Lecture No: 02

Course Facilitator: Khurshid Alam Swati

University of Swat, Swat Email your query to:

Khurshidalamswati@yahoo.com

The process of

Internationalization

Internationalization/Globalization

Process of increasing involvement of enterprises in international markets

The process by which businesses or other organizations start operating on a global scale

Globalization is the ongoing process that deepens and broadens the relationships and interdependence among countries

International Business is a mechanism to bring about globalization

innovation, maintaining a high level of quality, be committed to corporate social responsibility

FORMS OF INTERNATIONALIZATION

IMPORT EXPORT

LICENSING FRANCHISING

MODES OF INTERNATIONALIZATION

Franchising Vs Licensing

For a company looking to expand, franchising and licensing are often appealing business models. In a franchising model, the franchisee uses another firm's successful business model and brand name to operate what is effectively an independent branch of the company. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps with things like branding and marketing support that aid the franchise. The franchiser also typically ensures that branches do not cannibalize each other's revenues.

Under a licensing model, a company sells licenses to other (typically smaller) companies to use intellectual property (IP), brand, design or business programs. These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. In this arrangement, the licensing company may exercise control over how its IP is used but does not control the business operations of the licensee.

Drivers of Globalization More and more firms around the world are going global, including: Manufacturing firms Service companies (i.e. banks, insurance, consulting firms)

Expansion of technology – It crosses national or cultural boundaries E.g. E-business, video conferencing, emails and WWW Transportation and communication improvements World economic trends – Liberalization of cross border movement, deregulation and reduction in tariffs, free trade GSP Plus - Generalized System of Preferences Trends towards privatization @ IMF, WTO initiatives To Diversify or Reduce Risks - International operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage

Drivers of Globalization (Cont’d)

• Development of services that support international business – Internet, 3G, 4G Internet

• Growing consumer pressures – Consumer Demands/preferences

• Increased global competition – Ranking and branding

• E.g. Dell Vs Apples

• Changing political situations • Conducive environment – PM Tax free money

laundering

• Expanded cross-national cooperation – Research & Development

Restraining Forces of Globalization

Management short sightedness

Ethnocentric style and fear of unknown in many organizations

Lack of trust among employees

Government policies, controls and barriers

Huge excise taxes, bribery, nepotism and corruption

Financial problems – High interest rate

Inflation, Currency rate fluctuation and high labor cost at home country

Cont’d

INTERNAL

• Price of firm’s products

• High cost of internationalized

• Quality of firms products

• Qualified personnel

• Specifications of firm’s products

• Language

EXTERNAL

• Lack of capital

• Lack of public support

• Lack of information

• Laws and regulation in foreign countries

• Cultural differences

• Tariffs and trade barriers

• (home and foreign countries)

Separation/Differences of domestic and international business

Political separation Physical separation - Geography (distance) Environmental separation (E.g. Climate, natural resources- weather) Developmental separation (Opportunities Vs Threats) Cultural separation Information

• Technology • Currency • People…

Ratio of world exports of goods and commercial services to GDP, 1980-2010. Index, 2000=100. Source: IMF. WTO

Key Motivators To Internationalization

Reactive stimuli:

• Adverse domestic market conditions

• Opportunity to reduce stocks

• Availability of production capacity

• Opportunity to increase the number of country markets and reduce market related risk

• Unsolicited orders from overseas customers

.

Proactive stimuli:

• Attractive profit/growth opportunities

• Ability to easily modify products for export markets

• Public policy programmes for export promotion

• Foreign country regulations

• Possession of unique products

Managerial elements:

• Presence of export minded manager

• Opportunity to better utilise management talent and skills

• Management belief in value of exporting

Globalization and Business Influences of multinational companies on a host country

Benefits for a local country:

Creating new jobs opportunities

Improving living standards for people

Creating competition for domestic businesses and causing them to improve efficiency

Bringing new technology

Bringing new management ideas and styles

Improving the balance of international payments if exporting

Problems for a local country:

Resulting in some local firms to close plants or cut down employees

Affecting the balance of payments if the multinational company imports huge amount of components from other countries

Causing difficulties in government control because of the strong power of the business

Causing environmental problems to the local country