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International Business - basid terminology: "International business" and "Multinational Enterprise"
Reasons of globalisation of business
Criticism of globalisation
Why going abroad
Managmenet Decisions for Internationalization
Entry modes
Modes of International Business
Service exports and imports as mode of international business
Foreign direct investments
Portfolio investments
International business dilemmas
The economic environment: key macroeconomic issues.
Types of economic integration
The World Trade Organisation
Major trade groups in Europe, Asia, North and Latin America, Africa
Commodity Agreements
The features of contemporary democratic political system
The critical functions of democratic government
Leading sources of political risk
Formulating and implementing political strategies
Kinds of legal systems
Key legal issues in international business
Adapting to foreign economic environments needs to find answeres to some questions in the internationalization process
Country evaluation and selection: influential variables
PESTLE analys.
The concept of culture
Behavioral practicies affecting business
Cultural needs in the internationalization process
Importance of Strategy for MNE?
Content of low-cost strategy
Content the strategy of differentiation.
What primary and support activities belong to value chain
What is the importance of cluster effects for building up strategy?
Role of logistics in value chain.
Role of degree of digitization in corporate strategy.
What is the influence of customer needs to corporate strategy?
What is a core competency?
What operational obstacles complicate the coordination of value chain?
What are the main problems because different national cultures?
Export strategy: entry mode is a function of what factors?
Export-related problems
Forms of trade control
Potential pitfalls. Mistakes, most frequently made by companies new to exporting.
Designing an export strategy involves certain steps?
Typical export-plan
Procedural and strategic issues in import strategy
Five elements of the competitive strategy that affect to the manufacturing strategy.
Manufacturing activities are...
Three typical types of manufacturing strategy
From what factors depends the number of plants and their locations?
Main problems by offshore manufacturing?
Understanding quality in different cultures
Main principles of total quality management.
ISO9000 and importance of certification
What are Foreign Trade Zones?
Types of Collaborative Arrangements (Franchising Dilemmas)
Reasons of entering a strategic alliance
Reasons of failures of alliances
How differences in culture affect to strategic alliances?
Contractual provisions in negotiations
Trust concepts
Country bargaining strenghts
Company bargaining assets
Direct incentives that countries have offered foreign investors
Companies agree to many performance requirements aimed at improving countries objectives
Behavioral characteristics affecting negotiations.
Categories of ethical problems of multinational enterprises
De George's guidelines to multinationals operating in less-developed countries
1
Here are notes from Nat.K:
●
International driven strategy
●
total quality management
●
franchising
●
turnkey operations
●
designing an export strategy involves following steps
●
strategy and value
●
the value chain framework
●
steps that a company must follow if he wants to establish an appropriate political strategy
●
formulating and implementing political strategy
●
why going abroad
●
entry mode
●
key macroeconomic issues
●
the WTO
●
major types of economic integration
1. International Business - basic terminology: "International business" and "Multinational Enterprise"
International business differs from domestic business in that a firm operating across boundaries must deal with the forces of three
kinds of environments – domestic, foreign, and international” (Ball&MacCullogh)
2. Reasons of globalisation of business
●
Technology is expanding, especially in transportation and communications
●
Governments are removing international restrictions
●
Institutions provide services to ease the conduct of international business
●
Consumers know about and want foreign goods and services
●
Competition has become more global
●
Political relationships have improved among some major economic powers
●
Countries cooperate more on transnational issues
3. Criticism of globalisation
●
Countries lose sovereignty
●
The resultant growth hurts the environment
●
Some people lose, both relatively and absolutely
4. Why going abroad
●
Expansion of sales.
a. Pursuing international sales usually increases the potential market and potential profits.
●
To minimise risk
a. International operations may reduce operating risk by
b. smoothing sales and profits
c. preventing competitors from gaining advantages
●
To acquire resources
a. Foreign sources may give companies
b. lower costs
c. new of better products
d. additional operating knowledge
5. Management Decisions for Internationalization
●
What product/ Service to offer foreign market
●
Which market to serve
●
What marketing mix to implement
●
How to organise in order to meet company objectives
6. Entry modes
The Institutional arrangement that makes the entry of a company’s products, services, technology, human skills, management or
other resources into a foreign market.
