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8/9/2019 Copy of Session 1
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International Business II Sem PGDBM
1¥M.S Ramaiah Institute of Management - Bangalore
Session 2 &3
Globalization and Approaches
to International Trade
Session Speaker
Jayashree K
Asst. Professor
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International Business II Sem PGDBM
2¥M.S Ramaiah Institute of Management - Bangalore
Session Contents
Meaning of International Business
History of International Business
Domestic V/S International trade
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International Business II Sem PGDBM
3¥M.S Ramaiah Institute of Management - Bangalore
Session Objectives
At the end of this session the delegate would haveunderstood
Meaning of International Business
History of International Business
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International Business II Sem PGDBM
4¥M.S Ramaiah Institute of Management - Bangalore
What Is Globalization?
The world is moving away from self-contained
national economies toward an interdependent,
integrated global economic system
Globalization refers to the shift toward a more
integrated and interdependent world economy
Globalization has two facets:1) the globalization of markets
2) the globalization of production
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International Business II Sem PGDBM
5¥M.S Ramaiah Institute of Management - Bangalore
The Globalization Of Markets
The globalization of markets refers to the
merging of historically distinct and separate
national markets into one huge global
marketplace
In many industries, it is no longer meaningful
to talk about the ³German market´ or the
³American market´
Instead, there is only the global market
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International Business II Sem PGDBM
6¥M.S Ramaiah Institute of Management - Bangalore
The Globalization Of Markets
Falling trade barriers make it easier to sell
internationally
The tastes and preferences of consumers areconverging on some global norm
Firms help create the global market by
offering the same basic products worldwide
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International Business II Sem PGDBM
7¥M.S Ramaiah Institute of Management - Bangalore
The Globalization Of Production
The globalization of production refers to the
sourcing of goods and services from locations
around the globe to take advantage of national
differences in the cost and quality of factors of
production like land, labor, and capital
Companies compete more effectively by
lowering their overall cost structure or
improving the quality or functionality of their
product offering
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International Business II Sem PGDBM
8¥M.S Ramaiah Institute of Management - Bangalore
The Emergence Of Global
InstitutionsInstitutions are needed to:
help manage, regulate, and police the global
marketplacepromote the establishment of multinational
treaties to govern the global business system
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International Business II Sem PGDBM
9¥M.S Ramaiah Institute of Management - Bangalore
The Emergence Of Global
InstitutionsInstitutions created over the past half century
include:
the General Agreement on Tariffs and Trade(GATT)
the World Trade Organization (WTO)
the International Monetary Fund (IMF)
the World Bank
the United Nations (UN)
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International Business II Sem PGDBM
10¥M.S Ramaiah Institute of Management - Bangalore
The Emergence Of Global
InstitutionsThe World Trade Organization (like its
predecessor GATT) is primarily responsible for
policing the world trading system and making
sure that nation-states adhere to the rules laid
down in trade treaties signed by WTO members
In 2007, the 150 nations that accounted for
97% of world trade were WTO members
The WTO promotes lower barriers to trade and
investment
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International Business II Sem PGDBM
11¥M.S Ramaiah Institute of Management - Bangalore
The Emergence Of Global
InstitutionsThe International Monetary Fund and the
World Bank were created in 1944
The IMF was established to maintain order inthe international monetary system
The World Bank was established to promote
economic development
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International Business II Sem PGDBM
12¥M.S Ramaiah Institute of Management - Bangalore
The Emergence Of Global
InstitutionsThe United Nations was established in 1945 to:
maintain international peace and security
develop friendly relations among nationscooperate in solving international problems
and in promoting respect for human rights
be a center for harmonizing the actions of nations
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International Business II Sem PGDBM
13¥M.S Ramaiah Institute of Management - Bangalore
Drivers Of Globalization
Two macro factors underlie the trend toward
greater globalization:
the decline in barriers to the free flow of goods, services, and capital that has occurred
since the end of World War II
technological change
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International Business II Sem PGDBM
15¥M.S Ramaiah Institute of Management - Bangalore
Declining Trade And
Investment BarriersTable 1.1: Average Tariff Rates on
Manufactured Products as Percent of Value
