Changing Scenario of International Business

The various factors contributed for the significant change in the scenario of internatioanl business & resulted in the variations in the operations of international companies.

Scenario 1 : Domestic Company

Scenario 2 : International Company

Scenario 3 : Multinational Company Scenario 4 : Global Company Scenario 5 : Transnational Company

STAGES OF INTERNTIONALIZATION
Internationalization process different stages

1. Domestic company
Mission objectives Features Environment Expansion Diversification Does not think globally

No international markets
2. International Company Some domestic companies may think of internationalising their operations.

Reasons:
Opportunities Unutilized capacities Diversification of Risk Other reasons But remain Ethnocentric Product design, policies, strategies done by domestic company
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Formulates Strategy for foreign Markets Focus: Domestic with branches at foreign countries Domestic product price and promotion to foreign markets Resources reqd. limited Gradually extends from one country to another country. Pattern of internationalization.

3. Multinational Company & Multidomestic Co.

Limitations of International Company In the longrun vulnerable Expansion difficult Eg.: Toyata of Japan Export of Toyapet cars (designed for Japan) to US failed in 57 due to product design.

It did not meet the local requirements

Toyota later became MNE to respond to the local demand
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4. Global Company A global company is the one which has either Global Marketing strategy or a Global Production Strategy Production Single Country Globally Domestically Eg.: Harley, USA, Heavy Motor Cycles designs & Produces at USA Mktg. Globally

Mktg. Globally
Dr. Reddys Lab: India Mercedes Germany

Procures products globally and markets in one country through retail network etc.
Focus (Understanding consumer + Competitive Advtg.)
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5. Transnational Company TNC produces, markets, invests and operates across the world. It is an integrated global enterprise which links global resources with global markets at profit. No pure TNC. Characteristics of a Transnational Co. i) Geocentric Orientation Thinks globally and acts locally. Global strategy but allows value addition to customer Allows adaptation to add value to its global offer. Assets distributed throughout the world Independent, specialized R & D integrated.

Production spread but specialized and integrated.

Mfg. + Assembly in different countries
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Units of TNC create and develop knowledge in all functions and share among them. Eg. Caterpillar : Mfg/ Assembly many locations ii) Scanning or Information Acquisition:

Environmental Information, geographic scope

iii) Vision & Aspirations: Global, Global markets, Global customers, ahead of global co/TNCs iv) Operating style: Key operations are globalised. Eg.: Proctor & Gamble R & D Colgate Key human resources v) Adaptation to suit local environment Mercedes Benz: Super luxury car in North America, Luxury automobile in Germany, Europe (Standard Taxi) Marketing strategy vi) Extension: Certain products require no change universal. Hero pen of China, Casio Calculators (Japan) vii) Purchasing Best source

viii) HR policies (Geocentric)

The Approaches to International Business

Ethnocentric Approach
Polycentric Approach

Regiocentric Approach
Geocentric Approach

1. Ethnocentric Approach Orgn. Structure of Ethnocentric MNE

Managing Director

Manager R&D

Manager Finance

Manager Prodn.

Manager Human Resource

Manager Mktg.

Asst. Manager North India

Asst. Manager South India

Asst. Manager Exports

Features: (1) Exports (2) Foreign Mkt. Extn. of Domestic Markets (3) Domestic co. formulate strategies (4) Export Dept. Product Design, Operations
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2. Polycentric Approach Orgn. Structure of polycentric approach.

Managing Director

Manager R&D

Manager Finance

Manager Prodn.

Manager HR

Manager Mktg.

Features: 1. Later stage of Ethnocentric Approach for domestic cos.

2. Foreign subsidiary with CEO

Decentralization of operations Delegation of Decision Making (Including major decisions) Appointments from home countries (key personnel)

Sub. Co. formulates policies, strategies, designing the product etc.

based on prevailing environment at Host country.
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Focus: On the conditions of the host country in policy formulation, strategy implementation & operation.

3. Regiocentric Approach
Orgn. Structure
Managing Director

CEO Subsidiary Southern Africa

Mktg Lesotho

Mktg Kenya

Mktg Namibia

Manager R&D

Manager Finance

Manager Prodn.

Manager HR

Manager Mktg.

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Features:

1. Extension from single country to many countries.

2. Foreign Subsidiaries considers regional Environment. Eg. Africa, Asia or South East Asia 3. Policies and strategies are based on regional Environment 4. Production design could be same but Mktg. Strategies invariably varies. 4. Geocentric Approach: Entire world is treated like a country Select Employees from Entire globe Operate with no. of subsidiaries Coordination of activities at Head quarters

Each sub. co. is autonomous in formulating policies, strategies, product design, HR Policies, operations etc.

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Geocentric Approach
Managing Director

Subsidiary India

Subsidiary Namibia

Subsidiary Kenya

Subsidiary Lesotho

Subsidiary South Africa

Eg.: Aircraft Defence Techonology

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Evolution of strategy in the Internationalization Process:

There are variations among cos. IBM, Nestle/Toyota However there are overall pattern in internationalization process Focus Risk Minimization behaviour

Domestic
Less risky

Foreign Mktg.
Greater risk is attached to FM

Pattern of Expansion. Strategies for heavy International commitments usually evolve gradually from: Passive to active pursuit of opportunities External to Internal handling of Business Limited to Extensive modes of operations Few to many foreign Locations Similar to dissimilar environments

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Goals of International business....

Nearness to raw materials

Availability of quality human resources at less cost

Liberalisation & Globalisation

To increase Market share To achieve higher rate of economic development Tariffs & Import quotas

Advantages of International Business

High living standards

Increased Socio-Economic welfare

Wider market
Reduced effects of business cycle Reduced risks Large-scale economies Potential untapped markets Provides the opportunity for & challenge to domestic business

Advantages of International Business....

Division of labour & Specialization

Economic growth of the world

Optimum & proper utilisation of world resources

Cultural transformation Knitting the world into a closely interactive traditional village.

Problems of International Business

Political factors Huge foreign indebtedness

Exchange instability
Entry requirements

Tariffs, Quotas & Trade Barriers

Corruption Bureaucratic practices of government Technological pirating Quality maintenance

High cost

2 marks questions
1. What is International Business?
2. What is International Trade?

3. List any four factors that affect International Business.

15 marks quesitons: 1. Bring out the advantages of International Business. 2. What are the problems of International Business.

3. Explain the various foreign market entry modes.

8 marks questions.
1. Bring out the characteristics or features of International Business. 2. Briefly explain the strategies for International Business.
3. Bring out the factors affecting International Business. 4. Differences between International Trade & Domestic trade.