International Business course Chapter-3.ppt

International Business course

1. Chapter 3
Participants in
International Business
International Business
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2. International Business: Strategy, Management, and the New Realities
Three Types of Participants in IB
1.The focal firm – initiator of IB transaction,
including MNEs and SMEs
2.Distribution channel intermediary –
specialist firm providing logistics and
marketing services in the international supply
chain
3.Facilitator – a firm providing special
expertise in legal advice, banking, customs
clearance, market research, and similar
areas
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3. International Business: Strategy, Management, and the New Realities *

4. International Business: Strategy, Management, and the New Realities *

5. International Business: Strategy, Management, and the New Realities
Example from the Textbook: Dell Computers
•Dell makes various products, each with its own value chain. The total
supply chain for a notebook computer, including multiple tiers of
suppliers, involves about 400 companies, primarily in Asia, but also in
Europe and the Americas.
•On a typical day, Dell processes orders for 150,000 computers, which
are distributed to customers around the world, with non-U.S. sales
accounting for 40%.
•Shipping is handled via air transport, e.g. from the Dell Malaysia
factory to the U.S. Dell charters a China Airlines 747 that flies to
Nashville, Tennessee six days a week, with each jet carries 25,000
Dell notebooks that weigh a total of 110,000 kilograms, or 242,500
pounds.
•One of the hallmarks of Dell’s value chain is collaboration. CEO
Michael Dell and his team constantly work with their suppliers to
improve Dell’s value chain.
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6. International Business: Strategy, Management, and the New Realities
The MNE as a Focal Firm
•A Multinational Enterprise (MNE) is a large
organization with a network of production
plants, regional headquarters, and country
subsidiaries in numerous countries.
•Examples include: Nestlé, Sony, Unilever,
Nokia, Ford, Citibank, ABB, and Shell Oil.
•Some MNEs in countries like China and
Russia may be state owned.
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7. International Business: Strategy, Management, and the New Realities *

8. International Business: Strategy, Management, and the New Realities
The SME as a Focal Firm
•A Small and Medium-Sized Enterprise (SME) is
a relatively small player in its respective industry
(in the U.S., those with 500 employees or less).
•SMEs can be more flexible and quicker to
respond to international opportunities.
•As limited resources often prevent them from
engaging in FDI, SMEs internationalize via
exporting, joint ventures, and contractual
arrangements
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9. International Business: Strategy, Management, and the New Realities
The Born Global as a Focal Firm
•A relatively new breed of the SME that
undertakes early and substantial
internationalization.
•Primarily a niche player
•Displays high degree of entrepreneurial
orientation, proactiveness, and customer
service.
•Now make up the fastest growing segment of
exporters in most countries.
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10. International Business: Strategy, Management, and the New Realities
Evolution of a Born Global Exporter
and Challenges It Overcomes
Some will exceed
$100 million
Niche
limits
Manage
transition
issues early
Create
international
position
Begin exporting
early (2 years)
Small
domestic
sales only
Product or
process
development
Time
Size
Credibility
Finance
Export
Finance
Foreign representation
Export know-how & skills
Market information
Innovation…
the next
product
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11. International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms
Early, rapid, and substantial
internationalization
Fewer financial and other resources than
traditional MNEs
Often formed by strong entrepreneurs
Often technically superior in a given
product category
Internationalize via exporting
Heavy use of information and
communications technologies
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12. International Business: Strategy, Management, and the New Realities
Foreign Market Entry Strategies of Focal Firms
Cross-border business transactions can be
grouped into three categories:
1.Trade: buying and selling of products (mainly
exporting and importing)
2.Contractual exchange of services or
intangibles (mainly licensing and franchising)
3.Equity ownership in foreign operations:
establishing foreign presence through direct
investment (FDI)
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13. International Business: Strategy, Management, and the New Realities
Examples of Contractual Strategies
Licensor: Focal firm grants the right to the foreign
partner to use certain intellectual property in
exchange for royalties.
•Anheuser-Busch signed a licensing agreement with
Japanese beer brewer Kirin in which Kirin produces
and distributes Budweiser in Japan.
•Mega Bloks (Canadian toymaker) signed an
agreement with Disney that gives the SME the right
to manufacture toys that feature Disney characters
like Winnie the Pooh, Power Rangers.
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14. International Business: Strategy, Management, and the New Realities
Examples of Contractual Strategies (cont’d)
Franchisor: Focal firm grants the right to
the foreign partner to use an entire
business system in exchange for fees
and royalties.
•For firms like Subway or KFC, it’s an
efficient way to internationalize,
•In China, Subway is the third-largest
U.S. fast-food chain.
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15. International Business: Strategy, Management, and the New Realities *

16. International Business: Strategy, Management, and the New Realities
Examples of Contractual Strategies (cont’d)
Turnkey Contractor: Provide engineering, design, and
architectural services in the construction of airports,
hospitals, oil refineries, and other types of
infrastructure. E.g., European Channel Tunnel, Three
Gorges Dam in China, Delhi Metro Rail Ltd.
Build-own-transfer venture- an increasingly popular type
of turnkey contract in the developing economies
where contractors acquire an ownership in the facility
for a period of time until it is turned over to the client.
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17. International Business: Strategy, Management, and the New Realities *

