Managing Global Business-

Market and Non-market strategy

Kshitij Awasthi

Globalization
International Business and the
• Growth in technology specially communication technology Roman Empire
• Greater interdependence amongst nations for growth
• Pax Romana, or Roman Peace ensured that
• Globalization of Production merchants were able to travel safely and rapidly.
• Efficient factors of productions (inputs material; Labor) • Common coinage simplified business transactions.
• Market for product and services • Rome developed a systematic law, central market
locations, and an effective communication system; all
• Growth and Profitability needs of which enabled international business to flourish in
the Roman Empire.
• Higher growth in developing economies; near-saturation in
• The growth of the Roman Empire occurred mainly
developed economies for many products and services through the linkages of business 4

• https://www.youtube.com/watch?v=3oTLyPPrZE4
3

International Business and the

United States: A Global Leader
Roman Empire (cont.)
• The decline of the Roman Empire can be
attributed in part to:
• The United States has developed a world
leadership position due to:
• infighting and increasing decadence
• its use of market-based transactions in the Western
• the Pax Romana being no longer enforced world
• the decline of use and acceptance of the common coinage • a broad flow of ideas, goods, and services across
• declining levels of communication national borders
• an encouragement of international communication and
• As a result, former Roman allies cooperated with transportation
invaders. 5
• Pax Americana, an American sponsored and enforced 6

peace
 The Smoot-Hawley Act Global Links Today

 The the 1930’s, the U.S. passed the Smoot-Hawley • International business has created a network of
Act, which raised import duties to reduce the global links that bind countries, institutions, and
volume of goods coming into the U.S. individuals with trade, financial markets, technology,
and living standards.
 The act was passed in the hope that it would restore • For example, a reduction in coffee production in Brazil
domestic employment. would affect individuals and economies worldwide.

 The result was a worldwide depression and the

collapse of the world financial system. 7 8

Factors Contributing to Rapid Growth of

International Business
Global and Regional Integration
1. Increase in and expansion of technology
• World Trade Organization (WTO)
2. Liberalization of cross-border trade and resource
movements
• General Agreement on Tariffs and Trade (GATT)
• Regional Agreements 3. Development of services that support international
• North American Free Trade Agreement (NAFTA)
business
• U.S.—Central American Free Trade Agreement (CAFTA) 4. Growing consumer pressures
• Free Trade Agreement of the Americas (FTAA) 5. Increased global competition
• European Union (EU)
• Association of Southeast Asian Nations (ASEAN)
6. Changing political situations
7. Expanded cross-national cooperation

Definition of International Business How IB is different from a domestic business

• Lack of consensus on definition • More complex environment in IB

• “International business is defined as organization that buys • Legal and political system
and/or sells goods and services across two or more national boundaries, • Culture and society
even if management is located in a single country.” • Inflation
• Higher uncertainty in case of IB
• “International business consists of transactions that are devised and • Rules of the game often ambiguous, contradictory
carried out across national borders to satisfy the objectives of
• Subject to rapid change, as compared to the domestic
individuals, companies, and organizations.”*
environment
• ‘International business is really not like playing a whole new ball
• Spectrum of International Business is very broad game, however, it is like playing in a different ballpark’
• Trade, licensing, subsidiary, Foreign direct Investment…
• Domestic business is a special limited case of international
business
11 12
 Opportunities and Outcomes of International Strategy
Studying International Business is Important

• Most companies are either international or compete Location

Choices

with international companies

• Modes of operations may differ from those used
domestically
Demand
• The best way of conducting business may differ by
country Supply
• An understanding helps you make better career
decisions
• An understanding helps you decide what
government policies to support

Environmental Analysis
• The prospects of a business depend not only on its resources
but also on the environment
International Business Environment • Internal factors controllable
• Environment necessitates adaptability for survival and
success
• Environmental analysis is an essential prerequisite for strategic
management decision-making
• Definition “The process by which strategists monitor the
economic, governmental/legal, market/competitive, supplier/
Kshitij Awasthi technological, geographic, and social settings to determine
opportunities and threats to their firms”
• Gaining prominence due to complexity of environment
• More crucial for international business strategy
2

Analyzing International Business environment Environmental Analysis: Micro vs. Macro

• “The micro environment consists of the actors in the
Environmental Assessment
company’s immediate environment”
• Effect the performance of the company
• Include the suppliers, marketing intermediaries,
Micro Environment Macro Environment competitors, customers, and publics
• “The macro environment consists of the larger societal forces
that affect all the actors in the company’s micro environment
namely, the demographic, economic, natural, technological,
Economic
political and cultural forces”.
Political-Legal
Supplies Socio-Cultural
Customers Demographic
Marketing intermediaries Natural • Usually micro factors are more crucial to businesses due to their
Public Physical and technological close and direct linkages with firm; however in an international
International
setting macro environment is equally important.
3 4
 Micro Environment: Suppliers & Customers Micro Environment: Competitors & Marketing
Intermediaries
• Suppliers In an international business environment become • Competitors
important • Competitive dynamics; number of players and rivalry
• Availability of suppliers • Competition with substitutes
• Supply terms and inventory conventions • Price sensitivity
• Payment and delivery rules

• Customers may also have different • Marketing Intermediaries might differ in

• Categories of customers and the number • Channels of distribution
• Customer preferences • Availability or lack of availability of preferred intermediaries

5 6

Micro Environment: Public

• “Public is any group that has an actual or potential interest in or impact
on an organization’s ability to achieve its interests”
• Media
• citizens forum
• Local community
Macro Environment
• Becomes more important in new country as their attitude towards
businesses may be different
• They may be more aware about rights and details

• Public as environmental factor is growing in its importance steeply

specially after the coming of social media

Assessing Environment: Economic Conditions Contd..

