Northern Technical UniversityCollege Technical Management Department Of Business Management TechniquesThe International Business Management By lecture Hiba M. Hussein Third Stage
Chapter 1International Business Management Aim: The aim of this chapter is to • define international management • explain the concept of globalization • introduce the role of international manager Objective The objectives of this chapter are to: • elucidate the major forces of globalization • explicate the effects of globalization • explain the international service management
What is International Business? Any business that involves operations in more than one country can be called an international business. International business is related to the trade and investment operations done by entities across national borders. Firms may assemble, acquire, produce, market, and perform other value-additionoperations on international scale and scope. Business organizations may also engage in collaborations with business partners from different countries. Apart from individual firms, governments and international agencies may also get involved in international business transactions. Companies and countries may exchange different types of physical and intellectual assets. These assets can be products, services, capital, technology, knowledge, or labor.
Introduction to International Management International management requires the understanding of crossing cultures, multinational corporations’ interactions, global perspectives, and corporate issues. Understanding individual values of a high ethical standard would be another asset we want to emphasize throughout this book. Not only does international management rely on core business competencies, but also it requires the knowledge and skills necessary to operate and succeed in an international business arena. Today, multicultural managers are indispensable not only when they work with people from other countries but also with people from the same country, who speak the same language, have the same national heritage and yet, have different ways of looking at the world.
Internationalization of Business There are five major reasons why a business may want to go global: 1. First-mover Advantage: It refers to getting into a new market and enjoy the advantages of being first. It is easy to quickly start doing business and get early adopters by being first. 2. Opportunity for Growth: Potential for growth is a very common reason of internationalization. 3. Small Local Markets: Start-ups in Finland and Nordics have always looked at internationalization as a major strategy from the very beginning because their local market is small. 4. Increase of Customers: If customers are in short supply, it may hit a company’s potential for growth. In such a case, companies may look for internationalization. 5. Discourage Local Competitors: Acquiring a new market may mean discouraging other players from getting into the same business-space as one company is in.
International Manager When a company faces the decision of whether to become an international enterprise, they will be encountering many issues they have never before dealt with. This can be a confusing and difficult process for everyone involved especially the managers. Some companies hire consulting firms to deal with the issues involved. they first need to gather some information. Companies encounter several major issues while going through the process of becoming international, The major issues are mentioned below: • Firstly, they have to decide who will run this new operation and what qualification (s) this individual must possess. • Secondly, the company needs to examine the roles of this manager and how these roles may differ from the local manager. • The location of the new operational facility, • The relationships they need to have, to name only a few
Role of International Manager International managers face a tremendously complex environment. What worked in the role of a domestic manager does not always prove effective in the international market. Like the domestic managers, international managers must also stick to the four major roles of planning, organizing, directing, and controlling. Planning for an international firm assures that the business organization has some idea of its purpose, where it is heading, and how it will achieve its objectives.
Chapter 2Globalization The term globalization became popular in the 20th century. Then onwards, it has become a typical issue affecting the whole socio-economic and political life of states throughout the world. Besides, the discourse on globalization is complex with far-reaching effects on national and international laws and policies pertaining to the social, economic and political matters.
Issues Globalization Issues related to globalization are open for debate as various people have varying perceptions about it. • Those people taking the latter line of argument emphasis on the negative impacts of globalization from various dimensions. • In most developing countries, globalization has undermined traditional livelihoods, changed the traditional social security systems and increased rural-urban and intra-regional inequalities. • In relation to this, the accountability of these institutions engaged in business is debatable. • It is also widely acknowledged that this has become about through the combined effect of different understanding factors, mainly, policy decisions, to reduce national barriers to international economic transactions and the impact of new technology.
Issues Globalization • With the intention to benefit international communities on equal footing, various institutions were created. Among others, UN, ILO, WTO, GATT and IMF are the most influential ones. • The other extreme argument is on the positive impact of globalization . • globalization can have both direct and indirect impact on states. • If nations are to be benefited from the globalization , most argue that there must be fair laws which consider the local realities in developing countries. • Hence, some argue that the present laws to this end do not take the realities at ground in to account specially in third world countries. • Many agree that globalization by itself is not a problem. But, laws which are designed to regulate the global transactions shall consider the existing realities the failure of which may raise various impediments against globalization
Effect of Globalization on World Economy In specific terms, the effects of globalization are as follows: • The major effect of globalization is that the global economy is becoming more integrated day by day. • The volume of world trade has grown at a faster rate than the volume of world output. • There has been a trend of lowering the barriers to the free flow of goods, services and capital among countries. • Foreign direct investment has been playing an important role in the global economy. • In order to become competitive, company have started investing in overseas operations.
