Slide 1: Operating in an International Business Environment Dr. Jeff Shay MBA Essentials Course University of Montana
Slide 2: Knowing the basics… Did he just Have I got a car for you. It’s the NOVA. Wow, are you going to like this car. say the no va? Why would I want such a car?
Slide 3: Nixon leaves a lasting impression on Brazil
Slide 4: • Very simplistic examples of what can happen…the problems go much deeper. • There are thousands of other examples…
Slide 5: Tonight’s Road Map • • • • • • • • Brief Bio Overview of the current situation Reasons for going global Entry strategies Corporate strategies International Business Research Ethics in International Business Impact of September 11th on International Business
Slide 6: Jeff Shay – Brief Bio • Academic – Training • Ph.D. – Cornell University, International Business • MBA & B.S. – Babson College, Strategic Management, Finance, Entrepreneurial Studies – Teaching • University of Montana, London School of Economics, Cornell University, Centre International de Glion, Australian International Hotel School • Professional – Clients: • Montana – Hi-Noon Petroleum, Big Sky Brewery, Montana World Trade Center, Montana Business Capital Corporation • Non-Montana – Four Seasons, Marriott, Magic Mountains, Sail Caribbean, Egan Entertainment Network, American Express, Hyundai, Swedish Trade Council, etc. – Regions: • Caribbean, Western Europe, Australia, Latin America
Slide 7: An overview of the current situation MBA Essentials Dr. Jeff Shay University of Montana
Slide 8: Why International Business should be important to you… Regardless of the size, type, or location of your business, today’s business environment is truly global in nature: – Nearly all organizations are somehow affected by companies from other countries – This creates a need for managers who understand the global competitive environment – These “global” managers must understand all business disciplines and how their company might be affected by foreign competition
Slide 9: In the past 50 years, companies have expanded well beyond their national borders. Consider the global reach of the companies below…
Slide 10: Those were US companies. US companies also face competition from foreign companies with strong positions in the US market… Sony
Slide 11: What does this mean for managing in today’s economy? • Regardless of their size, – All businesses are challenged at home by overseas businesses – All businesses must consider sourcing materials overseas – All businesses must consider offshore production – All businesses must consider entering attractive markets overseas Hence the need for managers who understand international business even if they are working in their home country
Slide 12: What is International Business? • International business consists of all transactions that are carried out across national borders • These transactions include the providing services or goods in exchange for money, services, or goods
Slide 13: What makes International Business so different? – Businesses must learn to operate in multiple environments – This includes understanding diverse sets of consumer preferences, distribution channels, legal frameworks, cultural characteristics, and financial infrastructures – Businesses face additional political demands and risks – To compensate businesses must mesh corporate strategy with host country industrial development policies— but there is always the potential for conflict
Slide 14: What’s different (cont.)? – Businesses must learn to play a global competitive game – Multiple market access and various global scale economics allow companies new competitive strategic options – Businesses must address currency fluctuation risks – Economic performance is measured in multiple currencies which result in accounting and economic exposure – Businesses face increased organizational complexity and diversity – Businesses need to manage these complex and diverse demands across barriers of distance, time, language, and culture
Slide 15: International business, a bull or bear market opportunity • The U.S. has had an increasing Trade Deficit since 1985. – U.S. imports are increasing more rapidly than U.S. exports!
Slide 16: The magnitude of the growth in the US trade deficit is depicted in the graph below… US$30.6 B Jun - 00
Slide 17: The trade deficit creates opportunities for US companies • The US government has instituted several programs for US companies to export their products and services overseas, these include: – Trade assistance programs – Financial incentive programs – And many more…
Slide 18: Reasons for Going Global Dr. Jeff Shay University of Montana
Slide 19: Reasons for Going Global • Proactive Motives • Reactive Motives
Slide 20: Proactive Reasons for Going Global • Managerial commitment • Tax benefits • Economies of scale • Profit advantage
Slide 21: Proactive Reasons for Going Global • Unique products • Technological advantage • Exclusive Information
Slide 22: Reactive Reasons for Going Global • Competitive pressures • Overproduction • Declining domestic sales
Slide 23: Reactive Reasons for Going Global • Excess capacity • Saturated domestic markets • Proximity to customers and ports
Slide 24: Concerns and Problems of Going International • Assessing the firm’s preparedness for going international
Slide 25: Feeling left behind? • Do you and your company feel like you are being left behind? • Is your industry moving more and more toward globalization? Or is it already there? • Here are a few ways to check
Slide 26: Industry Globalization Drivers • Market drivers – Common customer needs – Global customers – Global distribution channels • Cost drivers – Global economies of scale – Favorable logistics – Information technology • • Government drivers – Government policies and regulations Competitive drivers – Transferable competitive advantage
Slide 27: Entry Strategies MBA Essentials Dr. Jeff Shay University of Montana
Slide 28: There are two primary forms of International Business Activities • Importing and exporting • Direct foreign investment Do you know what the difference is between these forms?
