OKBIT22 Managing International Relations 2. International Business and Business to business markets

International business = All business transactions that involve two or more countries, i.e. nations Comprises a large and growing portion of the world’s total business Almost all companies are affected by global events and competition (e.g. Maija’s father’s farm, 10-kioski,... ), because most sell output to and/or secure supplies from foreign countries and/or compete against products and services that come from abroad

International business Modes of business (to have or not to have one or more intermediaries) that differ from those it is accustomed to, on a domestic level To operate effectively, managers must understand these different modes International business takes place within a more diverse external environment  Affects the way company functions are handled

Some definitions Global Company  A multinational venture centrally managed from one country, like e.g. Nokia plc. -> maybe, becoming a transnational one, in the future Has global strategies for product design, financing, purchasing, manufacturing, and marketing. Transnational Company  A global network of productive units with a decentralized authority structure and no distinct national identity, like e.g. Ford Mo.Co Relies on a blend of global and local strategies

Why companies engage in International Business; trigger factors, i.e. internal (push, micro...) and external (pull, macro...) factors Desire for continued growth Domestic market saturation To expand sales To acquire resources To diversify their sources of sales and supplies To minimize competitive risk Also because of:  Rapid increase in and expansion of technology  Liberalization of governmental policies  Development of the institutions needed to support international trade  Increased global competition

Internationalization process Internationalization is the process by which  Firms increase their awareness of the influence of international activities on their future  Establish and conduct transactions with firms from other countries

How? Modes of international business The Internationalization Process  Licensing Authorizing companies in foreign countries to produce and/or market a given product within a specified territory in return for a fee  Exporting Goods produced in one country are sold to customers in foreign countries

How? Modes of international business The Internationalization Process (cont’d)  Local warehousing and selling Goods produced in one country are shipped to the parent company’s storage and marketing facilities located in overseas countries  Local assembly and packaging Components, rather than finished products, are shipped to company-owned foreign facilities for final assembly and sales

How? Modes of international business The Internationalization Process (cont’d)  Joint ventures (also strategic alliances or partnerships) A company in one country pools its resources with another foreign company or companies to create and market products and jointly share profits and losses  Direct foreign investments The production and marketing of products through subsidiary in a foreign country that is wholly owned or as the result of cross-border merger

Market Entry Decisions Foreign Market Selection Timing & Order of Entry Market Expansion Strategies Mode of Entry Decisions

Decision criteria for Mode of Entry Market Size and Growth Risk Government Regulations Competitive Environment Local Infrastructure

Case

Business to business markets Market for goods and services bought and sold between businesses is huge Comprises many types and sizes of organizations that interact selectively and form relationships of varying significance and duration with one another Although companies are independent entities, they are also interdependent  Networks!

Business to business markets Companies serving companies are therefore usually cooperative rather than competitive All businesses buy and sell items in order to create their own offerings Other businesses may then buy these products to use, to create other products or to sell as finished items to consumers

Characteristics of business markets International aspects  In comparison to consumer markets international b2b business is easier  B2B organizations benefit from a lower diversity in product functionality and performance  B2B organizations are able to work together to help shape their trading environment

Characteristics of business markets Relationships  Significance of relationships!  Between buying and selling companies, but also among other actors  Collaboration and partnership Development, supply and support of products  Active sellers and active buyers

Consumer markets Market structure Buyer behaviour Decision-making Products Channels Promotion Price

Business markets Market structure

Business markets Buyer behaviour and decision-making

Characteristics of business markets Buying processes  Potential risk is high  Decisions take much longer  Involve more people  Nature and form of interactions between organizations is based on an understanding of individual customer’s needs and willingness to provide and share information  Group activity  Decision Making Unit (DMU) or Buying Centre  Consumption is also organizational activity

B2B Buying motivations Senior Management Reduce costs, use and be seen using latest technology Purchasing Manager Get value for money, increase own credibility and colleague satisfaction Plant Engineer Use modern equipment and provide cover for power breakdown Production Manager Reduce operating costs and improve reliability Consultants Improve plant efficiency & staff working conditions

Business markets Products

Business markets Channels

Business markets Promotion

Business markets Price

The economics of Business Market Demand Derived demand The impact of derived demand  → Accelerator principle  → Volatility of demand  → Price variability in business markets Joint demand Cross-elasticity of demand

PESTEL

Categories of business goods E.g.  Component parts  Systems  Services

Business market customers Commercial enterprises  OEMs  End users  Resellers  Overlap of categories Government agencies Institutions

Case