ENTRY MODES
●
Exporting
a. Direct
2
●
●
●
b. Local Agent
Local Organization
a. Joint Venture
b. Wholly owned subsidiary
Mixed Strategy
Contractual Entry
a. Licencing
b. Turnkey
c. Management Service
d. Contract Manufacturing
7. Modes of International Business
●
Merchandise Exports and Imports
●
Service Exports and Imports
●
Investments
●
International Companies
8. Service exports and imports as mode of international business
Service exports and imports are international nonproduct sales and purchases. Examples of services are:
●
Tourism and Transportation
●
Performance on services:
a. banking
b. insurance
c. rentals
d. engineering
e. management services
●
Use of Assets
a. licensing agreements like trademarks, patents, copyrights;
b. franchising
c. dividends and interests
9. Foreign direct investments
A foreign investment means ownership of foreign property in exchange for a financial returns, such as interests and dividends.
Foreign investment takes two forms: direct and portfolio.
Direct investment is one that gives the investor a controlling interest in a foreign company. Control need not to be a 100-percent or
even 50-percent interest.
Companies benefit from direct investment by:
●
Control
●
Access to foreign markets
●
Access to foreign resources
●
Higher foreign sales than exporting (often)
●
Partial ownership (sometimes)
When two or more companies share ownership of an FDI, the operation is called a joint venture. When a government joins a
company in an FDI, the operation is called a mixed venture, which is a type of joint venture.
10. Portfolio investments
Key components of portfolio investments are:
Noncontrol of foreign operation
Financial benefit (for example, loans)
International business dilemmas
11. International business dilemmas
Globally Standardised versus Nationally Responsive Practices.
Globally standardised practices tend to lower costs.
Nationally responsive practices enable companies to adjust to unique local conditions
Country versus Company Competitiveness.
Countries moderate companies global efficiency objectives because of their rivalry with other countries.
The economic environment: key macroeconomic issues.
12. The economic environment: key macroeconomic issues.
nEconomic growth
nInflation
nUnemployment
nExternal debt
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nBalance of payments
nPoverty
Types of economic integration
13. Types of economic integration
political and economic agreements among countries that give preferences to member countries in the agreement
Bilateral
Regional
Global
The World Trade Organisation
14. The World Trade Organisation
WTO is the major multilateral forum through which governments can come to agreements and can settle disputes regarding
trade.
WTO is the major body for
-Reciprocal trade negotiations
-Enforcement of trade agreements
Major trade groups in Europe, Asia, North and Latin America, Africa
15. Major trade groups in Europe, Asia, North and Latin America, Africa
EU
nFree-Trade Area - The European Free Trade Association (EFTA), the Central European Free Trade Agreement (CEFTA), the
North American Free Trade Agreement (NAFTA), APEC, ASEAN, and Asian Free Trade Area.
nCustom Union - MERCOSUR
nCommon Market - the Carribean Community and common Market, the Central American Common Market, the Andean Group,
and the European Union
North American Free Trade Agreement (NAFTA)
Membership: Canada, US and Mexico.
Involves free trade in goods, services, and investment.
NAFTA calls for the elimination of tariff and non-tariff barriers, the harmonization of trade rules, and the liberalization of
restrictions on services and foreign investments, the enforcement of intellectual property, and a dispute settlement process.
Latin American Integration
nCentral American Common Market (CACM)
5 countries
nCarribean Community and Common Market (CARICOM) 13 countries.
nMERCOSUR:
- Argentina, Brazil, Paraguai, Uruguay
- the major trade bloc in South America
- customs union
nAndean Community (CAN)
- created 1969
- Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela
South American Community of Nations (CNS) was organised in 2004 to bring together CAN, MERCOSUR, Surinam and
Guyana.
Asian Integration
nAssociation of South East Asian Nations (ASEAN)
- the first free-trade area in Asia, organised in 1967
- Brunei, Indonesia, Malaysia, the Philippines,
Singapore, Thailand, and Vietnam
- the next countries scheduled for admission are
Cambodia, Laos and Burma (Myanmar).
nAPEC
Created 1989. Comprises 18 countries that account for half of world output - including United States, China, Japan, Canada,
Australia.
APEC hopes to achieve free and open trade by 2010 (for industrial countries) and 2020 (for the rest).
AFRICAN
nSeveral forms of African integration exist, and they are not necessarily mutually exclusive.
nThe major African groups are:
- Economic Community of West African States (ECOWAS) 16 countries
- Organization of African Unity (OAU). 53 countries in Africa
- Southern African Development Community (SADC) 12 COUNTRIES.
