(POKHARA UNIVERSITY)

1. Chapter-II
Global Business Environment
1

2. “You do not choose to become
global. The market chooses for
you; it forces your hand.”
- Alain Gomez
“Quote”
“. . . there’s no purely domestic
industry anymore.”
- Robert Pelosky and Morgan Stanley
2

3. Terminologies
Multinational Companies
Global Companies
International Companies
Transnational Companies
3

4. 4

5. International Company:
Importers and exporters, they have no investment
outside of their home country.
Multinational Company:
Have investment in other countries, but do not
have coordinated product offerings in each
country. More focused on adapting their products
and service to each individual local market.
5

6. Global Companies:
Have invested and are present in many countries. They
market their products through the use of the same
coordinated image/brand in all markets. Generally one
corporate office that is responsible for global strategy.
Emphasis on volume, cost management and efficiency.
Transnational Companies :
Are much more complex organizations. They have
invested in foreign operations, have a central corporate
facility but give decision-making, R&D and marketing
powers to each individual foreign market.
Advice: if you are in doubt about the right term to use,
try the generic term “international business”.
6

7. Four Basic Strategies
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8. Pressures for Cost Reductions
Intense in industries of standardized, commodity type
product that serve universal needs
Meaningful differentiation on non-price factors is difficult
Major competitors are based in low-cost locations
Consumers are more powerful and face low switching
costs
Examples
Bulk chemicals, petroleum, steel, personal computers
8

9. Pressures for Local Responsiveness
Differences in consumer tastes & preferences
North American families like pickup trucks while in Europe it is
viewed as a utility vehicle for firms
Differences in infrastructure & traditional practices
Consumer electrical system in North America is based on 110 volts;
in Europe on 240 volts
Differences in distribution channels
Germany has a few retailers dominating the food market, while in
Italy it is fragmented
Host-Government demands
Health care system differences between countries require
pharmaceutical firms to change operating procedures
9

10. Advantages and Disadvantages of Different
Strategies for Competing Globally
10

11. What is the Motivation for Competing Internationally?
Gain access to
new customers
Capitalize
on resource
strengths and
competencies
Help
achieve
lower costs
Spread
business risk
across wider
market base
Obtain access to
valuable natural
resources
11

12. Factors Contributing to Complexity
of Global Strategic Planning
1. Global Companies face multiple political, economic, legal,
social, and cultural environment as well as various rates
of changes within each of them
2. Interactions between national and foreign environments
are complex because of national sovereignty issues and
widely differing economic and social conditions
3. Geographic separation, cultural and national differences,
and variations in business practices tend to complicate
communication and control efforts between
headquarters and overseas affiliates
4. Global Companies face extreme competition due to
differences in industry structure
5. Global Companies are restricted in selecting competitive
strategies by various regional blocs and economic
integrations
Note: Here we are using the term global companies in general12

13. THE BUSINESS ENVIRONMENT
How Nepal ranks on Doing Business topics(2013)
13

14. Doing Business (2013)
14

15. Contd…
15

16. Contd…
16

17. The Global Business Environment
 Economic
 Political/Legal
 Socio/Cultural
 Technological
 Competitive
Read: Doing Business 2013
17

18. Economic Factors
Population
Income
Consumption pattern
Infrastructure
Foreign exchange rate
Balance of payment
Currency stability
Tariffs, export controls, border tax
Monetary, fiscal and tax policy
Regional economic integration
18

19. Political/Legal
 Types of political and economic system, political philosophy,
national ideology
 Major political parties, their philosophies, and their policies.
 Stability of the government
- Changes in the political party
- Changes in the government
 Assessment of political vulnerability
- Unfavorable and discriminatory national legislation
- Labor laws and problems
 Differences in legal system and commercial law
 Protection of patents, trademarks, brand names and other
industrial property right.
 War/Terrorism
19

20. Social and Cultural
Literacy and education levels
Business, economic, technical and other
specialized education available
Language and cultural characteristics
Class structure and mobility
Religious, racial and national characteristics
Degree of urbanization
Strength of nationalist sentiment
Rate of social change
20

21. Technological
Availability and development in technology can have
a powerful influence on global business strategy.
e.g.
 Compatibility of technologies in business
management
 Advances in computer and technology
 Priority for technological research
 Internet and networking
21

22. Competitive
 Kinds and number of competitors, their locations,
and their activities
 Competition continues to increase intensity
 New firms have entered world markets
 Companies are defending their home markets from
competitors by entering the competitors’ home
market
 Large trading groups (countries) offer attractive, large
markets
 Innovative capabilities and investment in R&D
22

