Globalization is a process of interaction and integration among the people,
companies, and governments of different nations, a process driven
by international trade and investment and aided by information
technology. This process has effects on the environment, on culture, on
political systems, on economic development and prosperity, and
on human physical well-beingin societies around the world
4. Domestic Company
Their focus remains with domestic market.
Their productions facilities remain based in home country.Their analysis is
focused on the national market.
They do not think globally and avoid taking risk in going global.
Their top management may have traditional kind of business
management competency and less global expertise.
They perceive that there is risk in expanding into global market and thus
they try to play safe and satisfied with whatever gains they are getting in
5. International Company
Focus on going beyond,domestic
Their management remains ethnocentric with a vision to expand
internationally.They extend their domestic products,domestic prices and
other business practices to foreign countries.
They keep their marketing mix constant and extend their operations to
Their management style remains centralized for their home nation and
extended top down to the overseas market country.
6. Multinational Company
i. Companies when they spread their wings to more nations become
ii. Sooner or later they realize that they have to change their marketing
mix according to the foreign market.
iii. This can also be termed as multi domestic,in which different strategies
are adopted for different market.
iv. The management of such companies remains decentralized and even
production may be in the host country.
v. Performance evaluation is done at different host countries.
7. 4. Global
i. Such companies have a global marketing strategy.
ii. They either produce in home country or in a single country and focus
iii. They adapt to the market conditions according to the foreign market.
iv. Their performance evaluation is done worldwide
8. 5. Transactional Company
i. Transnational companies have a geocentric approach,which means they
think globally and act locally.
ii. Transnational companies collect information worldwide and scan it for
use beyond geographical boundaries.
iii. The vision of such to grow more in a global way.
iv. The R&D,management,product development are shared worldwide.
v. Their human resources procurement and development remains globally
9. THE FORCES BEHIND GLOBALIZATION
Increase in and Expansion of Technology
Liberalization of Cross-Border Trade and Resource Movements
Development of Services That Support International Business
Growing Consumer Pressures
Increased Global Competition
Changing Political Situations
Expanded Cross-National Cooperation
11. Benefits of International Business
A. To Expand Sales Companies may increase the potential market for their
sales by pursuing international consumer and industrial markets.
B. Acquire Resources Foreign-sourced goods, services, components,
capital, technology, and information can make a firm more competitive
both at home and abroad.
C. Minimize Risk Firms seek foreign markets in order to minimize cyclical
effects on sales and profits.
12. MODES OF INTERNATIONAL BUSINESS
Merchandise Exports and Imports
Tourism and Transportation
Performance of Services.
Use of Assets
13. WHY INTERNATIONAL BUSINESS DIFFERS
FROM DOMESTIC BUSINESS
Physical and Societal Factors
The Competitive Environment
15. Direct Exports
Direct exports represent the most basic mode of exporting made by a (holding) company,
capitalizing on economies of scale in production concentrated in the home country and
affording better control over distribution. Direct export works the best if the volumes are
small. Large volumes of export may trigger protectionism. The main characteristic of direct
exports entry model is that there are no intermediaries.
Passive exports represent the treating and filling overseas orders like domestic orders.
Control over selection of foreign markets and choice of foreign representative companies
Good information feedback from target market, developing better relationships with the
Better protection of trademarks, patents, goodwill, and other intangible property
Potentially greater sales, and therefore greater profit, than with indirect exporting.
Higher start-up costs and higher risks as opposed to indirect exporting
Requires higher investments of time, resources and personnel and also
Greater information requirements
Longer time-to-market as opposed to indirect exporting
17. Indirect exports
Indirect export is the process of exporting through domestically based export
intermediaries. The exporter has no control over its products in the foreign market.
Fast market access
Concentration of resources towards production
Little or no financial commitment as the clients' exports usually covers most expenses
associated with international sales.
Low risk exists for companies who consider their domestic market to be more
important and for companies that are still developing their R&D, marketing, and sales
Export management is outsourced, alleviating pressure from management team
No direct handle of export processes.
