International Business Management
International Business Management
Unit 4: Production, Marketing, Financial and Human resource
management of Global BusinessYear : II Semester : IV Prepared and
presented by,
N. Ganesha Pandian,Assistant Professor,Madurai School of
Management,Madurai.
References:International Business : K AswathappaInternational
Business-competing in the global market : Charles W L Hill and Arun
K Jain
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Global production Location scale of operationscost of production
Make or Buy decisions global supply chain issues Quality
considerations Globalization of markets, marketing strategy
Challenges in product development , pricing, production and channel
managementInvestment decisions economic- Political risk Sources of
fund- exchange rate risk and management Strategic orientation
Selection of expatriate managers- Training and
developmentCompensation
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Global Production strategiesProduction can be integrated
globally, while the marketing is Multi-domestic, reflecting
cultural and consumer preferences differences. The goal is
therefore to better answer the needs of every market. Logistics
activities are highly important as production and distribution
capabilities need to be effectively reconciled.3
Four major location strategies for Global Production Networks
can be identified:Centralized global productionRegional
productionRegional specializationVertical transnational
integration4
Strategic issuesIn operations management, an MNC needs to make
decisions on several strategic issues, more important of them
are:International sourcing and vertical integrationStandardization
of production facilitiesInternational facilities locationContract
manufacturingStrategic role of foreign plantsSupply chain
management Managing service operationsInternational quality
standards
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INTERNATIONAL LOCATION DECISIONSIdentification of motivations of
firms that seek to manufacture across the borders. Identifying the
most difficult problem in making an international location
decisionExplanatory on the importance of sub-factors and the
sectors, types of business or countries in which they are most
relevantlocation of manufacturing plant in different geographical
areaslocation of parent company I United States, United Kingdom,
Western Europe and Japan from experts points of view. Type of
business i.e. Automotive/Motor Vehicles, ElectronicNature of firm
i.e. world-class manufacturing, large company and medium-sized
company by identifying the top four important factors from experts
points of view.
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7Facilities LocationCountry FactorsTechnology factorsGovt.
PoliciesOrganizational issuesProduct factors
SCALE OF OPERATIONSEconomies of scale can be classified into two
main types: Internal arising from within the company; and External
arising from extraneous factors such as industry size.Economies of
Scale and International Trade Although economists wrote about these
effects long ago, models of trade developed after the 1980s
introduced economies of scale in creative new ways and became known
as the New Trade Theory.
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Make or buy decisionDefinition: The act of choosing between
manufacturing a product in-house or purchasing it from an external
supplier. In a make-or-buy decision, the two most important factors
to consider are 1. Cost and 2. Availability of production
capacity.An enterprise may decide to purchase the product rather
than producing it, if is cheaper to buy than make or if it does not
have sufficient production capacity to produce it in-house
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The Advantages of MakeLower costs Facilitating specialized
investmentsProprietary product technology protectionImproved
scheduling
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The Advantages of BuyStrategic flexibilityLower costs
OffsetsTrade-offsStrategic alliances with suppliers
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Global supply chain issuesSupply chain management (SCM) is "the
systemic, strategic coordination of the traditional business
functions and the tactics across these business functions within a
particular company and across businesses within the supply chain,
for the purposes of improving the long term performance of the
individual companies and the supply chain as a whole.12
Functions of Supply Chain ManagementMain functions of Supply
Chain Management are as follows:Inventory Management Distribution
Management Channel Management Payment ManagementFinancial
Management Supplier Management Transportation Management Customer
Service Management
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GLOBAL SUPPLY CHAIN MANAGEMENTA "supply chain" refers t o the
collection of steps that a company takes to transform raw material
components into a final product that is delivered to customers.
Typically, supply chain management has five stages: plan, make,
source, deliver and return .The global supply chain management
major focuses on global business and prepares students for
success.14
QUALITY CONSIDERATIONS IN INTERNATIONAL BUSINESS:1. Engagement
Models2. Service Level Agreements (SLAs)3. Mobilization4.
Integration with other third party service providers5.
Communication6. Flexibility and Scalability7. Quality Improvement8.
Configuration and Change Management9. Intellectual Property
Protection10.Security15
Seven Considerations for International LicensingBrand
identitySelecting a licensee License grantTerritoryRoyalties and
other paymentsApprovals and other controlsTerm and
termination16
INTERNATIONAL MARKETING STRATEGYInternational marketing involves
the marketing of goods and services outside the organization`s home
country. Multinational marketing is a complex form of international
marketing that engages an organization in marketing operations in
many countries. Global marketing refers to marketing activities
coordinated and integrated across multiple markets.