• “Economic conditions, economic policies and the economic system • The economic environment can be very different from one nation
are major constituents of the economic environment to another.
• Countries are often divided into three main categories:
• Economic conditions which need attention of firms for IB • The more developed or industrialized,
• The nature of the economy • The less developed or third world,
• The stage of development of the economy • The newly industrializing or emerging economies
• Economic resources • This distinction is largely based on level of economic development
• The level of income like GDP, education, infrastructure, technology, health care
• A good economic environment assessment leads to solutions for • Level of economic activity combined with these factors as well as
specific conditions like offering products for low income countries the degree of government control of the economy, affect virtually
all facets of doing business
• A firm needs to understand this environment if it is to operate
successfully internationally
9 10
 Elements of the Economic
Other Features of an Economy
Environment
• Gross domestic product (GDP): the total value of all • Inflation
final goods and services produced in a country in a • Unemployment
given year equal to total consumer, investment, and
• Debt
government spending, plus the value of exports,
minus the value of imports. • Income distribution
• Poverty
• Labor costs
• Balance of payments

Dimensions of The Economic Freedom Index

Definition of Economic System

• A mechanism that deals with the production, distribution, and

consumption of goods and services
• Types:
• Market economy
• Command economy
• Mixed economy

Assessing Environment: Economic Policy

Means of Economic Transition
Government policy have huge impact of businesses; particularly for
• Liberalizing economic activity international business
• Reforming business activity • Import policy- quota and tariff
• Establishing legal and institutional frameworks • Protection to domestic companies in priority sector
• Success is linked to how well the government deals with:
• Monetary and fiscal policies
• Privatization
• Regulation • Openness to private businesses

• Property right protection • FDI related rules and variations therein

• Fiscal and monetary reform
• Antitrust legislation
16
 Political and Legal Environment

• Political and government environment has close relationship with

Definition of a Political System
the economic system and economic policy
• The complete set of institutions, political
• Political systems decide on the control on economy organizations, and interest groups,
• The relationships among institutions, and the
• Government makes laws that regulate the conduct of business political norms and rules that govern their functions
• E.g., Food standards; environment, investment

• The rules of the game in such environment also relate to extent of

legal protection available

17

Individualism vs. Collectivism Political Ideology

• Individualism: primacy of the rights and role of the • The system of ideas that expresses the goals,
individual theories, and aims of a sociopolitical program
• Collectivism: primacy of the rights and role of the • Most modern societies are pluralistic—different
community groups champion competing political ideologies

Definition of a Legal System Trends in Legal Systems

• The mechanism for creating, interpreting, and • The preference for stability
enforcing the laws in a specified jurisdiction
• The influence of national legacies
• Types:
• Common law
• Civil law
• Theocratic law
• Customary law
• Mixed systems
 Operational Concerns that Face Strategic Concerns that Face
Managers Worldwide Managers Worldwide
• Starting a business • Product safety and liability
• Entering and enforcing contracts • Marketplace behavior
• Hiring and firing local workers • Product origin and local content
• Closing down the business • Legal jurisdiction
• Arbitration

Analyzing International Business environment

Intellectual Property Environmental Assessment

• Intangible property rights that are a result of

intellectual effort Micro Environment Macro Environment

• Intellectual property rights refer to the right to

control and derive the benefits from writing,
inventions, processes, and identifiers Economic
Political-Legal
• Local attitudes play a large role in piracy Supplies Socio-Cultural
Customers Demographic
Marketing intermediaries Natural
Public Physical and technological
International

26

Government Business Relation Some types of Government control

• Government-business relationships also differ from country to
country. • Licensing
• Business may be viewed positively as the engine of growth
• it may be viewed negatively as the exploiter of the workers, or • Statutory compliance
• Somewhere in between as providing both benefits and
drawbacks. • Disclosure requirements
• Specific government-business relationships can also vary from
positive to negative depending on the type of business operations • Advertising
involved and
• The relationship between the people of the host country and the • Anti- Competitive behavior
people of the home country

27 28
 Government as resource provider Changes in Political and Legal environment
Governments not just controls but can also facilities the business • Also, governments change in different ways--
• Regular Elections
• Occasional Elections
• Small scale industries
• Death
• Coups
• Specific industries (Solar panels/ alternate fuel)
• War

• Special Economic Zones (IT parks) • New legislation may come due to political factors
• One of major concern of international firms is the degree of
political risk in a foreign location
• Research and Development Centers
• Political risk refers to the likelihood of government activity that has
unwanted consequences for the firm.
• can be dramatic as in forced divestment, more moderate, as in
unwelcome regulations or interference in operations
29 30

Political and Legal Environment in India Socio-Cultural Environment

• India is a mixed economy with elements of both capitalist and • Important yet sometimes overlooked aspect
socialist economies • Many socio-cultural factors that affect business
• Buying and consumption habits of the people,
• Indian government controls • Language,
• Industries Directly (Schedule A) • Beliefs and values,
• Land allotment to industries • Customs and traditions,
• Trade Practices (MRTP Act) • Tastes and preferences,
• Export and Import license • Education
• Product standardization • Cost of ignoring could be very high
• Labor laws • To avoid that International Business strategy of the firm
should be the one that is appropriate in the socio-cultural
environment
31 32

