1 INTERNATIONALMANAGEMENT Chapter 1 Understanding International Business & Management

2 National International National International Any sort of business activity that crosses national boundaries- International Business. Any sort of business activity that crosses national boundaries- International Business. Activities relating to industry and commerce performed on an international level. Activities relating to industry and commerce performed on an international level. International Management- Process of applying management concepts and techniques in a multinational environment. International Management- Process of applying management concepts and techniques in a multinational environment.

3  Basic Functions  Processes  Techniques Domestic Business International Business Same Difference Environment within which these functions are performed and processes are carried out.

4 International Business Environment Environment- Sum total of all the forces surrounding & influencing the life and development of the firm. Environment- Sum total of all the forces surrounding & influencing the life and development of the firm. Why ? Why ? Internal Environment Strengths Weakness of the Org. Business Decision External Environment Business Opportunity Threats to Business

5 Business Dynamics to a large extent depends on the environmental dynamics. Business Dynamics to a large extent depends on the environmental dynamics. Environmental understanding becomes more important in the area of international business in which the environmental forces of the home country interact with the foreign environment. Environmental understanding becomes more important in the area of international business in which the environmental forces of the home country interact with the foreign environment. International Business Environment

6 Environmental Characteristics Factors and Forces are external to the firm. Factors and Forces are external to the firm. Essentially uncontrollable. Essentially uncontrollable. Environmental factors are dynamic-they continuously change over time. Environmental factors are dynamic-they continuously change over time. NEED ? Anticipate, respond and adapt to the complexity and rapid pace of various environmental forces changes globally. Anticipate, respond and adapt to the complexity and rapid pace of various environmental forces changes globally. Being international environmental factors are given, the firms should adapt its business strategy to suit the environmental factors. Being international environmental factors are given, the firms should adapt its business strategy to suit the environmental factors.

7 Components of International Business Environment Internal Environment Micro Environment Domestic Environment Foreign Environment Global Environment

8 Internal Environment Represent firm’s business strategy and decision with regard to-- Production Production Finance Finance Marketing Marketing Human Resources Human Resources Research Activities Research Activities Firm can change them, but within the constraints of various environmental factors.

9 Micro Environment Actors in the firm’s immediate environment which directly influence the firm’s decisions and operations. Actors in the firm’s immediate environment which directly influence the firm’s decisions and operations. Micro Environment Suppliers Market Intermediaries Financial Institutions Competitors General Public Are Semi-Controllable-Controllable to some extent Customers

10 Domestic Environment Competitive Structure Economic climate Political & Legal forces Political & Legal forcesUncontrollable IMPACT ?

11 Domestic firms venture into international business Lack of domestic demand and/or Intense Competition Export Promotion Measures and/or Economic Incentives

12 Foreign Environment Geographic Economic Conditions Social-Cultural Environment Political & Legal forces Technological Environment Ecological Environment

13 Differences Exist 1. Between domestic & foreign environments. 2. Among the environments prevailing in different foreign markets. Business Strategies that are successful in one nation might fail miserably in another nation.

14 Global Environment World Economic Condition World Economic Condition International Financial Systems International Financial Systems Working of WTO, IMF, WB.. Working of WTO, IMF, WB.. International Agreements & Treaties International Agreements & Treaties Regional Economic Groupings Regional Economic Groupings World-wide Economic Recession World-wide Economic Recession Initiatives of Regional levels Initiatives of Regional levels European Union (EU) North American Free Trade Association (NAFTA) Association of South East Asian Nations ( ASEAN) Exerts influence over domestic as well as foreign Countries. Exerts influence over domestic as well as foreign Countries.

15 Domestic Environment ( Uncontrollables) Competitive Structure (Controllable) International Business Decision - Production - Finance - Human Resource - Marketing Domestic Environment ( Uncontrollable) Competitive Structure Political and Legal Forces Economic Climate Foreign Environment ( Uncontrollable) Geographic Environment Economic and Financial Environment Social-Cultural Environment Political Environment Legal Environment Ecological Environment Global Environment ( Uncontrollables) International Economic Environment International Financial Institutions and System International Trade Organization and Agreements Regional Economic Groups and Agreement

16 Relevance of International Business Environment Central Issues in entering into international business - Central Issues in entering into international business - Which market (s) to select? Which market (s) to select? How to enter into those markets? How to enter into those markets? - Decisions are strategic in nature and influenced by the environmental forces. - Target markets should have enough market potential.

17 How to enter (Mode) of entry? (Market Entry and Operating Forms) Exporting -Direct -Indirect Licensing/ Franchising Strategic Alliance Production/ Assembly Facility -Contract Manufacturing - Assembly operations - Wholly-owned manufacturing facility

18 Exporting is desirable If economical to produce in the home country. If economical to produce in the home country. No legal restrictions on import of given product in the foreign markets. No legal restrictions on import of given product in the foreign markets. May take either the form of direct and indirect exporting. May take either the form of direct and indirect exporting.

19 In case of import bans or excessive transportation cost Set up manufacturing subsidiaries abroad Set up manufacturing subsidiaries abroad Assembly operations Assembly operations Contract manufacturing Contract manufacturing - Feasible, 1. If foreign governments allow FDI 2. Raw materials & labor are locally available at competitive prices. - In case FDI is disallowed.. - GO for either licensing/franchising - Joint Venture

20 Environmental forces & Functional & Tactical Decisions of a Firm What should be the scale of production? What should be the scale of production? Should the firm employ labor or capital intensive techniques? Should the firm employ labor or capital intensive techniques? How to finance firm's foreign operations? How to finance firm's foreign operations? How much to repatriate? How much to repatriate? What marketing mix should the firm use? What marketing mix should the firm use? Should the firm hire local persons or employ foreign nationals? Should the firm hire local persons or employ foreign nationals? What should be their compensation package? What should be their compensation package?

21 Non-Economic Environment Political Socio-CulturalLegal EcologicalGeographic

22 Political Form of Government Political Party System Political IdeologyRole of Government Political Stability

23 Socio-Cultural LanguageEducation Aesthetics Religions & Superstition Attitude & valuesSocial groups & Organizations

24 Myths versus Reality (Japanese Management styles and techniques – some major findings) All Japanese workers are not laborious/industrious as is commonly believed. All Japanese workers are not laborious/industrious as is commonly believed. Company loyalty among many Japanese may not be as high as is expected. Company loyalty among many Japanese may not be as high as is expected. Many Japanese managers are tend to be autocratic. Many Japanese managers are tend to be autocratic. (Discussions- refer page 20).