23. Cross Country Differences
• Consumer tastes and preferences
• Consumer buying habits
• Market size and growth potential
• Distribution channels
• Driving forces
• Competitive pressures
One of the biggest concerns of companies
competing in foreign markets is whether to
customize their product offerings in each
different country market to match the tastes
and preferences of local buyers or whether to
offer a mostly standardized product worldwide.
23

24. Potential Locational Advantages from Cost Variations
Among Countries
• Manufacturing costs vary based on
– Wage rates
– Worker productivity
– Natural resource availability
– Inflation rates
– Energy costs
– Tax rates
• Quality of a country’s business environment
• Clustering of suppliers, trade associations, and
makers of complementary products
24

25. Fluctuating exchange rates affect a company’s
competitiveness
Currency exchange rate are unpredictable
Lessons of fluctuating exchange rate
Exporters always gain in competitiveness when the
currency of the country where goods are manufactured
grows weaker.
Exporters are disadvantaged when the currency of the
country of the country where goods are manufactured
grows stronger
25

26. Differences in Host Government Trade Policies
• Local content requirements
• Import tariffs or quotas
• Restrictions on exports
• Regulations regarding prices of imports
• Other regulations
– Technical standards
– Product certification
– Prior approval of capital spending projects
– Withdrawal of funds from country
– Minority ownership by local citizens
26

27. Country Evaluation
1. Country identification
2.Preliminary screening
3. In depth screening
- Market size
- Growth rate
- Competitive intensity
- Trade barriers
4. Final Selection
27

28. Strategic Orientation of Global Firms
• Ethnocentric
• Values and priorities of parent organization should guide strategic
decision making of all operations
• Polycentric
• Culture of country in which strategy is implemented dominates
decision making
• Regiocentric
• Parent firm attempts to blend its own predispositions with those
of region under consideration
• Geocentric
• Parent firm adopts global systems approach to decision making,
emphasizing global integration
28

29. The firm and its
competitive advantage
Change Competitive
Advantage
Exploit existing competitive
advantage Abroad
Production at
Home: Export
Production Abroad
Licensing
Management Abroad
Control Assets Abroad
Joint Venture Wholly owned subsidy
Greenfield
Investment
Acquisition of Foreign
Enterprise
Greater
Foreign
Investment
Greater Foreign Presence
ENTRY STRATEGY 29

30. Strategic Options for Foreign Markets
• Exporting
• Licensing
• Franchising strategy
• Foreign Branching
• Wholly owned subsidiaries
• Strategic alliances or joint ventures
• Multi-country strategy
• Global strategy based on
– Low cost
– Differentiation
– Best-cost
– Focusing
30

31. Characteristics of Export Strategies
• Involves using domestic plants as a production
base for exporting to foreign markets
• Excellent initial strategy to pursue international
sales
• Advantages
– Minimizes both risk and capital requirements
– Conservative way to test international waters
– Minimizes direct investments in foreign countries
• An export strategy is vulnerable when
– Manufacturing costs in home country are higher than
in foreign countries where rivals have plants
– High shipping costs are involved
– Adverse fluctuations in currency exchange rate
31

32. Licensing
It involves the transfer of some property rights from
the licensor to a motivated licensee. Most tend to be
patents, trademark or technical know-how that are
granted to the licensee for a specified time in return
for a royalty.
For example, Bangalore has become Silicon Valley of
India with US firms trying to exploit the advantages of
technology and skilled IT workforce.
32

33. • Licensing makes sense when a firm
– Has valuable technical know-how or a patented
product but does not have international capabilities
or resources to enter foreign markets
– Desires to avoid risks of committing resources to
markets which
• Are unfamiliar
• Present economic uncertainty
• Are politically volatile
• Disadvantages
– Risk of providing valuable technical know-how to
foreign firms and losing some control over its use
Characteristics of Licensing Strategies
33

34. Franchising
A special form of licensing is franchising, which allows
the franchisee to sell a highly publicized product or
service, using the parent’s brand name or trademark,
carefully developed procedures , and marketing
strategies. In exchange, the franchisee pays a fee to the
parent company, typically based on the volume of the
sales of the franchisor in its defined market area. The
franchise is operated by the local investor who must
adhere to the strict polices of the parent.
Among the most active franchisees are Burger King,
Coca-Cola, Pepsi, KFC. However, the acknowledged
global champion of franchising is McDonald’s, which has
70 percent of its company-owned stores as franchisees in
foreign nations. 34

