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Lecture 1
The Course
Why the need for firms to go global? Global Business Environment, trends in key indicators The Current Scenario in Trade and Investment theories and experience Evolution of International Institutions and their role in ensuring Global Business Environment Lessons from the Growth Experience across countries / sectors what defies or defines success? Which countries to do business in? 1. The Political Economy whats a perfect recipe for success? 2. Soft factors role of Culture etc. 3. Operational issues: Trade Finance, Global Sourcing 4. Control factor in international business
The References
International Business by Daniels, Radebaugh, Sullivan and Salwan, Pearson International Business by Hill and Jain, Tata Mcgraw-Hill International Business by Czinkota, Ronkainen and Moffett, Wiley World bank, IMF, UNCTAD and WTO Webresources Recent happenings on international business issues
6
9
Quiz No. 2
Quiz No. 3
Social science understanding Political science appreciation Legal awareness (taxation, forex transaction) And an innate ability in:
Anthropology (aspirations and demands) Sociology Psychology (motivations) Economics (GDP, inflation, unemployment) Political Economy (sanctions and terrorism) Geography (supply and demand factors)
How is International business affected by: GDP Growth? Oil Price Movement?
Growing Income? Growing Trade in Goods and Services? Deepened Production Networks? Lowering Trade Barriers and Procedural Hassles? Growing Global Governance? Increasing Cross-Regional Association? Deepened Investment Inter-linkage? More Acquisitions and Mergers? Increasing International Cooperation in Infrastructure Projects? Movement of Technicians / Managers from another country? Movement of workers from another country? No to the policy of Self-Reliance?
Motivation for consumers: More variety, better quality, lower prices So how does a globalized product looks like?
Source: Czinkota et al
China
15
European Union
India
Japan
United States
10
2004
2008
2000
2001
2002
2003
2005
2006
2007
2009
1997
1998
1999
-5
-10
China has established itself as a growing location: More FDI inflow What are the prospects of India? Does GDP growth influence ability to engage in international business?
2010
2011
WIR (2012)
India
World
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1991 1990 1992 1993 1994 1995 1996 1997 1998 1999 2010 2011
-10
-20
-30
How has Indias merchandise export suffered, due to imbalances in Global Market?
India
World
40
30 20 10 0
2002
2005
2000
2001
2003
2004
2006
2007
2008
2009
1991
1990
1992
1993
1994
1995
1996
1997
1998
1999
-10 -20
How has Indias service export suffered, due to imbalances in Global Market?
2010
2011
Who are the prominent exporters? Global Merchandise Export Market Share (%)
45.00
40.00
US China Japan
EU (27) India
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
1991
1989
1990
1992
1993
1994
1995
1996
1997
1998
1999
2010
2011
Who are the prominent exporters? Global Service Export Market Share (%)
60
China
EU
Japan
India
US
50
40
30
20
10
2006
2000
2002
2003
2004
2005
2007
2008
2009
2001
1991
1989
1990
1992
1993
1994
1995
1996
1997
1998
1999
2010
2011
Stronger legal institutions and property rights protections are associated with more efficient regulatory processes (Average ranking on sets of Doing Business indicators)
DBR (2012)
Minimize risk
Better components, services, products (Tata Steel willing to set up iron ore or steel mill projects in western Australia given the natural reserve in that territory; BPO industries in India and Philippines) Foreign capital Cheap labour (Rawlings producing baseball in Costa Rica) Technologies (Tata Steel purchase of Corus) Information (Zodiac Shirt purchase of European and American Brands)
Take advantage of the business cycle for products / services Diversify among international markets
The More people view the Harry Potter Movie, the higher the sales and profitability.
Visual Effects
Actors Location Question 1
Rising Sun Pictures (Australia); Double Negative (UK); Cinesite (UK); Industrial Light & Magic (US)
From more than 20 countries UK, Scotland Why simultaneous multiple release of the Movie?