18. Indirect exports
Indirect export is the process of exporting through domestically based export
intermediaries. The exporter has no control over its products in the foreign
Fast market access
Concentration of resources towards production
Little or no financial commitment as the clients' exports usually covers most
expenses associated with international sales.
Low risk exists for companies who consider their domestic market to be more
important and for companies that are still developing their R&D, marketing,
and sales strategies.
Export management is outsourced, alleviating pressure from management
No direct handle of export processes.
Little or no control over distribution, sales, marketing, etc. as opposed to
Wrong choice of distributor, and by effect, market, may lead to
market feedback affecting the international success of the company
Potentially lower sales as compared to direct exporting (although low
volume can be a key aspect of successfully exporting directly). Export
partners that incorrectly select a specific distributor/market may hinder a
firm's functional ability.
20. 1. Licensing:
Under a licensing agreement, a company (the licensor) grants rights
intangible property to another company (the licensee) for a specified
period; in exchange, the licensee ordinarily pays a royalty to the
licensor. The rights may be exclusive (monopoly within a given
territory) or nonexclusive.
21. Advantages of Licensing:
1) Licensing offers a small business many advantages, such as rapid entry into foreign
markets and virtually no capital requirements to establish manufacturing operations.
2) Returns are usually realized more quickly than for manufacturing ventures.
3) Licensing mode carries relatively low investment on the part of licensor.
4) Licensor can investigate the foreign market without much effort on his part.
5) Licensee gets the benefits with less investment on research & development.
6) Licensee escapes himself from the risk of product failure. For example, Nintendo
game designers have the relatively safety of knowing millions of game system units.
7) Compared to export entry, the most evident advantage of licensing is the
circumvention of import restrictions and transportation costs in penetrating foreign
8) International licensing is most commonly combined with other entry modes.
22. Disadvantages of Licensing:
1) The most critical disadvantage of licensing as an entry mode is the licensor’s lack of
control over the licensee’s marketing program.
2) Another disadvantage is the lower absolute size of returns from licensing compared to
returns from export or investment.
3) The licensee may become a competitor if too much knowledge and know-how is
transferred. Care should be taken to protect trademarks and intellectual property.
4) Licensing agreements reduce the market opportunities for both the licensor and
licensee. Pepsi-cola cannot enter Netherlands and Heineken cannot sell Coca-cola.
5) Risk of losing control of important intellectual property or dissipating it to competitors.
6) There is scope for misunderstanding between the parties despite the effectiveness of
the agreement. The best example is Oleg Casing and Jovan.
7) There is a problem of leakage of the trade secrets of the licensor.
8) Quality control may be difficult to achieve.
23. 2. Franchising:
Franchising is a means of marketing goods and services in which the
grants the legal right to use branding, trademarks and products and the
method of operation is transferred to third party – the franchisee – in return
for a franchise fee. The franchiser provides assistance, training and help with
sourcing components and exercises significant control over the franchisee’s
method of operation.
1) Product Franchise:
Here, a franchisor is a distributor who supplies goods to a retailer with the
understanding that the retailer will have the exclusive right to sell goods in a
particular area of the market. This market is usually, but not always, defined in
geographic terms. Gas stations, car dealerships, and some clothing
are examples of this category.
2) Manufacturing Franchise:
Here, the franchisor provides the particular specifications or a specific
which the franchisee uses in producing the product. Soft drinks are a good
example of the manufacturing franchise.
24. 3) Business-Format Franchise:
In a business-format franchise arrangement the franchisor provides franchisees with a
comprehensive, often extensive, operating system. Each franchisee must comply with the
requirements of the system or risk losing the franchise.
i) Manufacturer-Retailer Franchise:
In this form, the manufacturer gives the franchisee the right to sell its product through a
retail outlet. Examples of this form include gasoline stations, most automobile
and many businesses found in shopping malls.
ii) Wholesaler-Retailer Franchise:
Here, the wholesaler gives the retailer the right to carry products distributed by the
wholesaler. For example, Radio Shack (which also manufactures some of its products),
Agway Stores, Health Mart, and other franchised drug stores.’
iii) Service Sponsor Retailer Franchise:
It operates when a service firm licenses individual retailers to let them offer specific
packages to consumers. For example, VLCC, India’s leading chain of health beauty, and
fitness centres, is managed and operated by its parent company.