35. • Often is better suited to global expansion efforts
of service and retailing enterprises
• Advantages
– Franchisee bears most of costs and risks of
establishing foreign locations
– Franchisor has to expend only the resources to
recruit, train, and support franchisees
• Disadvantage
– Maintaining cross-country quality
control
Characteristics of Franchising Strategies
35

36. Joint Ventures
Establishing a joint with a foreign company has long been
a favored mode for entering a new market. The most
typical form of joint venture is a fifty-fifty venture, in
which each party takes a 50 percent ownership stake and
operating control is shared by team of managers from
both parent companies.
36

37. Advantages of Joint Ventures
Joint ventures have number of advantages. A company
may feel that it can benefit from a local partner’s
knowledge of a host country’s competitive conditions,
culture, language, political systems and business
systems. Furthermore, when the development costs
and risks of opening up a foreign market are high, a
company might gain by sharing these costs and risks
with a local partner
37

38. Disadvantages of Joint Ventures
Despite the advantages, joint venture can be difficult to
establish because of two main drawbacks. First, as in the
case of licensing, a company that enter into a joint venture
risks losing control over its technology to its venture
partner. To minimize this risk, it can seek a majority
ownership stake in the joint venture, for as the dominant
partner it would be able to exercise greater control over its
technology. The trouble with this strategy is that it may be
difficult to find a foreign partner willing to accept a
minority ownership position.
38

39. Contd…
The second disadvantage is that a joint venture
does not give a company the tight control over its
subsidiaries that it might need in order to realize
experience curve effects or location economies- as
both global and transnational companies try to
do- or to engage in coordinated global attacks
against its global rivals.
39

40. • Cooperative agreements / strategic alliances with
foreign companies are a means to
– Enter a foreign market or
– Strengthen a firm’s competitiveness in world
markets
• Purpose of alliances
– Joint research efforts
– Technology-sharing
– Joint use of production or distribution facilities
– Marketing / promoting one another’s products
Achieving Global Competitiveness via Cooperation-
Strategic Alliance
40

41. Benefits of Strategic Alliances
• Gain scale economies in production and/or
marketing
• Fill gaps in technical expertise or knowledge of local
markets
• Share distribution facilities and dealer networks
• Direct combined competitive energies toward
defeating mutual rivals
• Useful way to gain agreement on important
technical standards
41

42. Pitfalls of Strategic Alliances
• Becoming too dependent on another firm for
essential expertise over the long-term
• Different motives and conflicting objectives
• Time consuming; slows
decision-making
• Language and cultural barriers
• Mistrust when collaborating in
competitively sensitive areas
• Clash of egos and company cultures
42

43. • Pick a good partner, one that shares a common
vision
• Be sensitive to cultural differences
• Recognize the alliance must benefit both sides
• Both parties have to deliver on their
commitments in the agreement
• Structure decision-making process so actions
can be taken swiftly when needed
• Parties must do a good job of managing the
learning process, adjusting the alliance
agreement over time to fit new circumstances
Guidelines in Forming Strategic Alliances
43

44. Alliance Type Examples
Collaborative
Advertising
American Express and Toys RUs (Cooperation efforts
for TV advertisement and promotion)
R &D Partnership Cytel and Sumitomo chemicals (alliance to develop the
next generation bio-tech drugs)
Lease Service
Agreements
Cigna and United Motor Works (arrangement to
provide financing and governments)
Shared distribution Nissan and Volkswagen ( Nissan sells Volkswagen in
Europe and Volkswagen distributes Nissan Car in
Europe)
Technology transfer IBM and Apple Computers (arrangement to develop
the next generation of operating system software)
Cooperative bidding Boeing, General Dynamics and Lock head (cooperated
together in winning the contract for an advanced
tactical fighter)
Examples of Strategic Alliance
44

45. Alliance Types Examples
Cross-manufacturing Ford and Mazda (design and build similar cars on the
same manufacturing/assembly line)
Resource venturing Swift Chemical co., Texas gulf, RTZ and US Borax
(Canadian-based mining natural resource venture)
Govt and Industry
partnering
DuPont and National Cancer Institute (DuPont
worked with NCI in the first phase of the clinical
cancer trial )
Internal spin-offs Cummins engine and Toshiba Corporation (created a
new company to develop/market silicon nitride
products)
Cross-licensing Hoffman-La Roche and Glaxo (agreed to sell Zantac,
an anti ulcer drug in the united states)
Examples Contd…
45

46. Wholly owned subsidiaries
A wholly owned subsidiary is one in which the parent
company owns 100 percent of the subsidiary’s stock.
To establish a wholly owned subsidiary in a foreign
market, a company can either set up a completely
new operation in that country or acquire an
established host country company and use it to
promote its products in the host market.
46

