Ppt 1 intro international marketing

International Business

Globalization

Globalization is the system of interaction among the countries of the world in order to develop the global economy.Globalization refers to the integration of economics and societies all over the world.

Globalization involves technological, economic, political, and cultural exchanges made possible largely by advances in communication, transportation, and infrastructure.

1. Improvement of International Trade.

2. Technological Progress3. Increasing Influence of

Multinational Companies4. Power of the WTO, IMF, and WB5. Greater Mobility of Human

Resources across Countries6. Greater Outsourcing of Business

Processes to Other Countries7. Civil Society

Implications of Globalization

Globalization of Markets and Production

Globalization of Markets:

Globalization of markets refers to the process of integrating and merging of the distinct world markets into a single market. This process involves the identification of some common norm, value, taste, preference and convenience and slowly enables the cultural shift towards the use of common product or service.

Reasons for Globalization of Market:

Large scale industrialization enabled mass production . Company in order to reduce the risk diversify the portfolio of countriesTo cater to the demand for their product in foreign market .Companies globalize markets in order to increase their profits and achieve company goals.

Globalization of Production:

Factors influencing the location of manufacturing facilities vary from country to country.

They may be more favorable in foreign countries rather than in home country.

Reasons for globalization of production:

Imposition of restrictions on imports by the foreign countries forces the MNC’s to establish manufacturing facilities in other countries. Availability of high quality raw materials.Availability of inputs at low cost in foreign countries.To reduce the cost of transportation and easy logistic management.

Drivers of Globalization

Drivers of globalization include:

1.Advances in technology: Improved shipping capabilities, improved communication technologies, and globally available Internet stores.

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2.The difference in countries governing laws: can also create reasons for companies to globalize. Lower environmental standards, absence of minimum wage laws and lower working age regulations create advantages for companies that do business in other nations.

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3.Another important driver of globalization is the need for depleting natural resources. Countries without a sufficient oil supply must trade to sustain a high quality of life. Precious stones and metals are also examples of natural resources that may be hard to attain without global trade opportunities.

Difference Between Domestic and International Business International

Business1. It is extension of

Domestic Business and Marketing Principles remain same.

2. Difference is customs, cultural factors

Domestic Business1. The Domestic

Business Follow the marketing Principles

2. No such difference. In a large countries languages like India, we have many languages

Examples :

With language one should consider whether or not the national culture is predominantly a high context culture or a low context culture (Hall and Hall 1986).

In China in 2007 (which was the year of the pig) all advertising which included pictures of pigs was banned. This was to maintain harmony with the country's Muslim population of around 2%. The ban included pictures of sausages that contained pork, and even advertising that included an animated (cartoon) pig.

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For example, in France workers tend to take vacations for the whole of August, whilst in the United States employees may only take a couple of week's vacation in an entire year. Trevor Baylis launched the clockwork radio upon the African market. Since batteries were expensive in Africa and power supplies in rural areas are non-existent. The clockwork radio innovation was a huge success


3. Conduct and selling procedure changes

4. Will have to face restrictions in trade practices, licenses and government rules.5. Working environment and management practices change to suit local conditions.

Domestic Business

3.Selling Procedures remain unaltered

4. These have little or no impact on Domestic trade

5. No such changes are necessary


6.Long Distances and hence more transaction time.

7.Currency, interest rates, taxation, inflation and economy have impact on trade.

8.MNC’s have perfected principles, procedures and practices at international level

Domestic Business

6.Short Distances, quick business is possible.

7.Currency, interest rates, taxation, inflation and economy have little or no impact on Domestic Trade.

8.No such experience or exposure.


9.MNCs take advantage of location economies wherever cheaper resources available.

10.Large companies enjoy benefits of experience curve

11.High Volume cost advantage.

Domestic Business

9.No such advantage once plant is built it cannot be easily shifted.

10.It is possible to get this benefit through collaborators.

11.Cost Advantage by automation, new methods etc.


12.Global Standardization

13.Global business seeks to create new values and global brand image.

14.Can Shift production bases to different countries whenever there are problems in taxes or markets

Domestic Business

12.No such advantage

13.No such advantage

14. No such advantage and get competition from some spurious or SSI Unit who get patronage of Government.

Entering International Business

The firm needs to consider carefully all the available options, costs, possible loss of control and risk involved.The market entry methods have to relate to the company’s overall strategy, goals and the time periods in which it wishes its objectives to be achieved.