16. Commodity Agreements
nA commodity agreement is a form of economic cooperation designed to stabilize and raise prices.
nCommodity agreements are of two basic types:
- producers alliances
- international commodity control agreements (ICCA).
nProducers alliances are exclusive memberships of producing and exporting countries. Examples are the Organization of
Petroleum Exporting Countries (OPEC) and the Union of Banana Exporting Countries
nICCAs are based on cooperation between producing and consuming countries and provide for equal voting rights for both
groups. Examples of ICCA are the International Cocoa Organization and the International Sugar Organization.
4
The features of contemporary democratic political system
17. The features of contemporary democratic political system
1.Freedom of opinion, expression, and press, and freedom to organize
2.Elections in which voteers decide who is to represent them
3.Limited terms for elected officials
4.An independent and fair court system with high regard for individual rights and property
5.A relatively nonpolitical bureaucracy and defence infrastructure
6.A relative accessibility to the decision-making process
The critical functions of democratic government
18. The critical functions of democratic government
1.Promote the common welfare of its citizens
2.Provide the public goods such as national defence and transportation and communications systems
3.Handle market defects such as entry barriers and insufficient consumer knowledge and power
4.Protect the liberty of its citizens
5.Deal with spillover effects and externalities
Leading sources of political risk
19. Leading sources of political risk
nExpropriation of nationalisation
nInternational war or civil strife
nUnilateral breach of contracts
nDestructive government actions
nHarmful actions against people
nRestrictions on repatriation of profit,
f.e. arbitrarily set limits on the gross amount of profits a foreign company can remit from its local operation
nDifferent points of view,
f.e. differing interpretation of labor rights and environmental obligations that create a backflash problems in the foreign company’s
home market
nDiscriminatory taxation policies
20. Formulating and implementing political strategies
Formulating political strategies is complicated by the range of participants in the decision-making process, differences
in logic, and institutional power. Establishing a political strategy involves identifying and defining the political situation,
important institutions, and key individuals.
Steps to be taken:
1.Identify the issue. What is the specific issue facing a firm – protectionism, environmental standards, worker rights?
2.Define the nature of politics of the issue.
3.Assess the potential political action of other companies and of special interest groups. Who are the parties that are
affected and able to generate political pressure?
4. What are their strategies likely to be?
5.Identify important institutions and key individuals – legislatures, regulatory agencies, courts, important personalities.
6.Formulate strategies. What are the key objectives, the major alternatives, and the likely effectiveness of alternative
strategies?
7.Determine the impact of implementation. What will be the public relations fallout in the home and host countries if
the action taken is unpopular?
8.Select the most appropriate strategy and implement
21. Kinds of legal systems
A common law system is based on tradition, precedent, custom and usage, and interpretation by courts.
A civil law system is based on a very detailed set of laws organized into a code.
A theocratic law system is one based on religious percepts, such as Islamic law.
22. Key legal issues in international business
§Trade and investment regulation
§Intellectual property protection
§Financial flows regulation
§Taxation
§Exporting requirements
§Ownership regulation
§Contractual relationships
5
§International treaties
§Dispute resolution
23. Adapting to foreign economic environments needs to find answeres to some questions in the
internationalization process
Under what type of economic system does the country operate?
Is the company's industry in that country public or private sector?
If it is in the public sector, does the government also allow private competition in that sector?
If the company's industry is in the private sector, is it moving toward public ownership?
Does the government view foreign capital as being in competition with or in partnership with public or local private
interprises?
In what ways does the government control the nature and extent of private enterprise?
How much of a contribution is the private sector expected to make in helping the government formulate overall
economic objectives?
24. Country evaluation and selection: influential variables
Market Size: Ease and Compatibility of Operations: - Geographic, language, and market similarities- Fit with
company capabilities and policies
Costs and Resource Availability
Red Tape includes such thing as how difficult it is to get permission to operate, to bring in expatriate personnel, to
obtain licenses to produce and sell certain goods, and to satisfy government agencies on such matters as taxes,
labor conditions, and environmental compliance.
The degree of red tape is not directly measurable; therefore, companies commonly have people familiar with
operating conditions rate countries subjectively on this factor.
Risk - Risk and uncertainty - Competitive risk - Monetary risk - Political risk: opinions of political leadership; civil
disorder; external relations
25. PESTLE analys.
There are many different aspects of the remote environment that can have significant impact on the operation of the
firm, its competitors, and its customers.
