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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