Hofstede (1980) Model of Cultural values Attention to Socio-Cultural Environment

• This model proposes four dimensions of cultural values • Same basic product, the mode of consumption, conditions of use,
1. Individualism: Degree to which a nation values and encourages purpose of use or the perceptions of the product attributes may
individual action and decision making vary very much from one market to other
• For example, in a nation that is high on individualism one • Need to adapt the strategy to suit the environment
expects individual goals, individual tasks, and individual reward • Change in Marketing mix
systems to be effective, whereas the reverse would be the case in • Promotion- advertising medium; message
a nation that is low on individualism. • Price- preference in prices
2. Uncertainty Avoidance : degree to which a nation is willing to
• Product attributes- color, design,
accept and deal with uncertainty
• Place- preferred channels of distribution
3. Power distance : degree to which a national accepts and sanctions
differences in power • Social environment of the business ; the alertness or vigilance of
the consumers and of society at large
4. Masculinity : degree to which a nation accepts traditional male
values or traditional female values
33 34
 Culture Cultural Diversity

A means of gaining global competitive

Learned norms based on values, attitudes, and beliefs
advantage by bringing together people of
of a group of people
diverse backgrounds and experience

The Idea of a “Nation” – Delineating

Cultural Awareness
Cultures

• Problem areas that can hinder managers’ The nation is a useful definition of society
cultural awareness… because:
• Subconscious reactions to circumstances
• The assumption that all societal subgroups are similar
• Similarity among people is a cause and an effect
of national boundaries

• Laws apply primarily along national lines

The Nation as a Cultural Mediator Country-By-Country Analysis

• A national culture must be flexible enough to • Managers find this difficult to implement
accommodate the diversity of various because:
subcultures, ethnic groups, races, and classes • Subcultures exist within nations
• Similarities link groups from different countries

• Yet every nation boasts certain human,

demographic, and behavioral characteristics
that constitute its national identity
 Language as Both a Diffuser and
How Cultures Form and Change
Stabilizer of Culture

• Change by Choice
• Reaction to social and economic situations A common language within a
• Change by Imposition country is a unifying force
• Imposed introduction into a culture of certain elements
from an alien culture

Major Language Groups: Population and Output

Religion As A Cultural Stabilizer

Centuries of profound religious

influence continue to play a major
role in shaping cultural values
and behavior

Behavioral Practices Affecting Business Group Affiliations Can Be:

• Issues in Social Stratification • Ascribed or Acquired

• Social ranking is determined by: • Include those based on gender, family, age, caste, ethnic,
racial, or national origin
• Factors pertaining to you as an
individual
• A reflection of class and status
• Factors pertaining to your affiliation • Include those based on religion, political affiliation, and
with certain groups professional and other associations
 Social Stratification and Employment
Work Motivation
Practices

• Performance Orientation • Materialism and Motivation

• Open and Closed Societies • Expectation of Success and Reward
• Gender-Based Groups • Performance and Achievement: The
• Age-Based Groups Masculinity-Femininity Index

• Family-Based Groups • Hierarchies of Needs

Hierarchy of Needs
Relationship Preferences

• Power Distance
• Individualism Versus Collectivism

Risk-Taking Behavior Information and Task Processing

• Uncertainty Avoidance • Perception of Cues

• Trust • Obtaining Information: Low Context versus
• Future Orientation High Context Cultures

• Fatalism • Information Processing

• Monochronic Versus Polychronic Cultures
• Idealism Versus Pragmatism
 Communication Degree of Cultural Differences

Cultural Distance
• Spoken and Written Language When a company moves within a cluster of culturally
• Silent Language similar countries, it should expect to encounter fewer
cultural differences and to face fewer cultural
• Distance adjustments.
Cultural Friction
• Time and Punctuality
A business interaction may be viewed negatively
• Body Language because of possible changes in power relationships and
the sovereignty that sets countries apart.
• Prestige

Example of Socio-Cultural variation 1

Company and Management Orientations • In the U.S. market, correct weight and bacteriological factors
are more important rather than eye appeal, colour, uniformity
of size and arrangement of the shrimp which are very
• Polycentrism important in Japan.
• belief that business units in different countries should act like local
companies
• Tuna fish sandwiches, an American favorite which accounts for
about 80 per cent of American tuna consumption, have little
• Ethnocentrism appeal in high tuna consumption European countries where
• conviction that one’s own culture is superior to that of other countries people eat it right from the can.
• Geo-centrism • A very interesting example is that of the Vicks Vaporub, the
popular pain balm, which is used as a mosquito repellant in
• requires companies to balance knowledge of their own organizational
cultures with both home and host country needs, capabilities, and some of the tropical areas.
constraints

56

Assessing Environment: Demographic Environment Effect of Demographic Environment : Some scenarios

• Demographic factors are important consideration as they affect the • A rapidly increasing population indicates a growing demand for
demand pattern for goods or services many products
• Size of the population (India, China Vs Singapore) • Consumer products; food products
• Population growth rate (negative in Japan and many European • The governments of developing countries encourage labour
countries like Hungary, Portugal) intensive methods of production due to labor surplus
• Age composition (Japan vs India) • The decline in the birth rates, on the other hand, in countries like
• Life expectancy (African Countries) the United States have affected the demand for baby products
• Gender ratio • Johnson and Johnson repositioned their products like baby
• Family size
shampoo and baby soap, promoting them also to the adult
segment, particularly to the females
• Employment pattern
• Highly heterogeneous labor in respect of language, caste
• An international business strategy necessitates to understand these
factors and respond accordingly • and religion, ethnicity, etc., can make personnel management a more
complex task
57 58
 Assessing Natural Environment Effect of Natural Environment : Some scenarios

• Geographical and ecological factors are relevant to business • Climatic and weather conditions affect the location of certain
• Natural resource endowments, industries
• Weather and climatic conditions, • The cotton textile industry.

