International Business

Main reason to export:
1) Profits
2) Productivity
3) Diversification

    -->Preoccupation with the vast home market

    --> Reluctant to become involved in a new, unknown and therefore risky operation

Degree of contact with foreign market desired
--> NO CONTACT – export intermediary
--> SOME CONTACT – foreign import intermediary
-->HIGH CONTACT – subsidiary, FDI etc.

Intermediary in o/s market
Agents and distributors – driven by profit margin
--> 70-80% of Australian exporters use agents and distributors

Intermediary located in domestic market
Firms with little experience with export
Export deals with export agents (few intermediaries)

--> Passively filling orders from domestic buyers who then export the product
--> Selling to domestic buyers who represent foreign end users or customers

--> Foreign sales subsidiary

Decision: intermediary versus subsidiary
- Distributor – margin on sales
- Subsidiary – retains margin but exposed to risk
- Decision to switch – B/E analysis

- Input optimizers: for better production
- Opportunistic: availability
- Arbitrageurs: price/quality

- Specialization of labor
- Global rivalry
- Local unavailability
- Diversification
- Top management outlook

third party firms that market products and services abroad on behalf of manufacturers farm groups and distributors

enforce the rules of trade for particular country

help importers navigate the regulations imposed by customs agencies

- Cash in advance (risk by buyer)
- Open account (risk by seller)
- Consignment (risk by seller)
- Letter of credit (L/C) (document issued by buyers bank)

Incoterms: universal trade terminology developed by the international chamber of commerce:

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identifies useful resources, assigns responsibility and stipulates control

different arrangements that parties use to trade products via transactions that use limited or no currency or credit

- Inefficient , risky cumbersome
+ built mutually beneficial relationship

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- Major economic driver of globalization
- By mergers and acquisition and the internationalization of production in a range of industries
- Most profound effect = in developing countries

- Internationalization theory: sometimes cheaper to handle operations oneself than to contract another company
- Appropriability theory denying rivals access to resources (capital, patents, trademarks and know-how)
- Freedom to pursue global objectives: when a company has a wholly owned foreign operation, it may more easily have that operation participate in a global strategy

A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Adding no further capacity to the market

Avoiding start-up problems

Easier financing

No desired company is available for acquision

Acquisition will lead to carry-over problems

Acquisition is harder to finance

Main motives for collaborative arrangements:
1) Gain location-specific assets
2) Overcome governmental constraints
3) Diversify geographically
4) Minimize exposure in risky environments

Licensing: A company grants intangible property rights to another company to use in a specified geographic area for a specified period in exchange for royalties

Can be: - exclusive or nonexclusive

Used for patents, trademarks and other intangible property

Example: brand licensing (London cabs in China)

Franchising: It includes providing intangible asset (trademark) and continually infusing necessary assets

Franchisors face a DILEMMA:
-The more standardization the less acceptance in foreign countries
-The more adjustment to the foreign country, the less the franchisor is needed

Management Contracts: Are used primarily when the foreign company can manage better than the owners

TURNKEY OPERATIONS: most commonly performed by Industrial-equipment, construction, and consulting companies

Joint Ventures:

--> involve more than two companies, one of which may own more than 50 percent

-may have various combinations of ownership

--> A consortium involves more than two organizations

Example: Toshiba + IBM + Siemens

Equity alliance: an arrangement in which at least one of the companies takes an ownership position in the other

Example: Ford in Brazil and Airline Industry --> One World Alliance etc.

• The evolution to a different operating mode may:
• --> be a result of experience
• --> necessitate costly termination fees
• --> create organizational tensions

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- The resources they supply
- Their motivation
- Compatibility

is the shared-meaning and beliefs that shape how employees interpret information, make decisions and implement actions
Philosophical view: embedded set of shared normative principles that guides actions and sanctions acceptable behaviors.

- Values and principles of management
- Work climate and atmosphere
- Pattern of how we do things around here
- Traditions
- Ethical standards

1. Ethnocentrism: results when one group places itself at the top of an imagines hierarchy of relevant groups, thereby regarding others as inferior --> little call to adapt into foreign markets --> MNEs tend to staff with executives from home market nationals
2. Polycentricism: is the principle of organizing around different political, social or economic centers. It sees the effectiveness of the business practices of foreign centers as philosophically and practically equivalent to those in the home center. Neither one is superior and MNE adjust HRM policies accordingly. Staffing is withdrawer from local applicants.
   + Using host-country managers boosts local motivation and morale.
   - Still likely costs include gaps with global operations due to of problems of accountability and allegiance
3. Geocentricism: is a world oriented set of attitude and values that regards humanity as a single entity. Hence, it does not heed national boundaries, seeing the blunt division of home- host and third country managers as needless. Rather HRM tasks are in developing the best people for key jobs throughout the organization regardless of their nationality.
   + It seeks the best people for key jobs throughout the organization, regardless of nationality
   - Economic factors, decision making routines and legal contingencies complicate a geocentric framework

Principles and Practices

International business is changing rapidly: according to E & Y there are 3 main drivers:

- Demographic shifts (population growth, urbanization etc)
- Reshaped global power structure ( rise of relation between public and private sector)
- Disruptive innovations