Sunday, January 17, 2010

Entry and Expansion

Firms do not become experienced in international business overnight, but rather progress gradually through an internationalization process. The process is triggered by different motivations to go abroad. The motivations can be proactive or reactive. Proactive motivations are initiated aggressive management, whereas reactive motivations are the defensive response of management to environmental changes and pressures. Firms that are primarily stimulated by proactive motivations are more likely to enter international business and succeed. For example Mcdonald, By expansion aggressive throughout world, McDonald's made as symbol globalization and spreaders lifestyle Americans. Kroc show the whole world how to apply the advanced management pross. In order to be advanced by way of McDonald's, the companies must establish the basic principles of services they offer, the job breaks down into parts, and then continually refine reassemble and many steps to run the system without restraints. Today, companies involved in the pizza, insurance claims processing, or selling toys benefit from the type of system pioneered by Ray Kroc. Until the level when such operations maintain quality control, and maintain customer satisfaction, profits will flow.
In going abroad, firms encounter multiple problems and challenges, which range from lack of information to mechanics and documentation. In order to gain assistance in its initial international experience, the firm can make use of either intermediaries or facilitators. Intermediaries are outside companies that actively participate in an international transaction. They are export management companies or trading companies. In order for these intermediaries to perform international business functions properly, however, they must be compensated. This will result in a reduction of profits. For example DHL Express Businessman Bandung Community Help Maintain Competitiveness, the company's leading express service provider in the world, today held a business forum in order to assist importers and exporters deal with the issue of Bandung in the world trade recession better through a deep understanding of systems and regulations of local and international trade.
International facilitators do not participate in international business transactions, but they contribute knowledge and information. Increasingly, facilitating roles are played by private sector groups, such as industry associations, banks, accountants, or consultants, and by universities and federal, state, and local government authorities. For example Florida International University (FIU), Their mission for business community—to whose economic development we contribute by providing a talented, diverse, and highly qualified pool of business professionals and leaders along with educational programs, applied research, and collaborate projects.
Apart from exporting and importing, alternatives for international business entry are licensing, franchising, and local presence. The basic advantage of licensing is that it does not involve capital investment or knowledge of foreign markets. Its major disadvantage is that licensing is that advantage is that licensing agreements typically have time limits, are often proscribed by foreign governments, and may result in creating a competitor. The use of franchising as a means of expansion into foreign markets has increased dramatically. Franchisors must learn to strike a balance between adapting to local environments and standardizing to the degree necessary to maintain international recognizability. For example Starbucks, in one of the their successful concept is "Think outside the box". Starbucks’ strength lies in its ability to spot opportunities, even if that means debunking accepted retail trends. Starbucks’ ability to think outside the box is a common trait that propelled other small businesses to the big league.
Full ownership is becoming more unlikely in many markets as well as industries, and the firm has to look at alternative approaches. The main alternative is interfirm cooperation, in which the firm joins forces with other business entities, possibly even a foreign government. Multinational companies that want to tap natural resources dominate the market (both existing and profitable or emerging) and keep production costs down by hiring cheap labor in developing countries, usually the foreign investors of this. Examples of 'classic' of this kind of FDI such as Cargill, Exxon, BP, Heidelberg Cement, Newmont, Rio Tinto and Freeport McMoRan, and INCO all have direct investment in Indonesia. One important aspect of FDI is that the investor can control or at least significant influence such as management and production of the company overseas. In some case, when the firm may not want to make a direct investment, it will offer its management expertise for sale in the form of management contracts.