• Topographical factors, • Topographical factors may, affect the demand pattern.

• Port facilities, • In hilly areas with a difficult terrain, jeeps may be in greater

• Differences in geographical conditions between markets may call for demand than cars.
changes in the marketing mix. • Ecological factors have recently assumed great importance

• Geographical and ecological factors also influence the location of • Government policies aimed at the preservation of environment
certain industries. have resulted in additional responsibilities for business
• industries with high material index tend to be located near the • Have the effect of increasing the cost of production and
raw material sources marketing
• Earth quake prone zones need to make investment in safety

59 60

Assessing Environment: Physical Environment Assessing Environment : Technological Environment

• Physical / natural Factors, may call for modifications in the • Variation in technology development levels between two countries
product, might have huge implications
• For example, Esso adapted its gasoline formulations to suit the • Modification in product or services requires to survive/grow
weather conditions prevailing in different markets. • Many appliances and instruments in the U.S.A. are designed for
• Business prospects depend also on the availability of certain 110 volts but this needs to be converted into 240 volts in
physical facilities. For example countries which have that power system.
• The sale of television sets, is limited by the extent of the • Technological developments may change the demand for some
coverage of the telecasting. existing products
• Demand for refrigerators and other electrical appliances is • Voltage stabilizers help increase the sale of electrical appliances
affected by the extent of electrification and the reliability of in markets characterized by frequent voltage fluctuations in
power supply. power supply
• The demand for LPG gas stoves is affected by the rate of • However, the introduction of TVs, Fridges etc, with in built
growth of gas connections. voltage stabilizer adversely affects the demand for voltage
61 62
stabilizers

Technological Environment: Examples Assessing Environment : International Environment

• As the economies are integrating; they are affecting each other in
• Change in acceptance of technology
more direct ways
• For Higher end mobile handset there was minimal demand
• Geo-political factors; Wars; Treaties
initially but now a big proportion of mobile sales is smart
phones in India • Recession/ Boom in foreign markets especially in large
economies
• Importance moved from battery life to camera to applications
• Adoption/relaxation of protectionist policies by foreign
• Nokia from market leader to a fringe player (specially in
smartphones) nations
• Particularly important for industries directly depending on imports
or exports and import-competing
• Internet banking
• The oil crisis led to a reorientation of the Government of India’s
• E-commerce energy policy.
• Such developments affect the demand, consumption and
investment pattern.
63 64
 THE CAGE DISTANCE FRAMEWORK Analyzing International Business environment
Cultural distance Administrative distance Geography distance Economic distance
Attributes creating distance
Different languages Absence of colonial ties Physical remoteness Differences in consumer incomes Environmental Assessment
Different ethnicities; lack Absence of shared monetary Lack of a common border Differences in costs and
of connective ethnic or or political association Lack of sea or river access quality of
social networks Political hostility Size of country • Natural resources
Different religions Government policies • Financial resources
Weak transportation • Human resources
Different social norms Institutional weakness or communication links • Infrastructure
Differences in climates • Intermediate inputs
Micro Environment Macro Environment
• Information or knowledge
Industries or products affected by distance
Products have high Government involvement is high Products have a low value-of- Nature of demand varies with
linguistic content (TV) in industries that are weight or bulk ratio (cement) income level (cars)
Products affect cultural or • Producers of staple goods Products are fragile or Economies of standardization or
national identity of (electricity) perishable (glass, fruit) scale are important (mobile
consumers (foods) • Producers of other phones)
“entitlements” (drugs) Communications and Economic
Product features vary in • Large employers (framing) connectivity are important Labor and other factor cost
terms of size (cars), • Large suppliers to government (financial services) differences are salient Political-Legal
standards (electrical (mass transportation) Local supervision and (garments) Supplies Socio-Cultural
appliances), or packaging • National champions (aerospace) operational requirements are Distribution or business systems Customers Demographic
Products carry country- • Vital to national security high (many services) are different (insurance)
specific quality (telecom) Companies need to be
Marketing intermediaries Natural
associations (wines) • Exploiters of natural resources responsive and agile (home Public
(oil, mining) appliances ) Physical and technological
• Subject to high sunk costs International
(infrastructure)

65
66

Entry Strategies
Kshitij Awasthi

Modes of Entry

• Channel to gain entry to a new international market

The Choice of Entry Mode
• Non-equity based • Exporting

• E.g., Export and contractual agreements

• Licensing
• Franchising
• Equity based • Strategic Alliances
• Joint ventures
• E.g., Joint venture and wholly owned subsidiaries
• Wholly-owned subsidiaries