Question 2
Auckland Airport
2 1
Firm Introduces Innovation in Domestic Market
Production Becomes Standardized and is Relocated to Low Cost Countries Production Abroad
4 Firm Begins
Pattern of Internationalization
Greater reach abroad is also characterized by greater demand for quality service, if needed, by global players
How can a firm develop to become a global player? First step: Sourcing Capital availability in Developed countries the role of the Global Banks Headquarter How can developing countries be able to grow? Second step: Sourcing Labour - Developing countries securing skilled and unskilled labour, considerations on infrastructure, human capital etc. Or, the other way round? Can cheap labour come to domestic country and ensure production? Example Bangladesh Garments Industry - local labour Korean FDI Californian Tomato industry Mexican labour
What happens in South East Asia and why India has a different experience?
Nestl (Switzerland) had contracts with more than 600,000 farms in over 80 developing and transition economies as direct suppliers of various agricultural commodities. Olam (Singapore) has a globally spread contract farming network with approximately 200,000 suppliers in 60 countries (most of them developing countries). In Brazil, 75% of poultry production and 35% of soya bean production are sourced through contract farming, including by TNCs. Sime Darby (Malaysia): $800 million investment in plantations in Liberia in 2009 (palm oil, rubber). China: investments and contract farming in commodities like maize, sugar and rubber in the Mekong region, especially in Cambodia and Lao PDR. Zambeef (Zambia): investment in Ghana and Nigeria. Grupo Bimbo (Mexico): investment across Latin America and the Caribbean (potato, cereals). Food security led investment: South Korea and GCC Countries.
Role of SWFs: Agricapital (a State-owned fund based in Bahrain) is investing in food crops overseas to support its governments food security policies.
X or M?
www.abanet.org
A visionary leader? (e.g. Lee Kuan Yew, Singapore; Deng Xiaoping, Peoples Republic of China; Suharto, Indonesia) Valuable exportable commodity? (e.g. oil in Iran; manufacturing in China) Unpredictable aggressive enemy? (e.g. China for Taiwan; Russia for China) Superpower patron? (e.g. US as patron for Singapore and Taiwan during 1970s and 1980s) Fair Trade Regime? (e.g. Chewing gum export in Singapore) Business-Friendly Macroeconomic Regime? (difference between Democratic India, Chile under Augusto Jos Ramn Pinochet and China under Communist Party) How to Learn from Past Mistakes so as to prevent their repetition????
No matter if it is a white cat or a black cat; as long as it can catch mice, it is a good cat A Sichuan Proverb used by Deng became famous
Joint Venture (JV): two or three players from more than one country coming together to form a business e.g. Sony-Ericsson is a JV by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones; Walmart and Bharti Enterprises formed a JV, Bharti Walmart Private Limited. Multinational Enterprise (MNE): global approach to markets and production, direct investment in more than one country Multinational Corporation (MNC) e.g. Pepsi Transnational Company (TNC) - integrate various country operations while dispersing the location of control (Transnational strategy), e.g. Nokia, Nestle Globally integrated company: integrated operations located in different countries - integrate various country operations into an international headquarters control (Global Strategy) GE, Apple, Sony Multidomestic company: multinational companies that allow local responsiveness country offices have power to operate autonomously (Multidomestic strategy) e.g. McDonald and Maharaja Mac in India Nokia has a team of design researchers, psychologists, sociologists and usability experts who travel the globe exploring how people use their mobile devices, discovering how to make them better.
Global Strategy
Need for Global Integration
Transnational
MultiDomestic
Low Low High
Customized products are needed in some countries National competitors are common Countries have unique distribution channels There are no or few economies of scale Local/national firms have some inherent advantages in the host country over global competitors
Biggest decreases: 1. Metals 2. Agriculture raw materials (cotton and rubber) 3. Edible oils 4. Coconut and palmkernel oil 5. Cocoa
Going Local?
Going Extinct ..
Local Soft Drinks in many countries are either driven out by aggressive pricing by MNC giants, Coke and Pepsi, or, bought / marginalized by them, e.g. Campa Cola in India Synthetic Fibre increasing Export from China over the years, increasing import, hurting the interest of the local producers Television market - Indian example experience of Philips during 1990s, present battle between Videocon (India), Sony (Japan), Samsung (South Korea) and LG (South Korea) etc. Any other example?