time, etc.

• Human Resources– Schooling, status

• Production– Attitude towards authority

• Finance– Loan vs. equity, influence

• Religion/faiths

Socio-cultural Forces• Hofstede’s Four Dimension of Culture

– Individualism vs. collectivism– Large vs. small power distance– Strong vs. weak uncertainty avoidance– Masculinity vs. femininity

• Corporate Culture– Market culture– Adhocracy culture– Clan culture– Hierarchical culture

Economic Forces• Level of Economic Development

– Low income (< $800 GNI/capita)– Lower middle income ($800-$3000)– Upper middle income ($3000-$9000)– High income (>$9000)

• Other Economic Indicators– Debt/GDI– Debt service/exports– Debt/exports

• Emerging Markets– Export ↑– FDI ↑– MIG ↑

• Purchase Power Parity (PPP)– Link between PPP and exchange rate

Labor Forces• Distribution of Age Group• Health of the Population• Skilled Labor• Unemployment• Immigration• Child Labor• Forced Labor• Guest Worker

Political Forces• Ideology

– Conservative– Liberal

• Political Force– Ideology– Patriotism– Terrorism– Hostilities– Unstable government

• Government Ownership of Businesses– Ideology, profitability, control, unfair competition…

• Privatization– Competition

Legal Forces• Antitrust Law

– dumping– Minimum price requirements

• Competition Policy– The EU equivalent of antitrust law

• Enforcement of Laws– Developed countries vs. emerging markets

• Patents• Merger and Monopoly Commission

Financial Forces• Foreign Exchange

– Foreign debt service– Import items

• Exchange Rate Quotations– Spot rate exchange rate b/w 2 countries within 2 business days– Forward rate currency contract to be delivered 30/60/90 days in the future– Trading at premium currency’s forward rate quotes are stronger than spot– Trading at discount currency’s forward rate quotes are weaker than spot

• Exchange Rate Fluctuations– Interest rate (Fisher effect) difference in currency will lead to change in xn rate– Inflation– Speculations– PPP

• Tax– Income tax, VAT, Withholding tax (royalties, dividends, interest)

Assessing and Analyzing Foreign Markets•   • CIA World Fact Book (General information) • International Market Potential Indicators (Inflation) • International Monetary Fund (Time-series) • Country Information (Export development of Canada) • UNCTAD (FDI database) • Human Development Index (Labor market) • UNCTAD GlobStat (I’ntl companies/Economic trends) • Worldbank (Database and leading indicators) • OECD (I’ntl trade indicators/time-series/XL) • Conference board of Canada (Economic forecast) • Bank of Canada (Interest rate/inflation/foreign exchange) • Foreign Exchange (Converter) • Offshore Financial Center (PriceWaterHouseCoopers) • Corruption Perceptions Index (Transparency/disclosure) • Commitment to Development Index (Center of Global Development)• CIDC (Canadian Deposit Insurance Corporation)

Financial Management• Capital Structure of Firms

– Debt– Equity

• Foreign Exchange Risk Management• Hedging -- process to reduce or financial risk

– Forward market hedge• foreign currency sold/bought to protect against currency movement

– Money market hedge• by borrowing/lending in the domestic and foreign money markets

• Swaps – A spot sale/purchase of an asset against a future purchase/sale of an equal amount in order to hedge a financial position

– Parallel loan• Matched loans across currencies that are made to cover risk

– Bank swap• Swap made to between banks to acquire temporary foreign currencies

– Currency swap• An exchange of debt service of a loan or bond in one currency for the debt service of a loan or bond in another currency

– Interest swap• An exchange of interest rate flows in order to manage interest rate exposure

• Accounting Culture (transparency/secrecy vs. optimism/conservatism)• Sarbanes-Oxley Act• Triple Bottom Line (3BL) Accounting

Human Resource Management• The HRM Approach

– Ethnocentric• Relates to hiring/promoting wrt home country frame of reference

– Polycentric• Hiring/promoting in the context of subsidiary operations

– Regioncentric• Hiring/promoting in the context of the region the subsidiary operates

– geocentric • Hiring/promoting on the basis of ability abd experience without considering race or

citizenship• The personnel

– Home/parent country national– Host country national– Third country national

Foreign Market Entry and Strategies• Equity-based Modes of Entry

– Wholly-owned subsidiary– Joint venture– Strategic alliance (may also be non-equity)– Merger and acquisitions

• Nonequity-based Modes of Entry– Export

• Direct• Indirect

– Export agent, export merchants, international firms

– Licensing– Franchising– Contract manufacturing – Management contract

Export and Import Practices…

Export and Import Practices• INCOTERMS (Universal trade terminology developed by I chamber of commerce)

– FOB (Free on Board)– FAS (Free Along Side)– CIF (Cost Insurance Freight)– CFR (Cost and freight, foreign port) buyer purchases the insurance– DDU (Delivered Duty Unpaid)– DDP (Delivered Duty Paid)

• Export Financing– Factoring

• Discounting without recourse an account receivable– Forfaiting

• Credit terms are longer than 90 – 180 days usual in factoring.• Political and financial risks are borne by the forfaiter

• Letter of Credit• Import Duties• Calvo Doctrine

– Cases should be tried under local and not foreign law

International Operations management• Outsourcing

– Make• Yourself• Partnership

– Controlled– uncontrolled

– Buy• Short-term supplier relationship• Long-term supplier relationship

– Strategic Vulnerability vs. Potential Competitive Advantage (PCA)• Discounting without recourse an account receivable

– Problems with Outsourcing• International freight, insurance, packaging (10%)• Import duty (0-50%)• Cost of letter of credit (1%)• International travel and communications (2-10%)• Reworking on product specification (0-15%)

• JIT vs. JIC• Standardization vs. Customization• ISO 9000 vs. ISO 14001• Six Sigma

– Quality control process for reducing defects and eliminating variations

Strategic vulnerability

PCA

Buy

Contract

Make

International Marketing• Market Orientation

– Customer orientation– Competitor’s orientation– Interfunctional co-ordination

• Outsourcing– Core activities– Peripheral activities

• Pricing– Multiple point pricing– Transfer pricing

And finally...

• I believe this course was useful to you.• thank you!