2
 Entry Modes of International Expansion
Choosing Among Entry Modes

• Distinctive competencies and entry mode

• Technological competency
• Wholly-owned subsidiary is preferred over licensing and joint
ventures
• Management competency
• Franchising, joint ventures, subsidiaries
• Pressures for cost reduction in entry mode
• Great pressure for cost reductions
• Exporting and wholly-owned subsidiaries

The Advantages and Disadvantages Choice of International Entry Mode

of Different Entry Modes
Type of Entry Characteristics
Exporting High cost, low control

Licensing Low cost, low risk, little control, low

returns

Strategic alliances Shared costs, shared resources, shared

risks, problems of integration

Acquisition Quick access to new market, high cost,

complex negotiations, problems of
merging with domestic operations
New wholly owned Complex, often costly, time consuming,
subsidiary high risk, maximum control, potential
above-average returns

Non-Equity Based Entry- Exporting

• Exporting is the process of selling of goods and services produced
in one country to other countries. There are two types of exporting:
direct and indirect
• Exporting has traditionally been most popular form of
THANK YOU •
international business
Direct exports is exporting process done directly by firm
• capitalizes on economies of scale in production concentrated
in the home country.
• Affords better control over distribution
• Indirect export is the process of exporting through domestically
based export intermediaries.
• The exporter has no control over its products in the foreign
market

9
 Exporting- various Options Direct Exporting: Sales Representative

• Major types of exporting • Represent foreign suppliers/manufacturers in their local markets

for an established commission on sales
• Provide support services to a manufacturer regarding
Exporting
• Local advertising,
• Local sales presentations,

Direct Exporting Indirect • Customs clearance formalities,

▪ Sales Representative
Exporting • Legal requirements.
▪ Export trading
▪ Importing Distributor Companies • Manufacturers of highly technical services or products such as
▪ Export management production machinery, benefit the most form sales
Companies
representation.
▪ Export Merchant
▪ Confirming House
▪ Non Confirming
Purchasing Agents
10 11

Direct Exporting: Importing Distributors Direct Exports: Advantages

• Purchase product in their own right and resell it in their local • Control over selection of foreign markets and choice of foreign
markets to wholesalers, retailers, or both. representative companies

• Importing distributors are a good market entry strategy for • Good information feedback from target market
products that are carried in inventory, such as toys, appliances, • Better protection of trademarks, patents, goodwill, and other
prepared food intangible property
• Importing distributer has a lesser degree of control by exporting • Potentially greater sales than with indirect exporting
firm and higher role of local partner

12 13

Direct Exports: Disadvantages / Optimal Scenarios Exporting- various Options

Disadvantages • Major types of exporting

• Higher start-up costs and higher risks as opposed to indirect

Exporting
exporting

• Greater information requirements Indirect

Direct Exporting
Exporting
• Longer time-to-market as opposed to indirect exporting ▪ Sales Representative ▪ Export trading
▪ Importing Distributor Companies
Optimal Scenarios ▪ Export management
Companies
• Direct export works the best if the volumes are small ▪ Export Merchant
▪ Confirming House
▪ Non Confirming
Purchasing Agents
14 15
 Indirect Exporting: Export Trading Companies Indirect Exporting: Export Management Companies

• ETCs provide support services of the entire export process for one or • Export for producers; similar to ETCs

more suppliers. • However, unlike ETCs,

• ETCs usually perform all the necessary work: • Rarely take on export credit risks
• Locate overseas trading partners,
• Carry one type of product, not representing competing ones.
• Present the product,
• Usually, EMCs trade on behalf of their suppliers as their export
• Quote on specific enquiries, etc.
departments
• Attractive to suppliers that are not familiar with exporting

16 17

Indirect Exporting: Export Merchants Indirect Exporting: Confirming Houses

• Wholesale companies buy unpackaged products from • Intermediate sellers that work for foreign buyers.

suppliers/manufacturers for resale overseas under their own brand • They receive the product requirements from their clients,

names. negotiate purchases, make delivery, and pay the

• The advantage of export merchants is promotion. suppliers/manufacturers

• The disadvantages is that the export merchant’s activities may hinder • Opportunity for a greater partnership as trade representative

manufacturer’s exporting efforts • Threat includes supplier’s unawareness and lack of control over
• presence of identical products under different brand names and
pricing on the market, what a confirming house does with their product
18 19

Indirect Exporting: Non-Confirming Houses Indirect Exports: Advantages

• Similar to confirming houses • Fast market access

• Lesser financial commitment and risk

• However, they do not transact with the suppliers directly –
• Specially useful for companies
• Transactions take place between a supplier/manufacturer and a
• Who consider their domestic market to be more important
foreign buyer.
• Who are still developing their R&D, marketing, and sales
strategies

• The management team is not distracted

• No direct handle of export processes

20 21
 Indirect Exports: Disadvantages Indirect Exports: Favorable and Unfavorable scenarios

• Higher risk than with direct exporting Favorable scenario

• Little or no control over distribution, sales, marketing, etc. as • Companies who would want to avoid financial risk as a threat to
opposed to direct exporting their other goals

• Lower usefulness in terms of learning to operate overseas Unfavorable scenario

• Wrong choice of market and distributor • Companies that seriously consider international markets as a