47. Advantages of wholly owned subsidiary
Setting up a wholly owned subsidiary offers three advantages.
• First, when a company’s competitive advantage is based on its
control of a technological competency, a wholly owned
subsidiary will normally be the preferred entry mode, since it
reduces the company’s risk of losing this control.
• A wholly owned subsidiary gives a company the kind of tight
control over operations in different countries that it needs if it
is going to engage in global strategic coordination- taking
profits from one country to support competitive attacks in
another.
• A wholly owned subsidiary may be the best choice if a
company wants to realize location economies and experience
curve effects.
47

48. Disadvantages of wholly owned
subsidiary
On the other hand, establishing a wholly owned
subsidiary is generally the most costly method of
serving a foreign market. The parent company must
bear all the costs and risks of setting up overseas
operations- in contrast to joint ventures, where the
costs and risks are shared, or licensing, where the
licensee bears most of the costs and risks.
48

49. Multi-Country Strategy
• Strategy is matched to local market needs
• Different country strategies are called for
when
– Significant country-to-country differences in
customers’ needs exist
– Buyers in one country want a product different from
buyers in another country
– Host government regulations prevent
uniform global approach
• Two drawbacks
1. Poses problems of transferring
competencies across borders
2. Works against building a unified
competitive advantage
49

50. Global Strategy
• Strategy for competing is similar
in all country markets
• Involves
– Coordinating strategic moves globally
– Selling in many, if not all, nations where a
significant market exists
• Works best when products and buyer requirements
are similar from country to country
50

51. Networking Strategies
Effective networking is a good business practice,
whether you're a corporate professional or you own
your own business. The key to making the most of
your professional networking is to keep the right
attitude and use a series of techniques to connect
with others and expand your circle of influence.
Although social networking sites have replaced a lot
of face-to-face networking opportunities, these
effective networking strategies apply either online or
in person.
51

52. Contd…
1. Change the way you think about your contacts.
Your contacts aren't there to provide value for you. You should think
about ways that you can provide value for them.
2. Seek to share, not to sell.
People resist sales. But, if you've built up a relationship with someone
through sharing, they'll be more likely to spread the word about your
services or become a customer.
3. Keep your body language in check.
At face-to-face networking events, you should pay close attention to
your body language. Be sure to smile and stand tall to impress others.
4. Go outside of your circle of influence.
The point of networking isn't to get to know people who already know
you. The point is to make new contacts and grow your circle. Make
sure you're spending time where you need to be.
52

53. Contd…
5. Connect your circle with your new contacts.
It's important to make connections between people you know and people
you just met. If you meet someone who would benefit from knowing
someone that you know, make the connection.
6. Make yourself memorable.
Find a good way to communicate what you do in a memorable way.
Consider your specific range of expertise, and sell yourself with that in
mind.
7. Be ready with your business card (or your URL if you're networking
online).
You're going to meet a lot of people while networking and, if you want
them to contact you again, you'll need to provide them with an easy way to
get in touch. Be sure that you have your business card handy at live events,
and make sure you create and use a personal Web site.
8. Follow up after an event.
If you really connected with someone, make it a point to follow up with
them in the future. You can send a quick e-mail to follow up on a
conversation, or send a thank-you note if the person went above and
beyond to help you out. 53

54. Contd…
9. Present yourself well online.
If you use social networking sites, you should carefully monitor the
quality of what you post on your profile and what you use as updates.
Remember, these sites aren't for fun and games if you want to
network professionally.
10. Look for ways to network beyond networking events.
Sometimes the best connections are made when there's no pressure to
network. Look for opportunities to connect with others in a more
casual atmosphere.
11. Don't be afraid to be yourself.
You'll be a lot more memorable, and more trusting, if you can be
yourself. Don't be afraid to let your personality shine.
54

55. Assignment
 Assume a company ( of your choice) having headquarter outside of
Nepal. Also, assume that you are in charge of developing the strategy
for that company selling product in 50 countries around the world.
One of the issues you face is whether to employ a multi country or
global strategy. Which of these two strategies seem more advisable
for that company? Justify
[ write at least 2 page]
 If that company is not yet selling its product in Nepal, which of the
following entry mode would you prefer? Justify
• Exporting
• Licensing
• Franchising strategy
• Foreign Branching
• Wholly owned subsidiaries
• Strategic alliances or joint ventures
[ write at least 2 page]
Submission Deadline : 7th
September 2014
55

56. Thank You
56