Building the Knowledge Base

Constrain of time, resources, and expertises are the major inhibitors to international research. Nevertheless, firms need to carry out planned and organized research in order to explore foreign market opportunities and challenges successfully; such research must be linked closely to the decision –making process. For example, based of the result of research, High-priced consumer products are unlikely to be successful in the people republic china, as their price may be equal to a significant proportion of the customer’s annual salary, the customer benefit may be minimal, and the government is likely to prohibit their importation. This is where the need for international research.
International research differs from domestic research in that the environment –which determines how well tools, techniques, and concepts apply-is different abroad. For example, multiple regions of a country need to be investigated, however if the lack of homogeneity exists because of different economic, geographic or behavioral factors. One source reports of the failure of a firm in Indonesia due to insufficient geographic dispersion of its research. The firm conducted its study only in large Indonesia cities during the height of tourism season, but projected the result of the entire population. When the company set up large production and distribution facilities to meet the expected demand, it realized only limited sales to city tourists. In addition, the international manager must deal with duties, exchange rate, and international documentation; a greater number of interacting factors; and a much broader definition of the concept of competition.
When the firm is uninformed about international differences in consumer tastes and preferences or about foreign market environments, the need for international research is particularly great. Research objective need to be determined based on the corporate mission, the level of international expertise, and the business plan. These objectives will enable the research to identify the information requirements. For example, Toyota sent a group of its engineers and designers to southern California to nonchalantly observe how woman get into and operate their cars. They found that women with long fingernails have trouble opening the door and operating various knobs on the dashboard. Toyota engineers and designers were able to comprehend the women’s plight and redesign some of their automobile exteriors and interiors, producing more desirable cars.
Given the scarcity of resources companies beginning their international effort must rely on data that have already been collected. These secondary data are available from sources such as governments, international organizations, or electronic information services. It is important to respect privacy, laws and preferences when making use of secondary data. For example, European Agency for the Evaluation of Medicinal Products. Information on drug approval producers and documents of the committee for Propertiory Medicinal Products and the Committee of Veterinary Medicinal products.

To fulfill specific information requirements, the researcher may need to collect primary data. An appropriate research technique must be selected to collect the information. Sensitivity to different International environments and cultures will aid the researcher in deciding whether to use interviews, focus groups, observation, surveys, or web technology as data-collection techniques.
To provide ongoing information to management, an information system is useful. Such a system will provide for the continuous gathering, analysis, and reporting of data for decision-making purposes. Data gathered through environmental scanning, Delphi studies, or scenario building enable management to prepare for the future and hone its decision-making abilities. For example Accenture, Accenture is the big consultation service firm that had 129,000 employees and client in 48 different countries. They didn’t have parent operational company and formal branch that push their employees to work directly with their clients. Manager used e-mail, phone, web, and other information technology to organizing virtually.

Saturday, January 16, 2010

Emerging Markets

Special concerns must be considered by the international manager when dealing with former centrally planned economies in transition. Although the emerging market economies offer vast opportunities for trade, business practices may be significantly different from those to which the executive is accustomed. F or example, General Electric and RCA helped develop the soviet electrical and communications. However, due to the political divide between communism and capitalism in the late 1940s. Former centrally planned economies and Western corporation had rather limited international business concern. Soci`list countries perceived international corporations as “aggressive business organizations developed to further the imperialistic aims of western, especially American capitalist the world over. Western managers, in turn often saw socialism as a threat to the market system and the western world in general.
In the emerging market economies, the key to international business success will be an understanding of the fact that societies in transition require special adaptation of business skills and time to complete the transformation. Due to their growing degree of industrialization, other economies are also becoming part of the world trade and investment picture. It must be recognized that these global changes will, in turn, precipitate adjustments in industrialized nations, particularly in the manufacturing and trade sectors. Adapting early to these changes can offer new opportunities to the international firms. Malawi provides an appropriate study setting on account of the recent shift from one party dictatorship to multiparty democracy against the background of traditional cooperation with the IMF and World Bank in policy formulation. World Bank and IMF had persistently opposed the strategy of elite agricultural expansion, inward looking industry and state expansion into the private sector. In their place, the Bretton Woods Institutions had suggested policies seeking to revitalize smallholder agriculture, promote outward looking industry and private enterprise. As a result intransigence of the previous regime the IMF and World Bank have taken advantage of political change in Malawi to push a reform program. The new regime is keen to bring rural agricultural sectors into the cash market economy, undertake privatization to ease off pressures on fiscal resources, liberalize industry to promote a competitive culture in business and also liberalize trade policies to continually integrate Malawi to the world trading system.
Often the international manager is also faced with state-owned enterprises that have been formed in noncommunist nations for reasons of national or economic security. These firms may inhibit foreign market entry, and they frequently reflect in their transactions the overall domestic and foreign policy of the country rather than any economic rationale. The current global trend toward privatization offers new opportunities to the international firm, either through investment or by offering business skills and knowledge to assist in the success of privatization. Such as in Chile, where privatized public enterprises increased efficiency and improved service.