• May lead to inadequate market feedback affecting the crucial part of their success

international success of the company

• Potentially lower sales as compared to direct exporting

22 23

Licensing Licensing Contract

• Licensee sell in the host country a similar product to the one the
• An international licensing agreement allows foreign firms, either
licensor has already been producing and selling in the home
exclusively or non-exclusively to manufacture a proprietor’s country without requiring the licensor to open a new operation
overseas
product for a fixed term in a specific market

• Licensor gives Licensee resources /permit to use resources • Licensing is a relatively flexible work agreement that can be
customized to fit the needs and interests of both, licensor and
• Patents,
licensee
• Trademarks,
• The licensor earnings usually take forms of one time payments,
• Managerial skills,
technical fees and royalty payments as a percentage of sales
• Technology
• Intellectual Property regime in host country play major role
24 25

Licensing: Advantages Licensing: Disadvantages

• Obtaining extra income for technical know-how and services • Lower income than in other entry modes

• Reach new markets not accessible by export from existing • Loss of control of the licensee manufacture and marketing
facilities operations and practices dealing to loss of quality

• Quickly expand without much risk and large capital investment • Risk loss of trademark and reputation by an incompetent partner

• Pave the way for future investments in the market or the other entities in host country

• Retain established markets closed by trade restrictions • The foreign partner can also become a competitor by selling its

• Political risk is minimized as the licensee is usually 100% locally production in places where the parental company is already in

owned

26 27
 Licensing: Favorable and Unfavorable scenarios Franchising

Favorable scenario • “A system in which semi-independent business owners

• Is highly attractive for companies that are new in international (franchisees) pay fees and royalties to a parent company

business. (franchiser) in return for the right to become identified with its

Unfavorable scenario trademark, to sell its products or services, and often to use its
business format and system.“
• Resources being critical to firm’s success specially in weaker IPR
protection environment

28 29

Franchising vs. Licensing Agreements Franchising: Advantages and Disadvantages

• Greater degree of resource provision by franchisor to franchisee Advantages

compared to licensor-licensee • Low political risk
• Equipment and Operational Support
• Allows simultaneous expansion into different markets at low cost
• Training & Managerial Systems
• Disadvantages
• Franchising agreement is limited to trademarks and operating
• Selection of wrong Franchisee can harm reputation
know-how
• Franchisees may turn into future competitors
• While licensing agreement involves things such as intellectual
property, trade secrets etc • Requires a greater financial investment compared to Exporting and
Licensing
• More Long term compared to Licensing
30 31

Equity Based Mode of Entry: Major Types Equity Based Mode of Entry
: Wholly Owned Subsidiary
• A company in a country whose common stock is 100% owned by
• Wholly owned Subsidiary
another a company based out of another country (called the parent
company)*
• Strategic Alliance
• A company can become a wholly owned subsidiary through
• Joint Ventures acquisition by the parent company or by greenfield investment/
spin off from the parent company.
• Turnkey Projects • Common among high-tech companies who want to retain
complete control and ownership of their technology

32 33
 Wholly owned Subsidiary :Greenfield Investment Greenfield Investment: Disadvantages
• Greenfield investment is the establishment of a new wholly owned
subsidiary. • Greenfield investment is high risk due to the costs of establishing
• Complex and potentially costly,
• However, enables full control to the firm a new business in a new country
• Preferred in service industries where close contact with end
customers specialized know how, and customizations are required • A firm may need to acquire knowledge and expertise of the
• Also in situations where physical capital intensive plants are
existing market
planned
• Useful in scenarios where no or very less competitors is there to
• Takes long time due to the need of establishing new operations in
buy or the transfer competitive advantages
a different environment

34 35

Wholly Owned Subsidiary: Acquisition Acquisition: Disadvantages

• Acquisition has become a popular mode of entering foreign markets

• Integrating two organizations can be quite difficult due to different
mainly due to its quick access
• Way to achieve greater market power organization cultures, control system, and relationships

• Acquisitions are done by buying a competitor, a supplier, a distributor, or

• Often increases debt level and threatening the financial position of
a business in related industry usually
• Provides immediate competitive advantage parent company

• Lower Risk than Greenfield investments due to better possibility of

• Acquisition to achieve diversification may not be fruitful
assessments
• Useful if acquired firm has already successful

36 37

Equity Based Mode of Entry: Joint ventures Challenges in JVs

• An international joint venture (IJV) occurs when two businesses • The key issues to consider in a joint venture
based in two or more countries form a partnership.
• Ownership,
• Objectives of joint venture:
• Control,
• Market entry,
• Length of agreement,
• Risk/Reward sharing,
• Technology sharing and joint product development, • Technology transfer,
• The partners’ strategic goals converge while their competitive goals
diverge
• Conflict over asymmetric new investments
• The partners’ size, market power, and resources are small
compared to the Industry leaders • Mistrust over proprietary knowledge
• Partners are able to learn from one another while limiting access to
their own proprietary skills • Performance ambiguity - how to split the pie

38 39
 Conflict specific to JV Equity Based Mode of Entry: Strategic Alliance
Conflict of cooperation AND competition • A strategic alliance is a term used to describe a variety of cooperative

• The partners want to maximize the advantage gained for the joint agreements between different firms
venture, and also maximize their own competitive position. • Example: Joint research and development
• The joint venture attempts to develop shared resources, but each
• Becoming more and more popular
firm wants to develop and protect its own proprietary resources.
• Have certain features like
• The joint venture is controlled through negotiations and
• Usually focus on creating new products and/or technologies
coordination processes, while each firm would like to have
hierarchical control. • Usually are created for short term durations