This can be analysed using PESTLE, which covers all important aspects:
Political, Economic, Sociocultural, Technological, Legal, Environmental. (more info on pestle slides, too much to
add)
26. The concept of culture
27. Behavioral practicies affecting business
Self-Reliance:
Superior-subordinate relationships
Uncertainty avoidance
Trust
Degree of fatalism
Individual versus group
Communication:
Language
Silent language
Perception and processing
Otaining and evaluating information
Group Affiliations:
Role of competence
Gender-based groups
Age-based groups
Family-based groups
Importance of work:
Protestant ethic
Belief in success and award
Work as habit
High-need achievement
Need hierharcy
Importance of occupation
28. Cultural needs in the internationalization process
6
Polycentrism
Ethnocentrism
Geocentrism:
Value system
Cost-benefit of change
Resistance to too much change
Participation
Reward sharing
Opinion leaders
Timing
Learning abroad
(ch3 – for mre info)
29.
Importance of Strategy for MNE?
30. Content of low-cost strategy.
Low-cost strategy (Cost leadership) emphasizes high production volumes, low costs and low prices to attract customers.
31. Content the strategy of differentiation.
Differentiation spurs the company to provide a unique good or service that it rivals find hard, if not impossible, to match or copy.
32.What primary and support activities belong to value chain.
Primary activities that create and deliver the product. Activities that are involved in the physical movement of raw materials and
finished products, in the production of goods and services, and in the marketing sales, and subsequent services of the output of the
business. We identify primary activities with functional labels. Support activities make up the managerial infrastructure of the firm
that supports carrying out the primary activities or that aid the individuals and groups engaged in primary activities.
33. What is the importance of cluster effects for building up strategy?
It creates unique location advantage that offer firms in that locale access to specialized resources that can dramatically improve the
potential for innovation.
34. Role of logistics in value chain.
The key role of logistics is to build a value chain in which companies obtain, produce and exchange material and services in the
proper place and in proper quantities for the proper value activity. The greater the value of a product to its weight, the less important
storage and transportation costs matter.
35. Role of degree of digitization in corporate strategy.
The degree, to which an analog product can be converted into string of zeros and ones- the process of digitization-influences how a
company configures its value chain.
Increasingly, products like software, music, and books, and services like call centers, application processing, and financial
consolidation, can be done virtually anywhere there is a computer and, via communication technologies, immediately be sent
anywhere in the world at negligible cost and complication.
Notably, for example, a hot of activities that once could only be done in a few specialized places, say, the due diligence process in
mergers and acquisitions that once took place largely in New York City, can now be off shored to firms in India.
36. What is the influence of customer needs to corporate strategy?
Buyer-related activities, such as distribution to dealers, sales and advertising, and after sale service, usually take place close to
buyers.
This can press some companies to physically locate the capability to perform such activities in every country market where it has
major customers.
For example, the leading management consulting and accounting firms have numerous international offices to service to foreign
operations of their globally dispersed clients.
37. What is a core competency?
A company’s core competency is:
●
The unique skills and/or knowledge that is better than it’s competitors;
●
Essential to its competitors;
A core competency can emerge from various factors, including:
●
product development;
●
employee productivity;
●
manufacturing expertise;
●
marketing imagination;
●
executive leadership;
38.What operational obstacles complicate the coordination of value chain?
7
MNE’s regularly run into problems when trying to get the various links of their global value chain to deal to each other:
●
communication challenges especially arise when trying to synchronize languages. So far, there is no agreement on the
standards of business exchange. Are just specific agreements like EDIFACT in Europe; www, specifically HTML oXML.
●
currencies;
●
measurement systems (i.e., metric versus decimal)
Well-planned coordination preemts these threats, thereby letting workers worry less about what is supposed to happen with material
transfers and product delivery and worry more about creating value.
39. What are the main problems because different national cultures?
The globalization of a company’s value chain - for example, design done in Finland, inputs sourced from Brazil, production done in
China, distribution organized in the United States, and service done in Mexico - presses managers to understand how foreign
cultures influence coordination.
For example, the performance of even the simplest value chain depends on each link meeting a specified timetable. Companies in
Western countries generally see deadlines as firm promises of delivery. Some cultures, however, see deadlines as a guidelines with
flexible end dates.
Units anchored in different cultures may disagree over how much information they should share or who should take lead
responsibility.
