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7/28/2019 SM 3.01.3 Lecture-1
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S A V Dr. G. NairSDC
OHT 1
SWISS-AIT-VIETNAM
MANAGEMENT DEVELOPMENTPROGRAMME 6
COURSE: SM 3.01 INTERNATIONAL BUSINESS
MANAGEMENT
TERM : 3/2000 (10 Jan to 21 April 2000)
LECTURER: Dr Godwin Nair
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SYNOPSIS
• This course aims to introduce students to thenature of the international systems impacting
upon business.
• It adopts an historical and thematic approach that
traces the development of dominant factors over time, regions, and industries.
• Specific issues include the nature and extent of
globalisation; the changing world economy;
politics and international business; the culturalchallenge; regional economic integration; and
global strategy.
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OHT 3
COURSE OBJECTIVES
This course introduces students to the role and
importance of international business to
contemporary business. It aims for students to be
able to:
understand the nature of international business
and the dimensions of the international
business environment and their effect on
marketing and international business decisions;
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OHT 4
understand the basic terms and conceptsnecessary for an indepth understanding of
international business management and shows
the relevant trends;
have a practical understanding of the evolvinginstitutions and patterns of international
production, trade, and finance and the impacts
of these upon firms operating internationally;
understand the ways in which firms arechanging in response to changes in the global
economy;
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• be familiar with the important institutions and
developments within the global economy and be
better equipped to analyse firm level issues
within this context;
• present concise and logically argued reports andparticipate in debates on international business
issues.
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LECTURE SCHEDULE
• Refer to page 3 of course outline
TUTORIAL ACTIVITIES SCHEDULE
• Refer to page 4 of course
outline
IN-CLASS EXERCISE
SCHEDULE
• Refer to page 5 of course
outline
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OHT 7
COURSE ASSESSMENT
Description Due Date Marks
Continuous assessment 50%
Class participation - 5%
Case Study Analysis and
Presentation As per tutorial schedule 10%
Mid-Term Exam 8/03/2000 (Wk 7) 10%
International Business
Project 5/04/2000 (Wk 11) 25%
Final examination 50%
______
100%
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GROUP WORK
Some assessment and learning exercise are builtaround group work. The reasons for this are
threefold:
• In the modern business world, no one person has the
all the skills for operating a successful business. Most
successful companies have a strong team working
behind the scenes.
• Group work discussion sensitises you to a wider
range of practical and theoretical issues, and give
you some ‘hands-on’ appreciation of what is it reallylike in the international business scene.
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• There is so much to do in foreign market entry that a
good and effective foreign market development plan
is difficult if only one person does it.
Case Study Analysis and Presentation
• Case analysis is useful in providing students withpractical experience in dealing with international
business problems faced in the real world.
• The importance of this type of applied experience
is vital in developing a fuller understanding of international business management.
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• This assignment will be carried out in groups of six.
• Each group will get the assigned case study
two(2) weeks before their presentation date as
per the tutorial schedule.• It is expected that the students can present their
solution with a high degree of professionalism.
• Submit a 5 to 6 page report of the case analysis
along with the presentation slides, and s softcopy (floppy disk).
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Case Study Analysis and Presentation Schedule
• Week 3 Group 6
• Week 5 Group 1• Week 6 Group 4
• Week 8 Group 3
• Week 9 Group 2
• Week 11 Group 5
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Class Participation for Weeks 4, 7 and 10 (Tutorial
Activities)
ACTIVITY:
• Select an International Business occurrence from a
recent newspaper or business magazine and
discuss the implications for Vietnam.
• Each group will select a different article each and
analyse it and present the findings to the class.
• Submit a two (2) page summary of the discussion
along with the presentation slides.
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Presentation Schedule for the Newspaper or
Business Magazine Article
• Week 4 Groups 2 and 4• Week 7 Groups 5 and 6
• Week 10 Groups 1 and 3
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INTERNATIONAL BUSINESS PROJECT
(FOREIGN MARKET DEVELOPMENT)
• This project requires research, imagination, and
logic in applying the content of this course.
