Helen McGrath
A day in the life of the interdependent
global economy….
• A person might drive to work in a car
–
–
–
–
Designed in Germany
Assembled in Mexico
Components made in the US and Japan
Which were made from Korean steel & Malaysian rubber
• Diesel may be brought by BP
– Pumped off the coast of Africa by a French company
– Transported to the US by a Greek shipping line
• On the way to work the person might
– Talk on her Nokia phone
• Designed in Finland and assembled in Texas
• Chip sets produced in Taiwan
• Designed by Indian engineers
– Turn on her radio
• Made in Malaysia by Japanese firm
• Song composed by a Suede but sung by a Danish group
– Hired a French record company to promote their EP in America
• Drinking her Starbucks ! the news reader talks about a recession, which started in
America, and has ricocheted around the world
Our globalised world where…..
• $4 trillion in foreign exchange transactions daily
• Leaders are calling for even lower barrier to crossborder trade and investment
• Symbols of power and material culture are global:
Coca-Cola, Starbucks, Sony PlayStation….
• Products made from inputs from all over the world
• A recession in one country has an impact on another
• Protests against globalisation: who is blamed for
unemployment/ environmental degradation and the
Americanisation of the world
Opportunities for businesses
• Economic trends since the fall of communism
has favoured the free market
• Barriers to doing business in foreign nations
have come down
• Expand revenues
• Reduce costs? Producing in nations where key
inputs are cheap
Threats for businesses
• Foreign companies have brought increasing
competition
• Unsettling jobs in the developed world
– Car industry in US: General Motors market share
declined from 50 to 20%
– Japan’s Toyota has surpassed GM to be largest
automobile company in the world
• Service industry also under threat
– Health care industry/ accounting
• Enterprising individuals in all areas of the world
now have the same opportunities
What Is Globalisation?
• Globalisation refers to the shift toward a more
integrated and interdependent world
economy, including two facets:
– Globalisation of markets
– Globalisation of production
Globalisation of Markets
• Globalisation of markets refers to the merging of historically
distinct and separate national markets into one huge global
marketplace
• Instead, there is the “global market”
– falling trade barriers make it easier to sell globally
– consumers’ tastes and preferences are converging
– firms promote (and benefit from) the trend by offering the same basic
products worldwide (Coca-Cola, Ikea, Sony PlayStation etc.)
• Important to note that you do not have to be a large corporation to be Global:
in Germany 98% of small and mid-sized companies have exposure to
international markets
• Despite this Standardisation significant differences still exist
among national markets forcing companies to customise certain
elements
• Most Global markets are not consumer products but industrial
goods and materials: aluminium, oil, microprocessors
Globalisation of Production
• Globalisation of production refers to the sourcing of
goods and services from locations around the globe
to take advantage of national differences in the cost
and quality of factors of production like land, labour,
and capital
• Companies can
– lower their overall cost structure
– improve the quality or functionality of their product
offering
– Boeing 787: 65% of build outsourced: Rationale:
• Can get the best in the world
• May get some contracts in that part of the world
– India is working while America is sleeping
• Software companies, radiographers etc., call centres,
administration work
Recent Importance of IM
• Every state is sovereign and independent from other
countries, yet:
– No country can completely isolate its internal affairs from
external forces
– Most inward regimes recognise the limitations of own resources
and benefits of opening up borders
• Change in orientation of these regimes led to enormous amount of
activity in the international marketplace
• Russia : viewed as one of the most self-sufficient countries in the
world still as imports to the tune of $324B 2014
– Global boom of 1990’s opened up markets across the world
– Result: businesses today deeply involved in and affected by
global developments
– Political turmoil and economic crisis of 1st decade of this century
swept throughout the world and affected almost every country
Yesterday’s World
• National economies selfcontained
• Barriers to cross-border
trade and investment
– Distance, time zones,
language, government
regulation, culture,
business systems
Today’s World
• National economies
merging to
interdependent,
integrated global
economic system
• Barriers declining
– Distances shrinking:
advances in transportation
and telecommunications
– Material culture looks
similar
Powerful economic, technological,
industrial, political and
demographic forces are converging
to form the foundation of a new
global economic order on which the
structure of a world economic and
market system will be built.