40. Export strategy: entry mode is a function of what factors?
●
ownership advantages of the company;
Relates to specific assets and are a function of company size, international experience, and ability to develop differentiated
products.
●
location advantages of the market;
Are a combination of market potential (the size and growth potential of the market) and investment risk
●
internationalization advantages of integrating transactions within the company;
Refers to the benefits of holding specific assets or skills within the company and integrating them into its activities rather than
licensing or selling them.
41. Export related problems.
5 categories
1. logistics (arranging transportation, determing transport costs, handling documentation, obtaining financial information,
coordinating distribution, packaging, obtaining insurance)
2. legal procedures (governmental red tape, product liability, licencing agreements, custom duty procedures)
3. product servicing (parts availability, repair services, technical advice, ware housing)
4. sales promotion (advertising, sales effort, marketing information)
5. foreign market intelligence (locating markets, trade restrictions, foreign competition)
42. Forms of trade control.
Tariffs:
●
export tariffs;
●
transit tariffs;
●
import tariffs;
Non-tariff barriers:
●
subsidies;
●
custom valuation and valuation procedures
●
quantity controls;
●
buy-local legislation;
●
specific permission requirements;
●
administrative delays;
●
reciprocal requirements
●
restrictions on services;’
43. Potential pitfalls. Mistakes, most frequently made by companies new to exporting.
1. Failure to obtain qualified export counseling and to develop a master international marketing plan before starting an export
business
8
2. Insufficient commitment by top management to overcome the initial difficulties and financial requirements of exporting
3. Isufficient care in selecting overseas agents of distributors
4. Chasing orders from around the world instead of establishing a base of profitable operations and orderly growth
5. Neglecting export business when the domestic market booms
6. Failure to treat international distributors on an equal basis with their domestic counterparts
7. unwillingness to modify products to meet other counties regulations or cultural preferences
8. failure to print service, sales and warranty messages in locally understood languages
9. failure to use of an export management company or other marketing intermediary when the company does not have the
personnel to export to handle specialized export functions
10. failure to consider licensing or joint-venture agreements. This factor is especially critical in countries that have import restrictions.
44. Designing an export strategy involves certain steps?
●
Asses the company’s export potential by examining it’s opportunities and resources
●
Obtain expert counseling on export
●
Select a market or markets
●
Formulate an export strategy.
●
The company’s export objectives, both immediate and long term
●
specific tactics the company will use
●
a schedule of activities and deadlines that will help the company achieve its objectives
●
the allocation of resources to accomplish the different activities
●
determine how to get the goods to market
A.
45. Typical Export-Plan
I. Executive summary
Key elements of the plan;
Description of business & target markets
Brief description of management team
Summary of financial projections
II. Business history
History of company
Products/services offered and their unique advantage
Domestic-market experience
Foreign-market experience
Production facilities
Personnel – international experince and expertise
Industry structure, competition
III. Market Research
Target countries
1.
2.
3.
Primary
Secondary
Tertiary
B.
Market conditions in target countries
1.
Existing demand
2. Competition
3. Strenght and weeknessness of the economy – barriers to enrty, etc.
IV. Marketing decisions
Distribution strategies
1. Indirect exporting
2. Direct exporting
3. Documentation
4. Direct investment, strategic, alliances
Pricing strategy
Promotion strategy
V. Legal decisions
A. Agent/distributor agreements
B. Patent, trademark, copyright protection
C. Export/import regulations
D. ISO 9000
E. Dispute resolutions
VI. Manufacturing&Operations
Location of production facilities for exports
Capacity of existing facilities
Plans for expansion
Product modification necessary to adapt to local environment
VII. personnel strategies
Personnel needed to manage exports
A.
B.
C.
D.
A.
B.
C.
D.
E.
F.
G.
A.
B.
C.
A.
B.
C.
D.
A.
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B.
C.
D.
A.
B.
C.
D.
Experince and exoertise of existing personnel
Training needs of existing personnel
Hiring needs in the short term and long term
VIII. Finacial decisions
Identification of key assumptions
Current sources of funding – private and bank funding
Financial needs and future sources of funding
Tax consequences of export activity
IX. Implementation Schedule
46. Procedural and strategic issues in import strategy
The following procedural steps must be considered by an importer once a foreign source for products has been determined:
●
Ship the products to the importing country by air, land, or ocean
●
Clear customs
●
Pay the exporter
●
Store the products until they can be sold
●
Sell the product and collect payment
Importing requires a certain degree of expertise in dealing with institutions and documentation, which a company may not have
aquired. Consequently, the company may elect to work through an import broker. The import broker is a person who obtains various
governmental permissions other clearences before forwarding necessary paperwork to the carrier that is to deliver the goods from
the dock to the importer.
