Global Business

GLOBAL BUSINESS

IMPORTANT TOPICS

 WTO AND DIFFERENCES

 WTO ORGANISATIONAL STRUCTURE
 TRADE THEORIES- YEAR, ASSUMPTIONS (LOOK FOR COMMON ONES)
 GLOBALIZATION- KEY WORDS, DEFINITION, CHARACTERECTISCS
 HOW WILL YOU IDENTIFY IF COMPANY IS INTERNATIONAL (FEATURES OF MNC)
 FIRST 3 IMPORTANT UNITS
 STAFFING APPROACHES- EPRG, EXAMPLES


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UNIT –I INTRODUCTION TO GLOBAL BUSINESS

Evolution of international business, nature of international business, need & importance of

International Business, stages of internationalization, MNC s and India, OECD Guidelines for
Multinational Enterprises. a)Concepts and Principles b) General Policies c)Disclosure, d)
Employment and Industrial Relations, e) Environment, f) Combating Bribery, g) Consumer Interests
h) Science and Technology, i) Competition., j) Taxation, (EPRG) approaches to international
business, theories of international business – Mercantilism , Absolute Advantage, Comparative
Advantage, Factor Endowment, Competitive Advantage, Tariff and nontariff barriers, Introduction
to Political, Economic, Social-Cultural & technological environment of international business.

GLOBAL BUSINESS

 It refers to the trade of goods, services, technology, capital and/or knowledge across national
borders and at a global or transnational scale. It involves cross-border transactions of goods
and services between two or more countries.
 Global business encompasses a full range of cross-border exchanges of goods, services, or
resources between two or more nations.
 These exchanges can go beyond the exchange of money for physical goods to include
international transfers of other resources, such as people, intellectual property (e.g., patents,
copyrights, brand trademarks, and data), and contractual assets or liabilities (e.g., the right to
use some foreign asset, provide some future service to foreign customers, or execute a
complex financial instrument)

CHARACTERISTICS/FEATURES OF GLOBAL BUSINESS

1. Regional Integration
2. Declining Trade Barriers
3. Declining Investment Barriers
4. Growth in FDI
5. Strides in Technology
6. Growth of MNCs

DRIVERS OF INTERNATIONAL BUSINESS

1. Developing markets have huge opportunities to increase their profits and sales
2. Many MNC’s are locating their subsidiaries in low wage countries to take advantage of low
cost production
3. Trading blocks seek to promote International business by removing trade and Investment
barriers
4. Changing demographics also adds to increasing globalization
5. Declining investment and trade barriers have vastly contributed to cross-border business
6. The most powerful instrument that triggered internationalization is technology
7. Resource seeking is another motive for firms going international

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8. Internationalization is triggered by world bodies and institutions e.g.. WTO World trade
organizations.

INTERNATIONALIZATION OF BUSINESS

There are five major reasons why a business may want to go global −

1. First-mover Advantage − It refers to getting into a new market and enjoy the advantages of
being first. It is easy to quickly start doing business and get early adopters by being first.
2. Opportunity for Growth − Potential for growth is a very common reason of
internationalization. Your market may saturate in your home country and therefore you may
set out on exploring new markets.
3. Small Local Markets − Start-ups in Finland and Nordics have always looked at
internationalization as a major strategy from the very beginning because their local market is
small.m
4. Increase of Customers − If customers are in short supply, it may hit a company’s potential for
growth. In such a case, companies may look for internationalization.
5. Discourage Local Competitors − Acquiring a new market may mean discouraging other
players from getting into the same business-space as one company is in.

ADVANTAGES OF INTERNATIONAL BUSINESS

Product Flexibility

 International businesses having products that don’t really sell well enough in their local or
regional market may find a much better customer base in international markets. Hence, a
business house having global presence need not dump the unsold stock of products at deep
discounts in the local market. It can search for some new markets where the products sell at a
higher price.
 A business having international operations may also find new products to sell internationally
which they don’t offer in the local markets. International businesses have a wider audience and
thus they can sell a larger range of products or services.

Less Competition

 Competition can be a local phenomenon. International markets can have less competition
where the businesses can capture a market share quickly. This factor is particularly
advantageous when high-quality and superior products are available. Local companies
may have the same quality products, but the international businesses may have little
competition in a market where an inferior product is available.

Protection from National Trends and Events

 Marketing in several countries reduces the vulnerability to events of one country. For
example, the political, social, geographical and religious factors that negatively affect a
country may be offset by marketing the same product in a different country.

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Learning New Methods

 Doing business in more than one country offers great insights to learn new ways of
accomplishing things. This new knowledge and experience can pave ways to success in
other markets as well.

DOMESTIC BUSINESS VS INTERNATIONAL BUSINESS

Meaning:

 A business is said to be domestic, when its economic transactions are conducted within
the geographical boundaries of the country.
 International business is one which is engaged in economic transaction with several
countries in the world.

Area of operation:

Within the country incase of Domestic Business and Whole world in case of IB.

Quality standards: Quite low and Very high in case of IB.

Domestic Business: Deals in Single currency and Multiple currencies in case of IB.

Capital investment

 Less
 Huge in case of IB

Restrictions

 Few Many
 in case of IB

Nature of customers: Homogeneous Heterogeneous in case of IB

Business research: It can be conducted easily. It is difficult to conduct research

Mobility of factors of production: Free Restricted in case of IB

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GLOBALIZATION

 Globalization is a social, cultural, political, and legal phenomenon.

 Socially, it leads to greater interaction among various populations.
 Culturally, globalization represents the exchange of ideas, values, and artistic expression
among cultures.
 Globalization also represents a trend toward the development of single world culture.
 Politically, globalization has shifted attention to intergovernmental organizations like
the United Nations (UN) and the World Trade Organization (WTO).
 Legally, globalization has altered how international law is created and enforced.
 It is the spread of products, technology, information, and jobs across national borders and
cultures. In economic terms, it describes an interdependence of nations around the globe
fostered through free trade.
 On one hand, globalization has created new jobs and economic growth through the cross-
border flow of goods, capital, and labor. On the other hand, this growth and job creation is
not distributed evenly across industries or countries.
 Real World Examples of Globalization
 A car manufacturer based in Japan can manufacture auto parts in several developing
countries, ship the parts to another country for assembly, then sell the finished cars to
any nation.
 China and India are among the foremost examples of nations that have benefited from
globalization, but there are many smaller players and newer entrants. Indonesia, Cambodia,
and Vietnam are among fast-growing global players in Asia.

TYPES OF GLOBALIZATION: ECONOMIC, POLITICAL, CULTURAL

1. Economic globalization. This type focuses on the unification and integration of international
financial markets, as well as multinational corporations that have a significant influence on
international markets.
2. Political globalization. This type deals mainly with policies designed to facilitate international
trade and commerce. It also deals with the institutions that implement these policies, which
can include national governments as well as international institutions, such as the
International Monetary Fund and the World Trade Organization.
3. Cultural globalization. This type focuses on the social factors that cause cultures to converge
-- such as increased ease of communication and transportation, brought about by
technology.

It's important to note that all the types influence each other. For example, economic globalization is
made possible by certain liberal trade policies that fall under the category of political globalization.
Cultural globalization is also affected by policies passed in political globalization and is affected by
economic globalization via the imports and exposure a culture has to other cultures through trade.

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EFFECTS OF GLOBALIZATION

The effects of each type of globalization can be felt both locally and globally, and can be observed in
interactions at every level of society, from an individual at the micro level to a society at the macro
level.

 The individual level includes the way international influence affects ordinary people within a
nation or region
 The community level includes effects to local or regional organizations, businesses and
economies.
 The institutional level includes effects to multinational corporations, national governments
and higher education institutions that have international students. At this level, decisions are
made that affect the lower levels.

BENEFITS OF GLOBALIZATION

1. Access to New Cultures

Globalization makes it easier than ever to access foreign culture, including food, movies,
music, and art. This free flow of people, goods, art, and information is the reason you can
have Thai food delivered to your apartment as you listen to your favorite UK-based artist or
stream a Bollywood movie.
2. The Spread of Technology and Innovation
Many countries around the world remain constantly connected, so knowledge and
technological advances travel quickly. Because knowledge also transfers so fast, this means
that scientific advances made in Asia can be at work in the United States in a matter of days.
3. Lower Costs for Products
Globalization allows companies to find lower-cost ways to produce their products. It also
increases global competition, which drives prices down and creates a larger variety of
choices for consumers. Lowered costs help people in both developing and already-developed
countries live better on less money.
4. Higher Standards of Living Across the Globe
Developing nations experience an improved standard of living.According to the World Bank,
extreme poverty decreased by 35% since 1990. Further, the target of the first Millennium
Development Goal was to cut the 1990 poverty rate in half by 2015. This was achieved five
years ahead of schedule, in 2010. Across the globe, nearly 1.1 billion people have moved out
of extreme poverty since that time.
5. Access to New Markets
Businesses gain a great deal from globalization, including new customers and diverse
revenue streams. Companies interested in these benefits look for flexible and innovative
ways to grow their business overseas..
6. Access to New Talent
In addition to new markets, globalization allows companies to find new, specialized talent
that is not available in their current market. For example, globalization gives companies the
opportunity to explore tech talent in booming markets such as Berlin or Stockholm, rather
than Silicon Valley. Again, International PEO allows companies to compliantly employ workers
overseas, without having to establish a legal entity, making global hiring easier than ever.

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DRAWBACKS / RISKS OF GLOBALISATION

1. Inequality: Globalisation has been linked to rising inequalities in income and wealth.
Evidence for this is the growing rural–urban divide in countries such as China, India and
Brazil. This leads to political and social tensions and financial instability that will constrain
growth. Many of the world’s poorest people do not have access to basic technologies and
public goods. They are excluded from the benefits.
2. Inflation: Strong demand for food and energy has caused a steep rise in commodity prices.
Food price inflation (known as agflation) has placed millions of the world’s poorest people at
great risk.
3. Vulnerability to external economic shocks – national economies are more connected and
interdependent; this increases the risk of contagion i.e. an external event somewhere else in
the world coming back to affect you has risen / making a country more vulnerable to macro-
economic problems elsewhere
4. Threats to the Global Commons: Irreversible damage to ecosystems, land degradation,
deforestation, loss of bio-diversity and the fears of a permanent shortage of water afflict
millions of the world’s most vulnerable and so on
5. Race to the bottom – nations desperate to attract inward investment may be tempted to
lower corporate taxes, allow lax health and safety laws and limit basic welfare safety nets
with damaging social consequences
6. Trade Imbalances: Global trade has grown but so too have trade imbalances. Some countries
are running big trade surpluses and these imbalances are creating tensions and pressures to
introduce protectionist policies such as new forms of import control. Many developing
countries fall victim to export dumping by producers in advanced nations (dumping is selling
excess output at a price below the unit cost of supply.)
7. Unemployment: Concern has been expressed by some that capital investment and jobs in
advanced economies will drain away to developing countries as firms switch their production
to countries with lower unit labour costs. This can lead to higher levels of structural
unemployment.
8. Standardisation: Some critics of globalisation point to a loss of economic and cultural
diversity as giant firms and global multinational brands dominate domestic markets in many
countries.
9. Dominant global brands – globalisation might stifle competition if global businesses with
dominant brands and superior technologies take charge of key markets.

IMPACT OF GLOBALIZATION

Economic impact

 Improvement in standard of living

 Increased competition among nations
 Widening income gap between the rich and poor

Social impact

 Increased awareness of foreign cultures

 Loss of local culture

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Environmental impact

 Environmental degradation
 Environmental management

CHALLENGES OF GLOBALIZATION

1. Shifting risk profile

As the market has expanded from local to international, the risk profile has also expanded.
Risk level has increased, ranging from fluctuation in interest and exchange rates to supply
chain piracy organizations needs to consider and accommodate global events and scenarios
while conducting risk assessments. Eg: fake chinese copies of indian drugs in africa, effects of
global terrorism and regional tensions.
2. Regulatory obstacles
Regional laws and policies by national governments will have a widespread effect leads to
uncertainty in rapid growth markets companies have to adopt a global platform for making
project portfolio have to gain greater visibility to overcome regional barriers companies
should have contingency plans, specific to regions and nations eg: recent proposal to ban
diesel vehicles in delhi, us move to rise visa fees.
3. Cultural differences
Workforces & customers will be separated by thousands of miles, international time zones,
cultural and religious differences. The central organization must be able to refine portfolio
management and create an infrastructure that maintains the diversity of international teams
while also empowering local delivery eg: mcdonald’s avoiding beef & porl and launching
vegetarian burgers in india.
4. Job insecurity & lack of skill
Globalization allowed companies to assign jobs to population away from their physical
location, resulting in local population loosing their jobs. Eg: american analysts loosing jobs to
cheaper indian counter parts in manufacturing sector, quite opposite can happen. Foreign
companies setting up a new plant will give more opportunity to local population. However,
the quest to offer positions to local (cheaper) employees often result in lower skilled
employees
5. Shortage of resources
Globalization has led to increased use of global resources, leading to imbalances financially
and technologically backward nations often lag behind, and are the victims of exploitations
small scale industries are over shadowed by corporate giants gaps in infrastructure and
technologies will have a greater effect.