IM far reaching
• Whether company wants to participate in IB it
cannot escape the effects of IB
– Domestic firms exporting/importing/manufacturing
abroad
– Foreign-based companies in domestic market
– Growth of world markets
• Every company is International, at least to the
extent that its business performance is
conditioned in part by events that occur abroad
– Companies who do not operate in the international
arena are affected to come degree by economic
changes in other countries
Trends affecting global business
1. The interdependence of the world economies and
globalisation of production and consumption
2. The rapid growth of regional free-trade areas : EU,
NAFTA, ASEAN, APEC
3. The increase in wealth and growth in most parts of
the world, causing enhanced purchasing power as
well as volatility in financial markets
4. The evolution of large emerging markets: Brazil,
China, India, Russia, Indonesia, Turkey
5. Availability of advanced methods of communication
and transportation
World has become smaller….
These 5 trends have led to a dramatic growth in
international trade and perception of the world
as small and more interdependent.
Claims to have
products in
every country in
the world:
factories in
more than 80
countries
What nationality is Nike?
• Does not own any manufacturing facility
– Mainly manufactured in China but the factory is owned by a
Taiwanese
• A Nike shoe is
– Made up of 52 different components, coming from 5 different
countries (Japan, India…)
– Will be touched by 120 pairs of hands
– Leather from South Korea: put together by Chinese
• Production system is a network of logistics: not only do all
the materials have to come together, but at the right time
• Yes, Nike is American!!
– Design and Marketing come from America
– Phil Knight: American founder in 1964
IM Defined
• International marketing is the performance of
business activities that direct the flow of a
company’s goods and services to consumers or
users in more than one nation for a profit.
• The only difference in the definitions of domestic
marketing and international marketing is that the
marketing activities take place in more than one
country.
So, what is the difference between doing business
on a domestic level and internationally?
• Difference does not lie in applying difference
strategies but in acknowledging the different
environments within which the business is taking
place
• Uncontrollables: competition, legal constraints,
government controls, weather, consumer
behaviour, religion……can affect the profitable
outcome of any business plan
• Can not be controlled but business must adjust or
adapt for a successful outcome
• Business principles and concepts are universally
applicable, the environment within which the
business takes place can change dramatically
from country to country
Basic business models remain the same but
must be adapted for every new environment
International Business deals with:
• Controllables
• Domestic uncontrollables
• Foreign uncontrollables
– International businesses must deal with at least two
levels of uncontrollable uncertainty
– Each foreign country in which a company operates
adds its own unique set of uncontrollables
Marketing
(controllable)
Price
Promotion
Product
Channels of
distribution
Domestic environment
(uncontrollable)
Political/
legal
forces
Marketing
(controllable)
Price
Promotion
Product
Channels of
distribution
Economic climate
Competitive
structure
Domestic Uncontrollables
• Elements that can have a direct effect on the
success of a foreign venture
– Changes in foreign policy
• US restrictions of trade with countries like Libya, Iraq
and South Africa, due to so called support to terrorists
in Libya and Iraq and due to apartheid policies in South
Africa. When South Africa abolished apartheid, many
opportunities were created for US companies
– Economic Climate: if in difficulty restrictions may
be placed on foreign investment
Foreign environment
(uncontrollable)
Political/legal
forces
Economic
forces
Domestic environment
(uncontrollable)
Cultural
forces
Political/
legal
forces
Marketing
(controllable)
Price
Promotion
Product
Competitive
structure
Competitive
Forces
Channels of
distribution
Environmental
uncontrollables
country market A
Geography
and
Infrastructure
Economic climate
Structure of
distribution
Level of
Technology
Environmental
uncontrollables
country market B
Environmental
uncontrollables
country market C
Foreign Uncontrollables
• Added source of uncertainty and involves
substantial doses of cultural, political and
economic understanding to come to sound
business decisions
• If operating in more than one country there
may be polar extremes in political, culture and
economic climates: dramatically changing
business decisions
Significant uncontrollables
• Political /legal forces
• Economic forces
• Competitive forces
Significant uncontrollables
•
•
•
•
Level of technology
Structure of distribution
Geography and infrastructure
Cultural forces
https://www.youtube.com/watch?v=cWd6L37
EmUc
Environmental Adaptations
• To successfully conduct business in a foreign market
the business must be able to interpret effectively the
influence and impact of each of the uncontrollables
• Must be able to recognise the possible difficulties in
the different cultures (something we do automatically
in our own societies as we are culturally responsive to
our environments)
• Businesses can and do fail because of unconscious
responses based on frames of reference acceptable in
home culture but not in target country
Cultural Conditioning
• We are not aware of nine-tenths of it
• To conduct business successfully in a foreign
climate we must be sure not to access
https://www.youtube.com/watch?v=I0AKSSAd
uncontrollables
against the fixed values and
sHQ
assumptions of home culture
• Must take specific steps to be aware of the
foreign cultural reference for analyses and
decision making
Self-reference criterion
• Unconscious reference to one’s own cultural values,
experiences and knowledge as a basis for decisions.
