international business

Unit 1:

What is International Business? Meaning

International Business conducts business transactions all over the world. These transactions include the transfer of goods, services, technology, managerial knowledge, and capital to other countries. International business involves exports and imports.

International Business is also known, called or referred as a Global Business or an International Marketing.

An international business has many options for doing business, it includes,

Exporting goods and services. Giving license to produce goods in the host country. Starting a joint venture with a company. Opening a branch for producing & distributing goods in the host country. Providing managerial services to companies in the host country.

Large scale operations : In international business, all the operations are conducted on a very huge scale. Production and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are exported.

Intergration of economies : International business integrates (combines) the economies of many countries. This is because it uses finance from one country, labour from another country, and infrastructure from another country. It designs the product in one country, produces its

parts in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market.

Dominated by developed countries and MNCs : International business is dominated by developed countries and their multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully control) foreign trade. This is because they have large financial and other resources. They also have the best technology and research and development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market.

Benefits to participating countries : International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get rapid industrial development. They get more employment opportunities. All this results in economic development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies.

Keen competition : International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNCs are in a favourable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries.

Special role of science and technology : International business gives a lot of importance to science and technology. Science and Technology (S & T) help the business to have large-scale production. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries.

International restrictions : International business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business.

Sensitive nature : The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, etc. has a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes.

Frameworks of International Business

Types or Approaches of International Business

There are number of ways for internationalization / globalization of business. these are referred as foreign market entry strategies. Each of these ways has certain advantages and disadvantages. One strategy for a particular business may not be very suitable for another business with different environment. Therefore it is quite common that a company employs different strategies for different markets.

The different strategies are :

1. Imports : Imports is defined as goods and services produced by host country and purchased by parent country. it is reverse process of Exports.

2. Exports : Exports is defined as goods and services produced in one country then get marketed to other country.

3. Foreign Direct Investment (FDI) : Here funds are invested in equity from parent country to a host country. Rich countries invest funds in growth industries and geographic areas of economic development.

4. Licensing : Licensing which involve minimal commitment of resources and effort on the part of the international marketer, are easy ways of entering the foreign markets. Under international licensing, a firm in one country (the licensor) permits a firm in one country permits the firm in another country to use the intellectual property (such as patents, trademarks, copyrights, technology, technical know – how, marketing skill or some other specific skill). The monetary benefits to the licensor is the royalty fees, which the licensee pays.

5. Franchising : Franchising is giving right at a parent company (Franchiser) to another company (Franchisee) using his name selling his products, do business in a prescribed manner and get advantage of brands of parent company.

6. Joint Venture : It is a mutual agreement of two or more partners across globe to collectively own the company to produce goods and services. This will be pooling the resources to mutual advantages.

7. Manufacturing in Foreign Country : When a company finds better economy in manufacturing in host country due to lower costs of materials labour or duties the manufacturing is undertaken in host country. The local conditions in host country should support manufacturing and marketing activities.

8. Management Contracts : The foreign country needs management expertise in managing existing or a sick company this method is used. Under management contract the service provided gets fees or shares in the company. The contracts is for a specific period.

9. Consultancy Services

10. Strategic Partnerships : The positive aspect of two companies in different countries are joined together. The resources are pooled together to produce new marketable products. This will put both companies in win-win situations .

11. Mergers : A Corporate Merger is a combining of corporations in which one of two or more corporations survives and works for common objectives. These are several types of mergers with a variety of filing requirements based on number of corporations merging and the type of merger.

12. Counter Trades : Counter trade is a form of international trade in which certain exports and import transactions are directly linked with each other and in which imports of goods are paid for by exports of goods, instead of money payments.

Global Market Theories

The theory of comparative advantage:

The theory can be relatively complex and difficult to understand but stated simply this theory is a demonstration (under assumptions) that a country can gain from trade even if it has an absolute disadvantage in the production of all goods, or it can gain from trade even if it has an absolute advantage in the production of all goods. Even though a country has an absolute production advantage it may be better to concentrate on its comparative advantage. To calculate the comparative advantage one has to compare the production ratios, and make the assumption that the one country totally specialises in one product. To maximise the wellbeing of both individuals and countries, countries are better off specialising in their area of competitive advantage and then trading and exchanging with others in the market place. Today there are a variety of spreedsheets that one can use to calculate comparative advantage, one such is that of the Food and Agriculture Organization (FAO). Calculation of comparative advantage is as follows:

Example

It may be assumed that Holland is more efficient in the production of flowers than Kenya. Yet Kenya succeeds in exporting thousands of tonnes of flowers to Europe every year. Kenya flower growers Sulmac and Oserian have achieved legendary reputations, in the supply of fresh cut flowers to Europe, How?