• The main goal of this international businessproject is for project members to gain a first hand
learning experience to extend classroom learning.
• A special feature of this course will involve the
students working in groups of six on thepreparation of a foreign market entry development
plan.
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• It is expected that each member of the team will
contribute equally to the project.
• A two (2) page executive summary describingyour project to be submitted by week 3 (26 Jan
2000)
• Refer to handout for detail instructions of the
international business project
CONSULTATION HOURS
• Wednesday 2.30pm to 3.30pm
• Friday 1.30pm to 3.30pm
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REFERENCE TEXT
Hill, C.W. 1998, Global Business Today, McGraw-Hill,
Burr Ridge, Illinois.
ADDITIONAL REFERENCES• International Business Resources on the World
Wide Web - Refer to Course Outline (pp 9 & 10)
SUPPLEMENTARY READING• Refer to page 10 of course outline
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OHT 17 SM 3.01 INTERNATIONAL BUSINESS
MANAGEMENT
January 2000
Lecture 1AN OVERVIEW OF INTERNATIONAL BUSINESS
• Definitions
• Differences between Domestic and International
Business
• Motives for Going International
• Means of Internationalising
• Growth of International Business
• Globalisation
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1. DEFINITIONS
What is International Business?
International Business refers to all business transactions
both private and governmental that involve participantsfrom two or more countries.
3 important terms
• An international business is any firm that engages ininternational trade or investment
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• International trade occurs when a firm exports goods
or services to consumers in another country
• International investment occurs when a firm invests
resources in business activities outside its home country
Griffin and Pustay (1996, p. 8) argue that „any business
transaction between parties from more than one country
is part of international business’.
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The examples they list of such transactions include:
• buying raw materials or inputs in one country andshipping them to another country for processing
or assembly
• shipping finished products from one country to
another for retail sale• building a plant in a foreign country to capitalise
on lower labour costs
• borrowing money from a bank in one country to
finance operations in another.
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There are several terms which are used to describe
companies which do business in more than one country.
These are:
• Multinational Company or Enterprise (MNC or MNE)
- refers to large firms with extensive operations in many
countries (owns relatively autonomous subsidiaries in
various host countries).
• Global Company (GC) - describes an organisation that
attempts to standardise operations world-wide in all
functional areas.
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• Transnational Corporation (TNC) - term used by
UN and some others to connote organisationsvariously called multinational, global, or worldwide
companies.
2. DIFFERENCE BETWEEN DOMESTIC ANDINTERNATIONAL BUSINESS
• In simple terms, international business transactions
cross national boundaries while domestic businessactivities take place within the boundaries of a single
country.
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Managing an international business is different from
managing a domestic business for at least four (4)
reasons:
1. Countries are different (countries differ in their
cultures, political systems, economic systems, legal
systems, and levels of economic development)
2. Greater complexity of managing an international
business (the range of problems confronted by a
manager in an international business is wider and theproblems themselves more complex)
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3. International business must operate within the
framework of the international trading andinvestment system (must understand the rules
governing this framework)
4. International transactions involve convertingmoney into different currencies (must develop
policies for dealing with exchange rate movements)
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3. MOTIVES FOR GOING INTERNATIONAL
1. Push and Pull FactorsCompanies engage in international business for several
factors. These factors may push or pull a business
into the international arena.
