International Business Management - Lecture No 02

1. Lecture No: 02
Course Facilitator: Khurshid Alam Swati
University of Swat, Swat
Email your query to:
Khurshidalamswati@yahoo.com
The process of
Internationalization

2. Internationalization/Globalization
Process of increasing involvement of enterprises in
international markets
The process by which businesses or other
organizations start operating on a global scale
Globalization is the ongoing process that deepens
and broadens the relationships and interdependence
among countries
International Business is a mechanism to bring
about globalization
innovation, maintaining a high level of quality, be
committed to corporate social responsibility

3. FORMS OF INTERNATIONALIZATION
IMPORT EXPORT
LICENSING FRANCHISING
MODES OF
INTERNATIONALIZATION

4. Franchising Vs Licensing
For a company looking to expand, franchising and licensing are often
appealing business models. In a franchising model, the franchisee uses
another firm's successful business model and brand name to operate
what is effectively an independent branch of the company. The
franchiser maintains a considerable degree of control over the
operations and processes used by the franchisee, but also helps with
things like branding and marketing support that aid the franchise. The
franchiser also typically ensures that branches do not cannibalize each
other's revenues.
Under a licensing model, a company sells licenses to other (typically
smaller) companies to use intellectual property (IP), brand, design or
business programs. These licenses are usually non-exclusive, which
means they can be sold to multiple competing companies serving the
same market. In this arrangement, the licensing company may exercise
control over how its IP is used but does not control the business
operations of the licensee.

5. Drivers of Globalization
More and more firms around the world are going global,
including:
 Manufacturing firms
 Service companies (i.e. banks, insurance, consulting firms)
Expansion of technology – It crosses national or cultural
boundaries E.g. E-business, video conferencing, emails
and WWW
Transportation and communication improvements
World economic trends – Liberalization of cross border
movement, deregulation and reduction in tariffs, free
trade
GSP Plus - Generalized System of Preferences
Trends towards privatization @ IMF, WTO initiatives
To Diversify or Reduce Risks - International operations
may reduce operating risk by smoothing sales and profits,
preventing competitors from gaining advantage

6. Drivers of Globalization (Cont’d)
• Development of services that support
international business – Internet, 3G, 4G Internet
• Growing consumer pressures – Consumer
Demands/preferences
• Increased global competition – Ranking and
branding
• E.g. Dell Vs Apples
• Changing political situations
• Conducive environment – PM Tax free money
laundering
• Expanded cross-national cooperation – Research
& Development

7. Restraining Forces of Globalization
Management short sightedness
Ethnocentric style and fear of unknown in
many organizations
Lack of trust among employees
Government policies, controls and barriers
Huge excise taxes, bribery, nepotism and
corruption
Financial problems – High interest rate
Inflation, Currency rate fluctuation and high
labor cost at home country

8. Cont’d
INTERNAL
• Price of firm’s products
• High cost of
internationalized
• Quality of firms products
• Qualified personnel
• Specifications of firm’s
products
• Language
EXTERNAL
• Lack of capital
• Lack of public support
• Lack of information
• Laws and regulation in
foreign countries
• Cultural differences
• Tariffs and trade barriers
• (home and foreign
countries)

9. Separation/Differences of domestic
and international business
Political separation
Physical separation - Geography (distance)
Environmental separation (E.g. Climate,
natural resources- weather)
Developmental separation (Opportunities Vs
Threats)
Cultural separation
Information
• Technology
• Currency
• People…

10. Ratio of world exports of goods and commercial
services to GDP, 1980-2010. Index, 2000=100. Source:
IMF. WTO

11. Key Motivators To Internationalization
Reactive stimuli:
• Adverse domestic market
conditions
• Opportunity to reduce
stocks
• Availability of production
capacity
• Opportunity to increase the
number of country markets
and reduce market related
risk
• Unsolicited orders from
overseas customers
.
Proactive stimuli:
• Attractive profit/growth
opportunities
• Ability to easily modify products
for export markets
• Public policy programmes for
export promotion
• Foreign country regulations
• Possession of unique products
Managerial elements:
• Presence of export minded
manager
• Opportunity to better utilise
management talent and skills
• Management belief in value of
exporting

12. Globalization and Business
Influences of multinational companies on a host country
Benefits for a local
country:
 Creating new jobs
opportunities
 Improving living
standards for people
 Creating competition for
domestic businesses
and causing them to
improve efficiency
 Bringing new
technology
 Bringing new
management ideas and
styles
 Improving the balance
of international
Problems for a local
country:
 Resulting in some local
firms to close plants or cut
down employees
 Affecting the balance of
payments if the
multinational company
imports huge amount of
components from other
countries
 Causing difficulties in
government control
because of the strong
power of the business
 Causing environmental
problems to the local
country