Introduction to International Business

1
Introduction to International Business

• Final Review
• April 27, 2007
• Sanny Liao/Brian Chen

2
Exam Format

• Exactly the same as the midterm
• Non-cumulative. Covers chapters 12, 14, 15, 16,
  17, 18, and 20
• Exam Format
• Part A 22 Multiple choice questions
• Part B Answer 2 of 3 questions from Hill text
• Part C Answer 1 of 2 questions from articles
• Part D Answer 1 of 2 questions from the cases

3
Chapter 12 The Strategy of International
Business --Overview

• Focus shift
• from the environment ? actions managers can take
  to compete more effectively as an international
  business
• This chapter looks at how firms can increase
  their profitability by
• expanding their operations in foreign markets
• the different strategies that firms pursue when
  competing internationally
• and the various factors that affect a firms
  choice of strategy.

4
Chapter 12 Review

• Strategy and the Firm
• Strategy
• set of action managers can take to attain the
  goal of the firm in most case, it is to
  maximize profitability
• Value Creation
• a way to increase profitability
• Strategic position - firms should be explicit
  about it choice between value creation, and
  configure its internal operation to support their
  choice.
• Operations The Firm as a Value Chain
• Global Expansion, Profitability and Profit Growth
• Expanding the Market Leveraging Products and
  Core Competencies
• Location Economies
• performing a value creation activity in the
  optimal location for that activity
• Experience Effects
• systematic reduction of costs over the life of
  a product through learning effects and economies
  of scale
• 2 main types of competitive pressure - cost
  pressures and pressures for local responsiveness
• Choosing a Strategy
• Global Standardization Strategy
• High cost pressures, low customization pressures
• Localization Strategy
• Low cost pressures, high customization pressures

5
Chapter 14 Entry Strategy and Strategic
Alliances

• Key concept first mover advantage, first mover
  disadvantage, core competencies
• Firms must consider 3 basic decision when it
  wants to expand into foreign markets
• Which foreign market?
• When to enter (1st mover advantages and
  disadvantages)
• Scale of entry and subsequent strategic commitment

6
Chapter 14 Modes of Entry

• 5 modes of entry (know the benefits and costs,
  p494)
• Exporting
• Turnkey projects
• Licensing
• Franchising
• Joint ventures
• When should a firm choose greenfield or
  acquisition ventures?
• Strategic Alliances
• Cooperative agreements between potential or
  actual competitors
• Advantages
• Facilitate entry into market
• Share fixed costs
• Bring together skills and assets that neither
  company has or can develop
• Establish industry technology standards
• Disadvantages
• Competitors get low cost route to technology and
  markets

7
Chapter 15 Exporting, Importing and Countertrade
- Overview

• This chapter discusses how exporting is carried
  out
• Exporting is not just for large enterprises.
  This chapter covers the problems that small and
  large exporting firms face and how they address
  these problems.

8
Chapter 15 Review

• Exporting can be very profitable, but firms are
  often slow to recognize these opportunities, are
  ignorant about the market that they are going
  into, and the procedures to export, etc.
• Solution
• Improving Export Performance
• Information Sources (DOC ITA/ USFCSA, SBA,
  state/city agencies, commercial banks)
• Export Management Companies (EMC)
• Choosing exporting strategies carefullly
• Export and Import Financing
• Lack of Trust/ Letter of Credit
• Draft/ Bill of Lading
• Know the Typical International Trade Transaction
• Export Assistance
• ExportImport Bank/ Export Credit Insurance

9
Chapter 16 Global Production, Outsourcing, and
Logistics

• Overview this chapter discusses factors that
  firms should consider in determining the optimal
  way to manage production internationally
• 4 Main topics
• Where should production be located at?
• The evolving strategic role of foreign factories
• Benefits and costs of outsourcing
• How to manage a global supply chain efficiently?

10
Chapter 16 Review

• Factors that firms should consider in determining
  where to locate production
• Country factors (economic, political, and
  cultural differences, trade barriers, location
  externalities, exchange rates)
• Technological factors (high/low fixed costs,
  minimum efficient scale, feasibility of flexible
  manufacturing and mass customization)
• Product factors (value to weight ratio,
  universality)
• Evolving role of foreign factories
• Upward migration from provider of cheap labor to
  research centers, economic development of
  developing countries
• Outsourcing dilemma essentially a make-or-buy
  decision
• Also evolved over time
• When to make? When to buy?
• Things to recognize when managing a global supply
  chain
• We like just-in-time systems because it reduces
  inventory holding costs and has the potential to
  help firms improve product quality
• BUT JIT leaves firms with no buffer stock of
  inventory
• Information technology can aid the functioning of
  JIT

11
Chapter 17 Global Marketing and RD Overview

• Focus
• how marketing and RD can be performed so they
  will reduce the costs of value creation and add
  value by better serving customer needs.
• Standardization or not?
• By mass-producing a standardized output, the firm
  can realize substantial unit cost reductions from
  experience curve and other scale economies.
• But ignoring country differences in consumer
  tastes and preferences can lead to failure.
• Thus, an international businesss marketing
  function needs to determine when product
  standardization is appropriate and when it is
  not, and to adjust the marketing strategy
  accordingly.

