1. International Business
Session 2

2. International vs. Domestic OPPORTUNITIES
Seek opportunities for growth through market diversification
Gain new ideas about products, services, and business methods
Better serve key customers that have relocated abroad
Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products

3. International vs. Domestic OPPORTUNITIES
Gain access to lower-cost or better-value factors of production
Develop economies of scale in sourcing, production, marketing, and R&D
Confront international competitors more effectively or thwart the growth of competition in the home market
Fundamental changes in the business landscape

4. FDI Based Explanations: Dunning’s Eclectic Paradigm
Three conditions determine whether or not a company will internalize via FDI:
Ownership-specific advantages – knowledge, skills, capabilities, relationships, or physical assets that form the basis for the firm’s competitive advantage
Location-specific advantages – advantages associated with the country in which the MNE is invested, including natural resources, skilled or low cost labor, and inexpensive capital
Internalization advantages – control derived from internalizing foreign-based manufacturing, distribution, or other value chain activities

5. Factors Relevant to Choice of Foreign Market Entry Strategy
The goals and objectives of the firm, such as desired profitability, market share, or competitive positioning;
The particular financial, organizational, and technological resources and capabilities available to the firm;
Unique conditions in the target country, such as legal, cultural, and economic circumstances, as well as distribution and transportation systems;
Risks inherent in each proposed foreign venture in relation to the firm’s goals and objectives in pursuing internationalization;
The nature and extent of competition from existing rivals, and from firms that may enter the market later;
The characteristics of the product or service to be offered to customers in the market.

6. Participants in International Business
The focal firm – initiator of IB transaction, including MNEs and SMEs
Distribution channel intermediary – specialist firm providing logistics and marketing services in the international supply chain
Facilitator – a firm providing special expertise in legal advice, banking, customs clearance, market research, and similar areas

7. Types of Focal Firms Multi-National Enterprise Joint-Venture SME
Born Global Firm
NGOs

8. Heavy user of advanced IT and communications technologies
Common Characteristics of Born Global Firms
Emergence often associated with significant product/process breakthrough or innovation
Products often involve advanced technology, substantial added value, superior quality, and differentiated design
Internationalization typically via exporting and facilitated through network relationships
Heavy user of advanced IT and communications technologies

10. Foreign Market Entry Strategies of Focal Firms
Cross-border business transactions can be grouped into three categories:
Trade: buying and selling of products
Contractual exchange of services or intangibles: buying and selling of services
Equity ownership in foreign operations: establishing foreign presence through direct investment

11. MODES of International Business Activities
Exporting (importing)
Global sourcing (out-s, in-s, offshore)
Contract manufacturing
Licensing and Franchising (mgmt. contract)
Foreign Direct Investment (FDI)
Strategic Alliances (Joint Venture)
Portfolio Investment

12. Exporting Advantages Disadvantages Relatively low financial exposure
Permit gradual market entry
Acquire knowledge about local market
Avoid restrictions on foreign investment
Disadvantages
Vulnerability to tariffs and NTBs
Logistical complexities
Potential conflicts with distributors

14. Export Documentation quotation or pro forma invoice
commercial invoice is the actual demand for payment issued by the exporter. It includes a description of the goods, the exporter’s address, delivery address, and payment terms.
A packing list, indicates the exact contents of the shipment.
The bill of lading is the basic contract between exporter and shipper.
The shipper's export declaration ("ex-dec”) lists the contact information of the exporter and the buyer (or importer), as well as a full description, declared value, and destination of the products being shipped.
The certificate of origin indicates the country where the product originates.
insurance certificate

15. Incoterms

16. Who pays for what?
Load to truck
Export- duty payment
Transport to exporter's port
Unload from truck at the origin's port
Landing charges at origin's port, Loading
Transport to import's port
Landing charges at importer's port, Unloading
Unload onto trucks from the importers' port
Transport to destination
Insurance
Entry -Customs clearance
Entry -Taxation
EXW No
Main Carriage NOT Paid By Seller (Free… Carrier/Alongside Ship/On Board)
FCA
Yes
FAS*
FOB*
Main Carriage Paid By Seller (Cost and Freight … and Insurance… / Carriage Paid to … and Insurance… )
CFR*
CIF*
CPT
CIP
Arrival (Delivery Duty….. Unpaid/Paid)
DEQ*
DDU
DDP
* for ship only (+ named Port), others for all carriers (+ named Place)

