Chapter 3
Participants in
International Business
International Business: Strategy, Management, and the New Realities
Three Types of Participants in IB
1. The focal firm – initiator of IB transaction,
including MNEs and SMEs
2. Distribution channel intermediary –
specialist firm providing logistics and
marketing services in the international supply
chain
3. Facilitator – a firm providing special
expertise in legal advice, banking, customs
clearance, market research, and similar
areas
International Business: Strategy, Management, and the New Realities
The MNE as a Focal Firm
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A Multinational Enterprise (MNE) is a large
organization with a network of production plants,
regional headquarters, and country subsidiaries
in numerous countries.
Examples include: Nestlé, Sony, Unilever,
Nokia, Ford, Citibank, ABB, and Shell Oil.
MNEs include those in retailing ( e.g., Carrefour
and Gap) and services ( e.g., Citibank,
Amazon).
Some MNEs in countries like China and Russia
may be state owned.
International Business: Strategy, Management, and the New Realities
The SME as a Focal Firm
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A Small and Medium-Sized Enterprise (SME) is
a relatively small player in its respective industry
(in the U.S., those with less than 500
employees).
SMEs can be more flexible and quicker to
respond to international opportunities.
Though their limited resources prevent them
from engaging in FDI, SMEs can excel in
exporting, licensing, and franchising.
International Business: Strategy, Management, and the New Realities
The Born Global as a Focal Firm
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A Born Global (BG) firm represents a relatively
new breed of the SME that undertakes early and
substantial internationalization.
Primarily a niche player, born globals display
high degree of entrepreneurial orientation,
proactiveness, and customer service.
In the contemporary era, born globals make up
the fastest growing segment of exporters in
most countries.
International Business: Strategy, Management, and the New Realities
Evolution of a Born Global Exporter
and Challenges It Overcomes
Some will exceed
$100 million
Manage
Niche
transition
limits
issues early
Size
Small
Create
domestic
international
sales only
position
Product or
Begin exporting
process
early (2 years)
development
Time
Credibility
Finance
Export
Finance
Innovation…
Foreign representation
the next
Export know-how & skills
product
Market information
International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms
 Experience early, rapid, and substantial
internationalization
 Fewer financial and other resources than
traditional exporters
 Formed by technically inclined, market-oriented
business people with entrepreneurial drive
 Often enjoy internationally recognized technical
eminence and universal appeal in given product
category
International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms (2)
 Emergence often associated with significant
product/process breakthrough or innovation
 Products often involve advanced technology,
substantial added value, superior quality, and
differentiated design
 Internationalization typically via exporting and
facilitated through network relationships
 Heavy user of advanced IT and communications
technologies
International Business: Strategy, Management, and the New Realities
Distinctive Features of Born Global
Marketing Strategy