18. International Business: Strategy, Management, and the New Realities
International Collaborative Venture (ICV)
•Arrangement in which partners pool their
resources and share the cost and risks of the
new venture.
•Through an ICV, a focal firm can exploit
partner’s complementary technologies and
expertise, avoid trade barriers, connect with
customers abroad, and configure value chains
more effectively.
•A middle ground strategy between exporting and
FDI
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19. International Business: Strategy, Management, and the New Realities
Two Types of International Collaborative Ventures
•Joint Venture: One firm creates and jointly owns
a new legal entity together with another firm.
Advantages: share costs and risks; gain access to
needed resources; gain economies of scale;
pursue long-term strategic goals.
•Project-Based Collaborative Venture: Firm
collaborates with foreign partners on a project
with a relatively narrow scope and a well-defined
timetable, without creating a new legal entity.
Often used to share the cost and risks of
knowledge-intensive R&D projects.
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20. International Business: Strategy, Management, and the New Realities
Example from the Textbook:
Project-Based Collaboration
Cisco Systems has expanded much of its
operations through strategic alliances with key
foreign players.
•With Japan’s Fujitsu to jointly develop routers
and switches that enable clients to build Internet
protocol networks for advanced
telecommunications.
•In Italy, Cisco teamed with the telecom company
Italtel to jointly develop network solutions for the
convergence of voice, data, and video to meet
growing global demands.
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21. International Business: Strategy, Management, and the New Realities
Distribution Channel Intermediary
•Specialize in physical distribution and
marketing service; connect the focal firm with
the end user in the foreign market.
•Assist the focal firm by providing logistics
services such as warehousing and customer
support.
•Especially critical to exporters
•Based either in the home country or the
foreign market.
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22. International Business: Strategy, Management, and the New Realities
Intermediaries Based in the Foreign Market
•Distributor: Takes title to the exporter’s
goods and performs marketing functions
such as sales, promotion, and after sales
service.
•Serves as an extension of the firm in the
foreign market, performing many
downstream marketing functions
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23. International Business: Strategy, Management, and the New Realities
Agent and Manufacturer’s Representative
•Agent: (also known as a ‘broker’): Does
not take title to the goods. Works on a
commission basis.
•Manufacturer’s Representative:
Works under contract to the exporter to
represent and sell its goods. Acts as a
contracted salesperson in a designated
territory.
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24. International Business: Strategy, Management, and the New Realities
Retailer
•Stores that mainly serve regular
consumers.
•Some, large firms sell directly to retailers,
bypassing distributors (wholesalers)
•Retailers provide direct access to retail
customers
•Examples: Carrefour, IKEA, Royal Ahold,
Seibu, Toys “R” Us, Wal-Mart, and Zara.
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25. International Business: Strategy, Management, and the New Realities
Retailer Base
Percent of Sales
in Foreign
Countries
IKEA Sweden 99.90
Delhaize "Le Lion" Belgium 83.00
Royal Ahold Netherlands 76.40
OttoVersand Gmbh & Co Germany 52.00
Pinault-Printemps-Red France 48.10
Tengelmann Warenhande Germany 47.90
IGA USA 44.90
Kingfisher plc UK 41.00
MetroAG Germany 40.00
Carrefour Group France 37.70
Top Retailers based on Percent of Sales Outside of Home Country
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26. International Business: Strategy, Management, and the New Realities
Trading Company
•Based in the home country, a trading
company is an intermediary that engages
in imports and exports of a variety of
products.
•Large trading companies such as Cargill
are high-volume, low-margin resellers.
•Many trading companies deal primarily in
commodities such as grains, minerals,
coal, and metals.
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27. International Business: Strategy, Management, and the New Realities
The Japanese Sogo Shosha
•Large trading companies in Japan are
known as the sogo shosha. Each has
an extensive network of foreign offices
and buyers including governments.
•Examples include Mitsubishi, Mitsui,
Marubeni, and Sumitomo
•The sogo shosha historically handled
about half of Japanese external trade.
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28. International Business: Strategy, Management, and the New Realities *

29. International Business: Strategy, Management, and the New Realities
The Role of Trading Companies in IB
•Trading companies work with remarkably low
margins; they tend to be high-volume, low-
margin resellers.
•Five of the 10 largest trading companies are
based in Japan. Trading companies have
historically played a very important role in
Japan’s external trade.
•Being an island economy and lacking most
raw materials needed for industrialization,
Japan had to import them.
•Trading companies are also more common in
South Korea, India, and Europe.
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30. International Business: Strategy, Management, and the New Realities
Export Management Company (EMC)
•Acts as an export agent on behalf of the
focal firm. Based in home country.
•An EMC finds export customers,
negotiates terms of sale, and arranges
for international shipping, typically for
smaller exporters.
•Most specialize in specific industries and
geographic areas.
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31. International Business: Strategy, Management, and the New Realities
Online Intermediaries
•Examples include Amazon, Dell, eBay, and
Alibaba – English-language portal based in
China that specializes in business-to-
business exchanges.
•Traditional retailers such as Wal-Mart and
Tesco have also set up online presence.
•One negative aspect is the ease with which
unscrupulous marketers prey on
unsuspecting customers with fake products
(e.g., fake pharmaceuticals).
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32. International Business: Strategy, Management, and the New Realities
Facilitators in IB
•Facilitators assist the focal firm with
specialized services required in cross-
border transactions.
•Facilitators include: Banks,
international trade lawyers, freight
forwarders, customs brokers,
consultants, ad agencies, and market
researchers.
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33. International Business: Strategy, Management, and the New Realities
Examples of Other Facilitators
•International trade lawyers
•International business consultants
•Tax accountants
•Market research firms
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