25. Contract Manufacture:
A firm which markets and sells products into international markets might
arrange for a local manufacturer to produce the product for them under
contract. Examples include Nike and Gap, both of whom use contract
clothing and shoe manufacturers in lower labour-cost countries. The
advantage of arranging contract manufacture is that it allows the firm to
concentrate upon its sales and marketing activities and, because
investment is kept to a minimum, it makes withdrawal relatively easy and
less costly if the product proves to be unsuccessful.
26. Advantages of Contract Manufacturing:
1) The company does not have to commit resources for setting up
2) It frees the company from the risks of investing in foreign countries.
3) If idle production capacity is readily available in the foreign country, it
enables the marketer to get started immediately.
4) In many cases, the cost of the product obtained by contract
manufacturing is lower than if it were manufactured by the international
5) Contract manufacturing also has the advantage that it is a less risky way
to start with. If the business does not pick up sufficiently, dropping it is easy;
but if the company had established its own production facilities, the exit
would be difficult.
6) Moreover, contact manufacturing may enable the international firm to
enlist national support.
27. Disadvantages of Contract Manufacturing:
1) In some cases, there will be the loss of potential profits from
2) Less control over the manufacturing process.
3) Contract manufacturing also has the risk of developing potential
4) It would not be suitable in cases of high-tech products and cases
whicli involve technical secrets, etc.
28. Turnkey Projects:
Turnkey projects or contracts are common in international business in the
supply, erection and commissioning of plants, as in the case of oil
refineries, steel mills, cement and fertilizer plants, etc.; construction
projects as well as franchising agreements.
29. Advantages of Turnkey Contracts
The benefits arising from turnkey contracts include:
1) The opportunity at sell both components and other intangible assets,
2) Host government patronage which ensures that payments are made
promptly and may also lead to mutually beneficial relationship in other
3) For the host nation, the opportunity to build industrial complexes and
train local personnel
30. Disadvantages of Turnkey Contracts
1) Lack of client control and participation.
2) Higher overall cost than traditional approach.
3) Limited flexibility to incorporate change.
4) A firm that enters into a turnkey project with a foreign enterprise may
inadvertently create a competitor.
31. Management Contracts:
The companies with low level technology and managerial expertise may
seek the assistance of a foreign company. Then the foreign company may
agree to provide technical assistance and managerial expertise. This
agreement between these two companies is called the management
32. Advantages of Management
1) Foreign company earns additional income without any additional
investment, risks and obligations. 1
2) This arrangement and additional income allows the company to enhance
its image in the investors and mobilize the funds for expansion.
3) Management contract helps the companies to enter other business areas
in the host country.
4) The companies can act as dealer for the business of the host country‘s
business in the home country.
5) The expropriation or nationalization of a subsidiary where the parent
company’s commercial expertise is still required;
6) The development of a consultancy or technical aid contract into a” total
7) Fees for management services may be easier to transfer, and subject to
less tax, than royalties or dividends.
33. Disadvantages of Management Contracts:
1) Sometimes the companies allow the companies in the host country
even to use their trade marks and brand name. The host country’s
companies spoil the brand name, if they do not keep up the quality of
2) The host country’s companies may leak the secrets of technology.
3) Increase in potential competition as capacity is increased by new
34. The Foreign Manufacturing Strategies with
According to the International Monetary Fund’s Balance of Payments Manual, “FDI is an investment that
is made to acquire a lasting interest in an enterprise operating in an economy other than that of the
investor, the investor’s purpose being to have an effective voice in the management of the enterprise”.
Foreign direct investments (FDI) in wholly owned manufacturing subsidiaries are considered by global
firms for many reasons. It is done for acquiring raw materials, operate at lower manufacturing cost, for
avoiding tariff barriers and satisfy local content requirements, and for penetrating the local market.
Foreign manufacturing strategies with direct investment include:
1. Joint Ventures,
2. Strategic Alliances,
5. Wholly-Owned Subsidiary,
6. Assembly Operations
35. 1. Joint Ventures:
A joint venture is any kind of cooperative arrangement between two or
more independent companies which leads to the establishment of a third
entity organisationally separate from the “parent” companies.
