INTERNATIONAL BUSINESS

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INTERNATIONAL BUSINESS

• LECTURE 2
• Globalization internationalization from
  theories to facts analyzing the global
  environment and markets
• Gregor Pfajfar, MSc
• Faculty of Economics University of Ljubljana
• E-mail gregor.pfajfar_at_ef.uni-lj.si
• November 27th 2009

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Table of contents

• Globalization
• What is it?
• Effects of globalization for the IB
• Drivers toward globalization
• Internationalization
• What is it?
• Internationalization theories in use
• Internationalization development stages
• Internationalization motives
• International companies mentalities
• Internationalization strategy
• 5-stages model
• Different analyses used at each stage
• Interesting IB resources online

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(1) Globalization
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Definition and effects

• Globalization is a complex economical, cultural
  and social phenomena, which requires global
  adjustment, integration and close connection of
  business activities in a totally new manner,
  leading to a new standardized quality and
  enabling individuals, corporations, and
  nation-states to reach around the world farther,
  faster, deeper and cheaper than ever before.
• Global markets are defined as those markets in
  which buyer preferences are similar across
  countries.
• FACTORS of globalization
• Growing stake of IB within FDI
• Faster growth of international trade share within
  GDP
• Higher importance of FDI, economies of scale,
  knowledge transfer
• The appearance of integrated financial markets
• GLOBAL MIGRATION OF PEOPLE AND INVESTMENTS
• 1980 working better reengineering
• 1990 working cheaper outsourcing
• 2000 working elsewhere offshoring

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Trends in international business
New technologies
Abundance of products
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New customer segments
Trends in international business
Movement of production
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THEGLOBALCOMPONENTSOF A BIG MACIN
UKRAINE
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Big mac index
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Big mac index-variations
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Drivers toward globalization

1. MARKET DRIVERS
2. COMPETITIVE DRIVERS
3. COST DRIVERS
4. TECHNOLOGY DRIVERS
5. ENVIRONMENTAL DRIVERS
6. GOVERNMENT DRIVERS

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Three hats
The local marketing role
The foreign entry role
The global management role
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(2) INTERNATIONALIZATION
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What is internationalization?
And what is the opposite of the
internationalization???
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Broader definition of internationalization

• Internationalization is defined as an expansion
  of economic activity among more countries and is
  related to all forms of international economic
  cooperation.

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Narrower definition of internationalization

• Internationalization is multidimensional process
  of increased incorporation of inward and outward
  company activities outside the borders of a home
  country.

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Theories of internationalisation

• The Uppsala internationalization model
• The transaction cost analysis (TCA) model
• The network model
• Born globals

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Internationalization development stages

• Internationalization steps of a company (COMPANY
  VIEW)

• Development stages of export operations (MARKET
  VIEW)

1. STAGE Individual export tasks
2. STAGE Establishing a subsidiary in the most
   promising markets
3. STAGE Licensing and strategic alliances
4. STAGE Establishing own production facility in
   the foreign market

• STAGE Export of excess products
• company does not have resources to perform
  continuous export
• STAGE Export marketing
• company is already trying alone to win sales in
  foreign markets
• company is prepared to adapt marketing in limited
  terms
• STAGE Development of foreign markets
• company adapts its products and marketing to
  foreing markets needs
• STAGE Technological development
• company develops new products for existing or new
  markets

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Internationalization MOTIVES
INTERNAL EXTERNAL
PROACTIVE PROFIT AND GROWTH GOALS MANAGERIAL URGE MARKETING ADVANTAGE ECONOMIES OF SCALE UNIQUE PRODUCT / TECHNOLOGY COMPETENCE FOREING MARKET OPPORTUNITIES / MARKET INFORMATION AGENTS EXCHANGE
REACTIVE RISK DIVISION EXTEND SALES OF SEASONAL PRODUCTS EXCESS CAPACITY/ OVERPRODUCTION UNSOLICITED FOREIGN ORDERS DOMESTIC MARKET SMALL AND SATURATED COMPETITIVE PRESSURES PROXIMITY TO INTERNATIONAL CUSTOMERS / PSYCHOLOGICAL DISTANCE
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What do the following companies have in common?
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What is a MNC?

• MNCs as the Zeitgeist of contemporary economic
  structures and socio-cultural contexts
• S. Hymer (1979) The multinational corporation
  has become the dominant organizational form of
  modern capitalism. It now commands tremendous
  influence and power over the economic, social,
  political, and cultural lives of many nations and
  people
• Kristensen Zeitlin (2005) lead agents of the
  globalization process
• Zanfei (2005) ultimate carriers of progress and
  development opportunities, or seen as the extreme
  expression of predatory behavior, based on the
  systematic appropriation of rents

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Definition of a MNC

• One of the most widely used definitions of the
  MNC today is that of the OECD and UNCTC, which
  define it as an enterprise that engages in
  foreign direct investments (FDIs) and owns or
  controls value-adding activities in more than one
  country .
• Underlying this view are two crucial parts, one
  pertaining to a (1) long-term investment of
  resources in other countries (FDIs) and the other
  to the (2) control of value-adding activities in
  foreign environments.

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Are all MNCs the same?

• Yes and No!

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A short evolutionary perspective
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Bartlett Ghoshal 4 mentalities

• 1989 Bartlett Ghoshal ? Managing across
  borders the transnational solution (one of the
  100 most influential economic and business books
  of the 20th century)
• Any internationally active company must fulfill 3
  important strategic goals
• GLOBAL EFFICIENCY in existing activities
• INTERNATIONAL FLEXIBILITY and LOCAL
  RESPONSIVENESS (appropriate management of risks
  and opportunities)
• WORLD-WIDE LEARNING thought its exposure to local
  contexts
• 4 company mentalities
• INTERNATIONAL COMPANY
• MULTINATIONAL COMPANY
• GLOBAL COMPANY
• TRANSNATIONAL COMPANY (a revolutionary new form
  NEW MANAGEMENT MENTALITY!)

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The book
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Bartlett Ghoshal 4 mentalities
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Who else is participating in international
business?

• SMEs small and medium enterprises
• SMEs are defined as independent companies that
  employ less than 250 people (OECD, 2009). OECD
  estimates say that SMEs perform 95 of all
  world business and employ 60 70 of all active
  population.
• SMEs have appeared as a direct result of
  internationalization, as they started to take
  over functions, which were given by
  multinationals to external service providers
  (outsourcing).
• Technological advancement and integration
  processes are considered to be main factors to
  barrier decrease for SMEs to enter international
  business.
• SMEs contribution to global economy development
  of new employment, flexibility in the process of
  goods creation, increase of market
  competitiveness, capability of creating
  innovative environment and development of
  entrepreneurship, etc.
• Example Akrapovic, Elektroncek, Armeton, Bisol,
  Lesimpex

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(3) Internationalization strategy

• Figure 1 The internationalization model
• Source Adapted from Hollensen, 2004 Czinkota,
  Ronkainen, Moffett, 2005 Kotler, 2005 and own
  modification.

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1. STAGE The decision whether to internationalize
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2. STAGE Which markets to enter?
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3. STAGE How to enter new markets?
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4. STAGE Designing global marketing program
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5. STAGE Implementation and coordination of the
marketing program
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(4) Interesting IB resources online

• Alibaba
• http//www.alibaba.com/
• CIA factbook
• https//www.cia.gov/library/publications/the-worl
  d-factbook/
• WTO
• http//stat.wto.org/CountryProfile/WSDBCountryPFV
  iew.aspx?LanguageECountrySI
• World bank doing business
• http//www.doingbusiness.org/