Typically a specialist, niche player

Distinctive product/offering

High degree of product/service quality

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Personal attention to building customer
relationships
Constant effort to upgrade foreign
distributor effectiveness
International Business: Strategy, Management, and the New Realities
Globalization and Entrepreneurship
The Stanford Technology Ventures Program
Link: http://ecorner.stanford.edu/
International Business: Strategy, Management, and the New Realities
Foreign Market Entry Strategies of Focal Firms
Cross-border business transactions can be
grouped into three categories:
1. Trade: buying and selling of products
2. Contractual exchange of services or
intangibles: buying and selling of services
3. Equity ownership in foreign operations:
establishing foreign presence through direct
investment
International Business: Strategy, Management, and the New Realities
The Nature of Cross-Border Transactions
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Trade (export and import) implies a homebased operation where independent partners in
the foreign market are engaged to provide local
services.
Contractual exchanges include licensing,
franchising, service contracting, turnkey
operations, and project-based partnerships.
Equity ownership is accomplished through FDI
which can be implemented through acquisition
or greenfield investment.
International Business: Strategy, Management, and the New Realities
Examples of Focal Firms that are Involved in
Contractual Exchanges
Turnkey Contractor: Provide engineering, design, and
architectural services in the construction of airports,
hospitals, oil refineries, and other types of
infrastructure.
•
These projects are typically awarded on the basis of
open bidding by the sponsor.
• Examples- European Channel Tunnel, the Three
Gorges Dam in China, Delhi Metro Rail Ltd. and the
Hong Kong Airport.
• Build-own-transfer venture- an increasingly popular
type of turnkey contract in the developing economies
where contractors acquire an ownership in the facility
for a period of time until it is turned over to the client.
International Business: Strategy, Management, and the New Realities
International Collaborative Venture
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In an international collaborative venture (ICV),
partners pool their resources and share the
cost and risks of the new venture.
Through an ICV, a focal firm can exploit
partner’s complementary technologies and
expertise, avoid trade barriers, connect with
customers abroad, and configure value chains
more effectively.
ICV represents the middle ground between
FDI and exporting; the firm externalizes value
adding activities such as R&D or
manufacturing.
International Business: Strategy, Management, and the New Realities
Two Types of International Collaborative Ventures
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Joint Venture: the focal firm creates and
jointly owns a new legal entity together with
foreign partners
Project-Based Collaborative Venture: Focal
firm collaborates with foreign partners on a
project with a relatively narrow scope and a
well-defined timetable, without creating a new
legal entity.
Firms often form project-based ventures to
share the cost and risks involved in
knowledge-intensive R&D projects.
International Business: Strategy, Management, and the New Realities
An Example of Joint Venture
• Advantages: share costs and risks, gain access
to needed resources, gain economies of scale,
and pursue long-term strategic goals.
• Hitachi formed a joint venture with MasterCard
to promote a smart card system (Multos) for
banking and other applications.
• BP partnered with the state-controlled Hindustan
Petroleum Corporation in India. The new venture
built a $3 billion refinery in Punjab and
established a joint marketing business, including
a network of retail service stations around India.
International Business: Strategy, Management, and the New Realities
An Example of Project-Based Collaboration
Cisco Systems has expanded much of its operations
through strategic alliances with key foreign players.
• With Japan’s Fujitsu to jointly develop routers and
switches that enable clients to build Internet protocol
networks for advanced telecommunications.
• In Italy, Cisco teamed with the telecommunications
company Italtel to jointly develop network solutions
for the convergence of voice, data, and video to
meet growing global demands.
• In China, Cisco formed an alliance with
telecommunications company ZTE to tap the China
and Asian markets.
International Business: Strategy, Management, and the New Realities
Distribution Channel Intermediary
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Agents, distributors, manufacturers’ reps
Specialize in physical distribution and marketing service;
connect the focal firm with the end user in the foreign
market.
Assist the focal firm by providing logistics services such
as warehousing and customer support.
Especially critical to exporters who do not establish
foreign presence themselves.
Are based either in the home country or the host
country.
International Business: Strategy, Management, and the New Realities
Export Management Company (EMC)
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A more common intermediary in the U.S.
is the Export Management Company
which acts as an export agent on behalf
of the focal firm.
An EMC finds export customers,
negotiates terms of sale, and arranges
for international shipping, typically for
smaller exporters.
Most EMCs specialize in specific
industries and geographic areas.
International Business: Strategy, Management, and the New Realities
Online Intermediaries
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Disintermediation – bypassing traditional
intermediaries – is made possible due to
widespread use of the Internet to reach customers
globally.
Examples include Amazon, Dell, eBay, and Alibaba
– English-language portal based in China that
specializes in business-to-business exchanges.
Traditional retailers such as Sony and Tesco have
also established online presence.
One negative outcome of online retailing has been
the ease with which unscrupulous marketers reach
on suspecting him customers with fake products
(e.g., fake pharmaceuticals).
International Business: Strategy, Management, and the New Realities
Facilitators in IB
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Facilitators assist the focal firm with
specialized services required in crossborder transactions.
Facilitators include: Banks,
international trade lawyers, freight
forwarders, customs brokers,
consultants, ad agencies, and market
researchers.
International Business: Strategy, Management, and the New Realities