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A firm`s overseas involvement may fall into one of several
categories:DomesticRegional
exporterExporterInternationalInternational to globalGlobal
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Various challenges in global marketingAccepting the
InevitableTechnical ChallengesPromotional Challenges
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Global expansion is mentioned below:Opportunistic global market
development (diversifying markets) Following customers abroad
(customer satisfaction) Pursuing geographic diversification
(climate, topography, space, etc.) Exploiting different economic
growth rates (gaining scale and scope) Exploiting product life
cycle differences (technology) Pursuing potential abroad
Globalizing for defensive reasons Pursuing a global logic or
imperative (new markets and profits)
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CHALLENGES IN PRODUCT DEVELOPMENTCurrency Exchange Rates
National Market SizeCultural Differences Regulations21
STEPS TO AN INTERNATIONAL MARKETING
STRATEGYPartnerNetworkMarketTravelBuildResearch
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Types of Business RisksBusiness risks are of a diverse nature
and arise due to innumerable factors:I. Internal factorsHuman
factorsTechnological factorsPhysical factors II. External
factorsEconomic factors Natural factors Political factors 23
Various business Risks:Market risksInterest Rate RiskInflation
or Purchasing Power RiskSome risks are unique to specific
investment non-systematic risks.Business RiskCredit RiskExchange
Rate RiskCountry or Political Risk24
SOURCES OF FUNDAngel equitySmart leasesBank loansSBA loansLocal
and state economic development organizationsCustomersVendorsFriends
and family membersSmall Business Innovation Research (SBIR)
grantsTax Increment FinancingInternal Revenue
ServiceBootstrapping25
EXCHANGE RATE RISK & MANAGEMENTIt is also known as FX risk,
exchange rate risk or currency risk is a financial risk that exists
when a financial transaction is denominated in a currency other
than that of the base currency of the companyForeign exchange risk
also exists when the foreign subsidiary of a firm maintains
financial statements in a currency other than the reporting
currency of the consolidated entity26
TYPES OF EXPOSURETransaction ExposureEconomic
exposureTranslation exposureContingent exposure27
Value at RiskPractitioners have advanced and regulators have
accepted a financial risk management technique called value at risk
(VaR), which examines the tail end of a distribution of returns for
changes in exchange rates to highlight the outcomes with the worst
returns.VaR traditionally is measured in the following three
ways:1.Historical simulation 2.Variance/covariance (parametric) 3.
Monte Carlo simulation
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DEALING WITH EXCHANGE RATE RISKIf your business exports or
imports goods or services, you need to consider how you will
protect yourself against changes in the exchange rateForeign
currency issues when importing or exportingIdentifying foreign
exchange risksIf you trade in foreign currencyIf company trade in
sterlingCompany could be affected even if you don't trade
overseas
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Hedging: It means insuring against the price of currency moving
against you in the future. There are many different types of
currency hedging and your bank should be able to help you with the
best solutions for your business.
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STRATEGIC ORIENTATIONThe consensus of the researchers and
authors in the area reveals three relatively distinctive approaches
that seem to dominate strategic thinking in firms involved in
international markets:1. Domestic market extension concept 2.
Multi-domestic market concept 3. Global marketing concept
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SELECTION OF EXPATRIATE MANAGERSAn expatriate (often shortened
to expat) is a person temporarily or permanently residing in a
country other than that of the person's upbringingThe word comes
from the Latin terms ex ("out of") and patria ("country,
fatherland"). In common usage, the term is often used in the
context of professionals or skilled workers sent abroad by their
companies, rather than for all 'immigrants' or 'migrant
workers'32
ROLE OF EXPATRIATE MANAGERSThe specific role of expatriate
managers, and their distinct contribution to TNCs, may be
understood in relation to the gap they are considered competent to
fill at a particular location in the division of labor in a given
geography.33
INTERNATIONAL TRAINING AND DEVELOPMENTInternational training and
management development are always closely associated in the
management literature. Gregerson et al. (1998) proposed four
strategies for developing global managers: international travel;
the formation of diversified teams; international assignments and
training. These four strategies relate to expatriation management,
particularly integrating international training and management
development
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Three broad types of International trainings Preparatory
training for expatriatesPost-arrival training for
expatriatesTraining for host-country nationals (HCNs) and
third-country nationals (TCNs)
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Part-AList some of the major investment decisions for
international business.What is exchange risk?Make or buy
decisionQuality What do you understand by vertical marketing
system?Define Wholly owned subsidiaries
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Part-BI, Discuss the issues involved in global supply chain
management.II, what are the challenges in international product
development?Discuss about the various types of exchange rate
systems and state the factors determining the exchange rate.Explain
the concept of international marketing management Examine the
concept of International financial management in foreign trade.
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I, Elucidate the basic concepts of foreign exchange (FOREX) in
short its nature and types of FOREX market.II, Present the types of
FOREX risk, the internal and external hedging strategies for
transaction and operating risks.I, Explain the terms of domestic
marketing, international marketing, multinational marketing and
global marketing. In the context of these four terms, describe how
the international marketing involvement and commitment of a company
changes.II, you are the marketing executive in EXY Company Ltd.
Your company has decided to enter into international markets
without any investments abroad. Discuss various modes of entry
suitable in this regard and also explain their merits and
limitations.
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