17. Methods of Payment -- Export
Cash in Advance
Letter of Credit
Draft
Open Account

18. Global Sourcing
Importing
Outsourcing
Contract Manufacturing

19. Contract Manufacturing
Hiring firm approaches Contract Manufacturer with Design or Formula
Type of outsourcing
Bidding Process
$ 233 billion business
Wistron, HTC

20. Countertrade Payments are made in kind rather than cash.
The focal firm is engaged simultaneously in exporting and importing.
Also known as “two-way” or “reciprocal” trade
Used when conventional means of payment are difficult, costly, or nonexistent.
Hard currency unavailable
Developing country doesn’t have expertise to sell in foreign markets

22. Examples of Countertrade Transactions
Caterpillar received caskets from Columbian customers and wine from Algerian customers in return for selling them earthmoving equipment.
Goodyear traded tires for minerals, textiles, and agricultural products.
Coca-Cola sourced tomato paste from Turkey, oranges from Egypt, and beer from Poland in order to contribute to national exports in the countries it conducts business,.
Control Data Corporation accepted Christmas cards from the Russians in a countertrade deal.
Pepsi-Cola acquired the rights to distribute Hungarian motion pictures in the West in a countertrade transaction.

23. Types of Countertrade
Barter refers to the direct exchange of goods without any money. Or a mixture of goods and cash is a compensation deal.
Back-to-back transaction, offset agreements, or counterpurchase involves two distinct contracts, contingent on each other.
Buy-back agreement, the seller agrees to supply technology or equipment to construct a facility and receives payment in the form of goods produced by the facility.

24. Licensing and Franchising Contractual Agreements
Licensing is an arrangement in which the owner of intellectual property (IP) grants another firm the right to use that property for a specified period of time in exchange for royalties or other compensation.
Franchising is an arrangement in which the firm allows another the right to use an entire business system in exchange for fees, royalties or other forms of compensation.

25. Types of Intellectual Property
A patent provides an inventor with the right to prevent others from using, selling or importing an invention for a fixed period – typically, up to 20 years. It is granted to any firm or individual that invents or discovers any new and useful process, machine, manufactured product, or any new and useful improvement.
A trademark is a distinctive design, symbol, logo, word, or series of words placed on a product label. It identifies a product or service as coming from a common source. E.g., British Petroleum’s ‘BP’ acronym, McDonald's golden arches, and Nike’s swoosh symbol.
A copyright protects original works of authorship, giving the creator the exclusive right to reproduce the work, display and perform it publicly, and to authorize others to do these activities. Copyrights cover works from music, art, literature, films, and computer software.

26. Types of Intellectual Property (cont.)
An industrial design refers to the appearance or features of a product. The design is intended to improve the aesthetics and usability of a product in order to increase its production efficiency, performance, or marketability. The thin Apple iPod with the company logo is a well- known industrial design.
A trade secret is confidential know-how or information that has commercial value. Trade secrets include information such as production methods, business plans, and customer lists. For example, the formula to produce Coca-Cola is a trade secret.
A collective mark is a logo belonging to an association or group whose members have given firms the right to use the mark to identify the origin of a product or service. E.g., ILGWU is a collective mark for the members of International Ladies Garment Workers Union.

27. International Licensing Process
Basic Issues
Set the boundaries of the agreement
Establish compensation rates (2-5% gross sales)
Agree on the rights, privileges, and constraints
Specify the duration of the agreement (5-7 years)

28. What is licensed?
Trademarks
Copyrights
Know-how
Patents

30. Franchising

32. Foreign Direct Investment
Building new facilities (the greenfield strategy)
Buying existing assets in a foreign country (acquisition strategy)
Participating in a joint venture
vs. Portfolio Investment
Minority stake, no control

34. Foreign Direct Investment
Advantages
High profit potential
Maintain control over operations
Acquire knowledge of local market
Avoid tariffs and NTBs
Disadvantages
High financial and managerial investments
Higher exposure to political risk
Vulnerability to restrictions on foreign investment
Greater managerial complexity

36. Strategic Alliances and Joint Ventures
One or several functional areas
Shared or assigned managment
Joint Venture
Separately incorporated
Independently managed (delegated management)
Can have tax advantages, protects other assets, allows creative ownership arrangements

37. The Scope of Strategic Alliances

38. Figure 13.1 Benefits of Strategic Alliances
Potential Benefits
of Strategic Alliances
Ease of
Market
Entry
Shared
Risk
Shared
Knowledge
and
Expertise
Synergy
and
Competitive
Advantage

39. Figure 13.4 Pitfalls of Strategic Alliances
Incompatibility of
partners
Access to
Information
Distribution of
Earnings
Loss of
Autonomy
Changing
Circum-
stances