IBM

Internationalization
Entry modes and timings.
Maturity stage start exports
More exports technology transfer and new products
More new products threat to domestic companies
Govt protectionism
Non tariff barriers
Stage of standardization contractual agreements or FDI
Early phase contracts license , Franchising
Later stages FDI
Company specific know how JV
Gain experience terminate JV and establish wholly owned subsidiary
Factors that influenced the growth in globalization of international
business
There has been growth in globalization in recent decades due to (at least) the following eight
factors:
Technology is expanding, especially in transportation and communications.
Governments are removing international business restrictions.
Institutions provide services to ease the conduct of international business.
Consumers want to know about foreign goods and services.
Competition has become more global.
Political relationships have improved among some major economic powers.
Countries cooperate more on transnational issues.
Cross-national cooperation and agreements.
The Stages of Internationalization -
Stage 1: Domestic
Operations The firms market is exclusively domestic.


Stage 2: Export Operations The firm expands its market to include other
countries, but retains production facilities within domestic borders.


Stage 3: Subsidiaries or Joint Ventures The firm physically moves some of its
operations out of the home country.


Stage 4: Multinational Operations The firm becomes a full-fledged multinational
corp. (MNC) with assembly and production facilities in several countries and
regions of the world.

Some decentralization of decision making is common, but many personnel
decisions are still made at corp. headquarters.


Stage 5: Transnational Operations Firms that reach this stage are often called
transna-tional because they owe little allegiance to their country of origin.
Operations are highly decentralized, with each busi-ness unit free to make
personnel decisions with very loose control from corp. headquarters

Difference between International and Domestic Marketing
International Marketing Domestic Marketing
1. Meaning
It refers to those activities which results
into transfers of goods and services
from one country to another.
It refers to those activities which
results into transfers of goods and
services inside the country itself.
2. Barriers
International trade is characteristics by
tariff and non tariff barriers.
Domestic marketing has no such
restrictions.
3. Currencies
It involves exchange on the basis of
different currencies.
It involves exchange in the basis of
same currencies.
4.Government
Interference
Exchange takes place under
government rules and regulations.
There is high degree of government
interference.
Government in interference is zero
or minimum only incase of essential
commodities.
5. Culture
Trade should be done taking diverse
into consideration. Even things like
colour combination can be affect the
trade.
Culture does not affect in domestic
marketing.
6.Mode of Payment
Letter of credit is normally as mode of
payment.
Cash, Cheques, DDs are the most
common.
7.Mobility of Factors
of Production
Factors of Production are relatively
immobile as compared to domestic
marketing.
Domestic Trade enjoys greater
mobility in factors of production.
8. Competition
International Trade is subject to intense
competition.
Competition is not as intense as it is
in international marketing.
9. Documentation
International Marketing is subject to
complex documentation
Domestic trade does not involve
much of documentation.
10. Risk
International Marketing is subject to
high risk. Political, foreign exchange
risk, bad debt risk are few of them.
Domestic Marketing is also subject
to risk but not as high as
international marketing.

Difference approaches of international business are given below:
Importing and Exporting
Franchising
Licensing
Joint Venture
Foreign Direct Investment
Management contact
The Three Stages of the International Product Life Cycle Theory
by Bert Markgraf, Demand Media
Product life cycle theory divides the marketing of a product into four stages: introduction,
growth, maturity and decline. When product life cycle is based on sales volume, introduction
and growth often become one stage. For internationally available products, these three
remaining stages include the effects of outsourcing and foreign production. When a product
grows rapidly in a home market, it experiences saturation when low-wage countries imitate it
and flood the international markets. Afterward, a product declines as new, better products or
products with new features repeat the cycle.
General Theory
When a product is first introduced in a particular country, it sees rapid growth in sales
volume because market demand is unsatisfied. As more people who want the product buy it,
demand and sales level off. When demand has been satisfied, product sales decline to the
level required for product replacement. In international markets, the product life cycle
accelerates due to the presence of "follower" economies that rarely introduce new innovations
but quickly imitate the successes of others. They introduce low-cost versions of the new
product and precipitate a faster market saturation and decline.
Growth
An effectively marketed product meets a need in its target market. The supplier of the product
has conducted market surveys and has established estimates for market size and composition.
He introduces the product, and the identified need creates immediate demand that the supplier
is ready to satisfy. Competition is low. Sales volume grows rapidly. This initial stage of the
product life cycle is characterized by high prices, high profits and wide promotion of the
product. International followers have not had time to develop imitations. The supplier of the
product may export it, even into follower economies.
Maturity
In the maturity phase of the product life cycle, demand levels off and sales volume increases
at a slower rate. Imitations appear in foreign markets and export sales decline. The original
supplier may reduce prices to maintain market share and support sales. Profit margins
decrease, but the business remains attractive because volume is high and costs, such as those
related to development and promotion, are also lower.
Decline
In the final phase of the product life cycle, sales volume decreases and many such products
are eventually phased out and discontinued. The follower economies have developed
imitations as good as the original product and are able to export them to the original
supplier's home market, further depressing sales and prices. The original supplier can no
longer produce the product competitively but can generate some return by cleaning out
inventory and selling the remaining products at discontinued-items prices.