Take the simple two country - two product model of comparative advantage. Europe grows apples and South Africa oranges, these are two products, both undifferentiated and produced with production units which are a mixture of land, labour and capital. To use the same production units South Africa can produce 100 apples and no oranges, and Europe can produce 80 apples and no oranges. At the other extreme South Africa can produce no apples and 50 oranges and Europe no apples and 30 oranges. Now if the two countries specialise and trade the position is as follows:

Product South Africa EuropeProduction Imports Consumers Production Imports Consumers

Apples (000's) 0 30 30 80 30 50Oranges (000's) 50 14 36 30 14 44The trading price is 30:14 =2.14 apples = 1 orange

14:30 = 4.67 oranges = 1 apple

So in apples, South Africa has an advantage of 1.25 (100/80) but in oranges 1.67 (50/30). So South Africa should concentrate on the production of oranges as its comparative advantage is greatest here. Unfortunately the theory assumes that production costs remain relatively static. However, it is a well known fact that increased volumes result, usually, in lower costs. Indeed, the Boston Consulting Group observed this phenomenon, in the so called "experience curve" effect concept. And it is not only "production" related but "all experience" related; including marketing. The Boston Consulting group observed that as an organisation gains experience in production and marketing the greater the reduction in costs. The theory of comparative advantage also ignores product and programme differentiation. Consumers do not buy products based only on the lowest costs of production. Image, quality, reliability of delivery and other tangible and non tangible factors come into play. Kenyans may well be prepared to pay extra for imported French or South African wines, as the locally produced paw paw wine may be much inferior.

Neo Classical Approach to International Business

What It’s For

The first purpose of trade theory is to explain observed trade. That is, we would like to be able to start with information about the characteristics of trading countries, and from those characteristics deduce what they actually trade, and be right. That’s why we have a variety of models that postulate different kinds of characteristics as the reasons for trade.

Secondly, it would be nice to know about the effects of trade on the domestic economy.

A third purpose is to evaluate different kinds of policy. Here it is good to remember that most trade theory is based on neoclassical microeconomics, which assumes a world of atomistic individual consumers and firms. The consumers pursue happiness (“maximizing utility”) and the firms maximize profits, with the usual assumptions of perfect information, perfect competition, and so on. In this world choice is good, and restrictions on the choices of consumers or firms always reduce their abilities to optimize. This is essentially why this theory tends to favor freer trade.

Varieties of Theory

Neoclassical theory has been successful because it is simple (though it may not always look simple when you’re learning it). For example most neoclassical trade theories assume that the world only has two countries (which means that country A’s exports must be country B’s imports). They also usually assume only two commodities in international trade. If you try to “generalize” by adding more countries or commodities, the math breaks down and you don’t get clear results.

One of the most important, and limiting, assumptions in neoclassical trade theory is that firms produce under conditions of perfect competition. Any industry that is controlled by a small number of firms is not perfectly competitive. There is a whole area of economics, initially developed by Joan Robinson in the 1920's, that explores what happens under imperfect competition. We won’t get into it in this course, but if there are significant “economies of scale” (which means that per-unit costs are smaller for bigger firms), then you can get very different policy recommendations out of your model.

Does this mean that the simple neoclassical models are useless? No. Their most important use is as a way to help you think through a set of issues. Neoclassical theory is especially good at pointing out the links between different markets. But you should be suspicious if you hear anyone saying that a theory “shows” that one policy or another is the right one in the real world.

The most famous neoclassical model is also the simplest — the model developed by the English political economist David Ricardo in the early 1800s. It’s simple because Ricardo assumes that there is only one “factor of production” (i.e. type of input) — labor. This model makes the point that trade should, in principle, benefit both parties even if one is more efficient. More sophisticated models were developed in the current century as economists learned more math. The best-known is the Heckscher-Ohlin model, named after a couple of Swedish economists, which is often called Heckscher-Ohlin-Samuelson (HOS) because of the important contributions made by the U.S. economist Paul Samuelson. HOS includes two factors of production (e.g. labor and land), and it shows that particular factors of production may be hurt by trade, though it still agrees with Ricardo that there are overall gains from trade.