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MULTINATIONAL CORPORATION (MNC)

A multinational corporation (MNC) has facilities and other assets in at least one country other than
its home country. A multinational company generally has offices and/or factories in different
countries and a centralized head office where they coordinate global management. These
companies, also known as international, stateless, or transnational corporate organizations tend to
have budgets that exceed those of many small countries.

 Multinational corporations participate in business in two or more countries.

 MNC can have a positive economic effect on the country where the business is taking place.
 Many believe manufacturing outside of the U.S. has a negative effect on the economy with
fewer job opportunities.
 Transnational business is considered diversifying the investment.

TYPES OF MULTINATIONALS

 A decentralized corporation with a strong presence in its home country.

 A global, centralized corporation that acquires cost advantage where cheap resources are
available.
 A global company that builds on the parent corporation’s R&D.
 A transnational enterprise that uses all three categories.

According to Franklin Root (1994), an MNC is a parent company that:

 engages in foreign production through its affiliates located in several countries,

 exercises direct control over the policies of its affiliates,
 implements business strategies in production, marketing, finance and staffing that transcend
national boundaries.

REASONS FOR THE ESTABLISHMENT OF MNCs

 To increase market share.

 To secure cheaper premises and labour.
 Employment and Health & Safety Legislations in other countries may be more relaxed.
 To avoid or minimise the amount of tax to be paid.
 To take advantage of government grants available.
 To save on costs of transporting goods to the market place.

ADVANTAGES OF MNCS TO THE HOST COUNTRY

 Transfer of technology, capital and entrepreneurship.

 Increase in the investment level and thus, the income and employment in the host country.
 Greater availability of products for local consumers.
 Increase in exports and decrease in imports.
 Acquisition of raw materials from abroad.
 Technology and management expertise acquired from competing in global markets.
 Export of components and finished goods for assembly or distribution in foreign markets.
 Inflow of income from overseas profits, royalties and management contracts.

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DISADVANTAGES OF MNCS

 Trade restrictions imposed at the government-level.

 Limited quantities (quotas) of imports.
 Effective management of a globally dispersed organization.
 Slow down in the growth of employment in home countries.
 Destroy competition and acquire monopoly
 Creation of false needs in consumers.
 Interference and dominance in the internal affairs of sovereign nations.
 Invasive advertising and corporate lobbying.
 Creation of monopolies in the market and elimination of local competitors.
 Depletion of resources due to their continuous use by these corporations.
 Centralization of R&D operations in their home country.
 Low consideration for human rights and welfare.
 The problem of Dumping.

OECD Guidelines for Multinational Enterprises

OECD Guidelines for Multinational Enterprises are a set of recommendations by the Organization for
Economic Cooperation and Development (OECD) to multinational enterprises operating in or from
countries adhering to the guidelines. The guidelines provide voluntary principles and standards for
responsible business conduct to promote sustainable development and enhance social and
environmental practices.

General Policies

 Enterprises should contribute to economic, social, and environmental progress.

 They should respect the laws and regulations of the countries in which they operate.
 They should promote human rights, including labor rights and environmental protection.
 They should encourage mutually beneficial business partnerships.

Disclosure

 Enterprises should provide accurate and timely disclosure of information regarding their
activities, structure, financial situation, and performance.
 They should disclose information about social and environmental impacts, policies, and
practices.

Human Rights

 Enterprises should respect human rights and avoid complicity in human rights abuses.
 They should support and respect the protection of internationally proclaimed human rights.
 They should respect the rights of employees, including non-discrimination, freedom of
association, and the right to collective bargaining.

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Environment

 Enterprises should develop and implement policies to promote environmental responsibility.

 They should encourage the efficient use of resources, minimize pollution, and promote the
development and diffusion of environmentally-friendly technologies.
 They should assess and address the environmental impacts of their operations.

Combating Bribery, Bribe Solicitation, and Extortion

 Enterprises should combat bribery, including both offering and receiving bribes.
 They should not solicit bribes or participate in extortion.
 They should establish internal controls, ethics, and compliance programs to prevent
corruption.

Consumer Interests

 Enterprises should respect consumer interests and provide accurate information about their
products and services.
 They should handle customer complaints and disputes in a fair and transparent manner.

Science and Technology

 Enterprises should contribute to the development and diffusion of science and technology,
including supporting research and innovation activities.
 These guidelines are supported by the National Contact Points (NCPs) established by each
adhering country. The NCPs are responsible for promoting and implementing the guidelines
and handling specific instances where enterprises may have breached their commitments.

Examples

Microsoft: Microsoft, a multinational technology company, has shown a commitment to OECD

guidelines in multiple areas. They have implemented strong anti-corruption measures, including
compliance with the OECD Anti-Bribery Convention. Microsoft also adheres to the OECD Privacy
Guidelines, emphasizing the protection of customer data and privacy rights.

Unilever: Unilever, a global consumer goods company, is known for its sustainable business practices
aligned with the OECD guidelines. They focus on environmental sustainability, with commitments to
reduce greenhouse gas emissions, minimize waste, and sustainably source raw materials. Unilever's
efforts are in line with the OECD Guidelines for Multinational Enterprises, emphasizing responsible
environmental management.

Novartis: Novartis, a multinational pharmaceutical company, demonstrates adherence to OECD

guidelines in several areas. They have adopted responsible business practices, aligning with the OECD
Guidelines for Multinational Enterprises, which cover aspects like human rights, labor standards, and
environmental responsibility. Novartis has also implemented comprehensive anti-corruption policies
in accordance with the OECD Anti-Bribery Convention.

Coca-Cola: The Coca-Cola Company, a global beverage corporation, has incorporated several OECD
guidelines into its business practices. They emphasize responsible supply chain management,
including compliance with the OECD Due Diligence Guidance for Responsible Supply Chains of
Minerals. Coca-Cola has also committed to sustainable water management and environmental
stewardship in line with the OECD guidelines.

MARKET ENTRY STRATEGIES

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There are a variety of ways in which a company can enter a foreign market. No one market entry
strategy works for all international markets. Direct exporting may be the most appropriate strategy in
one market while in another you may need to set up a joint venture and in another you may well
license your manufacturing. There will be a number of factors that will influence your choice of
strategy, including, but not limited to, tariff rates, the degree of adaptation of your product required,
marketing and transportation costs.

The following strategies are the main entry options:

1. Direct Exporting
Direct exporting is selling directly into the market you have chosen using in the first instance
you own resources. Many companies, once they have established a sales program turn to
agents and/or distributors to represent them further in that market. Agents and distributors
work closely with you in representing your interests. They become the face of your company
and thus it is important that your choice of agents and distributors is handled in much the
same way you would hire a key staff person.

2. Licensing
Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the
use of a product or service to another firm. It is a particularly useful strategy if the purchaser
of the license has a relatively large market share in the market you want to enter. Licenses
can be for marketing or production. licensing).

3. Franchising
Franchising is a typical North American process for rapid market expansion but it is gaining
traction in other parts of the world. Franchising works well for firms that have a repeatable
business model (eg. food outlets) that can be easily transferred into other markets. Two
caveats are required when considering using the franchise model. The first is that your
business model should either be very unique or have strong brand recognition that can be
utilized internationally and secondly you may be creating your future competition in your
franchisee. E.g McDonald's. Dominos, KFC, Pizza Hut, Subway.
• Advantages − Low investment; Low risk; Franchisor understands market culture,
customs and environment of the host country; Franchisor learns more from the experience
of the franchisees; Franchisee gets the R&D and brand name with low cost; Franchisee has
no risk of product failure.
• Disadvantages − Franchising can be complicated at times; Difficult to control;
Reduced market opportunities for both franchisee and franchisor; Responsibilities of
managing product quality and product promotion for both; Leakage of trade secrets.

4. Joint Ventures
Joint ventures are a particular form of partnership that involves the creation of a third
independently managed company. It is the 1+1=3 process. Two companies agree to work
together in a particular market, either geographic or product, and create a third company to
undertake this. Risks and profits are normally shared equally. The best example of a joint
venture is Sony/Ericsson Cell Phone.
 Advantages − Joint ventures provide significant funds for major projects; Sharing of risks
between or among partners; Provides skills, technology, expertise, marketing to both parties.

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 Disadvantages − Conflicts may develop; Delay in decision-making of one affects the other
party and it may be costly; The venture may collapse due to the entry of competitors and the
changes in the partner’s strength; Slow decision-making due to the involvement of two or
more decision-makers.

5. Buying a Company
In some markets buying an existing local company may be the most appropriate entry
strategy. This may be because the company has substantial market share, are a direct
competitor to you or due to government regulations this is the only option for your firm to
enter the market. It is certainly the most costly and determining the true value of a firm in a
foreign market will require substantial due diligence.

6. Turnkey Projects
Turnkey projects are particular to companies that provide services such as environmental
consulting, architecture, construction and engineering. A turnkey project is where the facility
is built from the ground up and turned over to the client ready to go – turn the key and the
plant is operational. This is a very good way to enter foreign markets as the client is normally
a government and often the project is being financed by an international financial agency
such as the World Bank so the risk of not being paid is eliminated.

7. Strategic Alliance
 A strategic alliance is an arrangement between two companies to undertake a
mutually beneficial project while each retains its independence. The agreement is
less complex and less binding than a joint venture, in which two businesses pool
resources to create a separate business entity.
 A company may enter into a strategic alliance to expand into a new market, improve
its product line, or develop an edge over a competitor. The arrangement allows two
businesses to work toward a common goal that will benefit both.
 The relationship may be short- or long-term and the agreement may be formal or
informal.
 Examples: Vodafone India and ICICI Bank
Advantages of entering into strategic alliance include accessing new technologies,
R&D resources and IP rights, diversifying products and services, improving material flow and
product lifecycle times, making operations more agile and reducing overhead and
administrative costs.
Disadvantages of strategic alliances include: Sharing: In a strategic alliance the partners
must share resources and profits and often skills and know-how. ... Agreements can protect
these secrets but the partner might not be willing to stick to such an agreement.

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INTERNATIONAL BUSINESS ENVIRONMENT

1. Political Environment
Political Risk Risks Related to Government Trade policies:
 Tariffs, exchange-rate Controls, quotas,export/import license requirements,
 Bureaucracy.
 Corruption level.
 Freedom of the press.
 Tariffs.
 Trade control.
 Education Law.
 Anti-trust law.
 Employment law

2. Economic Environment
 Per capita income and size of population
 Stages of economic development
 Consumption pattern
 Economic system
 Product demand analysis
 Competition analysis

3. Socio-Cultural Environment
International business means operating in a cross cultural environment. This makes the
business more complex because the business firm must appreciate how different the foreign
culture is from their own and how this difference is to be reflected in their business
strategies.
 Language
 Religion
 Cultural Values
 Cultural Norms

4. Demographic Environment
 Size, growth rate, age composition, sex composition etc. of the population
 Family size
 Economic stratification of population
 Education level
 Caste, religion etc.

5. Technological Environment
 Threats Web/Internet
 The payment mechanism is sometimes difficult
 Different currencies Different method of payments (credit cards, debit cards)
 Accepting credit cards from unknown buyers

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GREENFIELD INVESTMENTS

Greenfield investments require the greatest involvement in international business. A greenfield

investment is where you buy the land, build the facility and operate the business on an ongoing basis
in a foreign market. It is certainly the costliest and holds the highest risk but some markets may
require you to undertake the cost and risk due to government regulations, transportation costs, and
the ability to access technology or skilled labour.

EPRG APPROACHES TO INTERNATIONAL BUSINESS

EPRG (Ethnocentric, Polycentric, Regiocentric, Geocentric) approaches are frameworks used by

multinational corporations (MNCs) to guide their strategies and operations in international business

ETHNOCENTRIC APPROACH

Ethnocentric approach refers to a mindset where a company's home country practices and values are
considered superior and are applied to foreign operations.

Companies often implement this approach during the initial stages of international expansion when
they have limited knowledge of local markets.

Example: Coca-Cola, an American company, initially adopted an ethnocentric approach by exporting

its standardized products and marketing campaigns to different countries. However, they later shifted
towards a more geocentric approach by adapting their products to suit local preferences, such as
introducing regional flavors.

Ethnocentric Orientation

 Firms at the early stages of internationalization

 Assumptions
o Home country is superior
o Similarities in markets
o Assume the products and practices that succeed in the home country will be
successful every where
 domestic companies - the ethnocentric orientation means that opportunities outside the
home country are ignored
 International company - they adhere to the notion that the products that succeed in the
home country are superior and therefore, can be sold everywhere without adaptation
 Managing international operations - people from the home country i.e. Parent Country
Nationals (PCNs) fill top management and other key positions
 Perceived lack of qualified Host Country Nationals (HCNs)
 need to maintain good communication, coordination, and control links with corporate
headquarters
 The firm uses a large group of expatriate mangers
 Foreign operations are viewed as being secondary or subordinate to domestic ones
 Operates under the assumption that “tried and true” headquarters’ knowledge and
organisational capabilities can be applied in other parts of the world.

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POLYCENTRIC APPROACH

Polycentric approach emphasizes the localization of operations in each host country, giving
autonomy to subsidiaries to make decisions based on local market conditions and preferences.

This approach recognizes the diversity and uniqueness of each market and allows subsidiaries to
develop their strategies.