Effect of Globalization on World Economy • Global operations have led to the emergence of Multilateral Trading Systems, opportunities have been increasing for the firms. • Imports are penetrating deeper into the world’s largest economies as well. • The growth of world trade, foreign direct investment and imports led to more foreign competition in the domestic markets. • Innovations have started spreading faster.
Factors Causing Globalization of Businesses There are many factors related to the change of technology, international policies, and cultural assimilation that initiated the process of globalization. The following are the most important factors that helped globalization take shape and spread it drastically. • The Reduction and Removal of Trade Barriers • Trade Negotiations • Transport Costs • Growth of the Internet • Growth of Multinational Corporations • The Development of Trading Blocs
Information Technology And Globalization As indicated earlier, the information technology redefined the global business through its developments like internet, www sites, e-mail, cyberspace, information super highways. Computer Aided Design (CAD), Computer Aided Production (CAP) and on-line transactions brought significant development to the global business. These facilities, according to M.J. Xavier, help the global companies in: • Reducing the size of inventories • Reducing delivery time • Reducing unproductive waiting time • Reducing the incidents of stock-outs and lost sales • Responding to market changes at a faster rate • Reducing rush orders. • Cutting down over production • Reducing unnecessary movements of forwarding and back-tracking • Reducing paper work and wasteful process • Planning production levels accurately • Reducing/avoiding physical movement of employees, suppliers, and customers.
Chapter 3 Introduction to International Business Environment Aim The aim of this chapter is to: • define international business environment • introduce the cross cultural communication process and negotiations • delineate the strategies dealing with cultural differences Objectives The objectives of this chapter are to: • elucidate the various environments that influence international business • analyze the components of foreign environment • explain the role of political ideology and the role of the government
International business environment factors There are numerous types of business environments, however the political, the cultural, and the economic environments are the prime ones. These factors influence the decision making process of an international business firm. Business environmental factors are broadly divided into internal environmental factors and external environmental factors. • Internal environmental factors influence/affect the business from within. They include: human resource management, trade unions, organization structure, financial management, marketing management and production management, management leadership style etc. External environmental factors are further divided into micro external factors and macro external environmental factors.
International business environment factors • Micro external environmental factors include: competitors, customers, market intermediaries, suppliers of raw materials, bankers and other suppliers of finance, shareholders, and other stakeholders of the business firm. External macro environmental factors include: social and cultural factors, technological factors, economic factors, political and governmental factors, international factors and natural factors. • Environmental protection received greater attention in order to protect the lives of the people, animals, plants and to maintain ecological balance. The analysis of internal environmental factors indicates the strengths and weaknesses of the business firm while the analysis of micro external and macro external environmental factors indicate the opportunities provided by the environment to the business. The strengths, weaknesses, opportunities and threats (SWOT) analysis helps to formulate strategies for the business firm.
The Political Factors The political environment of a nation affects the legal aspects and government rules which a foreign firm has to experience and follow while doing business in that nation. There are definite legal rules and governance terms in every country in the world. A foreign company that operates within a particular country has to abide by the country’s laws for the duration it operates there. Political environment can affect other environmental factors: • Political decisions regarding economy can affect economic environment. • Political decisions may affect the socio-cultural environment of a nation. • Politicians may affect the rate of emergence of new technologies. • Politicians can exert influence in the acceptance of emerging technologies.
Major Effects Of Political Environment There are four major effects of political environment on business organizations: • Impact on Economy – The political conditions of a nation have a bearing on its economic status. For example, Democratic and Republican policies in the US are different and it influences various norms, such as taxes and government spending. • Changes in Regulation – Governments often alter their decisions related to business control. For example, accounting scandals in the beginning of the 21st century prompted the US SEC turn more mindful on the issues of corporate compliance. Sarbanes-Oxley compliance regulations (2002) were social reactions. The social environment demanded the public companies to be more responsible.
3. Political Stability – Political stability effects business operations of international companies. An aggressive takeover overthrowing the government could lead to a disordered environment, disrupting business operations. For example, Sri Lanka’s civil war and Egypt and Syria disturbances were overwhelming for businesses operating there. 4. Mitigation of Risk – There are political risk insurance policies that can mitigate risk. Companies with international operations leverage such insurances to reduce their risk exposure.