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International Business II Sem PGDBM
16¥M.S Ramaiah Institute of Management - Bangalore
Declining Trade And
Investment BarriersLower barriers to trade and investment mean:
that firms can view the world, rather than a
single country, as their marketthat firms can base production in the optimal
location for that activity
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International Business II Sem PGDBM
17¥M.S Ramaiah Institute of Management - Bangalore
The Role Of Technological
ChangeTechnological change has made the
globalization of markets a reality
Important advances have occurred in:
microprocessors and telecommunications
the Internet and World Wide Webtransportation technology
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International Business II Sem PGDBM
18¥M.S Ramaiah Institute of Management - Bangalore
The Role Of Technological
ChangeImplications of technological change for the
globalization of production include:
lower transportation costs that enable firms todisperse production to economical,
geographically separate locations
lower information processing and
communication costs that enable firms to create
and manage globally dispersed production
systems
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International Business II Sem PGDBM
19¥M.S Ramaiah Institute of Management - Bangalore
The Role Of Technological
ChangeImplications of technological change for the
globalization of markets include:
low cost global communications networks help
create electronic global marketplace
low-cost transportation help create global
markets
global communication networks and global
media are creating a worldwide culture, and a
global market for consumer products
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International Business II Sem PGDBM
20¥M.S Ramaiah Institute of Management - Bangalore
The Changing Demographics
Of The Global EconomyThere has been a drastic change in the
demographics of the world economy in the last
30 years
Four trends are important:
the Changing World Output and World Trade Picture
the Changing Foreign Direct Investment Picture
the Changing Nature of the Multinational Enterprise
the Changing World Order
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International Business II Sem PGDBM
21¥M.S Ramaiah Institute of Management - Bangalore
The Changing World Output
And World Trade PictureIn 1960, the United States accounted for over
40% of world economic activity
By 2006, the United States accounted for less
than 20% of world economic activity
A similar trend occurred in other developed
countries
The share of world output accounted for by
developing nations is rising and is expected to
account for more than 60% of world economic
activity by 2020
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International Business II Sem PGDBM
22¥M.S Ramaiah Institute of Management - Bangalore
The Changing World Output
And World Trade PictureTable 1.2: The Changing Demographics of
World GDP and Trade
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International Business II Sem PGDBM
23¥M.S Ramaiah Institute of Management - Bangalore
The Changing Foreign Direct
Investment PictureIn the 1960s, U.S. firms accounted for about
two-thirds of worldwide FDI flows
Today, the United States accounts for less than
one-fifth of worldwide FDI flows
Other developed countries have followed a
similar pattern
In contrast, the share of FDI accounted for by
developing countries has risen from less than
2% in 1980 to almost 12% in 2005
Developing countries, especially China, have
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International Business II Sem PGDBM
24¥M.S Ramaiah Institute of Management - Bangalore
The Changing Foreign Direct
Investment PictureFigure 1.2: Percentage Share of Total FDI Stock 1980-2005
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International Business II Sem PGDBM
25¥M.S Ramaiah Institute of Management - Bangalore
The Changing Foreign Direct
Investment PictureFigure 1.3: FDI Inflows 1988-2006
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International Business II Sem PGDBM
26¥M.S Ramaiah Institute of Management - Bangalore
The Changing Nature Of
The Multinational EnterpriseA multinational enterprise (MNE) is any
business that has productive activities in two or
more countries
Since the 1960s, there has been a rise in non-
U.S. multinationals, and a growth of mini-
multinationals
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International Business II Sem PGDBM
27¥M.S Ramaiah Institute of Management - Bangalore
The Changing World Order
Many former Communist nations in Europe
and Asia are now committed to democratic
politics and free market economies and so,
create new opportunities for international
businesses
China and Latin America are also moving
toward greater free market reforms
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International Business II Sem PGDBM
28¥M.S Ramaiah Institute of Management - Bangalore
The Global Economy Of
The Twenty-first CenturyThe world is moving toward a more global
economic system, but globalization is not
inevitable
Globalization also brings risks like the
financial crisis that swept through South East
Asia in the late 1990s
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International Business II Sem PGDBM
29¥M.S Ramaiah Institute of Management - Bangalore
The Globalization Debate
Is the shift toward a more integrated and
interdependent global economy a good thing?