There are many other varieties of trade theory, making different assumptions and getting different results. One kind that has gotten a lot of attention in recent years assumes increasing returns to scale, which means that large producers are more efficient than smaller producers. Ricardo, as noted above, assumed constant scale returns. Neoclassical theories like HOS assume decreasing returns and get generally similar results. If you allow increasing returns then bigger is better, and one nation may end up dominating an industry, but it's hard to say which nation will do so. In this case, the ability to intimidate and bluff may be important. So increasing returns undermines the ability of theory to explain or predict observed trade. Perhaps more seriously, scale economies may stack the deck against late-developers.

Modern Approach to International Business

The Modern Theory of international trade has been advocated by Bertil Ohlin. Ohlin has drawn his ideas from Heckscher's General Equilibrium Analysis. Hence it is also known as Heckscher Ohlin (HO) Model / Theorem / Theory.

According to Bertil Ohlin, trade arises due to the differences in the relative prices of different goods in different countries. The difference in commodity price is due to the difference in factor prices (i.e. costs). Factor prices differ because endowments (i.e. capital and labour) differ in countries. Hence, trade occurs because different countries have different factor endowments.

The Heckscher Ohlin theorem states that countries which are rich in labour will export labour intensive goods and countries which are rich in capital will export capital intensive goods.

Assumptions of Heckscher Ohlin's H-O Theory ↓

Heckscher-Ohlin's theory explains the modern approach to international trade on the basis of following assumptions :-

1. There are two countries involved.

2. Each country has two factors (labour and capital).

3. Each country produce two commodities or goods (labour intensive and capital intensive).

4. There is perfect competition in both commodity and factor markets.

5. All production functions are homogeneous of the first degree i.e. production function is subject to constant returns to scale.

6. Factors are freely mobile within a country but immobile between countries.

7. Two countries differ in factor supply.

8. Each commodity differs in factor intensity.

9. The production function remains the same in different countries for the same commodity. For e.g. If commodity A requires more capital in one country then same is the case in other country.

10. There is full employment of resources in both countries and demand are identical in both countries.

11. Trade is free i.e. there are no trade restrictions in the form of tariffs or non-tariff barriers.

12. There are no transportation costs.

Given these assumption, Ohlin's thesis contends that a country export goods which use relatively a greater proportion of its abundant and cheap factor. While same country import goods whose production requires the intensive use of the nation's relatively scarce and expensive factor.

Problems in Trades and Aids of Developing countries

There are various problems that developing countries face in international trade which will be discussed; this paper also provides possible solutions to these problems of trade. Some of the problems include trade barriers, unfavorable terms of trade, high quality standards,

Agricultural sector:

A large portion of GDP in developing countries depend on agriculture, agriculture helps in providing food to the population, providing employment and surplus is exported to other countries. Foreign income highly depends on agricultural products exported and also tourism, however agriculture plays an important role in these countries in providing employment and food, there are various problems that these developing countries face in this sector and they include:

Trade barriers:

High tariffs are imposed on imports in international trade; tariffs are a source of revenue to the government but at the same time they restrict the level of imports in a country, the agricultural sector in developing countries are faced with this problem because their good become more expensive in the internal market due to imposed tariffs.

The tariffs will reduce the amount demanded due to the increase in price, therefore the agricultural sector is faced with the problem of declined demand for their products, and for this reason therefore the surplus amounts produced is not exported.

Bans and quotas are also trade barriers that cause problems in internal trade, in the case of quota the developing countries are only required to export a certain quantity to country, this is a major draw back to the agricultural sector in the developing countries.

High input costs:

Most developing countries import inputs such as fertilizer, pesticides and oil, their cost in the internal market are usually high and some producers cannot afford these costs, for this reason therefore the cost

of producing the agricultural products is usually very high making the final price for these products to be high.

Therefore the high cost of inputs will lead to an increase in the cost of production, the final price of the agricultural products is usually very high and therefore less competitive in the internal market, for this reason therefore the agricultural products are usually less demanded in the internal market due to competition from more efficient producers.

Oil is also a major input in production in each and every sector in an economy, the developing countries in most cases will import oil from developed countries where prices fluctuate frequently, and the cost of oil will lead to an increase in the cost of production of these products leading to less competitive prices in the internal market.

Subsidies:

Many countries subsidize their agricultural sector in order for them to produce more, this has posed a major problem to the developing countries that cannot afford to subsidize its agricultural sector, subsidizing of agricultural production in developed countries result into a reduction in the cost of production and therefore the country demand less imports.