Example: McDonald's, a global fast-food chain, adopts a polycentric approach by customizing their
menus according to local tastes and preferences. For instance, they offer vegetarian options like
McAloo Tikki in India to cater to the country's cultural and dietary preferences.

Polycentric Orientation

 Opposite of ethnocentric orientation

o Assumption that each country in which a company does business is unique
o Each subsidiary to develop its own unique business and strategies in order to
succeed
o the term multinational company is often used to describe such a structure
 This eliminates the language barriers, avoids adjustment problems for expatriates and allows
an MNC to take a lower profile in sensitive political situations
 Subsidiaries are managed and staffed by personnel from the host country
o The HCNs are recruited to manage subsidiaries
o PCNs occupy the corporate headquarters
 Employment of HCNs is less expensive
 It has its limitations in terms of
o Bridging the gap between the HCN subsidiary managers and PCN managers at
corporate head quarter
o language barriers
o conflicting national loyalties
o a range of cultural differences may isolate the corporate HQ staff

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REGIOCENTRIC APPROACH

Regiocentric approach focuses on regional integration and cooperation, treating regions as distinct
markets while considering commonalities within them.

Companies using this approach develop strategies that target specific regions and adapt their
products and marketing strategies accordingly.

Example: Nestlé, a Swiss multinational, adopts a regiocentric approach by organizing its operations
based on regional markets. They have separate divisions for regions like Asia, Europe, and the
Americas, allowing them to understand and cater to the specific needs and preferences of each
region.

Regiocentric Orientations

 Management views regions as unique and seeks to develop an integrated regional strategy
 It is a regional approach in which the MNC divides its operations into geographical regions and
transfers staff within these regions
 This approach reflects some sensitivity to local conditions, since local subsidiaries are staffed by
HCNs
 This approach to staffing policy will reflect organisational needs, but there are difficulties in
maintaining a uniform approach to international staffing
 Strategies in different countries may require different staffing approaches
 Have a worldview on a regional scale
 Selection for staffing is on the basis of a set of characteristics
 SMILE
o Specialty (required skill, knowledge)
o Management ability (particularly motivational ability)
o International flexibility (adaptability)
o Language facility
o Endeavor (perseverance in the face of difficulty).

GEOCENTRIC APPROACH

Geocentric approach emphasizes a global mindset, where companies view the entire world as a
potential market and seek to achieve a balance between global integration and local responsiveness.

This approach promotes the recruitment and development of top talent regardless of nationality and
encourages knowledge sharing across borders.

Example: Unilever, a British-Dutch multinational, follows a geocentric approach by fostering a diverse

workforce and implementing standardized global practices while also adapting to local markets. They
have a global leadership program that rotates employees across different countries to develop a
global perspective.

Geocentric Orientations

 Views the entire world as a potential market

 Strives to develop integrated world business strategies
 Represents a synthesis of ethnocentrism and polycentrism
 a ‘world view’ that sees similarities and differences in markets and countries and seeks to create
a global strategy that is fully responsive to local needs and wants.

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 Nationality is deliberately downplayed

 Firm actively searches on a worldwide or regional basis for the best people to fill key positions
 Transactional firms tend to follow this approach.
 Regiocentric or Geocentric orientations are practiced in global or transnational company
 However, some research suggests that many companies are seeking to strengthen their regional
competitiveness rather than moving directly to develop global responses to changes in the
competitive environment.
 This approach is feasible when highly competent and mobile managers have an open disposition
and high adaptability to different conditions in their various assignments and such employees are
available at HQ as also in subsidiaries.

PARENT COUNTRY NATIONALS (PCNS)

Advantages Disadvantages
Familiarity with the home office goals. Difficulty in adapting to the foreign language
Objectives, policies and practices and the socio-economic, political, cultural and
legal environment
Promising managers are given international Excessive cost of selecting, training, and
exposure. maintaining expatriate managers and their
families abroad
PCNs are the best people for international Promotional opportunities for HCNs arc limited
assignments because of special skills and
experiences
PCNs may impose an inappropriate HQ style
Compensation for PCNs and HCNs may differ
Family adjustment problems, especially
concerning unemployed spouses

HOST COUNTRY NATIONALS (HCNS)

Advantages Disadvantages
Familiarity with the socioeconomic. political Difficulty in exercising effective control over the
and legal environment and with business subsidiary's operations
practices in the host country
Lower cost incurred in hiring them compared to Communication difficulties in dealing with
PCNs and TCNs home-office personnel
PCNs are the best people for international Lack of opportunities for the home country's
assignments because of special skills and nationals to gain international and cross*
experiences cultural experience
Promotional opportunities for locals and HCNs have limited career opportunity outside
consequently, their motivation and the subsidiary
commitment
Languages and other barriers are eliminated Hiring HCNs may encourage a federation of
nationals rather than global units
Continuity of management improves since
HCNs stay longer in positions
Salary and benefit requirements may be lower
than of PCNs

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THIRD COUNTRY NATIONAL (TCN)

Advantages

 TCNs may be better informed than PCNs about the countries of assignment
 TCNs arc truly international managers

Disadvantages

 Host country government may resent hiring TCNs

 TCNs may not want to return to their own countries after assignment Host country's
sensitivity' with respect to nationals of specific countries is missing
 HCNs arc impeded in their efforts to upgrade their own ranks and assume responsible
positions in the multinational subsidiaries HCNs or PCNs

INTERNATIONAL TRADE THEORIES

Objectives

 To understand theories of why countries should trade

 To comprehend how global efficiency can be increased through free trade
 To become familiar with factors affecting countries’ trade patterns
 To realize why countries’ export capabilities are dynamic
 To discern why the production factors of labor and capital move internationally
 To grasp the relationship between foreign trade and international factor mobility

Why Do Nations Trade?

1. A nation trades because it expects to gain something from its trading partner
2. Whenever a buyer and a seller come together, each expects to gain something from the
other. The same expectation applies to nations that trade with each other.
3. It is virtually impossible for a country to be completely self-sufficient without incurring undue
costs.
4. International trade allows a country
5. to specialize in the manufacture and export of products and services that it can produce
efficiently
6. import products and services that can be produced more efficiently in other countries
7. limits on imports may be beneficial to producers, but not beneficial for consumers

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Major Cause For Trade And Investment Flow

1) Difference in Factor Endowments: The skewed distribution of factors of resources i.e. production
capabilities, possibilities and scales differ across the nations eventually forced the nation to trade
among each other.
2) Cost Advantage: Trade and investment flows are goaded by cost advantage. Cost leadership is
what international firms aim at in a world of thinning down margins.
3) Patterns of Specialization: Trade and investment flows are triggered by patterns of specialization.
Countries specialize. For example, Germany, Japan, UK and USA are good manufacturing machine
tools and equipment, Singapore and India are good in IT and IT enabled services, USA and France
are good in Aircrafts, Switzerland, India are good in pharmaceutical goods etc. this Specialization
spells need for trade flows.
4) Profit from Exchange: Trade and investment flows are motivated by profit from exchange. Milton
Friedman would say the sole purpose of businesses is making profit by serving the society. Profit
sources are many; one is international exchange. Export sales guarantee more profit per unit sale
than comparable domestic sale.
5) Diversification of Sources & Markets for Physical & Financial Products and Risk: Trade and
investment flows are propelled by the need for diversification of sourcing and markets both for
physical and financial products. Multiple sources and markets both for inputs and outputs and
both for physical and financial are essential to ward off uncertainties of supply chain and
consumer patronage.
6) Exploitation of Natural Resources: Investment and trade flows are driven by profit-seeking
transnational corporations that are interested in the exploitation of natural resources.
7) Policy “U” turn Towards Mercerization by Many Economies: Since the later part of the 20th
century, change from the ‘inward-looking import-substitution oriented development framework’
to the ‘outward-looking export-led growth-oriented development and privatization have led to
significant dependence on trade and investment inflows as trusted ways to economic
development.
8) Common Market / Currency / Economy: At the sub- regional level, the policy of Common
Market / Currency / Economy has facilitated intra-regional trade and investment.
9) Bilateral Trade/Investment and Economic Relationship: which help to open new paradigm that
relies on mutual understanding and growth result.
10) Enabling Multilateralism along with Regional Pluralism: Finally, multilateralism in the form of
GATT & WTO and World Bank & Multilateral Investment Guarantee Agency (MIGA) besides
others, co-existing with regional pluralism in the form of regional trade blocks and agreements
between trade blocks

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What Is Mercantilism?

Mercantilism (mid-16th century in Poland ) suggests that it is in a country’s best interest to maintain
a trade surplus to export more than it imports

 advocates government intervention to achieve a surplus in the balance of trade

 Mercantilism views trade as a zero-sum game
 one in which a gain by one country results in a loss by another.
 The primary objective of Mercantilism was to increase the power of the nation state wealth
which measured by its holdings of treasure (usually gold)

European countries competed for world power and needed colonies to provide necessary raw
materials so mother country does not have to import from other nations) and markets for exports

Theory of Neo-Mercantilism

Mercantilism is still in vogue. Mercantilist policies are politically attractive to some firms and their
workers, as mercantilism benefits certain members of society. Modern supporters of these policies
are known as neo-mercantilists, or protectionists

Smith’s Theory Of Absolute Advantage

Adam Smith (1776) argued that a country has an absolute advantage in the production of a product
when it is more efficient than any other country in producing it and enhance global efficiency
through participation in free trade

Smith reasoned that:

 workers become more skilled by repeating the same tasks

 workers do not lose time in switching from the production of one kind of product to another
 longer production runs provide greater incentives for the development of more effective
working methods
 The neo-mercantilists want higher production through full employment and that every
industry produces an exportable surplus leading to favorable BOT.

Natural vs. Acquired Advantages

A natural advantage may exist because of:

1) given climatic conditions

2) access to particular resources
3) the availability of labor, etc.

An acquired advantage may exist because of:

1) superior skills
2) better technology
3) greater capital assets, etc.

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Assumptions of the Theory

 Trade is between two countries

 Only two commodities are traded
 Free trade exists between the countries
 They only element of cost of production is labour.

Example

 Country A can produce 1,000 parts per hour with 200 workers.
 Country B can produce 2,500 parts per hour with 200 workers.
 Country C can produce 10,000 parts per hour with 200 workers.

has the absolute advantage

1) According to the absolute advantage theory, international trade is a positive- sum game, because
there are gains for both countries to an exchange.
2) Unlike mercantilism this theory measures the nation's wealth by the living standards of its
people and not by gold and silver.

Problem with Absolute Advantage

If there is one country that does not have an absolute advantage in the production of any product,
will there still be benefit to trade, and will trade even occur?

The answer may be found in the extension of absolute advantage, the theory of comparative
advantage.

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Theory of Comparative Advantage

Comparative advantage [David Ricardo, 1817]

A country can

 maximize its own economic well- being by specializing in the production of those goods and
services it can produce relatively efficiently and
 enhance global efficiency via its participation in free trade.

Ricardo also reasoned that:

 a country can simultaneously have an absolute and a comparative advantage in the

production of a given product.
 by concentrating on the production of the product in which it has the greater advantage, a
country can further enhance both global output and its own economic well-being.

Trade is a positive sum game.

Assumptions and Limitations of the Free Trade Theories

 The theories of absolute and comparative advantage both make assumptions that may not
be entirely valid.
 Full employment of resources
 Exclusive pursuit of economic efficiency objectives
 Equitable division of gains from specialization
 Only two countries and two commodities
 Exclusion of transport costs
 A static rather than a dynamic view
 Exclusion of services
 Unrestricted factor mobility

The theory emerged in the 1990s with the aim of explaining the concept of national competitive
advantage. Michael Porter’s Diamond Model (also known as the Theory of National Competitive
Advantage of Industries) is a diamond-shaped framework that focuses on explaining why certain
industries within a particular nation are competitive internationally, whereas others might not. And
why is it that certain companies in certain countries are capable of consistent innovation, whereas
others might not?

Porter argues that any company’s ability to compete in the international arena is based mainly on an
interrelated set of location advantages that certain industries in different nations posses, namely:

 Firm Strategy, Structure and Rivalry

 Factor Conditions
 Demand Conditions;
 Related and Supporting Industries.

If these conditions are favourable, it forces domestic companies to continuously innovate and
upgrade. The competitiveness that will result from this, is helpful and even necessary when going
internationally and battling the world’s largest competitors.

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Michael Porter in The Competitive Advantage of Nations, the theory of competitive advantage
concentrates on a firm’s home country environment as the main source of competencies and
innovations. The model is often referred to as the diamond model, wherein four determinants,
interact with each other.

 factor conditions
 demand conditions
 related and supporting industries
 firm strategy, structure, and rivalry.

Local market resources and capabilities (factor conditions). Porter recognized the value of the factor
proportions theory, which considers a nation’s resources (e.g., natural resources and available
labour) as key factors in determining what products a country will import or export. Porter added to
these basic factors a new list of advanced factors, which he defined as skilled labour, investments in
education, technology, and infrastructure.

Local market demand conditions. Porter believed that a sophisticated home market is critical to
ensuring ongoing innovation, thereby creating a sustainable competitive advantage. Companies
whose domestic markets are sophisticated, trendsetting, and demanding forces continuous
innovation and the development of new products and technologies. Many sources credit the
demanding US consumer with forcing US software companies to continuously innovate, thus creating
a sustainable competitive advantage in software products and services.