Modes of entry into international Business

1. Exporting There are direct and indirect approaches to exporting to other nations.Direct exporting is straightforward. 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 services to exporting organizations. e.g.. Indian Export house

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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.

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2.Licensing : Licensing is where your own

organization charges a fee and/or royalty for the use of its technology, brand and/or expertise.

3.Franchising 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.

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4.Turnkey Contracts Turnkey contracts are major

strategies to build large plants. They often include 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.

5.Mergers: A Merger is a voluntary and

permanent combination of business whereby one or more firms integrate their operations and identities with those of another and

henceforth work under a common name and in the interests of the newly formed amalgamations.

6.AcquisitionsDomestic company may purchase the foreign company and acquires its ownership and control. It provides immediate access to international manufacturing facilities and marketing network.

For example,Oracle Corporation is very famous for its acquisitions. Oracle acquires companies and not merge with them. Oracle acquired Siebel,BEA,Peoplesoft and more recently SUN through friendly or hostile take overs.

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7.Joint VentureTwo or more firm join together to create a new business entity that is legally separate and distinct from its parents. It involves shared ownership. It provides strength in terms of required capital.This act improves the local image in the host country..

Strategic Alliance

An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity.

For example;

• An oil and natural gas company might form a strategic alliance with a research laboratory to develop more commercially viable recovery processes.

• A clothing retailer might form a strategic alliance with a single clothing manufacturer to ensure consistent quality and sizing.

• A major website could form a strategic alliance with an analytics company to improve its marketing efforts.

Example to differentiate between Joint venture and Strategic alliance

In July 2011, Facebook announced a strategic alliance with Skype, which had been recently acquired by Microsoft.This allowed Microsoft to quickly move into the social networking space, Skype received access to a large number of new users and Facebook could leverage Skype's technology to enable video chat without making the investment in building it. By contrast, Dow Chemical formed a joint venture that same month with Japanese firm Ube to create a factory for a particular high-tech battery. They will share the technology and the risk of new product development.

Contract Manufacturing

The CM process is essentially outsourcing production to a partner who privately brands the end product, There are a number of different business ventures that can make use of a contract manufacturing arrangement.

For Example;

There are a number of examples of pharmaceutical contract manufacturing currently functioning today, as well as similar arrangements in food manufacturing, the creation of computer components and other forms of electronic contract manufacturing. Even industries like personal care and hygiene products, automotive parts, and medical supplies are often created under the terms of a contract manufacture agreement.

Subsidiary

Subsidiary means individual body under parent body. This Subsidiary or individual body as per their own generates revenue.They give their own rent, salary to employees, etc. But policies and trademark will be implemented from the Parent body.

For Example;

holding companies such as Berkshire Hathaway, Time Warner , or Citigroup as well as more focused companies such as IBM, or Xerox Corporation. These, and others, organize their businesses into national or functional subsidiaries, sometimes with multiple levels of subsidiaries.

The Globalization Debate- arguments for and against

Pros of Globalization

1. Productivity grows in countries that open up their markets and integrate with outside economies, as they gain access to wealthy economies where they can sell their goods and services.2 .Lesser Developed Nations benefit from the increase in investment from foreign countries both financially and through jobs.

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3 .Global competition and cheap imports help to keep inflation down.4. Open economies help to spur innovation and new ideas on a global level, creating an effective ‘globalization of ideas’.5. Through globalization, countries can specialize more in what they produce and what they do best.

Cons of Globalization

1. Wages and working conditions everywhere are pushed downwards as companies gravitate towards countries where the wages are the lowest and the workers’ rights are the worst.2. The environment suffers, as production moves to places where they have less strict rules and regulations about controlling pollution and deforestation etc.

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3. Many jobs are outsourced from more developed nations, like the USA, to lower wages economies, such as those in Indian and China, resulting in high unemployment in the Western countries.4. Globalization means that economic problems in one part of the world can spread easily and create a worldwide recession.

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5. Many of the deals made by more economically developed nations with lesser developed countries are unfairly weighted in favor of the more developed nations. For instance, subsidies to agricultural production by the more developed nations are often kept, making the competition unfair.