12
Chapter 17 Review

• The Globalization of Markets and Brands
• But differences persist
• Market Segmentation
• Groups of consumers who purchasing behavior
  differs from others
• Product Attributes
• Cultural Differences
• Fish cakes in Great Britain, Coq au vin in France
• Economic Development
• Top of the line four-wheel-drive SUVs in the US
  only
• Product and Technical Standards
• TV signals NTSC in US and some Asian countries,
  PAL/SECAM in Europe
• Distribution Strategy
• Differences between Countries
• Retail concentration channel length channel
  exclusivity channel quality
• Choosing a Distribution Strategy
• Depends on the factors above
• Communication Strategy
• Barriers to International Communication
• Benetton Ads with varying success in different
  countries

13
Chapter 18 Global Human Resource Management

• Overview this chapter discusses how firms can
  most effectively manage its human resource
  internationally
• Firms must customize its HR strategies to fit its
  firm-wide international strategies

14
Chapter 18 Review

• Firms should first decide on its international
  strategy
• Global Standardization Strategy
• Localization Strategy
• Transnational Strategy
• International Strategy
• Firms should then decide its international human
  resource management strategy according to a
  benefit and cost analysis (p623, table 18.1)
• Ethnocentric
• Polycentric
• Geocentric
• There is a high attrition rate about expatriates,
  why in Japan, why in the U.S.?
• Ways to mitigate the attrition of expatriates
• Selection training
• Why is performance appraisal in foreign locations
  tough?
• What are the components of expatriate pay?

15
Chapter 20 Financial Management in the
International Business

• Involves a set of 3 questions
• Investment decisions what activities to finance
• Financing decisions how to finance
• Money management decisions how to manage the
  firms financial resources most efficiently

16
Investment Decisions

• Evaluate the expected profitability of
  investments to the parent company through capital
  budgeting
• Quantify the benefits, costs and risks of an
  investment
• We care about cash flow to the parent company
  more than the to the project itself
• Investment in Iraq
• Adjust for political risks
• Investment in Argentina (has a history of
  currency devaluation)
• Adjust for economic risks

17
Financing Decisions

• Firms who need money to invest can obtain capital
  through 2 main ways
• Debt issue cost is interest rate
• Equity issue cost is dividend and expected
  capital gain
• The cost of capital is lower if a firm can raise
  money internationally (especially true for firms
  in developing countries, but is limited by
  government regulations and exchange rate
  uncertainties)
• The debt/equity mix vary across countries

18
Global Money Management The Efficiency Objective

• Def Money Management decisions
• Attempt to manage the firms global cash
  resources most efficiently through minimizing
  cash balances and reducing transaction costs.
• Cash balances is necessary for firm operations
  but offer very little return. Transferring
  capital from one location to anther involves
  transaction costs
• Def Transaction Costs are costs of exchange,
  including commissions and transfer fees.
• Firms can use centralized depositories and
  multilateral netting to more efficiently manage
  the global cash resources
• Centralized depository more efficient for firms
  to hold all their cash in one centralized
  depository than to hold them in many different
  locations
• Multilateral netting pay the net difference in
  cash flow among various locations, rather than
  making multiple payments

19
The Tax Objective

• Tax credit allows an entity to reduce the taxes
  paid to the home government by the amount of
  taxes paid to the foreign government
• Tax treaty an agreement between two countries
  where the income is earned
• Deferral principle parent companies are not
  taxed on foreign soruce income until they
  actually receive a divident

20
Managing the Differences in Tax Rates Across
Countries

• International businesses can transfer funds from
  one location to another via unbundling many
  techniques
• Dividend remittances
• Royalty payments and fees remuneration paid to
  the owners of technology, patents, or trade names
  for use are often tax-deductible locally
• Transfer prices the price at which goods and
  services are transferred between entities within
  the firm (can be used to reduce tax liabilities,
  reduce exposure to currency devaluations, reduce
  import duties when an ad valorem tariff is in
  force)
• Fronting loans loan between a parent and it
  subsidiary channeled through a financial
  intermediary (again can be used to reduce tax
  liabilities)

21
Suggestion on how to study for material in the
book

• Concentrate on the material covered in these
  slide and mini-summaries after each section (not
  at the end of the chapter) provided in the book
  for a general idea

22
Articles to Focus On

• Wireless Wonder
• The Future of Fast Fashion
• With Profits Elusive, Wal-Mart to Exit Germany
• Wal-Mart to Enter India in Venture
• Western Firms Find Hiring, Retention in China
  Surprisingly Tough

23
Cases to Focus On

• Diebold
• Megahertz Communications
• Competitive Advantage at Dell, Inc.
• Molex

24
Good Luck!