Slide 29: Importing and Exporting • Importing: – Locating goods or services in foreign markets and bringing them to your home country either for use as a component in the production of your product or service or for direct sale to consumers in your home country market • Exporting: – Locating foreign markets that have a need for your goods or services and shipping them for resale in those markets
Slide 30: Most firms initially engage in international business via exporting or importing Firms can choose from either indirect or direct exporting and importing – Indirect Exporting and Importing • Companies engage in international business through intermediaries and do not have direct contact with foreign customers or companies • This method reduces the need to acquire information and expertise regarding how to do business in a particular country but this means that the company will not have these assets to draw upon for future expansion – Direct Exporting and Importing • Companies engage in international business through establishing direct relationships with foreign companies and customers • This method requires the assumption of greater risk and costs associated with establishing relationships in the targeted foreign market but there is greater opportunity for future growth because the company will have gained valuable international experience
Slide 31: Two main types of intermediaries that you should be aware of are… • Export Management Companies (EMCs) – These firms specialize in providing international business services and have two primary forms of operation: 1. 2. EMC takes title to goods and operate internationally on their own account EMC performs services as agents, developing foreign business and sales strategies and establishing relationships abroad • Trading Companies – These intermediaries play a unique role in that they are involved in exporting, importing, countertrading, investing, and manufacturing Banks in the U.S. play a large role in trading companies The top 9 Japanese trading companies account for about 40 percent of the country’s exports and imports – –
Slide 32: Direct Foreign Investment • Involves establishing ownership or control of a company or subsidiary that is located in a foreign country through making an investment in your own facilities in that country For example, a US company may have Direct Foreign Investments in Europe, the Middle East, and Australia •
Slide 33: There are several other forms of International Business that should be considered… Licensing involves allowing another company to use your intellectual property in exchange for a royalty Franchising involves granting the right to an independent entity to do business in a prescribed manner Management Contracts involve overseeing the operations of an independent entity’s revenue generating assets in exchange for a management fee • • •
Slide 34: What are some of the key questions to ask before going international? • How will our idea, good, or service fit into the international market? • Should we enter the market through trade or investment? • What product adjustments are necessary to be responsive to local market conditions?
Slide 35: What are some of the key questions to ask before going international? • What threats from global competition should we expect? • How can these threats be counteracted?
Slide 36: The Big Strategic CorporatePicture Objectives Internationalization Motivation and Objectives Business analysis -Industry analysis (structures, economics) -Competitor analysis (share, position, intent) -Company competitive analysis (competitive advantages and vulnerabilities) Country analysis -Market analysis (demand, channels, price) -Investment climate, risk (political, social, economic) -Host government conditions/concessions (tariffs, restrictions, incentives) Company Resources and Capabilities -Resource and skill audit (financial, technology, materials, management, and org.) -Risk Profile Internationalization Strategy Entry Strategy
Slide 37: The Big Picture Corporate Strategic Objectives Internationalization Motivation and Objectives Business analysis Country analysis Company Resources and Capabilities Internationalization Strategy Entry Strategy Product/market objectives and priorities Infrastructure: Value chain configuration Mode of entry (ownership) Penetration and operating plan Organization and control
Slide 38: Private Sector Facilitators • Firms in the same industry • Distributors • Banks and service firms (accounting and consulting firms)
Slide 39: Public Sector Facilitators • • • • • • Montana World Trade Center U.S. Department of Commerce Small Business Administration Export-Import Bank State and Local Agencies Educational Institutions
Slide 40: Where do most people go for information? • Fodor’s Guide to … • Kiss, bow, or shake hands • Do’s and Taboos • Economist country guides
Slide 41: Corporate Strategy: Putting the pieces together MBA Essentials Dr. Jeff Shay University of Montana
Slide 42: Corporate Strategy • Overall, a company must have a strategy for competing overseas • Entry modes are just tactics used to implement the strategy
Slide 43: Comprehensive MNC Strategy Model Organizational Structure: Centralized Decentralized Industry Globalization Drivers: Market Cost Government Competitive Strategy: Multidomestic Global International Transnational Formalization: High Low Performance: Market share Profits Management Processes: Coordination Configuration
Slide 44: Responsiveness/Integration Framework High Global Global Coordination Integration International Low Multi-national High Transnational Low Local responsiveness
Slide 45: Integration/Responsiveness Framework High Global Worldwide learning Transnational Global Coordination, Integration Technology Low International Multi-national Low Local responsiveness High
Slide 46: Strategy • Global Strategy – Market participation • Location selected based on fit within network • Multidomestic Strategy – Market participation • Location based on stand-alone value – Product/service specifications • Standardized across all markets – Product/service specifications • Responsive to local market demand – Marketing • Standardized and used in all markets – Marketing • Adapted to local taste – Competitive moves • Coordinated among units – Competitive moves • Based on local market
Slide 47: Organizational Structure • “Distributions, along various lines, of people among social positions that influence the role relations among these people” • Centralized Decision Making versus Decentralized Decision Making • National, Regional, Product, Function organizational structures