Subsidies therefore will create problems to the agricultural sector in the developing countries; this is because the developing countries produce more at low prices that are more competitive in this market.

Technology and mechanization:

Developing countries import technology and machinery from the developed countries, these machines help in increasing production and also bringing down the cost of production, however due to the high cost of these machines the developed countries prefer to use labor intensive methods of production due to high initial cost and also maintenance costs.

The lack to use modern machines and technology in production lead to low levels of exports and also high costs of production, for this reason therefore the developed countries remain with the problem of underproduction and also low exports.

The lack of machines that help in turning the raw materials from the agricultural sectors into finished products lead to increased disadvantages to the developing countries, most developing countries export raw materials whose prices in the international market is low, developing countries should therefore start exporting finished products from the agricultural sector rather than export raw material.

Some developing countries use genetically modified plants for production, these products are more productive where the time taken to grow and also the production levels. This is a challenge to the developing countries to adopt modern technology to increase production and also reduce costs of

production.

Lack of product diversity:

Developing countries export approximately the same product to the internal market, this leads to increased competition and the developed countries have power over them on deciding from which country to import from, and further the developed countries will set prices due to high competition in the global market.

Product diversification means that the developing countries should not produce the same goods for exports; they should try and diversify the products they exports in order to reduce competition and therefore increase the foreign income received. This should involve the introduction of new products to be produced in the agricultural sector that are to meet the demand for consumers abroad.

Unfavorable terms of trade:

Terms of trade will also be a major problem to the agricultural sector, developing countries exports are mostly agricultural products and they will import machinery and oil from developed countries, this poses a major problem in the terms of trade and this finally results to trade balances because the imports have more value than the exports they produce.

Lack of proper bargaining power by the developing countries lead to them experience a problem in setting prices, the developed countries will give their decisions on the price they are willing to pay for the products and because the supply in the global market for these products is high the developing countries have little control over the export prices and the problem of terms of trade arises making imports expensive than the exports.

Debts and balance of trade:

Due to the problem of balance of trade and terms of trade the developing countries are faced with the problem of debts, developing countries face balances in trade adding to the problem of high debt levels to finance debts, for this reason therefore the developing countries may restrict imports in order to reduce the level of debts and therefore less inputs to the industries and agricultural sectors, for this reason therefore the country will not be in a position to increase production to offset the debts earlier incurred.

Quality and standards:

Developed countries and developing countries tradfe partners set high standards for products exported, this lead to frequent ban on products produced in developing countries, A good example is the ban on fish imported from east Africa during Idian Amin reign, the reason was because the dictator had all the disabled people thrown into lake Victoria and therefore it was unhealthy to import fish from the lake.

From the above example it is clear that developing countries will ban imports due to various reasons, in the example it was evident that most fish exported from east Africa was tilapia, tilapia fish is a glazer and fed on sea weed and not meat, however due to the act of the dictator fish imports were banned for health reasons.

Other products have also been faced with the same problem, example beef from developing countries where a certain disease outbreak may result into a total ban in the exports of these products even after health checks on the slaughtered animals. This is a major draw back to the agricultural sector.

Processing and transportation:

Most of the agricultural products require that they are processed before being consumed, most of these products are perishable and require to enter the market within the shortest time possible, this requires that the developed country to device ways by which this is possible but due to security reasons some products get stale before they enter the market. For this reason therefore there is a need to process these products before they are transported.

The other problem is that some products require refrigeration example flowers, vegetables and fish and due to lack of capital to purchase and maintain these machines, for this reason therefore the products are not of quality on entering the market. Poor transport and communication network in developing countries also hinders the movement of good, for this reason the surplus products produced in developed countries does not find its way into the market resulting into less products being exported, for this reason therefore the developing country government has a role to play in ensuring supportive infrastructure exist which will aid in transportation of goods to the market.

Bureaucracy in international trade:

Most developing countries are faced with the problem of bureaucratic policies formed by developed countries, a country may export a certain product to a developing country but it is required to import a certain product from the developing country, these are bureaucracies that lead to trade diversion where developing countries may be forced to import good from a high cost country because it exports the products to that country.

These bureaucratic policies harm the developing country agriculture sector whereby they are required to import a product from a country where it exports to its product failure to which they are denied access to the market. These bureaucratic organization also set the prices they buy the imports from the developing countries, this is amjaor draw back to the agricultural sector in the developing country because developed countries will set prices for the goods imported from these countries and also set the prices for the inputs into the agricultural sector.