Local suppliers and complementary industries. To remain competitive, large global firms benefit
from having strong, efficient supporting and related industries to provide the inputs required by the
industry. Certain industries cluster geographically, which provides efficiencies and productivity.

Local firm characteristics. Local firm characteristics include firm strategy, industry structure, and
industry rivalry. Local strategy affects a firm’s competitiveness. A healthy level of rivalry between
local firms will spur innovation and competitiveness.

In addition to the four determinants of the diamond, Porter also noted that government and chance
play a part in the national competitiveness of industries. Governments can, by their actions and
policies, increase the competitiveness of firms and occasionally entire industries.

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Heckscher-Ohlin’s factor endowment theory

Eli Heckscher (1919) and Bertil Ohlin (1933) - comparative advantage arises from differences in
national factor endowments

 the more abundant a factor, the lower its cost

 Heckscher and Ohlin predict that countries will export goods that make intensive use of
locally abundant factors and import goods that make intensive use of factors that are locally
scarce

Heckscher-Ohlin’s Factor Endowment Theory also called Heckscher-Ohlin Model, H-O Model, Factor
Endowment Theory, and Factor Proportion Theory is an economic as well as international trade
theory that states that a nation should produce and export products for which factors of production
the country is rich.

Factor endowment refers to the richness, abundance, and easy availability of factors of production
(namely land, labor, and capital) to the country. This theory argues that a country that has relatively
large labor forces should concentrate on production through labour-intensive means. And, a country
that has relatively more capital should go for production through capital-intensive means.

The theory holds that factors in relative abundance are cheaper than factors in relative scarcity. It
explains the basis of trade in terms of factor endowments. Factor endowment refers to how many
factors of production a country has been endowed with by Mother Nature.

Assumptions of the H-O Model

 Different goods have different factor intensities – for example, textile and clothing are labor-
intensive goods and a semi-conductor is a capital-intensive product.
 Countries differ with respect to their factor endowments – for example, Nepal has an
abundant supply of labor goods relative to capital, whereas the USA has an abundant supply
of capital goods relative to labor.
 Two countries, two goods, and two factors of production.
 Perfect competition in commodities and factor markets.
 Constant returns to factors.
 Given technology is universally available.
 There are no transport costs, insurance premiums, or exchanges.
 No control of trade and exchange rates.
 Factors immobility between countries and factors endowments.
 Demand conditions are fixed.

According to the H-O model, “variances in the supply of production components produce
international and interregional differences in production cost.”

By this H-O model, trade or international trade takes place because production costs occur due to
the differences in the supply of production factors. For example, China, India, Nepal, Bangladesh, etc.
can export labor-oriented products because labor resources are abundant in these countries.

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Criticisms of Factor Endowment Theory

 Static Nature of Inputs is Wrong

 In terms of new technologies, the H-O model assumes a constant supply of factor
endowments. New technologies and breakthroughs, on the other hand, can be used to
produce endowments.
 Wrong Assumption of Homogeneous Products and Consumers’ Taste
 Assumption of Non-Existence of Money and Absence of Transportation Costs

Leontief Paradox

Wassily Leontief, the US Economist, criticized the H-O Model when his study was completed in 1953.
It was well believed that the US has a relatively abundant capital supply compared to labor in other
countries. He found the cases where the US was exporting highly labor and skill intensive products in
exchange for capital intensive products also. Therefore, the finding was at variance with the
philosophy of the H-O Model, and his finding was named “The Lenotief Paradox

Wassily Leontief (1953) theorized that since the U.S. was relatively abundant in capital compared to
other nations, the U.S. would be an exporter of capital intensive goods and an importer of labor-
intensive goods.

 However, he found that U.S. exports were less capital intensive than U.S. imports
 Since this result was at variance with the predictions of trade theory, it became known as
the Leontief Paradox.

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FACTORS AFFECTING ENVIRON

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International Product Cycle Theory

It was proposed by Raymond Vernon in the mid-1960s. This theory shows the development of a
company’s marketing program on both domestic and foreign platforms. International product
lifecycle includes economic principles and standards like market development and economies of
scale, with product lifecycle marketing and other standard business models.

Globalization and integration of the world economy has made this theory less valid today

 the theory is ethnocentric

 production today is dispersed globally
- products today are introduced in multiple markets simultaneously

According to Raymond Vernon, products can be categorized into three stages depending on product
life and trade behavior in the international trade market.

 Standardized products,
 New Products
 Maturing Products.

The Product Cycle Theory then introduces five stages of production: Introduction, Growth, Maturity,
Saturation, Decline.

Categories of Products

1) New product

The IPLC begins when a company in a developed country wants to exploit a technological
breakthrough by launching a new, innovative product on its home market.

Such a market is more likely to start in a developed nation because more high- income consumers
are able to buy and are willing to experiment with new, expensive products (low price elasticity).

Furthermore, easier access to capital markets exists to fund new product development. Production is
also more likely to start locally in order to minimize risk and uncertainty: “

Export to other industrial countries may occur at the end of this stage.

Competition will comes from a domestic players that produce their own unique product variations.

2) Maturing product

Exports to markets in advanced countries further increase through time making it economically
possible and sometimes politically necessary to start local production.

The product’s design and production process becomes increasingly stable.

Foreign direct investments (FDI) in production plants drive down unit cost because labour cost and
transportation cost decrease.

Offshore production facilities are meant to serve local markets that substitute exports from the
organisation’s home market.

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3) Standardised product

During this phase, the principal markets become saturated.

The innovator's original comparative advantage based on functional benefits has eroded.

 The firm begins to focus on the reduction of process cost rather than the addition of new
product features. As a result, the product and its production process become increasingly
standardised and enables further economies of scale and increases the mobility of
manufacturing operations. Labour can start to be replaced by capital.
 To counter price competition and trade barriers or simply to meet local demand, production
facilities will relocate to countries with lower incomes.
 The demand of the original product in the domestic country dwindles from the arrival of new
technologies, and other established markets will have become increasingly price- sensitive.
Whatever market is left becomes shared between competitors who are predominately
foreign.

Stages of Products (international product life cycle)

Introduction

In this stage, a new product is launched in a target market where the intended consumers are not
well aware of its presence. Customers who acknowledge the presence of the product may be willing
to pay a higher price in the greed to acquire high quality goods or services. With this consistent
change in manufacturing methods, production completely relies on skilled laborers.

Competition at international level is absent during the introduction stage of the international product
lifecycle. Competition comes into picture during the growth stage, when developed markets start
copying the product and sell it in the domestic market. These competitors may also transform from
being importers to exporters to the same country that once introduced the product.

Growth

An effectively marketed product meets the requirements in its target market. The exporter of the
product conducts market surveys, analyze and identify the market size and composition. In this stage,
the competition is still low. Sales volume grows rapidly in the growth stage. This stage of the product
lifecycle is marked by fluctuating increase in prices, high profits and promotion of the product on a
huge scale.

Maturity

In this level of the product lifecycle, the level of product demand and sales volumes increase slowly.
Duplicate products are reported in foreign markets marking a decline in export sales. In order to
maintain market share and accompany sales, the original exporter reduces prices. There is a
decrease in profit margins, but the business remains tempting as sales volumes soar high.

Saturation

In this level, the sales of the product reach the peak and there is no further possibility for further
increase. This stage is characterized by Saturation of sales. (at the early part of this stage sales
remain stable then it starts falling). The sales continue until substitutes enter into the market.
Marketer must try to develop new and alternative uses of product.

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Decline

This is the final stage of the product lifecycle. In this stage sales volumes decrease and many such
products are removed or their usage is discontinued. The economies of other countries that have
developed similar and better products than the original one export their products to the original
exporter's home market. This has a negative impact on the sales and price structure of the original
product. The original exporter can play a safe game by selling the remaining products at discontinued
items prices.

As a product evolves through its international product life cycle, comparative advantage in its
production shifts from country to country.

Example

Televisions - The United States invented the television in the 1940s. U.S. sales grew rapidly for many
years. Once TVs became a standardized product, television production shifted to China, Mexico, and
other countries that offer lower-cost production.

Internalization Theory(market imperfection theory)

The origins of internalization theory began in 1937 with an influential article by Ronald Coase.

The Internalization Theory explains the process by which firms acquire and retain one or more value-
chain activities inside the firm, thus minimizing the disadvantages of dealing with external partners,
reducing the risk of partners becoming competitors and allowing for greater control over foreign
operations and their proprietary knowledge.

 FDI should be compared in terms of a cost/benefit analysis (including risk/control issues) to

other entry modes - exporting, licensing, etc.
 By internalizing foreign-based value-chain activities, it is the firm, rather than its products,
that crosses international borders. The firm replaces business activities performed by
independent suppliers in external markets with business activities it performs itself.

E.g. Intel Internalizes production of its leading-edge computer chips, to prevent potential
competitors from gaining access to its latest technology

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Porter's diamond of national advantage

The Diamond Model of Michael Porter for the competitive advantage of Nations offers a model that
can help understand the comparative position of a nation in global competition.

Michael Porter’s Diamond Model (also known sas the Theory of National Competitive Advantage of
Industries) is a diamond-shaped framework that focuses on explaining why certain industries within
a particular nation are competitive internationally, whereas others might not.

 Firm Strategy, Structure and Rivalry

The national context in which companies operate largely determines how companies are created,
organized and managed: it affects their strategy and how they structure
themselves. Moreover, domestic rivalry is instrumental to international competitiveness, since it
forces companies to develop unique and sustainable strengths and capabilities.

A good example for this is the Japanese automobile industry with intense rivalry between players
such as Nissan, Honda, Toyota, Suzuki, Mitsubishi and Subaru. Because of their own fierce domestic
competition, they have become able to more easily compete in foreign markets as well.

 Factor Conditions

Factor conditions in a certain country refer to the natural, capital and human resources available.
Some countries are for example very rich in natural resources such as oil for example (Saudi Arabia).
This explains why Saudi Arabia is one of the largest exporters of oil worldwide. With human
resources, we mean created factor conditions such as a skilled labor force, good infrastructure and a
scientific knowledge base.

 Demand Conditions

The home demand largely affects how favorable industries within a certain nation are. A larger
market means more challenges, but also creates opportunities to grow and become better as a
company. The presence of sophisticated demand conditions from local customers also pushes
companies to grow, innovate and improve quality.

 Related and Supporting Industries

The presence of related and supporting industries provides the foundation on which the
focal industry can excel. As we have seen with the Value Net, companies are often
dependent on alliances and partnerships with other companies in order to create additional
value for customers and become more competitive. Especially suppliers are crucial to
enhancing innovation through more efficient and higher-quality inputs, timely feedback and
short lines of communication.

 Government
The role of the government in Porter’s Diamond Model is described as both ‘a catalyst
and challenger‘. Porter doesn’t believe in a free market where the government leaves
everything in the economy up to ‘the invisible hand’. However, Porter doesn’t see the
government as an essential helper and supporter of industries either. Governments cannot
create competitive industries; only companies can do that. Rather, governments should
encourage and push companies to raise their aspirations and move to even higher levels of
competitiveness.

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 Chance
Even though Porter originally didn’t write anything about chance or luck in his papers, the
role of chance is often included in the Diamond Model as the likelihood that external events
such as war and natural disasters can negatively affect or benefit a country or industry.
However, it also includes random events such as where and when fundamental scientific
breakthroughs occur.

1) The Diamond Model could therefore be used when analyzing foreign markets for potential entry
or when making Foreign Direct Investment
2) The Diamond Model could therefore be used when analyzing foreign markets for potential entry
or when making Foreign Direct Investment decisions. It is advised to also conduct a macro-
environment analysis and an industry analysis by using PESTEL AnalysisT
3) he Diamond Model could therefore be used when analyzing foreign markets for potential entry
or when making Foreign Direct Investment decisions.
4) It is advised to also conduct a macro-environment analysis and an industry analysis by
using PESTEL Analysis (Political, Economic, Social, Technological, Environmental and Legal
Analysis) and Porter’s Five Forces respectively.

FREE TRADE

 Free trade occurs when there are no official barriers put in place by governments to limit the
line and amount of goods and services across of countries. Free trade means that countries
can import and export goods without any tariff barriers or other non-tariff barriers to trade.
Essentially, free trade enables lower prices for consumers, increased exports, benefits from
economies of scale and a greater choice of goods.
 Free trade occurs when there are agreements between two or more countries to reduce
barriers to the import and export markets. These treaties usually involve a mutual reduction
in duties, taxes, and tariffs so that the economies of every country can benefit from the
various trading opportunities.

United States-Mexico-Canada Agreement (USMCA)

Under the leadership of President Donald J. Trump, the United States has reached an agreement with
Mexico and Canada in the renegotiation of the North American Free Trade Agreement (NAFTA). The
new United States-Mexico-Canada Agreement (USMCA) is a mutually beneficial win for North
American workers, farmers, ranchers, and businesses. When finalized and implemented, the
agreement will create more balanced, reciprocal trade that supports high-paying jobs for Americans
and grows the North American economy.

Agreement highlights include:

 Creating a more level playing field for American workers, including improved rules of origin
for automobiles, trucks, other products, and disciplines on currency manipulation.
 Benefiting American farmers, ranchers, and agribusinesses by modernizing and
strengthening food and agriculture trade in North America.
 Supporting a 21st Century economy through new protections for U.S. intellectual property,
and ensuring opportunities for trade in U.S. services.