Slide 48: Formalization • A type of bureaucratic control involving an extensive set of rules, regulations, policies, and procedures implemented to ensure consistency throughout an organization • Global Strategies correspond to high levels of formalization • Multidomestic Strategies correspond to low levels of formalization
Slide 49: Management Processes • Integrative practices designed to ensure that the actions of subsidiary managers are consistent with the overall strategic and financial objectives of the firm • Two types: – Coordination (e.g., global performance standards) – Configuration (e.g., distribution of functional activities and responsibilities)
Slide 50: Performance • Measures influenced by: – Perspective (HQ, Subsidiary, Stockholder, etc.) – Time period (external forces influence) – Criteria used • Market share (e.g., Japan) • Profits (US)
Slide 51: International Business Research MBA Essentials Dr. Jeff Shay University of Montana
Slide 52: The Sad Truth About International Business Failures • The sad truth about international business failures is that in most cases they can be avoided • Reasons why companies fail: – Insufficient preparation – Insufficient information
Slide 53: New research challenges – New Parameters • Duties, foreign currencies, distribution channels, transportation, documentation, licensing, etc. – New Environmental Factors • Culture, political and legal systems, language, social structure, etc. – The Number of Factors Involved • Complexity increases with each new market that the company chooses to enter – Broader Definition of Competition • Competition extends beyond domestic market to include both local and global competitors that have a market presence
Slide 54: Managers will often give many reasons why they don’t conduct international research • Managers may… – Lack sensitivity to or be unaware of differences in culture, consumer tastes, and market demands – Have a limited appreciation for diverse foreign environments – Lack familiarity with national and international data sources and inability to use international data once obtained – Believe that international business experience may be substituted for organized research
Slide 55: What type of research should you conduct when examining the possibility of exporting your products or services? • At a minimum you should do the following: – Complete a foreign market opportunity analysis • This involves doing a quick analysis of markets around the world that might have demand for your product or services • This includes population, total and per capita Gross National Product , etc. • Once you’ve determined the most attractive markets, its time to examine individual countries – Collect individual country information for preliminary evaluation • Determine largest and fastest growing markets, trends in demand, and any governmental restrictions • This information will help you reduce your search to a few countries Continued….
Slide 56: What type of research should you conduct when examining the possibility of exporting your products or services? (continued) – Select appropriate markets for in-depth evaluation • For these countries conduct a more in-depth analysis – Complete a Competitive Assessment • Finally, you must match your company’s strengths a weaknesses with the countries you have analyzed to determine the appropriate markets to focus on
Slide 57: What type of research should you conduct when examining the possibility of importing your products or services? (continued) •The key to importing products is to go through the same steps involved with exporting, except in this case your focus is on sourcing the products or services rather than supplying them
Slide 58: There are two basic forms of data used in international business research • Primary Data – Your own data from survey, focus group, etc. – Time consuming – Best if you’ve already determined market • Secondary Data – Someone else’s data (i.e., governments, trade associations, research institutes, and/or other firms)
Slide 59: The PERT Solution Center provides access to secondary data from: • Governments • International Organizations • Service Organizations • Trade Publications • Directories and Newsletters • Service Organizations • Electronic Information Services
Slide 60: PERT has done much of the work for you in terms of using the following criteria for secondary data: • Quality of the source • Recency of the data • Relevance to task at hand
Slide 61: Often times you won’t be able to find secondary data that specifically addresses the decision you are making • In these cases, you might have to rely on proxy information • Proxy information is information that is indirectly related to what you are looking for • For example, if you were interested in opening a video store in Sweden you might not find data on how many videos were rented last year in Sweden – However, you might find such proxy information as the number of VCRs that have been sold in the country – From this, you might be able to extrapolate the potential market size using the ratio of VCRs to video rentals in the United States to deduce video rental potential in Sweden based on their number of VCRs
Slide 62: International Business Research is an Ongoing Process • To be successful in international business, you and your company must: – Continuous scanning – Develop a network of professionals – Develop models that account for changes taking place and prepare your company for a variety of scenarios
Slide 63: Ethics in International Business MBA Essentials Dr. Jeff Shay University of Montana
Slide 64: Ethics and decision making Ethical Unethical Legal Illegal
Slide 65: Regulating the Ethical Behavior of Global Businesses • Foreign Corrupt Practices Act (1977) – – This act states that U.S. firms must abide by U.S. bribery laws and regulations when doing business overseas Many U.S. companies have argued against this Act, stating that the Act often makes U.S. companies uncompetitive in foreign markets because they cannot engage in the same activities as local competition or other non-U.S. foreign competitors
Slide 66: Getting Started MBA Essentials Dr. Jeff Shay University of Montana
Slide 67: First impressions last a long time • Before attempting to initiate expansion into overseas markets, it is important to do your homework
Slide 68: A good place to start What should we know before trying to do business in or with people from a different country?
Slide 69: “Tip of the iceberg” Objective Culture rrency Cu Arts Inst ituti o ture afts, litera , cr ns Arti facts Attitudes Perc e ptio n s ng Thinki Belie fs Assumptions Subjective Culture s alue V