• Market expansion
- to expand their markets by entering new markets
- many companies faced by a saturated, mature
domestic market find this option attractive
- especially when the new markets have a rising
GNP per capita
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- where the economy of that country is growing faster than
that of their own domestic market
- access to larger international markets allows firms toexploit economies of scale
- improved communication and transportation systems may
also be considered a viable reason for going into new
markets
• Acquire resources
- global sourcing of raw materials and scarce commodities
may result in timely delivery and reduced costs (somanufacturers and distributors seek out products, services
and components produced in foreign countries)
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- companies also look for foreign capital and technology
that they can use at home
• Location advantage
- relocation of production facilities to a foreign location
may keep a firm internationally competitive and make
it more profitable to serve markets, including the
domestic market from the foreign location
• Competitive advantage and limited domestic
opportunity
There are many sources of competitive advantage:
- product or process technology held by the firm;
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- established brand names and reputations;
- economies of scale in production and marketing;
- exclusive access to inputs;
- management skills and experience;
- preferential treatment by governments
• To protect their markets
- to protect their domestic market companies may follow
their large customers as they expand to prevent
competitors from gaining access to those accounts
- domestic market share can also be protected by using
cheaper foreign production locations as a basis for
exporting back to the domestic market
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• Risk reduction
- multiple sources of essential raw materials and access toseveral markets reduce political risks associated
generally with political instability
- economic risks associated with downturn in economic
activity are reduced (economies are at differing stagesin their economic cycle of boom and recession)
• Government incentives
- host government and home government policies andregulations can act as either pull and push factors for
international business
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- host governments, for example, might offer incentives
to attract foreign investments
2. Motives of Australian firms going abroad (An
Example)
A study by the Australian Bureau of Industry Economics(1995) identified 5 categories of reasons for
Australian firms going abroad.
5 categories are:• Cost-based - where firms sought the most
productive and lowest cost inputs
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• Market-based - where firms sought access to as
many markets and customers as possible• Natural resource based - where firms sought
natural resources
• Australian government policies - where firms felt
that they were being pushed abroad by domesticpolicies that encouraged internationalisation
• Host government policies - where firms were
attracted abroad by foreign policies that improved
their competitiveness or profitability
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Note: Some conclusions of the study
• Among the 5 reasons, market-based were
considered the most important.
• Market growth potential was the most important
specific market-based reason.
• Lower input costs and more reliable supply lines was
the most important cost-based reasons.
• Political stability was the most important policy-
related concern of host government policies.
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4. MEANS OF INTERNATIONALISING
There are a number of ways that a business canchoose to go international.
The different means or forms of international
business activity include the following:
• Exporting
• Contractual forms
• Foreign direct investment (FDI)
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1. Exporting
• a very common form of international businessactivity
• it involves the production of goods and services
from facilities at home for sale to a foreign market
• it is usually the first option that a firm chooses asit is the least complicated and requires less
commitment by the firm of its scarce and costly
financial and managerial resources
Exporting can be either direct or indirect
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• Direct exporting - it involves the firm selling its
product directly to foreign customers through its own
in-house sales department or through foreign salesrepresentatives and distributors.
- the firm arranges or provides all the services
needed for exporting (for example, transportation,
conformity to regulatory requirements, documentationand financing).
• Indirect exporting - involves the engagement of a
domestically based export agent to handle the exportof the firm’s product.
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- the agent acts as an intermediary between the firm
and the foreign customer
2. Contractual forms
• these are usually long-term binding agreements
between firms that allow or obligate one firm to
produce or provide the service of another firm.
There are a variety of contractual forms:
• Licensing - international licensing is a contractual
agreement whereby one firm (the licensor) sells theright to use its ‘proprietary advantages’ to another
firm (the licensee) for a fee.
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- proprietary advantages include patents, trademarks,
copyrights, process and production technologies.
- under a license agreement, a firm can supply a foreignmarket using a licensed local producer, thereby
avoiding the costs and barriers of exporting.
• Franchising
- franchising is a form of licensing
- under a franchise agreement, one firm (the franchisor)
allows another firm (the franchisee) the right to use
its name and conduct a business in a prescribed
manner in return for a fee.
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- compared with licensing, franchising usually involves
more active involvement by the franchisor in thedevelopment and control of the franchisee’s business
operation.
• Contract manufacturing- under contract manufacturing a firm contracts out the
production of its goods to an established foreign
producer.
- the initiating firm can retain the responsibilities for marketing and distribution.
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• Management contracting- international management contracting occurs when
one firm provides the necessary managerial or
technical expertise to operate another firm in a
foreign country.
- a local investor in the foreign country provides the
capital while the international firm, in return for a fee,
provides the management.
OHT 40
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• Turnkey project or BOT contract- the turnkey project or build-operate-transfer (BOT)
contract is an extension of management contracting.