Industrial sector and services:

The industrial sector in developing countries is still in its initial stages of development, developing countries will protect these industries though tariffs and quotas to protect infant industries, the countries will also try to help these industries by subsidizing the products in order for them to gain competitive advantages in the internal market, there are some problems that this sector face in international trade and they include:

High cost of inputs:

The industrial sector will demand inputs from foreign countries and in most cases the cost of these inputs will be very high which will make the cost of final products to be high, the industrial sector products therefore will have a higher price in the global market reducing their competitiveness in other countries, this is a disadvantage to the industrial sector.

Some of these inputs include oil and oil products that lead to an increase in the cost of production if their prices are increased by oil exporting countries; the cost of production caused by high input prices is therefore a major disadvantage toward the development of the industrial sector in developing countries. However there is need for the industrial sector to adopt other alternatives as sources of energy and also substitute imported inputs with locally produced products.

Technology:

Developing countries fail to make a break through in science and technology, they do not undertake sufficient research for technological progress, for this reason their products do not meet the quality of the products in the international products, developing countries are highly advanced in technology and will produce high quality products that are very competitive in the market, for this reason therefore the products produced in the industrial sector does not meet the standard set by internal traders.

Therefore it is evident that developing countries face challenges in the production of goods where they are required to produce high quality goods but they are unable to met these standards due to the lack of technology and machinery that aid in improving the quality of the good they produce.

Quotas and tariffs:

Developing countries will have infant industries that they protect by means of tariffs and quotas; however trade partners will be against this move and will result into an imposition on more tariffs on goods imported from such a country, this therefore leads to problems in the international market.

Tariffs and quotas imposed on the imports by developing countries also pose a major problem to the industries, this is because the cost of production rises far beyond the equilibrium global market prices, the developing countries impose these tariffs to earn revenue from imports but at the same time the industries face problems.

Tariffs imposed on their exported products is also a major disadvantage to the developing countries, their products become very expensive in the international market due to these tariffs leading to reduced demand for these products, this is a problem that can only be resolved through formation of trading blocks.

Competition:

These developing countries aim at producing good for exports but they are faced with stiff competition from other countries producing the same good, high competition leads to a reduction in the global market prices posing a threat to the industrial sectors in developing countries, high competition in the global market therefore leads to reduced earnings from exports by developing countries.

High competition also occurs as a result of trading partners producing the same goods they import from the developing countries, these products are substitutes to the products imported and in order to reduce the level of imports they subsidize the production and at the same time impose tariffs on imports and therefore the developing countries loose the international markets they earlier acquired.

Lack of product diversity:

The industrial sector is also faced with the problem of the lack of diversity in the industrial products they export. This lead to increased competition which would have not been present if the countries produced many different goods for exports, for this reason therefore there is a need to diversify on the products produced by the industrial sector.

Most developing countries will have industries that do not completely convert raw materials into finished products, this leads to the disadvantage that the industry receive less for exports than when it would have converted the products to their final stage, this happens however due to lack of machines and capital to undertake processing, therefore it is important that the industrial sector produces fully processed products for exports.

Bureaucracies;

Bureaucracies in internal trade also affect the industrial sector where developed countries set conditions regarding trade, they require developed countries that export products in their country to import their products, for example a country that exports coffee to a developed country is required to import inputs such as fertilizers and pesticiedes from the same country leading to problems in the industrial sector.

Bureaucracies also distort the free market in international trade by setting the prices for products from developing countries, therefore they determine both the input prices and the export prices in developing countries, this is major problem in the development of the industrial sector in developing countries and this is what is referred to as neocolonialism.

Loans and grants from developing countries also lead to problems in international markets, developing countries may be offered a grant or a loan but with strings attached or conditions attached, they may require the developing country to purchase certain products from them or even other conditions that may hinder efficient exchange of goods in the international market, the developed country do this for their own benefits and the developing remain poor due to these problems faced in trade.

Service sector:

Trade involves trade in both goods and services, services include the trade in services provided by countries to other countries, these services in trade can for example be viewed as outsourcing services, most companies in developed countries outsource in developing countries due to low wage rates demanded, for this reason therefore there is an exchange of services for income.

This sector has developed as a result of improved communication network all over the world allowing people to get employed by companies abroad, however the lack of proper communication networks in developing countries creates a major problem to this sector and there is less income sourced through these methods.

Unit 2:

How does an organization enter an overseas market?