36. Characteristics of Joint Venture:
1) Critical Driving Forces:
There should be compelling forces which push the alliance together. Without these forces, there is no
true reason for the alliance.
2) Strategic Synergy:
There should be complementary strengths – strategic synergy – in the potential partner. To be
successful, the two or more participants must have greater strength when combined than they would
independently. Mathematically stated; “1 + 1 > 3” must be the rule; if not, walk away.
3) Great Chemistry:
There should be co-operative efficiencies with the other company. There should be a co-operative
spirit. There must be a high level of trust so that executives can work through difficulties that will arise.
Don’t “sell” your company’s “beauty”, it must be desired by the prospective partner, not sold.
All members of the Alliance must see that the structure, operations, risks and rewards are fairly
apportioned among the members. Fair apportionment prevents internal dissension that can corrode
and eventually destroy the venture.
37. 5) Operational Integration:
Beyond a good strategic fit, the there must be careful co-ordination at the
operational level where actual implementation of plans and projects occurs.
6) Growth Opportunity:
There should be an excellent opportunity to place the company in a leadership
position – to sell a new product or service, to secure access to technology or raw
material. The partner should be uniquely positioned with the “know-how” and
reputation to take advantage of that opportunity.
7) Sharp Focus:
There is a strong correlation between success of a venture arid clear overall
purpose – specific, concrete objectives, goals, timetables, lines of responsibility
8) Commitment and Support:
Unless top and middle management are highly committed to the success of the
venture, there is little chance of success
38. Reasons for Joint Ventures:
1) Cost Savings:
2) Risk Sharing:
3) Access to Technology:
4) Expansion of Customer Base:
5) Entry into Emerging Economies:
6) Entry into New Technical Markets:
7) Pressures of Global Competition:
8) Leveraged Joint Venture:
9) Creeping Sale or Acquisition:
10) Catalyst for Change:
39. Advantages of Joint Ventures:
Joint ventures provide large capital funds. Joint ventures are suitable for major
Joint ventures spread the risk between or among partners.
Different parties to the joint venture bring different kinds of skills like technical skills,
technology, human skills, expertise, marketing skills or marketing networks.
Joint ventures make large projects and turn key projects feasible and possible.
Joint ventures provide synergy due to combined efforts of varied parties
They have more direct participation in the local market and thus gain a better
understanding of how it works
Companies entering joint ventures are able to exert greater control over the
operation of the joint venture.
40. Disadvantages of Joint Ventures:
Joint ventures are also potential for conflicts. They result in disputes between or
among parties due to varied interests.
The partners delay the decision-making once the dispute arises. Then the
operations become unresponsive and inefficient.
Decision-making is normally slowed down in joint ventures due to the involvement
of a number of parties.
Scope for collapse of a joint venture is more due to entry of competitors, changes
in the business environment in the two countries, changes in the partners’ strengths
41. Strategic Alliances:
Through a strategic alliance, two companies will decide to share resources to
accomplish a specific, mutually beneficial project. This type of agreement is less
involved and less binding than a joint venture, where the two businesses pool
resources in the creation of a separate business entity. Each of the two companies
will maintain their autonomy in a strategic alliance while gaining a new opportunity.
42. Types of Strategic Alliances:
Many alliances are focused on technology and the sharing of research and development expertise and findings. The most
commonly cited reasons for entering these technology-based alliances are access to markets, exploitation of complementary
technology, and a need to reduce the time it takes to bring an innovation to market.
A large number of production-based alliances have been formed, particularly in the automobile industry. These alliances fall into
i) There is the search for efficiency through component linkages that may include engines or other key components of a car.
ii) Companies have begun to share entire car models, either by developing them together or by producing them jointly.
Alliances with a special emphasis on distribution are becoming increasingly common.
General Mills, a U.S.-based company marketing breakfast cereals, had long been number two in the United States, with some 27
per cent market share, compared to Kellogg’s 40 to 45 per cent share. With no effective position outside the United States, the
company entered into a global alliance with Nestle of Switzerland.