Supporters believe that increased trade and
cross-border investment mean lower prices for
goods and services, greater economic growth,
higher consumer income, and more jobs
Critics worry that globalization will cause joblosses, environmental degradation, and the
cultural imperialism of global media and MNEs
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International Business II Sem PGDBM
30¥M.S Ramaiah Institute of Management - Bangalore
Anti-Globalization Protests
More than 40,000 anti-globalization protesters
took to the street at the WTO meeting in Seattle
in 1999
Protesters now regularly show up at most
major meetings of global institutions
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International Business II Sem PGDBM
31¥M.S Ramaiah Institute of Management - Bangalore
Globalization, Jobs, And Income
Globalization critics argue that falling barriers
to trade are destroying manufacturing jobs in
advanced countries
Supporters of globalization contend that the
benefits of this trend outweigh the costs²that
countries will specialize in what they do most
efficiently and trade for other goods²and allcountries will benefit
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International Business II Sem PGDBM
32¥M.S Ramaiah Institute of Management - Bangalore
Globalization, Labor Policies,
And The EnvironmentGlobalization critics argue that firms avoid
costly efforts to adhere to labor and
environmental regulations by moving
production to countries where such regulations
do not exist, or are not enforced
Globalization supporters claim that tougher
environmental and labor standards areassociated with economic progress, so as
countries get richer from free trade, they get
tougher environmental and labor regulations
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International Business II Sem PGDBM
33¥M.S Ramaiah Institute of Management - Bangalore
Globalization And
National SovereigntyCritics of globalization worry that today¶s
interdependent global economy is shifting
economic power away from national
governments toward supranational
organizations like the WTO, the EU, and the
UN
Supporters of globalization contend that the power of these organizations is limited to what
nation-states agree to grant, and that the power
of the organizations lies in their ability to get
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International Business II Sem PGDBM
34¥M.S Ramaiah Institute of Management - Bangalore
Globalization And The World¶s
Poor Critics of globalization argue that the gap
between rich nations and poor nations is getting
wider
Supporters of globalization claim that the best
way for the poor nations to improve their
situation is to reduce barriers to trade and
investment and implement economic policies based on free market economies, and to receive
debt forgiveness for debts incurred under
totalitarian regimes
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International Business II Sem PGDBM
35¥M.S Ramaiah Institute of Management - Bangalore
Managing In The Global
MarketplaceManaging an international business differs
from managing a domestic business because:
countries are different
firms have to find ways to work within the
limits imposed by government intervention in
the international trade and investment system
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International Business II Sem PGDBM
36¥M.S Ramaiah Institute of Management - Bangalore
international transactions involve converting
money into different currencies the range of
problems confronted in an international
business is wider and the problems more
complex than those in a domestic business
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International Business II Sem PGDBM
37¥M.S Ramaiah Institute of Management - Bangalore
Domestic Company
Domestic company limits its operations to
national political boundaries
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International Business II Sem PGDBM
38¥M.S Ramaiah Institute of Management - Bangalore
International Company
International companies focus on domestic
practices, bust extend the wings to foreign
countries
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International Business II Sem PGDBM
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Multinational Company
MNCS formulate different strategies for
different markets
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International Business II Sem PGDBM
40¥M.S Ramaiah Institute of Management - Bangalore
Global Company
Global companies either produce in one
country and market globally or produce
globally and market domestically
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International Business II Sem PGDBM
41¥M.S Ramaiah Institute of Management - Bangalore
Transnational Company
Transnational company produces, markets,invests and operates across the world.