6. Globalization undermines national sovereignties and national governments, as individual countries become increasingly at the mercy of international markets, and multinational corporations grow more powerful and influential.

Multinational Corporation

Multinational Corporation

As defined by I. L. O. or the International Labor Organization, a M. N. C. is one, which has its operational headquarters based in one country with several other operating branches in different other countries. The country where the head quarter is located is called the home country whereas, the other countries with operational branches are called the host countries.

Features of MNCs :

1. MNCs have managerial headquarters in home countries, while they carry out operations in a number of other (host) countries.2. A large part of capital assets of the parent company is owned by the citizens of the company's home country.3. The absolute majority of the members of the Board of Directors are citizens of the home country.

4. Decisions on new investment and the local objectives are taken by the parent company.5. MNCs are predominantly large-sized and exercise a great degree of economic dominance.6. MNCs control production activity with large foreign direct investment in more than one developed and developing countries.

7. MNCs are oligopolistic in character. It is sustained by modern technologies, management skill, product differentiation and enormous advertising.8. MNCs are not just participants in export trade without foreign investments.

The Organization and Structure of a Multinational Company

Multinational companies are faced with two opposing forces when designing the structure of their organization. They are faced with the need for differentiation that allows them to be specialized and competitive in their local markets. They are also faced with the need to integrate. The structures adopted therefore have to find a balance between these opposing needs and also remain in strategic alignment for the company to thrive.

Multinational companies have therefore evolved many structural permutations to suit their business

needs:

Top Structure

The president or chief executive officer sits at the top of a multinational organizational chain. Beneath him are other chiefs, such as the chief financial officer and chief operations officer. The structure branches out from there. In a multinational company, this often identified by geographic regions. For example, command layers may include marketing executive, Europe and marketing executive, Asia. They perform the same function, but for different parts of the world.

Middle Structure

Under the executives come directors, assistant directors, managers and supervisors who are situated in the middle structure of a multinational organization. These individuals are responsible for overseeing their respective departments, and are stationed with their departments so they may be readily available for their direct reports.

Lower Structure

A company's line staff make up the lower portion of an organizational structure. These individuals do not have direct reports, but rather are responsible for carrying out various job duties. In a multinational company, some individuals may have to work together remotely from opposite ends of the world.

Subsidiary Model

Owning foreign subsidiaries is one of the most basic structural models of a multinational company. The subsidiaries are self-contained units with their own operations, finance and human resource functions. Thus the foreign subsidiaries are autonomous allowing them to respond to local competitive conditions and develop locally responsive strategies. The major disadvantage of this model however is the decentralization of strategic decisions that makes it difficult for a unified approach to counter global competitive attacks

Product Division

Organizational structure of the multinational company in this case is developed on the basis of its product portfolio. Each product has its own division that is responsible for the production, marketing, finance and the overall strategy of that particular product globally. The product organizational structure allows the multinational company to weed out product divisions that are not successful. The major disadvantage of this divisional structure is the lack of integral networks that may increase duplication of efforts across countries.

Area Division

Organization using this model is again divisional in nature, and the divisions are based on the geographical area. Each geographical region is responsible for all the products sold within its region. Therefore all the functional units for that particular region namely finance, operations and human resources are under the geographical region responsibility. This structure allows the company to evaluate the geographical markets that are most profitable. However communication problems, internal conflicts and duplication of costs remain an issue.

Matrix Structure

Matrix organizational structure is an overlap between the functional and divisional structures. The structure is characterized by dual reporting relationships in which employees report both to the functional manager and the divisional manager. Work projects involve cross-functional teams from multiple functions such as finance, operations and marketing. The members of teams would report both to the project manager as well as their immediate supervisors in finance, operations and marketing.

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The advantage of this structure is that there is more cross-functional communication that facilitates innovation. The decisions are also more localized. However there can more confusion and power plays because of the dual line of command.

Transnational network

Evolution of the matrix structure has led to the transnational network. The emphasis is more on horizontal communication. Information is now shared centrally using new technology such as "enterprise resource planning (ERP)" systems. This structure is focused on establishing "knowledge pools" and information networks that allow global integration as well local responsiveness.

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