The Management of International Business

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The Management of International Business
C H A P T E R
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Table of Contents

• Chapter Vignette (Wine Wars)
• The Changing Profile of Global Business
  Environment
• World and Investment Trade Trends
• Reasons for going Abroad
• Theories of Foreign Direct Investment (FDI) by
  MNCs
• International Product Life Cycle
• Types of International Operations
• Degree of internationalization
• Management view of international business

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Chapter Vignette

• Wine Wars
• French Wine Industry
• Impact of globalization
• Threat from foreign producers
• Advantages over France
• Merger and Acquisition activity in the industry
• Response from French wine producers

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Changing Profile of the Global Business
Environment

• Decreased trade barriers ? Increased free trade.
• Changes in developing countries attitudes toward
  MNCs.
• Adoption of export oriented strategies.
• Spread of regional trade agreements.
• Technological developments Robotics, CAD, CAM
  and flexible manufacturing ? Reduced production
  costs and the labor component of production.
• New Technologies and MNCs are sought.

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Changing Profile of the Global Business
Environment

• Global demand for capital is increasing.
• Diminishing effectiveness national borders.
• Investment requirement of new technologies.
• Increased interdependencies among countries
• Rising FDI ? Globalization.
• The effect of the Internet.
• International terrorism.

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The World Export (F.O.B.) 1980-2004 Billions of
U.S. Dollars
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The World Imports 1980-2004 (C.I.F.)Millions of
U.S. Dollars
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U.S. Direct Investment Abroad and Foreign Direct
Investment in the U.S., 1980-2004 Millions of
U.S. Dollars

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Reasons for Going Abroad

• Contributing Factors
• Information Explosion
• Reduced Transportation Cost ?
• Going international is an inherent extension of
  successful domestic business.
• A requirement to remain competitive
• International Trade theories
• Nations gain from international trade.
• The gains are due to
• Relative comparative advantage in natural
  resources, quality of land, cost of labor,
  capital technology and entrepreneurship.

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Theories of Foreign Direct Investment

• Change in Geographic Horizons
• International Trade
• Change in perception
• FDI
• Ownership-Specific Advantage
• MNCs are disadvantaged vs. Local Firms
• To offset the disadvantage of foreignness--ownersh
  ip-specific adv.
• Strategic Advantagegt
• Patented Technology, Differentiation, Economics
  of Scale, Knowledge

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Theories of Foreign Direct Investment

• Exploration of Internal Market
• Internal Organization Capabilities--- Exploit
  Internal Market
• Strategic Advantage embodied in intermediate
  products.
• Location Advantage
• The choice of investment location
• Raw Material. Large Market. Low labor cost
• Other Factors
• Go where competitors are.
• In search of technology.

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International Product Life Cycle

• 1. New Product Stage
• New Products for Home Market
• Exports
• No Serious Competition
• 2. Mature Product Stage
• Standardization
• Price Competition
• Manufacturing facilities in other high income
  countries.
• 3. Standardized Product Stage
• Product in low cost countries
• 4. International Stage
• No difference between domestic and International
  Market for many products.
• Internationalization is the requirement of
  remaining competitive.

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Types of International Operations

• Import/Export
• Counter Trade Exchange of goods for good
• Barter
• Counterpurchase
• Buyback
• Switchtrading
• Turnkey Operations
• Licensing
• International Joint Venture
• Direct Investment

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International Business and International
Management

• Degree of internationalization
• Managing international business operations ?
• Management view of international business
• Ethnocentric mentality
• Polycentric mentality
• Centocentric mentality
• Geocentric mentality
• MNCs and host government relationships
• Host country business environment