Economic Integration

Economic Integration involves agreements among countries to establish links through the movements of goods, services, and factors of production across borders. For example, the functioning of the internal market, which can be considered one of the corner stones of the European Union, is based on the four freedoms laid down in the Treaty establishing the European Community, i.e. the free movement of goods, services, capital and persons. A trading bloc is a preferential economic arrangement among a group of country. Some predict, however, that the regional trading block of the new economic world order will divide into a handful of protectionist super states that, although liberalization trade among members, may raise barriers into external trade, such as Jacob Viner said that either negative or positive effects may result when a group of countries trade freely among themselves but maintain common barriers to trade with nonmembers.
These links may be weak or strong depending on the level of integration. Levels of integration include the free trade area, customs union, common market, and full economic union. This is forms of international economic integration:
Stage of Integration Abolition of Tariffs and Quotas Among Members Common tariffs and Quotas System Abolition of Restrictions on Factor Movements Harmonization and Unification of Economic Policies and Institutions
Free Trade Area Yes No No No
Customs Union Yes Yes No No
Common Market Yes Yes Yes No
Economic Union Yes Yes Yes Yes
Source: Franklin R. Root
The benefit derived from economic integration include trade creation, economies of scale, improved terms of trade, the reduction of monopoly power, and improved cross cultural communication. However, a number of disadvantages may also exist. Most important, economic integration may work to the detriment of non members by causing deteriorating terms of trade, and trade diversion. Imports of agricultural products from Spain or the United States had the same tariff applied to their products 20 percent. During this period, the United States was a lower cost producer of wheat compared to Spain. US exports to EU members may have cost $3 per bushel plus a 20 percent tariff of $0,60, for a total of $3,6 per bushel. If Spain at the same time produced wheat at $3,2 per bushel, plus a 20 percent tariff of $0,64, for a total of $3,84 per bushel, its wheat was more expensive and therefore less competitive. But Spain joined the EU as a members, its product is no longer subject to the common external tariffs. Spain had become a member of the “club” and therefore enjoyed the benefits. Spain was now the low cost producers of wheat at $3,2 per bushel, compared to the price of $3,6 from the United States. Trade flows changed as a result. The increased export of wheat and other products by Spain to the EU. As a result of its membership is termed trade creation. The elimination of the tariff literally created more trade between Spain and the EU. At the same time, because the United States was still outside of the EU, its products suffered the higher price as a result of tariffs application. U.S exports to the EU fell. When the source of trading competitiveness is shifted in this manner from one country to another, it is termed trade diversion. The biggest impediment to economic integration is nationalism. There is strong resistance to surrendering autonomy and self-determinism to cooperative agreements.
The most successful example of economic integration is the European Union. The EU has succeeded in eliminating most barriers to the free flow of goods, services, and factors of production. In addition, the EU has made progress toward the evolution of a common currency and central bank, which are fundamental requirement of an economic union.
A number of regional economic alliances exist in Africa, Latin America, and Asia, but they have achieved only low levels of integration. Political difficulties, low levels of development, and problems with cohesiveness have impeded integrative progress among many developing countries. However, many nations in these areas are seeing economic integration as the only way to prosperity in the future. For example, Indo-Pakistani wars and conflicts, that integrated at South Asian Association for Regional Coorperation(SAARC).
International commodity price agreements and cartels represent attempts by producers of primary products to control sales revenues and export earnings. The former involves an agreement to buy or sell a commodity to influence prices. The latter is an agreement by suppliers to fix prices, set production quotas, or allocate sales territories. OPEC for example, has had inestimable influence on the global economy during the past 40 years.