Strategic issues refer to the long-term reasons why a company wpuld rather buy products from foreign than domestic sources.
47.
●
●
●
●
●
Five elements of the competitive strategy that affect to the manufacturing strategy.
Efficiency/cost - reduction production costs
Dependability - degree of trust in a company’s products, and it’s delivery and price promises
Quality - performance reliability, service quality, speed of delivery, and maintenance quality of the products
Flexibility - ability of the production process to make different kinds of products and/or to adjust the volume of output
Innovation - ability to develop new products and ideas
48.
●
●
●
●
●
●
Manufacturing activities are...
Location and scale of the manufacturing facilities
Choice of manufacturing process
Control of the production system, including the assignment of activities to plants in a multi-plant network
Degree of vertical integration relative to outsourcing of each manufacturing facility
Coordination of R&D units
Licensing of technology
49.
●
●
●
Three typical types of manufacturing strategy
Techology driven strategy
Marketing-intensive strategy
Low-cost strategy
50.
●
●
●
●
●
●
●
From what factors depends the number of plants and their locations?
transportation costs
duties on components verus those on finished goods
need for closeness to the market
foreign-exchange risk
economies of scale in the production process
technological requirements
national image
51.
●
●
●
Main problems by offshore manufacturing?
Length of supply lines
Inventory levels
Currency fluctuations
52. Understanding quality in different cultures (VII - 9)
In a Western setting, quality is a characteristic of a product that meets or exceeds engineering standards.
In Japan, quality means that a product is “so good that the customer wouldn’t think of buying from anyone else”
53. Main principles of total quality management. (VII - 10)
10
TQM is designed to eliminate all defects and to ensure customer satisfation. It stresses three principles:
●
customer satisfaction
●
employee involvement
●
continuous improvements in quality.
In center of the entire process, however, is customer satisfaction. The goal of TQM is to eliminate all defects.
54. ISO9000 and importance of certification (VII - 14)
As part of effort to establish the single Eeuropean market, the EU, through the International Standards Organisation (ISO) IN
Geneva, established the ISO 9000 certification, which became effective in 1987. ISO 9000 is a set of five universal standards
for a Quality Assurance system that is accepted around the world. The standards apply uniformly to companies in any industry
and of any size.
ISO 9000 is intended to promote the idea of quality at every level of organisation. Initially, it was designed to harmonise technical
norms within the EU. Now it is an important part of business operations throughout Europe and has been adopted in 161
countries throughout the world. In 2000, the ISO revised the standards and refer to them now as the ISO 9000:2000.
ISO certification
Basically, under ISO 9000:2000, companies must document how workers perform every function that affects quality and install
mechanisms to ensure that they follow through on the documented routine.
ISO 9000:2000 certification involves a complex analysis of management systems and procedures, not just a quality-control
standard.
A company that wants to be ISO-certified must fill out a report and then be certified by a team of independent auditors.
The process can be expensive and time-consuming – certifying a company with a hundred employees costs about $20,000 and
takes anywhere from six to eighteen months
Non-European companies operating in Europe need to become ISO-certified in order to maintain access to that market.
55. What are Foreign Trade Zones? (VII - 18)
FTZs are areas in which domestic and imported merchandise can be stored, inspected, and manufactured free from formal
customs procedures until the goods leave the zones. The zones are intended to encourage companies to locate in the country
by allowing them to defer duties, pay less duties, or avoid certain duties completely.
FTZs can be general-purpose zones or subzones.
FTZs are generally used to provide greater flexibility as to when and how customs duties are to be paid.
56.
●
●
●
●
●
●
Types of Collaborative Arrangements (Franchising Dilemmas) (VIII - 4)
Licensing
Franchising
Managment contracts
Turnkey operations
Joint Ventures
Equity Alliances.