- under a turnkey project an international firm agrees todesign, construct, hire and train the personnel, and
manage the initial operation before handing the
completed facility over to a local investor.
OHT 41
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3. Foreign Direct Investment (FDI)
• involves the ownership and control of foreign
firms (these are the key features)
• FDI has become one of the major means of doing
business internationally
• it is major vehicle for the transfer of technology,
intellectual property and managerial skills
• the costs of FDI in terms of the commitment of
financial and managerial resources are higher
than other means of internationalising business
OHT 42
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• FDI can take a number of forms:
- the buying of an existing local business
- greenfield investment in the form of the purchase
or establishment of an entirely new site, plant andequipment
- investment in a joint venture as a partner with
local investors
OHT 43
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5. GROWTH OF INTERNATIONAL BUSINESS
The growth of international business has been facilitatedby various factors.
These factors are known as Drivers of Globalisation.
DRIVERS OF GLOBALISATION There are four main factors which facilitate this growth:
1. Trade Liberalisation
2. Technological Changes
3. Changed World Economic Order
4. Market Friendly Domestic Policies
OHT 44
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1. Trade Liberalisation
- Governments impose barriers to the free flow of trade
and investment for many economic, social andpolitical reasons (for example, tariffs, quotas,
licenses, and limits to the transfers of foreign
exchange).
- less transparent barriers are the government policiesand regulations that can give preferential treatment to
domestic business over foreign business.
- the goal of removing these barriers was enshrined in
the treaty known as the General Agreement onTariffs and Trade (GATT), now succeeded by the
World Trade Organisation (WTO).
-
OHT 45
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- trade and investment liberalisation frees the entry of
international business to potentially large markets.
- the lowering of barriers to international trade enables thefirm to view the world as their market, rather than a
single country.
2. Technological Changes
- dramatic improvements in transport and communication
systems mean that products, capital, people and ideas
can now move faster and more cheaply internationally.
OHT 46
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- the improved communication and informationprocessing systems resulting from convergence of
computer and communication technologies allow an
international business to manage and co-ordinate the
production and marketing activities of its foreign
affiliates more effectively.
- for example, the advent of commercial jet travel, by
reducing the time needed to get from one location to
another, has effectively shrunk the globe.
OHT 47
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THE SHRINKING GLOBE
Refer to T 1
OHT 48
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3. Changed World Economic Order
- the developing countries are a major source of growth
of the world economy.- as they grow richer and the standard of living rises,
these countries represent expanding markets to be
served by international trade and investment.
4. Market Friendly Domestic Policies
- a highly competitive market environment can be
promoted by policies such as anti-monopoly, the
removal of barriers to imports, and the deregulationof professions and of industries such as banking and
aviation.
OHT 49
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6. GLOBALISATION
What is Globalisation?
Globalisation refers to the shift toward a more
integrated and interdependent world economy
Globalisation has two main components:
• Globalisation of Markets
- refers to the merging of historically distinct andseparate national markets into one huge global
marketplace
OHT 50
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- firms such as Coca Cola, McDonald’s, Levi Strauss -
by offering a standardised product worldwide, they are
helping create a global market.
- an important feature of many global markets is that the
same firms frequently confront each other as
competitors in nation after nation.
- for example, Coca-Cola’s rivalry with Pepsi is a global
one; Boeing and Airbus; Caterpillar and Komatsu
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- these multinational enterprises emerge as an
important driver of the convergence of different
national markets into a single, and increasinglyhomogenous, global marketplace.
• Globalisation of Production
- refers to sourcing of goods and services from different
locations around the globe to take advantage of
national differences in the cost and quality of factors
of production.
OHT 52
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- companies hope to lower their overall cost structure
and/or improve the quality or functionality of their product, thereby allowing them to compete more
effectively against their rivals.
- for example, Boeing’s 777 commercial jet airliner contains 132, 500 major component parts, and they
are produced around the world by 545 different
suppliers.
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- the outsourcing of different productive activities to
different suppliers results in the creation of “global
products”
Note: In sum, we are travelling down the road
toward a future characterised by the globalisation
of markets, production, ownership, and
management.
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OHT 54
End of Lecture 1