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International Business II Sem PGDBM
42¥M.S Ramaiah Institute of Management - Bangalore
International Business Approach
Ethnocentric Approach
Domestic companies view foreign markets as aextension to domestic markets.
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International Business II Sem PGDBM
43¥M.S Ramaiah Institute of Management - Bangalore
Polycentric Approach
Companies establish foreign subsidiary and
empowers its executives
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International Business II Sem PGDBM
44¥M.S Ramaiah Institute of Management - Bangalore
Regiocentric Approach
This approach Consider regional environmentfor policy strategy formulation
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International Business II Sem PGDBM
45¥M.S Ramaiah Institute of Management - Bangalore
Geocentric Approach
This approach companies view the entireworld as a single country.
i l i
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International Business II Sem PGDBM
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Ethnocentric Polycentric
Geocentric Diagrams
I i l B i II S PGDBM
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International Business II Sem PGDBM
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th no entri ttitu e Pol en tri ttitu e
Regio entri ttitu e Geo en tri ttitu e
HQs Orientation toward subsidiaries (source : adaptation libre de Heenan D.A., Perlmutter H.W., Multinational Organizatio
Development , Addison Wesley Publishing, 1979)
I i l B i II S PGDBM
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International Business II Sem PGDBM
48¥
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Evolving motivations: Changing perspectives
Gl obal
C oordination
Integration
High
High
Low
Low
Global
International
Transnational
Multinational
Local Responsiveness
I t ti l B i II S PGDBM
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International Business II Sem PGDBM
49¥
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Ethnocentric-DomesticDomestic expansion only
S
H
A
Y
I don¶t care Junior.
We are staying
at home.
I t ti l B i II S PGDBM
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International Business II Sem PGDBM
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Ethnocentric-InternationalForeign expansion viewed as an appendage to domestic
operations; same strategies are utilized in all countries.
HQ
You see«our way
works best around
the world.
I t ti l B i II S PGDBM
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International Business II Sem PGDBM
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PolycentrismActivities and functions are planned and managed, often by
local nationals, on a country-by-country basis (e.g., HRM is
decentralized by country)
HQ
Would you look
at this? The GMs
do understand thelocal markets
I t ti l B i II S PGDBM
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International Business II Sem PGDBM
52¥
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RegiocentrismOperations are geared towards a particular continental region
with similar economies and culturesHQ
Alphaland Betaland
Betaminor
I t ti l B i II S PGDBM
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International Business II Sem PGDBM
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GeocentrismProducts are functional, reliable, and standardized low-cost
products (e.g., HRM managed on a global basis)
HQ
I can see the
whole world
from here.
International Business II Sem PGDBM
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International Business II Sem PGDBM
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HQs orientation
A spects of the
enterprise
Ethnocentric Polycentric egiocentric Geocentric
Complexity o
organisation
Complex in
home country,
simple in
subsidiaries
aried
independent
ighly
interdependent
on a regional
basis
Increasingly
complex and
highly
interdependenton a orld ide
basisuthority
ecision making
igh in hq elatively lo in
hq
igh regional hq Collaboration hq
sub. round
the orld
valuation
control
ome standards
applied or persons and
per ormance
etermined
locally
etermined
regionally
tandards hich
are universal andlocal
e ards
punishments,
incentives
igh in hq, lo
in sub.
Wide variation e ards or
contribution to
regionalob ectives
e ards to intl
and local
executivesreaching localand orld ide
ob ectives
International Business II Sem PGDBM
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HQs orientation
A spects of the
enterprise
thnocentric olycentric Regiocentric Geocentric
Communication
information flow
High volume of
orders,
commands,advice to sub.