Legal Environment This definition brings out two important characteristics of international law. One there is absence of the existence of a comprehensive legal system. There is truly no comprehensive body of law because as stated earlier international commercial law is of recent birth. This has had a direct bearing upon the existing administering authorities. The problem for the international firms is that the laws that they face in their home countries might be different from those encountered in the host countries. These laws are based on the premise that such practices differentiate buyers. • Different laws exist not only in the area of marketing mix variables • Besides directly influencing firm’s business operations, laws affect the environment within which a firm operates in the foreign country.
Legal Environment 3. A major problem with laws in different countries is that the legal systems of the world are not harmonized and are in fact based on contradicting legal philosophies. 4. Common law finds it roots in Britain ,Code law, on the other hand, is based on Roman law and is an all inclusive system of written rules that encompass all eventualities. 5. To illustrate, take the interpretation of non-fulfilment of required conditions of a contract under ‘Act of God’. What constitutes an ‘Act of God’ in code law is not necessarily the same under common law. 6. In the absence of laws having jurisdiction over sovereign countries, a major problem faced by the international business firms is which country’s laws, viz.
7. In last few decades, efforts have been made to evolve international laws, International laws deal with upholding orders. Originally these laws recognized only nations as entities, but today these laws also incorporate role played by individuals. 8. International laws may be defined as a set of rules and regulations which the nations consider binding upon themselves. 9. As of today, there are only a few international bodies for administering justice.
Technological Environment The latest information technology has dissolved the national boundaries and the advancements of transportation technology have reduced the distance among the world nations. These technological changes enabled international business to take the shape of transnational business through the concept of global business. International business, in fact, gained significance due to the amazing advancements in technology. Technological environment has significant and direct influence on business in general and international business in particular.
Application of Technology Technology is the application of knowledge. • Influence of Technology • Investment in Technology • Technology and Economic Development • Technology and International Competition • Technology Transfer • Technology and Locate • Technology and Globalization on of Plants
The Economic Factors Economic factors exert a huge impact on international business firms. The economic environment includes the factors that influence a country's attractiveness for international business firms. • Business firms seek predictable, risk-free, and stable mechanisms. Monetary systems that acknowledge the relative dependence of countries and their economies are good for a firm. If an economy fosters growth, stability, and fairness for prosperity, it has a positive effect on the growth of companies. • Inflation contributes hugely to a country's attractiveness. High rate of inflation increases the cost of borrowing and makes the revenue contract in domestic currency. It exposes the international firms to foreign-exchange risks.
The Economic Factors 3. Absolute purchasing power parity is also an important consideration. The ratio of exchange rate between two particular countries is identical to the ratio of the price levels. The law of one price states that the real price of a product is same across all nations. 4. Relative purchasing power parity (PPP) is valuable for foreign firms. It asks how much money is needed to buy the same goods and services in two particular countries. PPP rates prompt international comparisons of income.
International Economy What is the meaning of globalization? What economic and social challenges does a globalized business environment pose to companies? What are the main (macroeconomic) variables and constraints to take into consideration when doing business with or in another country? What limitations are there to the free exchange of goods and services across national borders? How should a company limit its exposure to exchange rate variability? What factors determine the international location of firms and production facilities? In this course, we will provide answers to these questions.
Objectives Upon successful completion of this module, students should be able to: • Understand and illustrate the meaning of globalization by identifying trends and phenomena relevant to the present globalized economic and social environment • Identify key conditioning variables and parameters of the global business environment with respect to the company’s strategy when conducting operations abroad or in relation to partners located abroad • Understand the impact of those variables and parameters on the company’s objectives as well as possible courses of action to minimize their potential negative effects • Enumerate different sources of gains from trade as well as trade agreements currently in place today, and understand the relation between trade and economic growth • Explain the interaction of different market forces in the determination of equilibrium values of nominal and real exchange rates and of the goods and financial flows in the balance of payments
Financial Environment Sound financial position of the country coupled by the favorable investment policies reflect strong demand potential. • Monetary and fiscal policies: Inflation, interest rate, various kinds of duties and exchange rates are the variables related to the country’s monetary and fiscal policies and have a substantial impact on the costs and profitability of business operations. These variables also influence a firm’s decision to move funds from one nation to another. • Commercial and foreign investment policies: Each country has its own commercial and foreign investment policies which must be studied in detail to ascertain country’s openness to trade and investment with other countries. A proper understanding of these policies can be quite helpful in ascertaining what tariff and non-tariff barriers the particular country uses to protect its domestic industry from foreign competition. The country may plan to minimize the incidence of these trade measures.