Background

A mode of entry into an international market is the channel which your organization employs to gain entry to a new international market. This lesson considers a number of key alternatives, but recognizes that alteratives are many and diverse. Here you will be consider modes of entry into international markets such as the Internet, Exporting, Licensing, International Agents, International Distributors, Strategic Alliances, Joint Ventures, Overseas Manufacture and International Sales Subsidiaries. Finally we consider the Stages of Internationalization.

It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. For example, some see franchising as a stand alone mode, whilst others see franchising as part of licensing. In reality, the most important point is that you consider all useful modes of entry into international markets - over and above which pigeon-hole it fits into. If in doubt, always clarify your tutor's preferred view.

The Internet

The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed, as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). For others the Internet has provided the opportunity for a new online company. More

Exporting

There are direct and indirect approaches to exporting to other nations. Direct exporting is straightforward. Essentially the organization makes a commitment to market overseas on its own behalf. This gives it greater control over its brand and operations overseas, over an above indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an exporting company from your country - which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly. Examples of indirect exporting include:

Piggybacking whereby your new product uses the existing distribution and logistics of another business.

Export Management Houses (EMHs) that act as a bolt on export department for your company. They offer a whole range of bespoke or a la carte services to exporting organizations.

Consortia are groups of small or medium-sized organizations that group together to market related, or sometimes unrelated products in international markets.

Trading companies were started when some nations decided that they wished to have overseas colonies. They date back to an imperialist past that some nations might prefer to forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage.

Licensing

Licensing includes franchising, Turnkey contracts and contract manufacturing.

Licensing is where your own organization charges a fee and/or royalty for the use of its technology, brand and/or expertise.

Franchising involves the organization (franchiser) providing branding, concepts, expertise, and infact most facets that are needed to operate in an overseas market, to the franchisee. Management tends to be controlled by the franchiser. Examples include Dominos Pizza, Coffee Republic and McDonald's Restaurants.

Turnkey contracts are major strategies to build large plants. They often include a the training and development of key employees where skills are sparse - for example, Toyota's car plant in Adapazari, Turkey. You would not own the plant once it is handed over.

International Agents and International Distributors

Agents are often an early step into international marketing. Put simply, agents are individuals or organizations that are contracted to your business, and market on your behalf in a particular country. They rarely take ownership of products, and more commonly take a commission on goods sold. Agents usually represent more than one organization. Agents are a low-cost, but low-control option. If you intend to globalize, make sure that your contract allows you to regain direct control of product. Of course you need to set targets since you never know the level of commitment of your agent. Agents might also represent your competitors - so beware conflicts of interest. They tend to be expensive to recruit, retain and train. Distributors are similar to agents, with the main difference that distributors take ownership of the goods. Therefore they have an incentive to market products and to make a profit from them. Otherwise pros and cons are similar to those of international agents.

Strategic Alliances (SA)

Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally. Sometimes the relationships are between competitors. There are many examples including:

Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot.

Research and Development (R&D) arrangements.

Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom.

Marketing agreements.

Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain independent and separate.

Joint Ventures (JV)

Joint Ventures tend to be equity-based i.e. a new company is set up with parties owning a proportion of the new business. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market:

Access to technology, core competences or management skills. For example, Honda's relationship with Rover in the 1980's.

To gain entry to a foreign market. For example, any business wishing to enter China needs to source local Chinese partners.

Access to distribution channels, manufacturing and R&D are most common forms of Joint Venture.

Overseas Manufacture or International Sales Subsidiary

A business may decide that none of the other options are as viable as actually owning an overseas manufacturing plant i.e. the organization invests in plant, machinery and labor in the overseas market. This is also known as Foreign Direct Investment (FDI). This can be a new-build, or the company might acquire a current business that has suitable plant etc. Of course you could assemble products in the new plant, and simply export components from the home market (or another country). The key benefit is that your business becomes localized - you manufacture for customers in the market in which you are trading. You also will gain local market knowledge and be able to adapt products and services to the needs of local consumers. The downside is that you take on the risk associated with the local domestic market. An International Sales Subsidiary would be similar, reducing the element of risk, and have the same key benefit of course. However, it acts more like a distributor that is owned by your own company.

