Thursday, January 22, 2009

dimensions & mode sof IB, Risk in IB

Lecture No. - 3
International business

Dimensions & modes of IB

Introduction

· When any business across the border of its domestic country & reach foreign countries for carrying out their business, then it is called that, this firm is indulging in International business.
· International markets provide a wide range of opportunities compared to the domestic markets. But global business is inherently more risky than the domestic business. However, the firms prefers to go international, if the perceived benefits outweigh the anticipated risks.
· International business firms, have the fundamental goals of expanding market share, sales revenue & increase in profits.
· Expanding markets in oversees countries is one of the strategies to achieve these fundamental goals.
· The firms have alternative forign markets & alternative modes to enter that countries. Firstly the country is selected, & for the sake of it, the firms have to
(1) Analyse alternative foreign markets
(2) Evaluate the respective costs, benefits & risks & select one that hold the most potential for entry.
The firms haas to analyses the alternative foreign markets by taking the following factors into consideration:
Current & potential size of alternative markets ,which include following factors
i. Size of the population of the country/market
ii. GDP of the country & per capita GDP
iii. Urban / rural areas
iv. Purchasing power of potential customer
level of competition the firm will face in each of theseb alternative markets
Legal & political environment
socio-cultural environment

The next step in entering foreign markets is the assessment costs, benefits & risks associated with carrying out business in a particular country, which includes
Costs: direct cost , opportunity cost
Benefits: high sales profits, lower acquisition & manufacturing costs, competitive advantage, access of new technology, cheap labour & other resources in host country, foreclosing of markets to competitors, opportunity to achieve synergy
Risks: exchange rate fluctuations, operating complexity, direct financial losses due to misassessment of market potential, Govt. seizure of property





DIMENSIONS & MODES OF ENTRY IN FOREIGN MARKETS

Dimensions of International Business

(1) Trading : exporting & importing
(2) Manufacturing & Marketing : manufacturing at home country & marketing in foreign country
(3) Sourcing & Marketing: manufacturing at foreign country & marketing in home & foreign country
(4) Global Sourcing & Production: manufacturing at global level through sourcing from different forign countries & production at home or host country
(5) Services : telecommunication, banking, tourism & transportation services
(6) Investments : portfolio investment, setting wholly owned manufacturing facility in abroad, investment in foreign countries etc.



Modes of Entry in Foreign Markets:

Dimensions in international business show the presence of business firm in foreign market & quantity of foreign investment needed for each routes of globalization.
The usual routes of globalization on the basis of their dimensions are following:
Exports & Imports
Tourism & Transportation: including industries like shipping, airlines, hotel & travel agency
Use of assets: licensing & franchising
Performance of services: turnkey operations & management contracts
Direct investment: joint venture, wholly owned subsidiary, portfolio investment


Direct Investment

Performance of
Services

Use of
Assets

Tourism & Transportation


Exports & Imports High




Foreign
Investment





Low

Low Presence in High
Foreign Market


ROUTES OF GLOBALISATION




Lecture No. -4
Topic- STRUCTURE OF IB ENVIRONMENT
Lecture Outcome-
Internal Environment, external Environment, Types of External Encironment
STRUCTURE OF IB ENVIRONMENT

Environment of International business includes basically four environments
These are:
(1) POLITICAL-LEGAL ENVIRONMENT
(2) TECHNOLOGICAL ENVIRONMENT
(3) ECONOMY ENVIRONMENT
(4) SOCIO-CULTURAL ENVIRONMENT


Lecture No. -5
Topic-Risk in IB
Lecture Outcome-
(a) Different types of risk
political risk, legal risk, culture risk, economic risk , technology risk, other risk
(b) components of each risk
© management of all type of risk

(1) POLITICAL RISK: corporate face political risk when they conduct business with the outside world. Political risk is any governmental action or politically motivated event that could adversely affect the long term profitability or value of firm.
(a) Macro Political Risk e.g.
Barriers to repatriation of profits,
Confiscation of properties,
Loss of technology & other intellectual property
Campaigns against foreign goods
Mandatory labour legislation
Civil wars
Inflation
Currency devaluations
(b) Micro political Risk e.g.
· kidnapping,
· terrorist, threats,
· increased taxation,
· Official dishonesty

MANAGING POLITICAL RISKS
(1) Avoid Investment
(2) Adaptation
(3) Host country has no option
(4) Influence local politicians- (lobbying)
(5) Terrorism consultants

(2) LEGAL RISK

LEGAL SYSTEM
(1) Islamic Law
(2) Common Law
(3) Marxist Law
(4) Civil or code law

AREAS OF CONCERN FOR MNCs

(a) Protection of IPRS
(b) Product liability & safety
(c) Computation law
(d) Bribery & corruption
(e) Environmental law
(f) Labour laws
(g) Contracts law
(h) Shipping of goods
(i) Advertisement& sales promotion laws

(2) TECHNOLOGICAL RISK

IMPACT OF TECHNOLOGY
(a) social implication
(b) economic implication
(c) plant level changes

Implication & MNCs

MNCs
E-Commerce
Telecommunication
Transportation
Technology Transfer
Markets
Production
Technology & MNC’s



(3) CULTURAL RISK
Elements of culture:

(1) LANGUAGE
(2) EDUCATION
(3) RELIGION’
(4) AESTHETIC
(5) ATTITUDES
(6) CUSTOMS & MANNERS

IMPLECATIONS FOR IB


Multi-culture
Sread cross cultural literacy
Cultural & competitive advantage
Compatibility between strategy & culture
Managing diversity

(5) ECONOMIC RISK

COMPONENTS :

(b) income classification of countries
· Developing Countries
· Developed Countries
(c) economic system classification
· Pure market Economy
· Pure centrally planned Economy
· Mixed Economy

(d) region wise classification of countries
(e) economic trade policies
· Outward & Inward looking policies

(6) OTHERS
(a) Huge forign indebtness
(b) Exchange rate risk
(c) Entry requirements
(d) Tariff, Quatas & trade barrier
(e) Corruption
(f) Bureaucratic practices of Govt.
(g) Technological pirating
(h) High cost

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