International Business

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International Business
St. Francis Xavier University

• Valley Farms International

Professor Neil Maltby
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Globalization

• A fundamental shift is occurring in the world
  economy. We are moving away from a world in
  which national economies were relatively
  self-contained entities, isolated from each other
  barriers to cross-border trade and investment by
  distance, time zones and language and by
  national differences in government regulation,
  culture, and business systems.
• And we are moving toward a world in which
  barriers to cross-border trade and investment are
  declining perceived distance is shrinking due to
  advances in transportation and telecommunication
  technology material culture is starting to look
  similar the world over and national economies
  are merging into an interdependent integrated
  global economic system. The process by which
  this is occurring is commonly referred to as
  globalization. (Hill, 2006)

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Objectives

• To develop an appreciation for the importance of
  international business decisions
• To apply the concepts of international business
  in a decision-making case
• To experience the rewards and challenges of
  immersion in a foreign context

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V.F.I. Overview

• Valley Farms International is a Canadian company
  that supplies dairy cattle to markets around the
  world
• S.T. consulting job
• Milk processing plant feasibility study
• Inspection and demonstrations
• Plant viability
• Valley Farms Intl
• Export manager
• Republic opportunity
• European delegation, visit to V.F.I.
• 4 (different) delegates arrive to inspect
• Shipment / inspection
• Republic opportunity (2 years later)
• Invisible hand

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Questions to Consider

• Why did V.F.I. go international?
• What differences did it encounter?
• What factors influenced V.F.I.s choice of
  market?
• What method of entry did V.F.I. employ? Why?
  Was it appropriate?

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Why did V.F.I. go international?

• Domestic market
• International demand
• Other international markets declining
• Cyclical nature
• Republic has an opportunity now for how long?
• Best short-term opportunity?
• European and Canadian rivals
• Market and competitive reasons appear to be the
  primary motivation for VFI

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What differences does V.F.I. encounter?

• Political / regulatory
• Inspection procedures
• Revolutionary delegates
• Governance by Regent/Revolutionaries
• Risk stability of government/country
• Suggests a political situation that emphasizes
  totalitarian rule with shifting overt
  (demonstrations) and covert (Invisible Hand)
  activities that are difficult to anticipate
• Social/Cultural
• Different food preferences (yogurt as a staple)
• Bazaar-style negotiations
• Attitude towards Westerners regarding trust and
  women (clothes)
• Religious fundamentalism
• Suggests a cultural orientation to trust-based
  relationships emphasizing loyalty and bonds (i.e.
  if you can trust the person the specifics of the
  deal will be reliable), as opposed to
  transaction-based relationships emphasizing
  details (i.e. a contract will establish the
  parameters of a relationship)

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The political and cultural differences reveal the
core values of society
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Choosing a market

• Markets must meet three criteria
• Demand
• Clear opportunity (staple, cattle population
  reduced)
• Limited supply (internationally sourced)
• First shipment profitable
• Hard currency
• No complications from first deal
• Local agent
• Apparently available

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How important is this opportunity?

• Other markets declining
• Best short-term opportunity? Competitors?
• Meets three criteria good opportunity
• Past success
• Appears very important

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Method of entry

• What method of entry does Valley Farms
  International use/plan to use in the Republican
  market?
• Licensing
• Foreign Direct Investment
• Exporting
• Joint Venture

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Method of entry

• Why would VFI Export?
• Develop economies of scale and/or reliable source
  of supply in home location
• Assumes transportation cost, government
  intervention (e.g. taxes) and currency
  fluctuations can be profitably managed
• Good way to learn about market in advance of FDI
• Benefit by local agent
• Less commitment of resources / exposure to risk
• Inspection
• Political/social strife
• Market demand fluctuates and may not justify FDI

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Method of entry

• Foreign Direct Investment?
• Joint venture or local subsidiary
• Reduces transportation and import
  taxes/inspection costs
• Demonstration plant was viable
• Potentially allows VFI to take advantage of local
  resources, get involved with yogurt production
  (vertical integration) and/or be more responsive
  to local demand
• but
• Subjects firms resources (cattle, facilities,
  employees) to risk of further revolutionary
  events
• Local expertise for cattle operations? Cattle
  internationally outsourced and Ministry of
  Agriculture appeared unfamiliar with technical
  details
• Increases exposure to Republics regulations and
  bureaucracy (covert events that are difficult to
  anticipate), economic cycle of demand, and
  culture (in which the firm does not excel)

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What would you do as John Roberts?

• What issues must J.R. resolve?
• Resolve inspection risk
• Establish shared inspection standards
• Send test shipment
• Continue to negotiate
• Pay agents fee?

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What would you do as John Roberts?

• John Roberts should pay the agents fee
• Strongly Agree
• Agree
• Disagree
• Strongly Disagree

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To pay or not to pay?
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What would you do as John Roberts?

• John Roberts should pay the agents fee
• Strongly Agree
• Agree
• Disagree
• Strongly Disagree

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Decision

• Project is important and worthwhile
• Risks are manageable for an exporter
• Hesitation re
• Violates Republic law (though not practice) and
  morality?
• Are we adopting their values or projecting our
  own?
• Suggests we need to study corporate social
  responsibility to help resolve this question

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Takeaways re International Business

• The key concepts from our class help a manager
  prepare for challenges and opportunities of
  international business
• Successful political and cultural immersion
  involves developing appropriate expectations
  about what is different
• Understanding and immersing yourself in the roots
  of culture and politics enables a manager to
  successfully navigate foreign situations but it
  also helps a person understand his/her own value
  orientations
• not only for strength, but for beauty, the poet
  must, from time to time, travel the loggers
  path and the Indians trail, to drink at some new
  and more bracing fountain of the Muses, far in
  the recesses of the wilderness.
• Henry David Thoreau, The Maine Woods

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Admin

• International business is exciting!
• Opportunities for international experiences
• To introduce students to issues in Business
  Ethics and Responsibility
• Read Milton Friedman's The Social Responsibility
  of Business is to Increase its Profits. 
• Do you think a business has a "social
  responsibility"?  Why or why not?  Who determines
  the level and nature of social responsibility?
• Quiz Wednesday 19th about Social Responsibility
  readings

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