Internationalization Stages

So having considered the key modes of entry into international markets, we conclude by considering the Stages of Internationalization. Some companies will never trade overseas and so do not go through a

single stage. Others will start at a later or even final stage. Of course some will go through each stage as summarized now:

Indirect exporting or licensing

Direct exporting via a local distributor

Your own foreign presences

Home manufacture, and foreign assembly

Foreign manufacture

THE INTERNATIONAL MARKETING MIX

When launching a product into foreign markets firms can use a standard marketing mix or adapt the marketing mix, to suit the country they are carrying out their business activities in. This article talks you through each element of the marketing mix and the arguments for and against adapting it suit each foreign market.

International Marketing Mix: Product

Basic marketing concepts tell us that we will sell more of a product if we aim to meet the needs of our target market. In international markets this will involve taking into consideration a number of different factors including consumer's cultural backgrounds, religion, buying habits and levels of personal disposable income. In many circumstances a company will have to adapt their product and marketing mix strategy to meet local "needs and wants" that cannot be changed. Mcdonald is a global player however, their burgers are adapted to local needs. In India where a cow is a sacred animal their burgers contain chicken or fish instead of beef. In Mexico McDonalds burgers come with chilli sauce. Coca-cola is some parts of the world taste sweeter than in other places.

The arguments for standardisation state that the process of adapting the product to local markets does little more than add to the overall cost of producing the product and weakens the brand on the global scale. In today’s global world, where consumers travel more, watch satellite television, communicate and shop internationally over the internet, the world is a smaller than it used to be. Because of this there is no need to adapt products to local markets. Brands such as MTV, Nike, Levis are all successful global brands where they have a standardised approach to their marketing mix, all these products are targeted at similar groups globally.

As you can see both strategies; using a standard product and an customised product can work just as well. The right approach for each organisation will depend on their product, strength of the brand and the foreign market that the marketing is aimed at.

International Marketing Mix: Promotion

As with international product decisions an organisation can either adapt or standardise their promotional strategy and message. Advertising messages in countries may have to be adapted because of language, political climate, cultural attitudes and religious practices. For example a promotional strategy in one country could cause offence in another. Every aspect of promotional detail will require research and planning one example is the use of colour; red is lucky in China and worm by brides in India, whilst white is worn by mourners in india and China and brides in the United Kingdom. Many organisation adapt promotion strategies to suit local markets as cultural backgrounds and practices affect what appeals to consumers.

The level of media development and availability will also need to be taken into account. Is commercial television well established in your host country? What is the level of television penetration? How much control does the government have over advertising on TV, radio and Internet? Is print media more popular than TV?

International Marketing Mix: Pricing

Pricing on an international scale is a complex task. As well as taking into account traditional price considerations such as fixed and variable costs, competition and target groups an organisation needs to consider additional factor such as

the cost of transport tariffs or import dutiesexchange rate fluctuationspersonal disposal incomes of the target marketthe currency they want to be paid in andthe general economic situation of the country and how this will influence pricing.

The internet has created further challenges as customers can view global prices and purchase items from around the world. This has increased the level of competition and with it pricing pressures, as global competitors may have lower operating costs.

International Marketing Mix: Place

The Place element of the marketing mix is about distributing a product or service to the customer, at the right place and at the right time. Distribution in national markets such as the United Kingdom will probably involve goods being moved in a chain from the manufacturer to wholesalers and onto retailers for consumers to buy from. In an overseas market there will be more parties involved because the goods need to be moved around a foreign market where business practices will be different to national markets. For example in Japan there are approximately five different types of wholesaler involved in the distribution chain. Businesses will need to investigate distribution chains for each country they would like to operate in. They will also need to investigate who they would like to sell their products and services to businesses, retailers, wholesaler or directly to consumers. The distribution strategy for each country a business operates in could be different due to profit margins and transportation costs.

Factors affecting IB

Physical and societal factors Political policies and legal practices Cultural factors Economic forces Geographical influences

Competitive factors Major advantage in price, marketing, innovation or other factors. Number and comparative capabilities of competitors Competitive differences by country Local taxes

IMF

The International Monetary Fund (IMF) is an international organization that was created on July 22, 1944 at the Bretton Woods Conference and came into existence on December 27, 1945 when 29 countries signed the Articles of Agreement.[1] It originally had 45 members. The IMF's stated goal was to stabilize exchange rates and assist the reconstruction of the world’s international payment system post-World War II. Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds on a temporary basis. Through this activity and others such as surveillance of its members' economies and policies, the IMF works to improve the economies of its member countries.[2] The IMF describes itself as “an organization of 188 countries (as of April 2012), working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.” The organization's stated objectives are to promote international economic cooperation, international trade, employment, and exchange rate stability, including by making financial resources available to member countries to meet balance of payments needs.[3] Its headquarters are in Washington, D.C.