Little to and
from hq ; little
among sub.
Little to and
from corporate
hq, but highfrom region. Hq
Both ways and
among sub.
Around theworld
Geographical
identification
Nationality of
owner
Nationality of
host country
Regional
company
Truly worldwide
company
Perpetuation
Recruitment,
staffing,development
People of home
country
developed for key positions
everywhere in
the world
People of local
nationality
develop for key position in their
own country
Regional people
developed for
keu positions inthe region
Best people
everywhere in
the worlddeveloped for
key positions
everywhere in
the world
International Business II Sem PGDBM
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SOURCES OF MANAGERS
Home-Country Nationals (or parent-) countrynationals are the citizens of the country in which theheadquarter of the multinational company is based
Host-Country Nationals Citizens of the countrythat is hosting a foreign subsidiary are the host-country nationals.
TCN: Third-Country Nationals = a Frenchexecutive working in a German subsidiary of anAmerican multinational company
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Home-Country Nationals as
Managers Historically, key positions with home-countrynationals. reasons:
± unavailability of host-country nationals having therequired technical expertise or managerial talent
± the desire to provide the company's more promisingmanagers with international experience
± the need for coordination and control;
± foreign image in the host country;
advantageous during the start-up phase desire to ensure that the foreign subsidiary complies
with overall company objectives and policies
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Host-Country Nationals as
Managers in middle- and lower-level management positions indeveloping countries.
because of local law. But, scarcity of managers withthe necessary qualifications for top jobs.
For example, Brazil requires that two-thirds of theemployees in a Brazilian subsidiary be Braziliannationals, and there are pressures on multinationalsto staff upper management positions in Braziliansubsidiaries with Brazilian nationals.
International Business II Sem PGDBM
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Host-Country Nationals as
Managers Assignment of domestic North American
employees on a short-term transfer or loan basis.
reasons for hiring host-country nationals :
± close to the local culture and language,
± lower costs as compared to HCN,
± improved public relations that resulted from such a practice.
± more effective in dealing with local employees andclients, greater continuity of management because theytend to stay longer in their positions than managersfrom other countries.
± avoidance of low morale if they don¶t move into upper
management positions.
International Business II Sem PGDBM
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International Business II Sem PGDBM
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Third-Country Nationals as
Managers greater technical expertise
only from advanced countries.
a top management position at the subsidiary isusually envisioned as the ultimate goal in her or his career development.
Advantage: salary and benefit requirements lessthan those of home-country nationals. a Frenchcitizen could adapt fairly readily to working in theIvory Coast.
Drawbacks: animosities of a national character between neighboring countries-for example, India
and Pakistan, Greece and Turkey.
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Stages of International BusinessStage and
company
Domestic Inter
national
Multinati
national
Global Trans
national
Strategy domestic Internation
al co-ordinate
Decentrali
zed Hub
Centrali
zednetwork
Global
integration
World
market
Home
country
Extension
of
resources
National
resource
Global
market
Global
market
orientation Ethnocentric Ethnocent
ric
polycentri
c
Mixed Geocentric
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62¥M.S Ramaiah Institute of Management - Bangalore
Stages of International BusinessKey assets Centralize
d and
dispersed
Core and
self
sufficient
Decentrali
zed
country
except
marketing
or sourcing
All In
home
interdepen
dent and
specialized
Dispersed
Role of country
units
Singlecountry
Adaptingand
leveraging
Exploitinglocal
opportuniti
es
Marketingworld wide
Contributions to
company
Knowledge
Homecountry
centre and
transferred
Created atoperating
units
Retainedwithin
developed
jointly and
shared
Marketingdeveloped
jointly and
shared
Allfunctions
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International Business II Sem PGDBM
63¥M.S Ramaiah Institute of Management - Bangalore
International Business II Sem PGDBM