Classical or Country-Based Trade Theories
Mercantilism
Developed in the sixteenth century, mercantilism was one of the earliest efforts to develop an
economic theory. This theory stated that a countrys wealth was determined by the amount of
its gold and silver holdings. In its simplest sense, mercantilists believed that a country should
increase its holdings of gold and silver by promoting exports and discouraging imports. In
other words, if people in other countries buy more from you (exports) than they sell to you
(imports), then they have to pay you the difference in gold and silver. The objective of each
country was to have a trade surplus, or a situation where the value of exports are greater than
the value of imports, and to avoid a trade deficit, or a situation where the value of imports is
greater than the value of exports.
A closer look at world history from the 1500s to the late 1800s helps explain why
mercantilism flourished. The 1500s marked the rise of new nation-states, whose rulers
wanted to strengthen their nations by building larger armies and national institutions. By
increasing exports and trade, these rulers were able to amass more gold and wealth for their
countries. One way that many of these new nations promoted exports was to impose
restrictions on imports. This strategy is called protectionism and is still used today.
Nations expanded their wealth by using their colonies around the world in an effort to control
more trade and amass more riches. The British colonial empire was one of the more
successful examples; it sought to increase its wealth by using raw materials from places
ranging from what are now the Americas and India. France, the Netherlands, Portugal, and
Spain were also successful in building large colonial empires that generated extensive wealth
for their governing nations.
Although mercantilism is one of the oldest trade theories, it remains part of modern thinking.
Countries such as Japan, China, Singapore, Taiwan, and even Germany still favor exports and
discourage imports through a form of neo-mercantilism in which the countries promote a
combination of protectionist policies and restrictions and domestic-industry subsidies. Nearly
every country, at one point or another, has implemented some form of protectionist policy to
guard key industries in its economy. While export-oriented companies usually support
protectionist policies that favor their industries or firms, other companies and consumers are
hurt by protectionism. Taxpayers pay for government subsidies of select exports in the form
of higher taxes. Import restrictions lead to higher prices for consumers, who pay more for
foreign-made goods or services. Free-trade advocates highlight how free trade benefits all
members of the global community, while mercantilisms protectionist policies only benefit
select industries, at the expense of both consumers and other companies, within and outside
of the industry.

Absolute Advantage
In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth of
Nations.
[2]
Smith offered a new trade theory called absolute advantage, which focused on the
ability of a country to produce a good more efficiently than another nation. Smith reasoned
that trade between countries shouldnt be regulated or restricted by government policy or
intervention. He stated that trade should flow naturally according to market forces. In a
hypothetical two-country world, if Country A could produce a good cheaper or faster (or
both) than Country B, then Country A had the advantage and could focus on specializing on
producing that good. Similarly, if Country B was better at producing another good, it could
focus on specialization as well. By specialization, countries would generate efficiencies,
because their labor force would become more skilled by doing the same tasks. Production
would also become more efficient, because there would be an incentive to create faster and
better production methods to increase the specialization.
Smiths theory reasoned that with increased efficiencies, people in both countries would
benefit and trade should be encouraged. His theory stated that a nations wealth shouldnt be
judged by how much gold and silver it had but rather by the living standards of its people.
Comparative Advantage
The challenge to the absolute advantage theory was that some countries may be better at
producing both goods and, therefore, have an advantage in many areas. In contrast, another
country may not have anyuseful absolute advantages. To answer this challenge, David
Ricardo, an English economist, introduced the theory of comparative advantage in 1817.
Ricardo reasoned that even if Country A had the absolute advantage in the production
of both products, specialization and trade could still occur between two countries.
Comparative advantage occurs when a country cannot produce a product more efficiently
than the other country; however, it can produce that product better and more efficiently than
it does other goods. The difference between these two theories is subtle. Comparative
advantage focuses on the relative productivity differences, whereas absolute advantage looks
at the absolute productivity.
Lets look at a simplified hypothetical example to illustrate the subtle difference between
these principles. Miranda is a Wall Street lawyer who charges $500 per hour for her legal
services. It turns out that Miranda can also type faster than the administrative assistants in her
office, who are paid $40 per hour. Even though Miranda clearly has the absolute advantage in
both skill sets, should she do both jobs? No. For every hour Miranda decides to type instead
of do legal work, she would be giving up $460 in income. Her productivity and income will
be highest if she specializes in the higher-paid legal services and hires the most qualified
administrative assistant, who can type fast, although a little slower than Miranda. By having
both Miranda and her assistant concentrate on their respective tasks, their overall productivity
as a team is higher. This is comparative advantage. A person or a country will specialize in
doing what they do relatively better. In reality, the world economy is more complex and
consists of more than two countries and products. Barriers to trade may exist, and goods must
be transported, stored, and distributed. However, this simplistic example demonstrates the
basis of the comparative advantage theory.