43. Advantages of Strategic Alliances
Spread and Reduce Costs
Specialize in Competencies
Avoid or Counter Competition
Gain Location-Specific Assets
Overcome Governmental Constraints
Minimize Exposure in Risky Environments
44. Disadvantages of Strategic Alliances:
Access to Information
Distribution of Earnings
Potential Loss of Autonomy
Reasons of Merger
Economies of Scale
Utilization of Tax Shield
Increase in Value
Elimination of Competition
Better Financial Planning
46. Types of Merger
Horizontal mergers take place when there is a combination of two or more organisations in the same
business, or of organisations engaged in certain aspects of the production or marketing processes. For
example, a company making footwear combines with another footwear company, or a retailer of
pharmaceuticals combines with another retailer in the same business.
Vertical mergers take place when there is a combination of two or more organisations, not necessarily in
the same business, which create complementary, either in terms of supply of materials (inputs) or
marketing of goods and services (outputs). For example, a footwear company combines with a leather
tannery or with a chain of shoe retail stores.
Concentric mergers take place when there is a combination of two or more organisations related to each
other either in terms of customer functions, customer groups, or the alternative technologies used. Thus,
a footwear company combining with hosiery firm making socks or another specialty footwear company,
or with a leather goods company making purses, handbags, and so on.
47. Types of Merger
Conglomerate mergers take place when there is a combination of two or more organisations unrelated
to each other, either in terms of customer functions, customer groups, or alternative technologies used.
For example, footwear company combining with pharmaceutical firm.
Reverse merger, also known as a back door listing, or a reverse merger, is a financial transaction that
results in a privately-held company becoming a publicly-held company without going the traditional
route of filing a prospectus and undertaking an initial public offering (IPO).
Rather, it is accomplished by the shareholders of the private company selling all of their shares in the
private company to the public company in exchange for shares of the public company.
While the transaction is technically a takeover of the private company by the public company, it is called
a reverse takeover because the public company involved is typically a “shell” (also known as a “blank
check company”, “capital pool company” or “cash shell company”) and it typically issues such a large
number of shares to acquire the private company that the former shareholders of the private company
end up controlling the public company.
48. Advantages of Merger:
Economies of Scale:
This occurs when a larger firm with increased output can reduce average costs.
Different economies of scale include
If the firm has significant fixed costs then the new larger firm would have lower
Discount for buying large quantities of raw materials.
Better rate of interest for large company.
49. Advantages of Merger:
One head office rather than two is more efficient.
A vertical merger would have less potential economies of scale than a horizontal merger,
e.g., a vertical merger could not benefit form technical economies of scale.
Mergers can help firms deal with the threat of multinationals and compete on an
Mergers May Allow Greater Investment in R&D:
This is because the new firm will have more profit. This can lead to a better quality of
goods for consumers.
Redundancies can be merited if they can be employed more efficiently.
50. Disadvantages of Merger:
Inadequate Evaluation of Target:
Large Debt Burden:
Inability to Achieve Synergy:
Too much Diversification
Acquisitions is acquiring or purchasing an existing venture. It is one of the easy
means of expanding a business by entering new markets OT new’ product areas.
An acquisition strategy is based upon the assumption that companies for potential
acquisition will be available, but if the choice of companies is limited, the decision
may be taken on the basis of expediency rather than suitability.
52. Reasons for Acquisition:
Increased Market Power
Overcoming Entry Barriers
Cost of New Product Development and Increased Speed to Market
Adequate and Easy Terms Working Capital
Access to Resourceful Management
Reshaping the Firm’s Competitive Scope
Learning and Developing New Capabilities
53. Types of Acquisition:
Both the companies approve of the acquisition under friendly terms. There is no forceful acquisition and
the entire process is cordial.
One way for a company to become publicly traded, by acquiring a public company and then installing its
own management team and renaming the acquired company.
Back Flip Acquisition:
A very rare case of acquisition in which, the purchasing company becomes a subsidiary of the purchased
Here, as the name suggests, the entire process is done by force. The smaller company is either driven to
such a condition that it has no option but to say yes to the acquisition to save its skin or the bigger
company just buys-off all its share, their by establishing majority and hence initiating the acquisition.