40 41

Strategic Alliance: Advantage Strategic Alliance: Disadvantage

• Technology Exchange for faster innovation • Risk of alliance partner turning into competitor is higher as mostly

• Cooperation among small firms for competing against big they will be from same or related industry

• Tacking lack of skills in converging industries • Takeovers of alliance partners

• Economies of Scale • Learning from alliance partners and use that as competitive

• Reduction in Risk strength

• Alternative to merger

42 43

Entry Strategies
THANK YOU
Kshitij Awasthi

Presented by: Kshitij Awasthi

 Modes of Entry

• Channel to gain entry to a new international market

The Choice of Entry Mode
• Non-equity based • Exporting

• E.g., Export and contractual agreements

• Licensing
• Franchising
• Equity based • Strategic Alliances
• Joint ventures
• E.g., Joint venture and wholly owned subsidiaries
• Wholly-owned subsidiaries

Entry Modes of International Expansion

Choosing Among Entry Modes

• Distinctive competencies and entry mode

• Technological competency
• Wholly-owned subsidiary is preferred over licensing and joint
ventures
• Management competency
• Franchising, joint ventures, subsidiaries
• Pressures for cost reduction in entry mode
• Great pressure for cost reductions
• Exporting and wholly-owned subsidiaries

The Advantages and Disadvantages Choice of International Entry Mode

of Different Entry Modes
Type of Entry Characteristics
Exporting High cost, low control

Licensing Low cost, low risk, little control, low

returns

Strategic alliances Shared costs, shared resources, shared

risks, problems of integration

Acquisition Quick access to new market, high cost,

complex negotiations, problems of
merging with domestic operations
New wholly owned Complex, often costly, time consuming,
subsidiary high risk, maximum control, potential
above-average returns
 How to decide Entry Mode Ownership advantage
OLI is an acronym for
Ownership-, Location- and
Internalization- advantage. • Ownership advantage in order to overcome the liability of foreignness.
• Ownership refers to the possession of a certain valuable, rare, hard-to-
A company needs all three imitate, and organizationally embedded resource that allows a company
to have a competitive advantage compared to foreign rivals.
advantages in order to be
able to successfully engage • The liability of foreignness however can be defined as the inherent
disadvantage that foreign firms experience in host countries because of
in FDI. their non-native status. These disadvantages could vary from simply not
speaking the local language to having limited knowledge on the local
If one or more of these customer demands.
advantages are not present, • The question that management should therefore ask itself is: does our
the focal company might firm have a certain competitive advantage that can be transferred abroad
in order to offset our liability of foreignness?
want to use a different entry-
mode strategy. • This could for example be a strong brand name with a great reputation,
unique technological capabilities or huge economies of scale.
8 9

Location advantage Internalization advantage

• Secondly, there must be some kind of location advantage in the market the company • To choose between licensing and FDI management should look at the final
is trying to enter. advantage: internalization advantage.
• Again, given the well-known liability of foreignness, host countries must offer • Is it more attractive to perform the value chain activity in-house than to have
compelling advantages to make it worthwile to undertake FDI. it performed by an external party?
• These advantages can be simply geographical (e.g. the Netherlands is in between • Reasons to outsource certain activities to different companies abroad might
great economies like the UK and Germany and is moreover located next to the ocean) be because they are better at it, are able to do it cheaper, have more local
or are present because of the existence of cheap raw materials, low wages, a skilled market knowledge, or because management simply wants to focus on other
labor force or special taxes and tariffs. activities in the value chain such as marketing or design.
• A great tool to determine these location advantages is through Porter’s Diamond model. • In this case management might want to license its product design to an
• The question that management should ask itself here is: are any of these location independent foreign company or outsource production. If the answer is YES
advantages present in the market we are thinking of entering? If the answer on this however, the firm should keep control over its activities and engage in FDI.
question is NO, it might be wiser for management to keep production at home and
export products instead – assuming that there is demand in the foreign market. If the • This could be done through forming joint ventures with local partners,
answer is YES however, it might be interesting to perform certain value chain activities acquiring existing local companies, or by starting from scratch through a
abroad either through licensing/francising or through FDI. greenfield investment.
10 11

THANK YOU

12
 How Do Cultural Differences Affect
International Business?

Understanding and adapting to the local cultural is

Socio- Cultural important international companies
◦ cross-cultural literacy - an understanding of how cultural
Environment of differences across and within nations can affect the way in
which business is practiced
International business ◦ cross-cultural literacy is important for business success

A relationship may exist between culture and the costs

of doing business in a country or region

K S H I T I J AWA S T H I

What Is Culture? What Are Values And Norms?

Culture - a system of values and norms that are Values provide the context within which a society’s norms are
shared among a group of people and that when established and justified and form the bedrock of a culture
taken together constitute a design for living Norms include
◦ folkways - the routine conventions of everyday life
where ◦ mores - norms that are seen as central to the functioning of a society and to
◦ values are abstract ideas about what a group believes to its social life
be good, right, and desirable
◦ norms are the social rules and guidelines that prescribe
appropriate behavior in particular situations
Society - a group of people who share a common
set of values and norms

How Are Culture, Society,

And The Nation-State Related?
What Determines Culture?
The relationship between a society and a nation state is not strictly one-
to-one
The values and norms of a culture evolve over time

Nation-states are political creations Determinants include

◦ can contain one or more cultures
◦ religion
◦ political and economic philosophies
A culture can embrace several nations
◦ education
◦ language
◦ social structure
What Determines Culture?
Determinants of Culture

How Are Individuals How Are Individuals

And Groups Different? And Groups Different?