Impedes the ability to assess a foreign market in its true
light
• Faced with a problem in another culture tendency is to
react instinctively referring to our SRC for a solution
• Therefore the SRC impedes the ability to assess a foreign
country in its true light
• Ethnocentric: using SRC for evaluating situations
• There will be many similarities but the undetected
difference can create a failure
• Therefore: we must be aware to the differences and ask
questions
When it goes wrong…..
• https://www.youtube.com/watch?v=jOsgNCG
wtN4
• http://www.youtube.com/watch?v=kNH2V0t
w0I8
• http://www.youtube.com/watch?v=nLGc2D6
WKT0
Levels of Internationalisation
• International companies are importers and exporters, they have no
investment outside of their home country. Kraft? HD sold in 67 countries
• Multinational companies have investment in other countries, but do not
have coordinated product offerings in each country. More focused on
adapting their products and service to each individual local market.
• Global companies have invested and are present in many countries. They
market their products through the use of the same coordinated
image/brand in all markets. Generally one corporate office that is
responsible for global strategy. Emphasis on volume, cost management
and efficiency.
• Transnational companies are much more complex organizations. They
have invested in foreign operations, have a central corporate facility but
give decision-making, R&D and marketing powers to each individual
foreign market.
International
Multinational
Global
Transnational
International Orientations & EPRG
Schema
Domestic
Extension
Orientation
Ethnocentric
Multi-Domestic
Orientation
Polycentric
Global /
Transnational
Orientation
Regiocentric/
Geocentric
Domestic Extension Orientation
• Company seeks extension of products into foreign
markets
• Domestic business is priority and foreign sales
(even if vigorously pursued) are seen as profitable
extension of domestic operations
• Minimal effort to adapt to foreign market: chooses
markets/cultures similar to own where domestic
product will be acceptable: Standardisation
• Ethnocentric in philosophy
Multi-domestic Orientation
• Company has a strong sense that country markets are
vastly different and an independent programme is required
for each country
• Business plans and objectives are independent of each
other
• Products are adapted for each market : as are pricing/
advertisement etc.
• Company does not look for similarities but rather aims for
adaptation to local markets
• Control usually decentralised to reflect belief that
uniqueness of each market requires local input
• Polycentric in philosophy
• Adapting Toyoto
Global / Transnational Orientation
• Company strives for efficiencies of scale by developing a product, to
be sold at a reasonable price to a global market
• Premise that world markets are being driven towards a converging
commonality
• Constitute significant market segments with similar demands for
the same basic product the world over
• Standardisation as much as possible where it is culturally and cost
effective
– Some decisions worldwide : others require consideration of local
influences
• Pricing, advertising or distribution channels may differ: Ipad/Playstation
• Wherever Cultural uniqueness dictates the need for adaptation it is
accommodated
• Regiocentric or geocentric in philosophy Coca cola? Ikea? Nike?
Developing a global awareness
• To be globally aware is to be:
– Objective
• In assessing opportunities, evaluating potential and responding to
problesm
• ebay fails in china
– Tolerant toward different cultures:
•
•
•
•
No culture is right or wrong
Need to understand differences to work and relate effectively
http://geert-hofstede.com/national-culture.html
http://geert-hofstede.com/japan.html
– Knowledgeable about
• cultures, history, global markets,
‘The global corporation sells the same
thing in the same way everywhere’
‘Segmenting markets and customising products is not
cost effective’
‘The company of the future will be a global company
that views the world as one market to which it sells a
global product’
Criticism: While the influence of mass communications on consumer
wants and needs cannot be denies the need for cultural adaptation
exists in most markets and for most products.
Levi Strauss, Apple, Starbuk, McDonald’s, Coca-Cola etc. sell a
relatively standardised product: however, there is adaptation in
some areas