Harsh Prajapati ● Globalization- trend towards a more integrated and interdependent global economy. ● Declining trade barriers, and technological advances are enabling globalization. ● Rise of multinational enterprises and formation of global institutions like WTO are also other causes. ● Political economy tends to determine whether or not businesses want to conduct business in another country. ● Political economy consists of the political climate, economic conditions, and legal systems that exist in that country. ● Political climate- Does the country favor free trade? Some countries are subsidized and limited by the government. High tariffs. Civil unrest. Corruption. All contributors to climate. ● Economic conditions- Sound and stable economy with enough wealth? Inflation makes it difficult to manage profitability. Conversion rates and taxes can make it hard to transfer funds back home. ● Evaluation legal systems- Do the laws ensure that contractual agreements are ensured? If a legal system favors citizens over entities, businesses may not move there. ● Another factor that influences whether a business will go to another country, culture. ● Culture- Norms, beliefs, attitudes, mores, and values that are commonly shared by residents of a country. ● Some cultures are not supportive of foreign businesses or some things are frowned upon there. Ex. cows in India should not open a beef industry there. ● Culture can affect how business is transacted. In Asian cultures, business relationships develop after multiple social interactions. ● Language is another factor. Strategies for conducting business in international markets ● Determine whether to modify products to fit preferences. ○ Sometimes I have to modify products to meet legal requirements and address language differences. ○ Global standard- Global standard should be consistent, but labels and design may change to match language. Good for optimizing costs. ○ Local customization- Product/services are changed to meet local market differences in preference to increase sales. Coca-cola might modify an agreement to match taste preferences. May need to change to compete against other competitors. Makes production a little more expensive, at risk of having obsolete inventory. ○ Combination strategy- Customized for some countries where difference is significant. Remains the same everywhere else. ● Determine entry strategy to conduct business in a country. ○ Export- ship products to another country to the foreign country, or sell directly to customers from another country into the foreign country. ○ License- Sell rights to a third party to make/sell the business products in another country. ○ Franchise- Authorize a business partner to use the trademarks/patents and brands and provide guidance in how to operate the business successfully. ○ Joint-Venture- Set up formal arrangements to collaborate with a business partner for conducting business within a specific country. Each member has an ownership position in a new entity to operate in a specific country. ○ Strategic alliance- Establish less formal arrangements for two distinct businesses to cooperate in pursuing a business opportunity in another country. Usually one company provides products or technologies, and another company provides local manufacturing/marketing support. ○ Do it yourself- Implemented by either the business establishing a new business entity from inception, or acquiring majority ownership in that country.
