International Business Environment: An Integrated View

IBE(II) Lecture 1: Introduction

22nd February, 2011
Lecture by Dr. Lei Li 1

Domain of International Business

International Business Management

Large-Scale Business Management

Business Management

Source: Stephen Guisinger (2000)

International Business Environment: The ECLIPTER Framework

International business environment (IBE) comprises national business environments. The IBE and its component national business environments are diffuse, subjective concepts that can never be completely measured. Formal modeling can capture substantial amounts of the variation in the IBE. Only formal modeling framework available at present is the ECLIPTER.
Source: Stephen Guisinger (2001)

ECLIPT ER
E conography: Economic geography and physical environment C ulture L egal system I ncome profile P olitical risk T ax regime E xchange rate R estrictions
Source: Stephen Guisinger, 2001 4

Econography
Econography mainly refers to physical characteristics of nations that affect firm performance Climate Size (population) Distance from major markets Natural resources Infrastructure
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Culture
Culture describes the complex set of social characteristics that distinguishes one group of people from another:

Values Attitudes Beliefs

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Legal System
Legal System describes the laws that govern a society.
Patent Anti-trust Product liability

Common law Civil law Islamic law

Socialist Law
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Income Profile
Income Profile describes various indices of production capabilities and consumption possibilities of a society

Per capita income Growth in GDP Distribution of income across groups and regions
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Political Risk
Political Risk describes the stability of government institutions. It can be measured in a variety of ways:

Likelihood of foreign aggression Likelihood of civil insurrection Bureaucratic instability Corruption/Quality of Government
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Tax Regime
Tax Regime refers to the tax instruments (except border taxes such as import tariffs and export duties) that governments use to raise revenues from multinational firms.

Corporate taxes including tax incentives Withholding taxes on remittances Tax treaties

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Exchange Rate
An Exchange Rate is the value of the local currency expressed in terms of foreign currencies. Firms must adopt policies to avoid or reduce risk arising from movements in exchange rates.

Overvaluation/Undervaluation Variability
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Restrictions
Restrictions refer to the taxes and limitations that host governments place on foreign products and services or on foreign firms themselves when they enter or leave the host economy

Import duties Export taxes Quotas Bans on foreign investment in certain industries
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International Business Chess

National Governments and World Organizations (e.g., WTO, IMF)

Start with Domestic Best Practices

Develop Vision and Strategy

End With Global Best Practices

Develop Vision and Strategy

Market and Sell

Market and Sell

Make Goods and Services Manage Supply Chain Manage Human Resources Manage Information, Financial and Physical Resources Manage Environmental and Social Issues Manage Alliances and External Relationships

Make Goods and Services Manage Supply Chain Manage Human Resources Manage Information, Financial and Physical Resources Manage Environmental and Social Issues Manage Alliances and External Relationships

Competitors
Stephen Guisinger 2000

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Trade Flows Among World Regions, 2005 (in billions of dollars or percent)

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Global versus Regional Multinational Firms: A Triad-based Perspective

(1) Home region oriented: at least 50% of the subsidiaries (or sales) are located in the home region of the Triad (i.e., Americas including both North and South America) (2) Host region oriented: At least 50% of the subsidiaries (or sales) are located in the host region of the Triad (i.e., Europe including Mideast and Africa, or Asia-Pacific) (3) Bi-regional: At least 20% of the subsidiaries (or sales) are located in two Triad regions each, and none of the three Triad regions has more than 50% of the subsidiaries. (4) Global: At least 20% of the subsidiaries (sales) are located in each of the three Triad regions, but less than 50% in any one region of the Triad.

Source: Rugman & Verbeke (2004, Journal of International Business Studies)

Few Global Firms

North America 500 Rank 1 2 3 4 5 6 7 8 9 19 37 143 147 162 190 239 388 459 Company Intl. Business Machines Sony Royal Philips Electronics Nokia Intel Canon Coca-Cola Flextronics International LVMH Weighted Average Total Region North America Asia-Pacific Europe Europe North America Asia-Pacific North America Asia-Pacific Europe Revenues in bn US$ 85.9 60.6 29.0 27.9 26.5 23.9 20.1 13.1 11.0 30.9 309.2 F/T Sales 64.8 67.2 na 98.5 64.6 71.5 na na 83.4 % intra regional 43.5 32.8 43.0 49.0 35.4 28.5 38.4 22.4 36.0 38.2 % of total sales 43.5 29.8 28.7 25.0 35.4 33.8 38.4 46.3 26.0 z z l z a l z l Europe % of total sales 28.0 20.2 43.0 49.0 24.5 20.8 22.4 30.9 36.0 m m AsiaPacific % of total sales 20.0 32.8 21.5 26.0 40.2 28.5 24.9 22.4 32.0 j j

Source: Braintrust Research Group, The Regional Nature of Global Multinational Activity, 2003. (www.braintrustresearch.com)

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Global vs. Regional: A Comparison by industry

Period International Strategy Subsidiary-based Computer Soap, and Office cleansers Equipment & toilet products 241 112 (48.39%) (78.32%) 73 (14.66%) 128 (25.70%) 56 (11.24%) 498 (100%) 4 (2.80%) 27 (18.88%) 0 (0%) 143 (100%) Sales-based Computer Soap, and Office cleansers Equipment & toilet products 344 91 (80%) (88.35%) 31 (7.21%) 39 (9.07%) 16 (3.72%) 430 (100%) 6 (5.83%) 6 (5.83%) 0 (0%) 103 (100%)

Home-region Host-region 19992004 Bi-regional Global Total

Source: Lei Li & Dan Li (2007)

Internationalization and Firm Performance

ce Firm Performance

0.275

0.77

Degree of Internationalization

Effective Zone of Internationalization

Source: Lei Li (2003)

IBE(II): Key Learning Objectives and Assessment

To help students to gain a comprehensive understanding of the complexity of the international business environment and the impact thereof on firm international strategies and operations. Assessment: Exam (60%) and Term Project (40%)

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Term Project: Part I

Part 1 is a systemic IBE analysis of the primary industry (e.g., computer, appliances, etc.) in which the company has been involved. Elaborate on the impact of the ECLIPTER factors on the industry. Which ECLIPTER factors are most critical for this particular industry? Examine the roles of the multilateral institutions such as WTO and the regional agreements such as NAFTA, EU and ASEAN+3 in this industry. Do they facilitate the global or regional expansion of the company?

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Term Project: Part II

Part 2 is to study closely the impact of the major ECLIPTER factors on the companys business functions of your interest, and formulate an international adaptation plan for the company. Based on Part 1, what would be your assessment of the companys overall international expansion strategy and process? Choose one or two specific business functions of the company (e.g., marketing, human resource management, manufacturing, supply chain management) that was particularly affected by the major ECLIPTER factors. Evaluate the impact of the major ECLIPTER factors on the business function(s). How did the company try to deal with the impact of the ECLIPTER? Did the company ever try to take advantage of the multilateral institutions such as WTO and/or the regional agreements such as NAFTA, EU and ASEAN+3? If the companys international adaptation of the business functions has not been effective, you need to recommend an adaptation plan accordingly. If the company has been adapting the business functions to the international business environment well, what can be learned from its successful experience? 21

Important Deadlines
Team Formation You are required to form diverse teams if at all possible. For example, a team should ideally have both Chinese and non-Chinese students; a team should also show a gender balance, a diversity of majors etc. Please email me the names of members on your team no later than Friday 11th March. Report Submission Deadline Friday 13th May 2011.

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