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 New chapters covering Digital Trade, Anticorruption, and Good Regulatory Practices, as well
as a chapter devoted to ensuring that Small and Medium Sized Enterprises benefit from the
Agreement.

Features of Free Trade

Trade of goods without taxes (including tariffs) or other trade barriers (e.g., quotas on imports or
subsidies for producers)

1) Trade in services without taxes or other trade barriers

2) The absence of "trade-distorting" policies (such as taxes, subsidies, regulations, or laws) that give
some firms, households, or factors of production an advantage over others
3) Unregulated access to markets
4) Unregulated access to market information
5) Inability of firms to distort markets through government-imposed monopoly or oligopoly power.

Advantages of free trade

(a)International Specialization:

Free trade causes international specialisation as it enables the different countries to produce
those goods in which they have comparative advantage. International trade enables countries to
obtain the advantages of specialisation. If there were no international trade, many countries would
have to go without some products. Thus, Iceland would have no coal, Nepal no oil, Spain no gold and
Britain no tea. Second, specialisation leads to an increase in total production.

(b) Increase in World Production and World Consumption:

International trade permits an industry to take full advantages of the economies of scale (large-
scale production). If certain goods were produced only for the home market, it would not be possible
to achieve the full advantage of large-scale production. So, free trade increases the world production
and the world consumption of internationally traded goods as every trading country produces only
the selected goods at lower costs.

c) Safeguard against the Advent of Monopolies:

Thirdly, if there were no international competition, the home market would be so narrow that it
would be comparatively easy for the combinations of firms in many industries, e.g., motor cars,
paper and electrical goods, to exercise some control over it. Free trade is often an efficient way of
breaking up domestic monopolies.

(d) Links with Other Countries:

International trade and commercial relations often lead to an interchange of knowledge, ideas and
culture between nations. This often produces a better understanding among those countries and
leads to amity and theory reduces the possibility of commercial rivalry and war.

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(e) Higher Earnings of the Factors of Production:

Furthermore, free trade increases the earnings of all the factors as they are engaged in the
production of those goods in which the country has comparative advantage. It would increase the
productivity of each factor.

(f) Benefits to Consumers:

On account of free trade the consumers of the different countries get the best quality foreign
goods, often of a wider range of choice, at low prices.

g) Higher Efficiency and Optimum Utilization of Resources:

Free trade stimulates home producers, who face to foreign competition, to put forth their best
effort and thus increase managerial efficiency. Again, as under free trade each country produces
those goods in which it has the best advantages, the resources (both human and material) of each
country are utilised in the best possible manner.

(h) Evil Effects of Protection:

Free trade is also advocated because it can remove the evil effects of protection, such as high
prices, growth of monopolies, etc. It is also immune from such abuses as ‘corruption and bribery’ and
the creation of vested interests which often arise under a protectionist system.

Disadvantages of free trade

(a) Excessive Dependence:

As a country depends too much on foreign countries, an outbreak of war may upset its economy.
During the 1991 Gulf War America refused to sell its products to its enemies (i.e., Gulf countries).

(b) Obstacles to the Development of Home Industries:

If foreign goods are imported freely, the domestic industries of the developing countries would
not be able to develop rapidly due to the superior strength of foreign industries.

(c) Empire-Builder:

Under free trade, the foreign traders particularly the dominant ones may try to become empire-
builders in future. In the past free trade gave rise to colonialism and imperialism.

(d) Import of Expensive Harmful Goods:

A country may also import expensive and harmful foreign goods.

(e) Rivalry and Friction:

Finally, free trade sometimes creates rivalry and frictions among the trading nations. In other
words, commercial rivalries resulting from trade often lead to war.

At present times, no country in the world follows the policy of free trade. Every country imposes some
restrictions on the import and the export of goods in the broader interest of the country.

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TARIFF AND NON-TARIFF BARRIERS

A tariff Barrier is imposed by the government of the country importing goods.

It has two-fold objectives, one to increase the government revenue and second, to raise the cost of
foreign goods so that domestic companies can compete with the foreign goods.

When two countries trade in commodities, the country where the goods are entered charges a tax to
generate money for the government while also raising the price of foreign goods so that domestic
firms can compete with foreign things. The tariff barriers frequently aid in lowering reliance on
imported goods and increasing self-sufficiency.

The major reasons for implementing a tariff barrier are:

 Defending domestic producers

 Increasing prices to limit imports of products and services
 In retribution for partner countries’ unjust trade practices.

Advantages of Tariff Barriers

 There are various tariff barriers advantages, and some of those advantages are listed below:
 The tariff barrier acts as a source of government revenue.
 They encourage domestic production growth.
 Tariff barriers are a way to prevent unfair competition in international trade.
 Tariff barriers may also be a starting point for international negotiations and agreements.

Types of tariffs

Tariffs may be either ad valorem or specific.

Ad Valorem Tariffs: as percentages on values of goods imported.

Specific Tariffs: relates to some specific attributes of the goods – weight, quantity, value and the like.

Example: A specific tariff is one imposed on one unit of a good (e.g., $1,000 tariff on each imported
car). An Ad Valorem tariff is a tariff levied as a certain percentage of a good’s value (e.g., 10% of the
value of an imported car).

Compound Tariff: is calculated partly as a percentage on value and partly as a rate per unit or weight.
A compound tariff depends on the imported product's unit and value.

For example, if the tariff imposed on imported apples is Rs. 5 per unit, a compound tariff will include
this and an additional percentage on the value of the goods.

Export Tariff Barriers Taxes are imposed on goods when they leave the country.

Import Tariff Barriers Taxes are imposed on goods imported.

Transit Tariff Barriers Taxes are imposed on goods as they pass through one country bound for
another.

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A non-tariff barrier restricts the import or export of products by means other than tariffs.

In simpler terms, non tariff barriers are any measures that limit imports or exports into a country
that are not customs tariffs. Some of the most common and popular non tariff barriers are licenses,
quotas, import deposits, embargoes, foreign exchange restrictions, etc.

Non tariff barriers could include:

1) Regulations: Any rules governing how a product is created, handled, or advertised.

2) Rules of origin: Rules requiring verification of where things were manufactured.
3) Quotas: Regulations that limit the quantity of a certain product that can be sold in a market.

Advantages of Non-Tariff Barriers

 Non tariff barriers protect new or strategic industrial developments.

 Non tariff policies are more effective in limiting import volumes.
 Due to non tariff barriers, there is a decline in the import of goods. The decline in imports
diverts demand for domestic products and thus creates jobs.

Non Tariff Barriers

 Quotas
 Subsidies
 Others

Product and Testing Standards

 Embargoes
 Local Content Requirements
 Administrative Delays

Subsidies

 A subsidy is a government payment to a domestic producer

 For e.g. Cash Grants, low-interest loans, tax breaks, and Government equity participation in
local firms.
 Subsidies help to the domestic producer in 2 ways:
 To compete against low-cost foreign imports
 To gain access to export markets

Other Barriers

Embargo

 The embargo is a government order imposing a trade barrier

 A complete ban on import and export in one or more products with a particular country

Example: India by UK nuclear exports restriction

This is the most restrictive non-tariff trade barrier

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Purpose

 To accomplish political goals

 To avoid hurting religious feelings
 Example: import of beef into India is prohibited because Hindus shun beef

Local Content Requirements

The legal stipulation that a specified amount of a good or service be supplied by producers in the
domestic market

The Government of the country may state that local labour, components or other inputs should be
used (Partially or full) in the production of goods.

Purpose

 To help domestic supplies of components and local labour

 Administrative Delays
 Regulatory controls or bureaucratic rules designed to impair the flow of imports into a
country

E.g. requiring international air carriers to land at inconvenient airports, requiring product inspection
that damages the product itself, purposely understaffing customs offices to cause unusual delays and
requiring special licences that take a long time to obtain

Environment regulations, health and safety inspections and regulations quarantining, charging taxes
and fees for public services that affect the ability of international businesses to compete in host
countries

FORMS OF PROTECTION

Protectionism is the practice of following protectionist trade policies. A protectionist trade policy
allows the government of a country to promote domestic producers, and thereby boost the domestic
production of goods and services by imposing tariffs or otherwise limiting foreign goods and services
in the marketplace.

Types of Protectionism

Tariffs

A tariff is a form of tax imposed on imported goods or services. Tariffs are a common element in
international trade. The primary reasons for imposing tariffs include the reduction in the
importation of goods and services by increasing their prices and the protection of domestic
producers.

Forms

Tariffs usually take one of two forms: specific or ad valorem

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A specific tariff is one imposed on one unit of a good (e.g., $1,000 tariff on each imported car). An ad
valorem tariff is a tariff levied as a certain percentage of a good’s value (e.g., 10% of the value of an
imported car).

Why are tariffs imposed?

#1 To protect domestic producers

Sometimes, governments want to protect domestic producers and industries that may experience
problems from cheap imported goods. In addition, supporting the domestic producers prevents a
potential increase in unemployment.

#2 To protect domestic consumers

Some cheap imported goods may be dangerous to consumers. For example, the goods may contain
elements that may harm consumers. By making the goods more expensive, the government
discourages their excessive consumption.

#3 To preserve national security

The government may want to protect industries with a strategic significance to national security from
overdependence on imports.

#4 To protect infant industries

Tariffs may protect emerging and growing industries. They will attract more consumers to domestic
products, and the growth of companies in the emerging industries will be stimulated.

Quotas

Import quotas are government-imposed limits on the quantity of a certain good that can be
imported into a country. Generally speaking, such quotas are put in place to protect domestic
industries and vulnerable producers. Quotas prevent a country’s domestic market

Import quotas are government-imposed limits on the quantity of a certain good that can be
imported into a country. Generally speaking, such quotas are put in place to protect domestic
industries and vulnerable producers. Quotas prevent a country’s domestic market from becoming
flooded with foreign goods, which are often cheaper due to lower production costs overseas. Certain
foreign manufacturers may purposely try to drive domestic producers out of business by selling large
quantities of a product at below cost, thus capturing the entire domestic market and crippling local
vendors.

Subsidies

Subsidies are negative taxes or tax credits that are given to domestic producers by the
government. They create a discrepancy between the price faced by consumers and the price faced by
producers.

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Voluntary export restraints

Voluntary export restraints (VERs) are voluntary quotas that nations place on their exports to
partner nations. When two nations share a trade agreement, the imposition of trade quotas will
likely be seen as a protectionist or hostile move, which may dampen trade relations. To avoid such
situations, trade partners can negotiate VERs in a promise not to flood the partner’s market with
cheap goods.

Export subsidies

Export subsidies allow exporters to supply the market with more product than the natural
equilibrium would have allowed. Foreign consumers will enjoy increased economic welfare as the
price of their purchases fall. Domestic employees might enjoy more wages and job security

Countries can also use a range of other protectionist measures to restrict imports. These might
include:

1. Administrative obstacles - countries can set administrative hurdles. For example, they may
require significant levels of paperwork and then deal with these processes slowly making it
difficult for importers to compete on a level playing field with other firms.
2. Health and safety standards - countries may set high health and safety standards for goods
that are imported, once again making life difficult for importers.
3. Environmental standards - countries can set high environmental standards that they know
only domestic firms are likely to be able to achieve, once again making life difficult for
importers.

Advantages of Protectionism

1. More growth opportunities: Protectionism provides local industries with growth

opportunities until they can compete against more experienced firms in the international
market
2. Lower imports: Protectionist policies help reduce import levels and allow the country to
increase its trade balance.
3. More jobs: Higher employment rates result when domestic firms boost their workforce
4. Higher GDP: Protectionist policies tend to boost the economy’s GDP due to a rise in domestic
production

Disadvantages of Protectionism

1. Stagnation of technological advancements: As domestic producers don’t need to worry

about foreign competition, they have no incentive to innovate or spend resources
on research and development (R&D) of new products.
2. Limited choices for consumers: Consumers have access to fewer goods in the market as a
result of limitations on foreign goods.
3. Increase in prices (due to lack of competition): Consumers will need to pay more without
seeing any significant improvement in the product.
4. Economic isolation: It often leads to political and cultural isolation, which, in turn, leads to
even more economic isolation.

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FREE TRADE AREA (FTA)

A free trade area refers to a specific region wherein a group of countries within the said region
signs an agreement that seals the economic cooperation among them. The FTA’s main aims are to
bring down barriers in trading, specifically tariffs and import quotas, and encourage the free trade
of goods and services among its member countries.

Free trade agreements

They are entered into by two or more countries who want to seal the economic cooperation among
themselves and agree on each other’s terms of trading. In the agreement, member countries
specifically identify the duties and tariffs that are to be imposed on member countries when it comes
to imports and exports.

The key terms of free trade agreements and free trade areas include:

Import goods are products that were manufactured from a foreign land and are brought into
another country and consumed by its domestic residents.

Export goods are the opposite of import goods – a manufacturer located in one country sells its
products to buyers in another country.

Advantages

1. Increased efficiency

The good thing about a free trade area is that it encourages competition, which consequently
increases a country’s efficiency, in order to be on par with its competitors. Products and services then
become of better quality without being too expensive.