11
57. Reasons of entering a strategic alliance (VIII -11)
58. Reasons of failures of alliances (VIII - 12)
●
●
●
●
●
●
●
Failure to understand and adapt to new style of management required for the alliances
Failure to learn and understand the cultural differences between the organisations
Lack of commitment to succeed
Strategic goal differences
Insufficient trust
Operational and or geographical overlaps
Unrealistic expectations
59. How differences in culture affect to strategic alliances? (VIII - 15) (NB not sure about this answer!!!)
Companies differ by nationality in how they evaluate the success of operations:
U.S.companies tend to evaluate performance on the basis of profit, market share, and specific financial benefits.
Japanese companies tend to evaluate primarily on how an operation helps build its strategic position, particularly by improving its
skills.
European companies put more reliance on a balance between profitability and achievement of social objectives.
In addition to national culture, differences in corporate cultures may also create problems within joint ventures. For example, one
company may be accustomed to promoting managers from within the organisation, while the other opens his searches to outsiders.
One may use a participatory management style, and the other an authoritarian style. One may be entrepreneurial, and the other risk
averse.
60. Contractual provisions in negotiations
Although it is impossible to anticipate all points of future disagreement and include coverage of them in a contract, provisions
should outline:
n Terminating the agreement if the parties do not adhere to the directives
n Methods of testing for quality
n Geographical limitations on the asset’s use
n Which company will manage which parts of the operation outlined to the agreement
n What each company’s future commitments will be
How each company will buy from, sell to, or use intangible assets that come from the collaborative arrangement.
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61. Trust concepts
Type of trust
Process
Personal
Institutional
Competence trust
Contractual trust
Goodwill trust
Characteristics
Where trust is tied to past or expected exchange, such as reputation or gift exchange
Where trust is tied to a person, depending on family background, religion or ethnicity
Where trust is tied to formal structures, depending on individual or firm-specific attributes
Confidence in other's ability to perform properly
Honouring the accepted rules of exchange
Mutual expectations of open commitment to each other beyond contractual obligations
62. Country bargaining strengths
The biggest bargaining strenghts for countries are
●
large markets
●
less business risk
●
political stability
63. Company bargaining assets
Technology
Governments tend to be less demanding of thoise companies that have technologies deemed critical to their countries
economic development. (IBM).
Marketing expertise
MNE’s that have products with global brand recognition – and are thus beyond the immediate control of host government
intervention – tend to have strong bargaining power. (Coca-Cola).
The ability to export output
The ability to export output from the foreign investment, fortifies a company’s negotiating position.
Local product diversity
Governments may allow more foreign ownership when a company provides greater product diversity. MNE that make a
variety of products locally can support import subsitution and boost local employment.
The value of FDI
Competition among countries to attract FDI, gives MNE stronger bargaining position.
64. Direct incentives that countries have offered foreign investors
Tax holidays
Employee training
R&D grants
Accelerated depreciation
Low-interest loans
Loan guarantees
Subsidized energy and transportation
Exemption of import duties
Construction of rail spurs and roads
Indirect incentives
65. Companies agree to many performance requirements aimed at improving countries objectives
These performance requirements include:
Requirements to create a certain number of jobs
Provisions to reduce the amount of equity held in subsidiaries
Price controls
Minimum levels of local input into products manufactured
Limits on the use of expatriate personnel and on old or
reconditioned equipment
Control of prices for goods imported or exported to the
parent company's controlled entities
Demands to enter into joint ventures
66. Behavioural characteristics affecting negotiations.
Misunderstandings may result from differences in
cultures
nationalities
languages
professions.
Some cultural differences among negotiators are evident:
some negotiators are decision makers; some are not
some take a pragmatic view; others take a holistic view
some expressions do not translate well
Business and government officials may mistrust each other and may not understand each other’s objectives.
67. Categories of ethical problems of multinational enterprises
Bribery and sensitive payments
Employment issues
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Marketing practices
Impact on the economy and development of host countries
Effects of the natural environments
Cultural impacts of transnational operations
Relations with host governments
Relations with the home countries
68. De George's guidelines to multinationals operating in less-developed countries
10 of them:
do no intentional direct harm
produce more good than harm for the host country
contribute by their activity to the host country's development
respect the human rights of their employees
respect the local culture and work with and not against it
pay their fair share of taxes
cooperate with the local government in developing and enforcing just background institutions
recognize that majority control of a firm carries with it the ethical responsibility for the actions and failures of the firm
make sure that hazardous plants are safe and run safely
when transferring hazardous technology to less-developed countries, be responsible for redesigning such technology so that it can
be safely administered in the host country
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