A group is an association of two or more people who have a shared In Western societies, there is a focus on the individual
sense of identity and who interact with each other in structured ways ◦ individual achievement is common
on the basis of a common set of expectations about each other’s
behavior ◦ dynamism of the U.S. economy
◦ individuals are involved in families, work groups, social groups, recreational ◦ high level of entrepreneurship
groups, etc.

But, creates a lack of company loyalty and failure to

Societies place different values on groups gain company specific knowledge
◦ competition between individuals in a company instead of than
team building
◦ less ability to develop a strong network of contacts within a
firm

How Are Individuals

And Groups Different?
What Is Social Stratification?
In many Asian societies, the group is the primary unit of social All societies are stratified on a hierarchical basis into social
organization categories, or social strata
◦ discourages job switching between firms ◦ individuals are born into a particular stratum
◦ encourages lifetime employment systems
◦ leads to cooperation in solving business problems
Must consider
1. mobility between strata
But, might also suppress individual creativity and initiative 2. the significance placed on social strata in business contexts
 What Is Social Stratification? What Is Social Stratification?
1. Social mobility - the extent to which individuals can 2. The significance attached to social strata in business contacts
move out of the strata into which they are born ◦ class consciousness - a condition where people tend to perceive themselves in terms of
their class background, and this shapes their relationships with others
◦ caste system - closed system of stratification in which social position is determined by the family into
which a person is born ◦ an antagonistic relationship between management and labor raises the cost of production
in countries with significant class differences
➢ change is usually not possible during an individual's
lifetime

◦ class system - form of open social stratification

➢ position a person has by birth can be changed through

achievement or luck

How Do Religious And How Do Religious And

Ethical Systems Differ? Ethical Systems Differ?
World Religions

Religion - a system of shared beliefs and rituals

that are concerned with the realm of the sacred
Four religions dominate society
1. Christianity
2. Islam
3. Hinduism
4. Buddhism
5. Confucianism is also important in influencing
behavior and culture in many parts of Asia

How Do Religious And What Is The Role

Ethical Systems Differ? Of Language In Culture?
Ethical systems - a set of moral principles,
or values, that are used to guide and
shape behavior Language - the spoken and unspoken (nonverbal communication such as
◦ Religion and ethics are often closely facial expressions, personal space, and hand gestures) means of
intertwined communication
◦ Example: Christian or Islamic ethics ◦ countries with more than one language often have more than one culture
◦ Canada, Belgium, Spain
What Is The Role What Is The Role
Of Language In Culture? Of Education In Culture?

Formal education is the medium through which

Language is one of the defining characteristics of culture individuals learn many of the language, conceptual,
◦ Chinese is the mother tongue of the largest number of people and mathematical skills that are indispensable in a
◦ English is the most widely spoken language in the world modern society
◦ English is also becoming the language of international business ◦ important in determining a nation’s competitive
◦ but, knowledge of the local language is still beneficial, and in advantage
◦ Japan’s postwar success can be linked to its excellent education system
some cases, critical for business success
◦ general education levels can be a good index for the kinds
◦ failing to understand the nonverbal cues of another culture can
of products that might sell in a country
lead to communication failure ◦ Example: impact of literacy rates

How Does Culture How Does Culture

Impact The Workplace? Impact The Workplace?
Hofstede’s dimensions of culture:
Management processes and practices must be adapted to
culturally determined work-related values 1. Power distance - how a society deals with the fact that
Geert Hofstede studied culture using data collected from 1967 to people are unequal in physical and intellectual capabilities
1973 for 100,000 employees of IBM
◦ Hofstede identified four dimensions that summarized different 2. Uncertainty avoidance - the relationship between the
cultures individual and his fellows
3. Individualism versus collectivism - the extent to which
different cultures socialize their members into accepting
ambiguous situations and tolerating ambiguity
4. Masculinity versus femininity -the relationship between
gender and work roles

How Does Culture How Does Culture

Impact The Workplace? Impact The Workplace?

Work-Related Values for 20 Countries

Hofstede later expanded added a fifth dimension called Confucian
dynamism or long-term orientation
◦ captures attitudes toward time, persistence, ordering by status, protection of
face, respect for tradition, and reciprocation of gifts and favors
◦ Japan, Hong Kong, and Thailand scored high on this dimension
◦ the U.S. and Canada scored low
What Do Cultural Differences Mean What Do Cultural Differences Mean
For Managers? For Managers?

2. There is a connection between culture and national competitive

1. It is important to develop cross-cultural literacy advantage
◦ companies that are ill informed about the practices ◦ suggests which countries are likely to produce the most viable
competitors
of another culture are unlikely to succeed in that
◦ has implications for the choice of countries in which to locate
culture production facilities and do business
To avoid being ill-informed
◦ consider hiring local citizens
◦ transfer executives to foreign locations on a regular
basis
Managers must also guard against
ethnocentrism
◦ a belief in the superiority of one's own culture

Tips for Making Culture Work for

Business Success

Embrace local culture Thank You

Build relationships
Employ locals to gain cultural knowledge
Help employees understand you
Adapt products and practices to local markets
Coordinate by region

27