2. Specialization of countries

When there is tough competition, countries will tend to produce more products or goods that they
are most efficient at. This is because they take less time to complete and their output is higher.

3. No monopoly

When there is free trade, and tariffs and quotas are eliminated, monopolies are also eliminated
because more players can come in and join the market.

4. Lowered prices

When there is competition, especially on a global level, prices will surely go down, allowing
consumers to enjoy a higher purchasing power.

5. Increased variety

With imports becoming easier and cheaper, consumers will gain access to a variety of products that
are inexpensive.

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Disadvantages of free trade

1. Threat to intellectual property

When imports come in more easily, domestic producers can easily access them, allowing them to
copy the ideas and sell them as knock-offs. With many countries with little to no laws on intellectual
property, it would be easy to steal ideas.

2. Unhealthy working conditions

Outsourcing jobs in developing countries can become a trend with a free trade area. Because many
countries lack labor protection laws, workers may be forced to work in unhealthy and substandard
work environments.

3. Less tax revenue

Since member countries are no longer subject to import taxes, they need to think of ways to
compensate for the reduced tax revenue.

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UNIT -II MODES OF ENTERING GLOBAL BUSINESS

International business analysis- modes of entry- exporting (direct and indirect) licensing,
franchising, contract manufacturing, management contracts, turnkey projects, Joint ventures-
Mergers and Acquisitions- Foreign direct investment -Comparison of different modes of entry

FOREIGN MARKET-ENTRY STRATEGIES

The choice of entry strategy depends on:

 market characteristics (such as potential sales, strategic importance, cultural differences, and
country restrictions);
 company capabilities and characteristics, including the degree of near-market knowledge,
marketing involvement, and;
 commitment that management is prepared to make.

EXPORTING

Indirect Exporting

 Export merchants
 Export agents
 Export management companies (EMC)

Cooperative Exporting

 Piggyback Exporting

Direct Exporting

 Firms set up their own exporting departments

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Export agent

An export agent works in the country where the product is produced.

Export merchants

Amazon is a well-known e-commerce company that serves as an export merchant. Amazon is able to
source goods from manufacturers in various countries and then sell them under their own brand.

The Export Management Company (EMC) is a private firm that facilitates the export of goods and
services from domestic companies.

Piggyback marketing is an arrangement in which one manufacturer or service firm distributes a

second firm's product or service.

For example, a car company can promote another tire company. In such a situation, the products are
complementary because cars need wheels, but they are not competitive in any way.

Coke partnered with Marvel Studios for their promotion campaign for The Avengers series. The soda
giant created a mini-site and customized the packaging to match the theme of the movie. This
campaign was a hit, especially with younger consumers who connected to their favorite superheroes.

LICENSING

It is a relatively sophisticated arrangement where a firm transfers the rights to the use of a product or
service to another firm. It is a particularly useful strategy if the purchaser of the license has a
relatively large market share in the market you want to enter. Licenses can be for marketing or
production. licensing).

Licensor and the licensee

Benefits:

 Appealing to small companies that lack resources

 Faster access to the market
 Rapid penetration of the global markets

Caveats:

 Other entry mode choices may be affected

 Licensee may not be committed
 Lack of enthusiasm on the part of a licensee
 Biggest danger is the risk of opportunism
 Licensee may become a future competitor

Example: Walt Disney granting McDonalds a license for McDonalds to co-brand McDonalds Happy
Meals with a Disney trademarked character. The license of a technology where the licensee is
granted the right to use the licensor's software, or other intellectual property + asset.

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FRANCHISING

It is a typical North American process for rapid market expansion but it is gaining traction in other
parts of the world. Franchising works well for firms that have a repeatable business model (eg. food
outlets) that can be easily transferred into other markets.

Two caveats are required when considering using the franchise model. The first is that your business
model should either be very unique or have strong brand recognition that can be utilized
internationally and secondly you may be creating your future competition in your franchisee.

E.g McDonald's,Dominos,KFC,Pizza Hut,Subway,Dunkin Donuts.

Benefits:

 Overseas expansion with a minimum investment

 Franchisees’ profits tied to their efforts
 Availability of local franchisees’ knowledge

Caveats:

 Revenues may not be adequate

 Availability of a master franchisee
 Limited franchising opportunities overseas
 Lack of control over the franchisees’ operations
 Problem in performance standards
 Cultural problems
 Physical proximity

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CONTRACT MANUFACTURING

Contract manufacturing is when one company enters into an agreement with another to produce
components or products over a specific time frame. This is outsourcing on a manufacturing level, and
like outsourcing employees, it lets companies compete in areas that were previously unreachable.

Benefits:

 Labor cost advantages

 Savings via taxation, lower energy costs, raw materials, and overheads
 Lower political and economic risk
 Quicker access to markets

Caveats:

 Contract manufacturer may become a future competitor

 Lower productivity standards
 Backlash from the company’s home-market employees regarding HR and labor issues
 Issues of quality and production standards

JOINT VENTURE (JV)

 A joint venture (JV) is a business arrangement in which two or more parties agree to pool
their resources for the purpose of accomplishing a specific task. This task can be a new
project or any other business activity.
 Each of the participants in a JV is responsible for profits, losses, and costs associated with it.

The Company, formerly known as Maruti Udyog Limited, was incorporated as a joint venture
between the Government of India and Suzuki Motor Corporation, Japan in February, 1981. Presently,
Suzuki Motor Corporation owns equity of 56.2%.

Tata Starbucks

Tata Starbucks Private Limited, formerly known as Tata Starbucks Ltd., is a 50:50 joint venture
company, owned by Tata Consumer Products and Starbucks Corporation, that owns and manages
Starbucks outlets in India. The outlets are branded Starbucks "A Tata Alliance". India.

Bharti-AXA General Insurance Co Ltd

Bharti AXA General Insurance Co Ltd is a JV between India’s leading business group Bharti Enterprises
and an insurance major from France, AXA.

Benefits:

 Higher rate of return

 Creation of synergy
 Sharing of resources
 Access to distribution network
 Contact with local suppliers and government officials

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Caveats:

 Lack of control
 Lack of trust
 Conflicts arising over matters such as strategies, resource allocation, transfer pricing,
ownership of critical assets like technologies and brand names

MANAGEMENT CONTRACTS

A management contract is an arrangement under which operational control of an enterprise is

vested by contract in a separate enterprise that performs the necessary managerial functions in
return for a fee. Management contracts involve not just selling a method of doing things but involve
actually doing them.

 ABC Consulting agrees to provide management services to XYZ Corporation for the period of
January 1, 2022, to December 31, 2022. ABC Consulting will be responsible for managing the
sales department of XYZ Corporation, including its employees, processes, and systems. The
scope of the contract includes developing and implementing a comprehensive sales strategy
that meets XYZ Corporation’s goals and objectives.
 ABC Consulting will conduct regular performance assessments, reporting results to XYZ
Corporation, and providing recommendations to improve departmental efficiency and
effectiveness. Under this contract, ABC Consulting will also be providing training to
XYZ Corporation’s sales team to enhance their sales skills and implement best practices.
The contract fee is $50,000, payable in five installments at the end of each quarter.

MERGER & ACQUISITION

Strategy is the process undertaken in which one corporate buys, sells, or combine with the other
corporate to achieve certain specific goals of the market or to attain rapid growth in the competitive
market, taking into consideration different factors like market value of corporate’s stock, the financial
health of both the companies, threats of both the companies, new opportunities that can arise along
with market conditions. The bigger companies in the market hunt for smaller companies for the
acquisition process. Companies have different policies for Merger & Acquisition like expanding an
existing business, research, development, etc. All these policies should be kept in mind while
entering the M&A Strategy by both companies. Failure to implement proper planning, study, and lack
of strategies, also fails the merger & acquisition strategy. The resulting company formed cannot
survive in the long run.

Example; The most common and famous example of merger & acquisition is Google and Android.
Google is the master company in the IT industry and search engine, whereas Android was a start-up
company struggling to exist in the mobile phone market. Android was also not much known in the
telecom or IT industry. Hence, Android was taken over by Google for $50 million. At that time,
Microsoft led the market due to its Apple iPhone and Windows mobile products. After the
acquisition of Android by Google, 54.5 Percent of U.S Smartphone Subscribers became users of
Google Android devices.

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TYPES OF M&A

Horizontal M&A

It generally happens when the target company and target-seeking company both occur in the same
industry and have the same or equivalent product or product lines or offer similar services to the
final consumer.

An example of a horizontal merger is the merger of Facebook and Instagram that took place in 2012.
Both of them belong to the same industry and similar types of business.

Vertical Merger

It is pretty much like horizontal mergers with only a small difference related to the production stage.
This kind of merger and acquisition is done between companies operating in the same value
chain producing similar goods and services but vary in the stage of production.

An example of a vertical merger is the merger of Paypal and eBay in 2002 in which eBay got the
different types of synergies in mergers and acquisitions in the form of an online payment facility and
Paypal got a platform to expand further.

Concentric M&A

Concentric mergers and acquisitions occur when two companies operate in the same industry and
have similar customer bases but offer different types of products and services. The product can
complement one, but in no manner will it be identical like a company producing laptops merges with
a company producing laptop bags. The laptop bag is an essential requirement of every laptop, but we
see the products differently. Thus when this kind of merger or acquisition occurs, it is called a
concentric merger.

An example of a concentric merger is the merger of Heinz and Kraft, which took place in 2015, and is
considered to be the largest merger of this kind in history. Another example is Coke & Vitamin
Water .

Conglomerate M&A

This type of merger and acquisition occurs when both the target company and the target-seeking
company are different in terms of industry, product offering, and production stage like a merger
between a laptop-producing company and an electric vehicle-producing company. Thus, this kind of
merger and acquisition occurs to completely explore new business areas.

Some famous conglomerate mergers of recent times include Amazon and Whole Foods, eBay and
PayPal, and Disney and Pixar.

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TURNKEY PROJECT

In this method of managing global projects. A business in need of a service or manufacturing facility
employs a third-party operator to construct and design rather than managing everything itself.
Everything from production to supply chain services must be provided by the third-party contractor.

Turnkey projects are particular to companies that provide services such as environmental consulting,
architecture, construction and engineering. A turnkey project is where the facility is built from the
ground up and turned over to the client ready to go – turn the key and the plant is operational. This
is a very good way to enter foreign markets as the client is normally a government and often the
project is being financed by an international financial agency such as the World Bank so the risk of
not being paid is eliminated.

Examples of Turnkey Projects include Engineering Projects, large construction projects i.e
Construction of Airports, Ports, skyscrapers, Bridges, In IT (turn-key implementation of information
systems),

Large-scale infrastructure projects that are support by the government are often develop on a
turnkey basis. For instance, the forthcoming Jewar Airport project is a turnkey project. Zurich Airport
International, a Swiss corporation, is creating it. The airport will be turn over to the local government
for operation after it has been fully construct. A turnkey property in the real estate industry is a fully
furnish apartment or home that is available for purchase and rental right away.

FOREIGN DIRECT INVESTMENT

FDI, is one of the most crucial channels of direct investments between countries. Any investment
from an individual or firm that is located in a foreign country into a country is called Foreign Direct
Investment.

Byju's, an online Ed-Tech firm, raised USD 500 million in a Silver Lake-led funding round in September
2020. Silver Lake is a noted US equity and VC firm.

Google picked up 7.73% of Reliance's 'Jio Platforms' for USD 4.5 billion, making it one of the biggest
deals in recent Indian corporate fundraising sessions.

General Atlantic, one of New York's most respected equity firms, invested more than USD 900 million
for a stake in Reliance's 'Jio Platforms' in June 2020.

The determinants of FDI in host countries are:

 Policy framework
 Rules with respect to entry and operations/functioning (mergers/acquisitions and
competition)
 Political, economic and social stability
 Treatment standards of foreign affiliates
 International agreements
 Trade policy (tariff and non-tariff barriers)
 Privatization policy

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TYPES OF FDI

Horizontal: When a business expands and enters a foreign country via the FDI route without
changing its core activities.

An example would be McDonald's investing in an Asian country to increase the number of stores in
the region.

Vertical: When a business enters a foreign economy to strengthen a part of its supply chain without
changing its business in any way.

If McDonald's bought a large-scale meat processing plant in Canada or in a European country for its
meat supply chain in the target nation, it would amount to vertical FDI.

Conglomerate: This 3rd type is whenever a business invests in a foreign country and buys an entity
which manufactures totally different products.

The idea is to add more business niches and start new journeys in other countries.

Platform FDI: This refers to the expansion of a business to a foreign country, but everything
manufactured there is exported to a third country. Platform FDI is seen in free-trade zones of FDI-
hungry countries. Almost all luxury items marketed by famous fashion brands are manufactured in
countries like Bangladesh, Vietnam and Thailand. They are then sold in other countries, a clear case
of platform FDI at work.