Financial Environment • Balance of payments account: A country’s balance of payments account is another major source of information about the country’s foreign trade and foreign currency reserves. The current account throws light on the country’s exports and imports as well as its major sources of imports and destinations of exports. Capital account reveals stocks of foreign investments, borrowings, lending and foreign exchange reserves. An international firm must be duly aware of exchange controls prevalent in the foreign countries. • Countries running deficits in their balance of payment accounts generally impose controls on movement of foreign exchange into and out of their economies. These controls prompt the multinational corporations to resort to transfer pricing mechanism, i.e., over invoicing of imports and under pricing of exports so as to move out more than permitted funds from such countries.
The Cultural Factors Cultural environments include educational, religious, family, and social systems within the marketing system. Knowledge of foreign culture is important for international firms. Marketers who ignore cultural differences risk failure. • Language – There are nearly 3,000 languages in the world. Language differences are important in designing advertising campaigns and product labels. If a country has several languages, it may be problematic. • Colors – It is important to know how people associate with colors. For example, purple is unacceptable in Hispanic nations because it is associated with death. • Customs and Taboos – It is important for marketers to know the customs and taboos to learn what is acceptable and what is not for the marketing programs.
The Cultural Factors 4. Values – Values stem from moral or religious beliefs and are acquired through experiences. For example, in India, the Hindus don’t consume beef, and fast-food restaurants such as McDonald's and Burger King need to modify the offerings. 5. Aesthetics – There are differences in aesthetics in different cultures. Americans like suntans, the Japanese do not. 6. Time – Punctuality and deadlines are routine business practices in the U.S. However, Middle East and Latin American people are far less bound by time constraints. 7. Religious Beliefs – Religion can affect a product’s labeling, designs, and items purchased. It also affects the consumers' values.
Multicultural Environments This module explores the effect of culture on decision making in the international business environment. It exposes students to issues and problems that inevitably arise in international business negotiations and sets forth to develop their cross-cultural communication competence and management and negotiation skills to successfully solve problems and capitalize on opportunities in a multicultural environment. Students will be required to apply their knowledge from previous courses, in particular cultural theories.
Objectives Upon successful completion of this module, students should be able to: • understand the influence and effect of their own behavior and culture on team performance, organizational performance, negotiations, business deals • switch between different business and cultural perspectives • recognize difficult situations, develop an understanding for viable solutions, and realize them in an international business context • understand the negotiation process and conduct a multicultural negotiation successfully
Social Environment • Social environment consists of religious aspects, language, customs, traditions, beliefs, tastes and preferences, social institutes, living habits, eating habits, dressing habits etc. Social environment influences the level of consumption. For example, though the economic position of Germans and French people is more or less the same culturally they are different. Consumption level of French people is more than that of Germans. Hence, the study of social environment helps in deciding on the type of product, market, and the like. • Family System: In addition to religion, family system has its impact on international business. In most of the Islamic countries, women play less significant role in the economy and also in the family with limited rights. In Latin American countries, though the role of women is better compared to that in Islamic countries, women’s role is limited in economics and in families.
Managing Global Supply Chains International competition is increasingly between whole supply chains rather than just individual companies. The aim of the module is to familiarize students with the discipline of operations and supply chain management, which enables firms to better coordinate information, financial and materials flows and customer service activities relevant to purchasing, logistics and operations processes that occur along a supply chain. The primary objective is to ensure that students can diagnose issues and recommend actions pertinent to specific situations that occur in organizations and their supply chains. The module explores planning, organization and control of the resources and capabilities to improve organizational performance and to satisfy customer requirements. Topics include resource planning, demand management, process optimization, supply chain strategies, supply chain integration and network design. Additionally, sustainability issues in terms of materials and resources management as well as labor conditions are addressed. Case studies from multinational companies will be used to get an overview of the spectrum of practiced supply chain management.
Objectives Upon successful completion of this module, students should be able to: • Describe the key challenges associated with the management of global supply chains. • Explain the interactions between strategy, planning, sourcing, producing, delivering, and returning of products. • Evaluate the risks and benefits associated with different supply chain strategies in the context of internationalization.