Qualifications

Any country may apply to be a part of the IMF. Post-IMF formation, in the early postwar period, rules for IMF membership were left relatively loose. Members needed to make periodic membership payments

towards their quota, to refrain from currency restrictions unless granted IMF permission, to abide by the Code of Conduct in the IMF Articles of Agreement, and to provide national economic information. However, stricter rules were imposed on governments that applied to the IMF for funding.[14]

The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates secured at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement.[15]

Board of Governors

The Board of Governors consists of one governor and one alternate governor for each member country. Each member country appoints its two governors. The Board normally meets once a year and is -responsible for electing or appointing executive directors to the Executive Board. While the Board of Governors is officially responsible for approving quota increases, special drawing rightallocations, the admittance of new members, compulsory withdrawal of members, and amendments to the Articles of Agreement and By-Laws, in practice it has delegated most of its powers to the IMF's Executive Board.[18]

The Board of Governors is advised by the International Monetary and Financial Committee and the Development Committee. The International Monetary and Financial Committee has 24 members and monitors developments in global liquidity and the transfer of resources to developing countries.[19] The Development Committee has 25 members and advises on critical development issues and on financial resources required to promote economic development in developing countries. They also advise on trade and global environmental issues.[19]

[edit]Executive Board

24 Executive Directors make up Executive Board. The Executive Directors represent all 188 member-countries. Countries with large economies have their own Executive Directo, but most countries are grouped in constituencies representing four or more countries.[18]

Following the 2008 Amendment on Voice and Participation, eight countries each appoint an Executive Director: the United States, Japan, Germany, France, the United Kingdom, China, the Russian Federation, and Saudi Arabia.[20] The remaining 16 Directors represent constituencies consisting of 4 to 22 countries. The Executive Director representing the largest constituency of 22 countries accounts for 1.55% of the vote.

[edit]Managing Director

The IMF is led by a Managing Director, who is head of the staff and serves as Chairman of the Executive Board. The Managing Director is assisted by a First Deputy Managing Director and three other Deputy Managing Directors

Functions

The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. The rationale for this is that private international capital markets function imperfectly and many countries have limited access to financial markets. Such market imperfections, together with balance of payments financing, provide the justiciation for official financing, without which many countries could only correct large external payment imbalances through

measures with adverse effects on both national and international economic prosperity.[38] The IMF can provide other sources of financing to countries in need that would not be available in the absence of an economic stabilization program supported by the Fund.

Surveillance of the global economy

Conditionality of loans

To oversee the fixed exchange rate arrangements between countries

The IMF can provide other sources of financing to countries in need that would not be available in the absence of an economic stabilization program supported by the Fund.

Recent Trends in International Business.

Growth in Information and Communication Technology

Information and communication technologies, also known as ICT, are changing the landscape in which businesses operate. ICT includes phones, the Internet, computers and other hardwares and digital services that facilitate that exchange of information across wide geographic areas. Aside from instigating an entire new generation of businesses (e.g. the "Tech" boom of the late 1990s, the growth of Google, Amazon, Yahoo, etc.), ICT has also reshaped how businesses operate by providing them with fast, organized, and (mostly) quality information from a number of sources (e.g. think about how iPhones, Microsoft Office, and email impact daily business operations). In the words of journalist Thomas Friedman, "the world is flat," because of the impact of ICTs on globalization.

Growth in Emerging Markets

The growth of emerging markets (e.g. India, China, Brazil, and other parts of Asia and South America especially) has impacted international business in every way. The emerging markets have simultaneously increased the potential size and worth of current major international businesses (e.g. General Electric, Wal-Mart, and Microsoft), while also facilitating the emergence of a whole new generation of innovative companies. According to "A special report on innovation in emerging markets" by The Economist magazine, "The emerging world, long a source of cheap labour, now rivals the rich countries for business innovation."

Increasing Influence of States on International Business

International business is increasingly influenced by politics and government. For example, the global recession from 2008 to 2010 led to the U.S. nationalizing (even if temporarily) major U.S. companies like General Motors, and major states like China and the United Kingdom passed economic stimulus packages that were each valued at least 5 percent of their respective GDPs (Gross Domestic Product). Ian Bremmer, the President the leading political risk firm The Eurasia Group, argues that the recent era has heralded in a new era of "State Capitalism," which will drastically change how businesses conceive of the global economy and the ability for businesses to remain truly independent.