FDI IN INDIA

 The investment climate in India has improved tremendously since 1991 when the
government opened up the economy and initiated the LPG strategies.
 The improvement in this regard is commonly attributed to the easing of FDI norms.
 Many sectors have opened up for foreign investment partially or wholly since the economic
liberalization of the country.
 Currently, India ranks in the list of the top 100 countries in ease of doing business.
 In 2019, India was among the top ten receivers of FDI, totalling $49 billion inflows, as per a
UN report. This is a 16% increase from 2018.
 In February 2020, the DPIIT(Department for Promotion of Industry and Internal Trade)
notifies policy to allow 100% FDI in insurance intermediaries.
 In April 2020, the DPIIT came out with a new rule, which stated that the entity of nay
company that shares a land border with India or where the beneficial owner of investment
into India is situated in or is a citizen of such a country can invest only under the Government
route. In other words, such entities can only invest following the approval of the Government
of India
 In early 2020, the government decided to sell a 100% stake in the national airline’s Air India.
 FDI received in the first 5 months of 2020-21 (USD 35.73 billion) is 13% higher as compared
to the first five months of 2019-20 (USD 31.60 billion).

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Automatic Route FDI

In the automatic route, the foreign entity does not require the prior approval of the government or
the RBI.

Examples:

 Medical devices: up to 100%

 Thermal power: up to 100%
 Services under Civil Aviation Services such as Maintenance & Repair Organizations
 Insurance: up to 49%
 Infrastructure company in the securities market: up to 49%
 Ports and shipping
 Railway infrastructure
 Pension: up to 49%
 Power exchanges: up to 49%
 Petroleum Refining (By PSUs): up to 49%

Government Route FDI

Under the government route, the foreign entity should compulsorily take the approval of the
government. It should file an application through the Foreign Investment Facilitation Portal, which
facilitates single-window clearance. This application is then forwarded to the respective ministry or
department, which then approves or rejects the application.

Examples:

 Broadcasting Content Services: 49%

 Banking & Public sector: 20%
 Food Products Retail Trading: 100%
 Core Investment Company: 100%
 Multi-Brand Retail Trading: 51%
 Mining & Minerals separations of titanium bearing minerals and ores: 100%
 Print Media (publications/printing of scientific and technical magazines/speciality
journals/periodicals and a facsimile edition of foreign newspapers): 100%
 Satellite (Establishment and operations): 100%
 Print Media (publishing of newspaper, periodicals and Indian editions of foreign magazines
dealing with news & current affairs): 26%

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Sectors where FDI is prohibited

 Agricultural or Plantation Activities (although there are many exceptions like horticulture,
fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
 Atomic Energy Generation
 Lotteries (online, private, government, etc.)
 Any Gambling or Betting businesses
 Cigars, Cigarettes, or any related tobacco industry
 Housing and Real Estate (except townships, commercial projects, etc.)

Benefits of FDI

1. FDI brings in many advantages to the country as follows:

2. Brings in financial resources for economic development.
3. Brings in new technologies, skills, knowledge, etc.
4. Generates more employment opportunities for the people.
5. Brings in a more competitive business environment in the country.
6. Improves the quality of products and services in sectors.

Disadvantages of FDI

1. It can affect domestic investment, and domestic companies adversely.

2. Small companies in a country may not be able to withstand the onslaught of MNCs in their
sector. There is the risk of many domestic firms shutting shop as a result of increased FDI.
3. FDI may also adversely affect the exchange rates of a country.

Important Government Authorities in India concerning FDI

 Foreign Investment Promotion Board

 Department for Promotion of Industry and Internal Trade (DPIIT)
 Reserve Bank of India (RBI)
 Directorate General of Foreign Trade
 Ministry of Corporate Affairs, Government of India
 SEBI
 Income Tax Department
 Several Ministries of the GOI such as Power, Information & Communication, Energy, etc

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STRAETGIC ALLIANCE
It is a collaboration between two companies in which each individual company is expected to profit
or benefit from the agreement. A partnership is a more formal type of agreement in which partners
merge to create a single, shared economic interest.

Features

 Strong alliance managers are the key

 Alliances between partners that are related in terms of products, technologies, and markets
 Have similar cultures, assets sizes and venturing experience
 Tend to start on a narrow basis and broaden over time
 A shared vision on goals and mutual benefits

Pros

1. May result in gaining customers, especially ones in unfamiliar markets

2. May generate additional revenue and increase profitability
3. May diversify a company's revenue stream
4. May reduce operational risk of a company due to the addition of unique assets
5. May positively influence the brand and perception of the company

Cons

1. May require more work in collaborating and communicating with larger teams
2. May result in one side getting a better deal than the other (even if this wasn't what was
planned)
3. May result in conflict should the alliance members disagree on longer-term strategy
4. May negatively influence the brand and perception of the company

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UNIT –III GLOBALIZATION

Meaning- Definition and Features, Globalization-Advantages and Disadvantages, Socio–Cultural,

Political &Legal and Economic Implications, Globalization and India, GATT and WTO

GLOBALIZATION

 It is the spread of products, technology, information, and jobs across national borders and
cultures. In economic terms, it describes an interdependence of nations around the globe
fostered through free trade.
 On one hand, globalization has created new jobs and economic growth through the cross-
border flow of goods, capital, and labor. On the other hand, this growth and job creation is
not distributed evenly across industries or countries.

Real World Examples of Globalization

A car manufacturer based in Japan can manufacture auto parts in several developing countries, ship
the parts to another country for assembly, then sell the finished cars to any nation.

China and India are among the foremost examples of nations that have benefited from globalization,
but there are many smaller players and newer entrants. Indonesia, Cambodia, and Vietnam are
among fast-growing global players in Asia.

 Globalization is a social, cultural, political, and legal phenomenon.

 Socially, it leads to greater interaction among various populations.
 Culturally, globalization represents the exchange of ideas, values, and artistic expression
among cultures.
 Globalization also represents a trend toward the development of single world culture.
 Politically, globalization has shifted attention to intergovernmental organizations like
the United Nations (UN) and the World Trade Organization (WTO).
 Legally, globalization has altered how international law is created and enforced.

TYPES OF GLOBALIZATION

ECONOMIC GLOBALIZATION

Economic globalization integrates several liberal, conservative and hybrid economies into one giant
interconnected marketplace. Constantly influencing each other, these markets are somewhat
interdependent than independent.

Economic globalization can be seen via how a bubble, a boom, or a recession in the USA influences
people’s jobs in Europe and Asia. It can also be seen in the performance of stock markets in one
country fluctuating based on financial news in another country.

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‍Benefits of economic globalization

1. Employees in developing countries have more opportunities

2. Increased per capita consumption
3. Better products at lower prices
4. Increased income
5. More options for unskilled workers

Cons of economic globalization

1. Job losses in developed markets: Economic globalization has led to the development of
manufacturing hubs worldwide. This has shifted manufacturing jobs from the first world to
developing nations.
2. More power to businesses to influence governments: Globalization has made companies
more powerful. Their increased capital can affect people, thus swaying public opinions.
3. Increases exploitation of workers: Although globalization has created jobs in developing
countries, it hasn’t happened without ill effects. Many sweatshops and mines employ
workers for highly disrespectful wages. Countries in Africa are victims of economic
globalization.
4. Encourage brash consumerism: Increased per capita consumption in developed countries
has pressured manufacturers. Globalization has led to higher income and a boom in
production. Accompanied by increased consumer spending has led to the growth of different
markets.,

SOCIAL GLOBALIZATION

Social globalization is the integration of societies of the world.

Before globalization, people were highly regionalistic. Several cultures existed, giving way to tribes,
clans, and petty kingdoms. The effects of a good or bad economy, technology, and pandemics were
limited to the societies these trends emerged from. However, in a globalized world, this is not the
case. The pandemic itself is a depraved but significant example of how interconnected our society is.
A contagion from one country has spread, mutated, and wreaked havoc to several societies of the
world.

Benefits of social globalization

 Increased exposure to more cultures and lifestyles

 Building diverse human resource pools
 Unionization of employees
 Starts a dialogue for various international problems

Cons of social globalization

1. Lack of localization: As societies and cultures merge, the distinction between cultures
becomes blurred.
2. Increased homogenization of cultures: As the world becomes one massive society, cultures
will become less distinct. The increased influence of Hollywood movies is already
westernizing cultures in modernization.

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3. More prone to contagious diseases: Bitter experiences of the pandemic shall leave a lasting
impression on the generation. However, it will hurt us badly if we throw caution to the wind
for future pandemics. Social globalization has already paved railroads for pandemics to
proliferate incredibly.

POLITICAL GLOBALIZATION

Political globalization refers to the ripple effects and continuity of political relationships between
countries. Setting up international organizations such as the UN, NATO, WTO, which debates and
regulate international politics and trade, is also an example of this type of globalization.

Globalization also paved the way for international laws and clauses that secure the rights and
interests of smaller nations.

‍Benefits of political globalization

 Creation of the single society

 Formation of international organizations
 Healthy competition between nations for socio-economic growth
 A collective effort towards common problems
 Decentralization of the nation-state

Cons of Political Globalization

 Softening of national boundaries: Political globalization has made mobility easier. However,
this phenomenon has occurred to satiate business interests.
 Politics and business are getting intertwined: Most companies try to influence the political
parties in the country. These countries need not necessarily be home-grown businesses. This
allows foreign interests to sway the political wind according to their desire.

TECHNOLOGICAL GLOBALIZATION

The spread of technology has put globalization on auto-pilot. Technology influenced business,
marketing, talent acquisition, supply chain, data management. Technology has acted as both the
cause and an effect of globalization. Technologies such as the internet, cloud computing, high-speed
mobility have accelerated globalization. However, this type of globalization can be seen as a side-
effect. Thanks to increased economic and political globalization, knowledge transfer happened faster.
The cost of acquiring resources to research new technologies decreased due to economic
globalization.

‍Benefits of technological globalization

 Growth of tech-based start-ups and small business

 International and local mobile banking
 Automation
 Increased income
 More opportunities for unskilled workers

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Cons of Technological Globalization

1. Increased inequality and digital divide: Although globalization has put a communication
device in many people’s hands, technological disparities and the digital divide are still
rampant.
2. Job loss for unskilled workers: Skilled workers and white-collar jobs are mostly safe from
globalization. However, manual labour often faces the threat of globalization.
3. Increase in fake news: Social media has led to rampant propaganda and fake news. Thai
phenomenon affects not only local audiences but also global audiences.
4. Increased consumer spending on impulsive purchases: E-wallets and faster shipping prompt
people to make impulsive purchases.

Environmental Globalization

Environmental globalization is simply the consequence of all the after-effects of other types of
globalization. Undoubtedly, the tide of development emanates from globalization pollutes the
environment. Globalization increases our per capita consumption. This puts a lot of pressure on
natural resources, which badly affects the ecological cycle.

Although industrialization is part of globalization, harmful chemicals have been thrown into the
environment, affecting the climate dangerously.

1. Economic Globalization:

Economic globalization refers to the integration of national economies into the global economy
through trade, investment, and capital flows. It involves the exchange of goods, services, and
financial resources across international borders. Economic globalization is driven by trade
liberalization, multinational corporations, and advancements in technology, enabling businesses to
operate globally.

2. Cultural Globalization:

Cultural globalization involves the exchange and blending of cultural elements, including values,
beliefs, languages, traditions, and artistic expressions, among societies worldwide. It is facilitated by
communication technologies, international travel, and the global dissemination of media and
entertainment. Cultural globalization leads to cultural diversity, hybridization, and the spread of
global cultural phenomena.

3. Political Globalization:

Political globalization refers to the interconnectivity of political systems, institutions, and processes
across the globe. It involves international cooperation, diplomacy, and the formation of transnational
political entities such as international organizations and treaties. Political globalization addresses
global challenges like climate change, terrorism, and human rights, requiring collaborative efforts
among nations.

4. Technological Globalization:

Technological globalization encompasses the global spread and exchange of technologies,

information, and communication tools. It includes the proliferation of the internet, mobile devices,
social media, and digital platforms that enable real-time communication and collaboration across

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borders. Technological globalization facilitates knowledge sharing, innovation, and the emergence of
a global digital economy.

5. Social Globalization:

Social globalization pertains to the interconnectedness of societies and individuals worldwide. It

involves the movement of people, ideas, and social norms across borders. Social globalization leads
to cultural diversity, cross-cultural interactions, and the formation of global communities. It also
addresses social issues such as human rights, social justice, and global health.

6. Environmental Globalization:

Environmental globalization refers to the global interconnectedness of environmental issues and

challenges. It involves the transnational movement of pollutants, natural resources, and
environmental policies. Environmental globalization addresses global environmental problems like
climate change, biodiversity loss, deforestation, and pollution. It emphasizes the need for
international cooperation to achieve sustainable development goals.

GLOBALIZATION IN THE INDIAN ECONOMY

 Indian society is changing drastically after urbanisation and globalisation. The economic
policies have had a direct influence in forming the basic framework of the economy.
 Economic policies established and administered by the government also performed an
essential role in planning levels of savings, employment, income, and investments in the
society.
 Cross country culture is one of the critical impacts of globalisation on Indian society. It has
significantly changed several aspects of the country, including cultural, social, political, and
economical.
 However, economic unification is the main factor that contributes maximum to a country’s
economy into an international economy.

Advantages of Globalisation in India

1. Increase in employment: With the opportunity of special economic zones (SEZ), there is an
increase in the number of new jobs available. Including the export processing zones (EPZ)
centre in India is very useful in employing thousands of people. Another additional factor in
India is cheap labour.
2. Increase in compensation: After globalisation, the level of compensation has increased as
compared to the domestic companies due to the skill and knowledge a foreign company
offers. This opportunity also emerged as an alteration of the management structure.
3. High standard of living: With the outbreak of globalisation, the Indian economy and the
standard of living of an individual has increased. This change is notified with the purchasing
behaviour of a person, especially with those who are associated with foreign companies.