54. The advantages of acquisition are as
Gain Experience and Assets:
Excite the Shareholders:
Combining Organisation Cultures:
Reducing Costs and Overheads:
Accessing Funds or Valuable Assets for New Development:
56. Wholly-Owned Manufacturing
A wholly owned subsidiary is a company whose common stock is 100% owned
by another company, the parent company. Whereas a company can become a
wholly owned subsidiary through an acquisition by the parent company or
having been spun off from the parent company, a regular subsidiary is 51 to 99%
owned by the parent company.
57. Advantages of Wholly-Owned
No risk of losing technical competence to a competitor thus gaining a
It provides tight control over operations.
It provides the ability to realize learning curve and location economies.
Protection of technology can be well executed.
It provides ability to engage in global strategic coordination,
It provides ability to realize location and experience economies
58. Disadvantages of Wholly-Owned
Company bears full cost and risk,
An effective supervision and direction is needed which increases rigidity.
It faces several hurdles in the forms of regulations and taxations in foreign
Heavier pre-decision information gathering and research evaluation.
59. Assembly Operation:
A foreign owned operation might be set up simply to assemble components which
have been manufactured in the domestic market. It has the advantage of reducing the
effect of tariff barriers, which are normally lower on components than on finished
goods. It is also advantageous if the product is large and transport costs are high, e.g.,
in the case of cars.
There are other benefits, as retaining component manufacture in the domestic plant
allows development and production skills and investment to be concentrated, thus
maintaining the benefit from economies of scale. By contrast, the assembly plant can
be made a relatively simple activity requiring low levels of local management,
engineering skills and development support.
60. Integrated Local Manufacturing:
Establishing a fully integrated local production unit is the greatest commitment a
company can make for a foreign market.
Building a plant involves a substantial capital outlay. Companies do so only where
demand appears ensured. International companies can have any number of
reasons for establishing factories in foreign countries.
67. Mixed/Hybrid Structure
A hybrid organization is an organization that mixes elements, value systems and
action logics (e.g. social impact and profit generation) of various sectors of society,
i.e. the public sector, the private sector and the voluntary sector. A more general
notion of hybridity can be found in Hybrid institutions and governance
This structure is a form of departmentalization, which combines both functional and
divisional structure. Particularly large organizations adopt this structure to gain the
advantages of both functional and divisional structures.
68. Conflict Management IB
The conflict in international organizations also challenges competitive strategies,
disseminating the failure in group interaction, synergy and productivity. ... In this
study, it is aimed to draw a theoretical framework of the global leadership and its
role in conflict resolution in international business
69. Sources of Conflict Management
Host Country Factors
Size and Equity
Regulation and Competition
Balance of Pay,ment
70. Sources of Conflict Management
Home Country Factors
Export and Import Control
Balance of Payment
71. Types of Conflict
Intra group conflict
73. Conflict Resolution
Adjudication is a judicial process in which the neutral third party makes a decision to
resolve the dispute.
It can be regarded as a quick (and useful) form of arbitration.
Arbitration is a judicial process in which the disputing parties arrange for a neutral
third party to decide the dispute for them.
It is conducted under the provisions of the Arbitration Act 1996 and amendments.
The arbitration process can range from informal to formal, and the parties have
some choice about the process.
74. Conflict Resolution
Mediation is becoming the most common method of alternative dispute resolution. This involves
appointing a neutral, independent trained mediator.
Mediation is entirely voluntary and conducted on a “without prejudice” basis.
This simply means that the parties cannot refer to matters discussed during the mediation in any future
The Court encourages parties to engage in mediation and a failure to engage in settlement discussions
without a justifiable reason can lead to costs consequences even if the offending party is ultimately
successful at trial
In negotiation the people negotiate their own agreement without objective third party
assistance. Individually, people may of course engage extra resources to help strengthen their cases in
the process, eg a trained representative, legal advisor or a trained negotiator.
75. Supporting Institutions in International
World Trade Organization