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Benefits of Globalization

1. Access to New Cultures

Globalization makes it easier than ever to access foreign culture, including food, movies, music, and
art. This free flow of people, goods, art, and information is the reason you can have Thai food
delivered to your apartment as you listen to your favorite UK-based artist or stream a Bollywood
movie.

1. The Spread of Technology and Innovation

Many countries around the world remain constantly connected, so knowledge and
technological advances travel quickly. Because knowledge also transfers so fast, this
means that scientific advances made in Asia can be at work in the United States in a
matter of days.

2. Lower Costs for Products

Globalization allows companies to find lower-cost ways to produce their products. It also
increases global competition, which drives prices down and creates a larger variety of
choices for consumers. Lowered costs help people in both developing and already-
developed countries live better on less money.

3. Higher Standards of Living Across the Globe

Developing nations experience an improved standard of living. According to the World
Bank, extreme poverty decreased by 35% since 1990. Further, the target of the first
Millennium Development Goal was to cut the 1990 poverty rate in half by 2015. This was
achieved five years ahead of schedule, in 2010. Across the globe, nearly 1.1 billion
people have moved out of extreme poverty since that time.

4. Access to New Markets

Businesses gain a great deal from globalization, including new customers and diverse
revenue streams. Companies interested in these benefits look for flexible and innovative
ways to grow their business overseas..

5. Access to New Talent

In addition to new markets, globalization allows companies to find new, specialized
talent that is not available in their current market. For example, globalization gives
companies the opportunity to explore tech talent in booming markets such as Berlin or
Stockholm, rather than Silicon Valley. Again, International PEO allows companies to
compliantly employ workers overseas, without having to establish a legal entity, making
global hiring easier than ever.

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Drawbacks / Risks of Globalisation

1. Inequality: Globalisation has been linked to rising inequalities in income and wealth. Evidence for
this is the growing rural–urban divide in countries such as China, India and Brazil. This leads to
political and social tensions and financial instability that will constrain growth. Many of the world’s
poorest people do not have access to basic technologies and public goods. They are excluded from
the benefits.

2. Inflation: Strong demand for food and energy has caused a steep rise in commodity prices. Food
price inflation (known as agflation) has placed millions of the world’s poorest people at great risk.

3. Vulnerability to external economic shocks – national economies are more connected and
interdependent; this increases the risk of contagion i.e. an external event somewhere else in the
world coming back to affect you has risen / making a country more vulnerable to macro-economic
problems elsewhere

4. Threats to the Global Commons: Irreversible damage to ecosystems, land degradation,

deforestation, loss of bio-diversity and the fears of a permanent shortage of water afflict millions of
the world’s most vulnerable and so on.

5. Race to the bottom – nations desperate to attract inward investment may be tempted to lower
corporate taxes, allow lax health and safety laws and limit basic welfare safety nets with damaging
social consequences

6. Trade Imbalances: Global trade has grown but so too have trade imbalances. Some countries are
running big trade surpluses and these imbalances are creating tensions and pressures to introduce
protectionist policies such as new forms of import control. Many developing countries fall victim to
export dumping by producers in advanced nations (dumping is selling excess output at a price below
the unit cost of supply.)

7. Unemployment: Concern has been expressed by some that capital investment and jobs in
advanced economies will drain away to developing countries as firms switch their production to
countries with lower unit labour costs. This can lead to higher levels of structural unemployment.

8. Standardisation: Some critics of globalisation point to a loss of economic and cultural diversity as
giant firms and global multinational brands dominate domestic markets in many countries.

9. Dominant global brands – globalisation might stifle competition if global businesses with
dominant brands and superior technologies take charge of key markets.

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IMPACT OF GLOBALIZATION

Economic impact

• Improvement in standard of living

• Increased competition among nations

• Widening income gap between the rich and poor

Social impact

• Increased awareness of foreign cultures

• Loss of local culture

Environmental impact

• Environmental degradation

• Environmental management

CHALLENGES OF GLOBALIZATION

1.SHIFTING RISK PROFILE As the market has expanded from local to international, the risk profile has
also expanded. Risk level has increased, ranging from fluctuation in interest and exchange rates to
supply chain piracy Organizations needs to consider and accommodate global events and scenarios
while conducting risk assessments. Eg: Fake Chinese copies of Indian drugs in Africa, effects of global
terrorism and regional tensions.

2.REGULATORY OBSTACLES Regional laws and policies by national governments will have a
widespread effect Leads to uncertainty in rapid growth markets Companies have to adopt a global
platform for making project portfolio have to gain greater visibility to overcome regional barriers
Companies should have contingency plans, specific to regions and nations Eg: Recent proposal to ban
diesel vehicles in Delhi, US move to rise visa fees.

3.CULTURAL DIFFERENCES Workforces & customers will be separated by thousands of miles,

international time zones, cultural and religious differences. The central organization must be able to
refine portfolio management and create an infrastructure that maintains the diversity of
international teams while also empowering local delivery Eg: mcdonald’s avoiding beef & porl and
launching vegetarian burgers in India.

4. JOB INSECURITY & LACK OF SKILL Globalization allowed companies to assign jobs to population
away from their physical location, resulting in local population loosing their jobs. Eg: American
analysts loosing jobs to cheaper Indian counter parts In manufacturing sector, quite opposite can
happen. Foreign companies setting up a new plant will give more opportunity to local population.
However, the quest to offer positions to local (cheaper) employees often result in lower skilled
employees

5.SHORTAGE OF RESOURCES Globalization has led to increased use of global resources, leading to
imbalances Financially and technologically backward nations often lag behind, and are the victims of

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exploitations Small scale industries are over shadowed by corporate giants Gaps in infrastructure and
technologies will have a greater effect.

INTERNATIONAL MARKETING INTELLIGENCE

Market intelligence is defined as the information or data that is derived by an organization from the
market it operates in or wants to operate in, to help determine market segmentation, market
penetration, market opportunity, and existing market metrics.

For example, A company wants to understand who is the right target audience for a mobile phone
they are launching soon. A profile survey can help the company to shortlist its target audience based
on the type of mobile device they are launching.

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UNIT – IV INTERNATIONAL MARKETING INTELLIGENCE

Information required, Sources of information, international marketing information System,

International marketing Research.

INTERNATIONAL MARKETING INTELLIGENCE

International marketing intelligence is a dynamic process that involves researching, analyzing, and
adapting strategies to thrive in diverse international markets. It helps businesses make informed
decisions and increase their chances of success on a global scale.

SOURCES OF INFORMATION

1. Government Agencies:
Government agencies provide data on trade policies, regulations, and economic conditions.
Example: The U.S. Department of Commerce's Export.gov offers market research reports for
various countries.
2. Market Research Firms:
Specialized firms conduct market research and offer reports on specific industries or
markets.
Example: Nielsen provides comprehensive market data and consumer insights.
3. Trade Associations:
Industry-specific associations often compile valuable market information.
Example: The International Chamber of Commerce (ICC) provides resources for international
trade information.
4. Social Media and Online Communities:
Social media platforms and online forums can offer real-time insights into consumer
sentiments.
Example: Monitoring Twitter trends or participating in industry-specific LinkedIn groups.
5. Competitor Analysis Tools:
Software and tools that help track competitors' online activities.
Example: SEMrush can be used to analyze competitors' digital marketing strategies.
6. Social Media and Online Communities:
Social media platforms and online forums can offer real-time insights into consumer
sentiments.
Example: Monitoring Twitter trends or participating in industry-specific LinkedIn groups.
7. Competitor Analysis Tools:
Software and tools that help track competitors' online activities.
Example: SEMrush can be used to analyze competitors' digital marketing strategies.

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ACADEMIC JOURNALS AND RESEARCH PAPERS:

Scholarly sources can provide in-depth market analyses.

Example: Accessing research articles on international marketing trends through academic databases

1. Market Research:
Conduct thorough research on target markets.
Gather data on consumer preferences, buying habits, and cultural nuances.
Example: Before launching a new smartphone in India, a company may conduct market
research to understand the demand for specific features and price points.
2. Competitor Analysis:
Identify and analyze key competitors in international markets.
Assess their strengths, weaknesses, and market share.
Example: A global fast-food chain may analyze local competitors' menus and pricing
strategies in each country they operate in to remain competitive.
3. Cultural Understanding:
Understand cultural differences and their impact on marketing strategies.
Adapt marketing messages and product offerings accordingly.
Example: McDonald's offers different menu items in India to cater to the vegetarian
preferences of the local population.
4. Economic Analysis:
Monitor exchange rates, inflation, and economic stability in target markets.
Adjust pricing and financial strategies accordingly.
Example: A luxury fashion brand may set prices differently in countries with varying levels of
economic stability and purchasing power.
5. Legal and Regulatory Compliance:
Stay informed about international laws and regulations.
Ensure compliance with customs, trade, and import/export laws.
Example: An online retailer must understand and adhere to different tax laws and import
restrictions when selling products internationally.
6. Technology and Data Analytics:
Utilize technology and data analytics tools to gather and analyze market data.
Identify trends, patterns, and consumer behavior.
Example: E-commerce platforms use data analytics to recommend products based on a
user's browsing and purchasing history.
7. Risk Assessment:
Evaluate political, economic, and social risks in target markets.
Develop risk mitigation strategies.
Example: An energy company investing in overseas oil exploration assesses geopolitical
stability to minimize potential disruptions.
8. Market Entry Strategies:
Choose appropriate market entry modes (e.g., exporting, joint ventures, franchising).
Tailor strategies based on market intelligence.
Example: Starbucks entered the Chinese market through joint ventures with local companies,
adapting their stores and menus to local preferences.

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Market intelligence is closely associated with market research and can be explained in three simple
parts as follows:

1. Competitor Intelligence – It can be explained as the collection of data about your competitor
using ethical methods such as government databases and public records. For example,
Japanese automotive companies were able to capture the US markets and even dominate
them using competitor intelligence. Understanding the need for high quality, fuel-efficient
cars led them to strategize and penetrate the US market successfully
2. Product Intelligence – Product intelligence is gathering data related to competitor products
or similar products in the market. For example, A telecommunications company needs to
monitor the prices of competitive mobile phones in the same segment. A price drop in the
competitor product can mean the company is introducing a new model in the market.
Understanding such information can enable a company to strategically launch their models
at the right time and price.
3. Market understanding – Market understanding is knowing the market share of your
company, trends in the market, the size of the market and which is your target market.
Understanding the demand in the market, and customer wants can help a company
tremendously to increase their revenues and market share. For example, A comprehensive
market research can give valuable insights to a brand, for instance, the target market is age
20-40, upper-middle-class family and the trend in the market is for Crossfit training to get fit
and healthy.

INTERNATIONAL MARKETING INFORMATION SYSTEM (MIS)

An International Marketing Information System (MIS) is a structured and organized process that
collects, analyzes, and disseminates relevant data and information to support decision-making in
international marketing activities.

Components of International MIS

1. Data Collection: Gathering information from various sources, including market research,
competitors, customers, and government reports.
2. Data Analysis: Examining and processing collected data to extract meaningful insights and
trends.
3. Information Dissemination: Distributing the analyzed information to relevant stakeholders
within the organization.
4. Decision Support: Providing managers with the necessary data and analysis to make
informed decisions in the international market.

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INTERNATIONAL MARKETING RESEARCH

International Marketing research can be defined as the systematic study and evaluation of all factors
bearing on any business operation relative to marketing of goods and service

• International marketing research plays an important role to understand the consumer

behavior.
• It is an essential for developing strategy in readily changing global marketplace.

SCOPE OF INTERNATIONAL MARKETING RESEARCH

The scope of international marketing research covers a wide range of marketing and environmental
factors that can affect a product's success in a foreign market.

1) Socio-economic and political profile of the country

 Population-size, growth, composition

 Gross national product
 Per capita income
 Balance of payments
 Industrial structure
 Cultural attributes
 Climatic conditions
 Political system

2) Size and trend of the market

 Indigenous production, volume and growth Direction and composition of foreign trade
 Consumption patterns and trends
 Marketing Planning
 Market Segmentation pattern
 Demand trends
 Structure of competition
 Rules and regulations

3) Structure of Competition

• Direct and indirect competition

• Nature of competition
• Competitive shares of the market
• Standards and specifications of competitive products
 Competitive marketing strategies
 Business and commercial practices Trademarks and patents

4) Rules and Regulations

• Market entry regulations

• Tariff and non-tariff barriers
• Foreign exchange regulations
• Internal taxes

• Health and safety regulations • Regulations on marketing practices

• Trademarks and patents regulations and promotional methods.

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Common challenges Faced by International Market Research

1. Methodology – A common mistake among companies performing market research lies

within their ability or lack thereof to choose the correct data collection techniques. It is
critical to utilize the methods that will produce data you can base decisions off of, which will
be dependent on the personal needs of your company and the size of your market research
project.
2. Communication - Difficulties involving communication and interpretation are common in
international market research, due to the simple fact that foreign markets tend to speak
different languages. It is important to recruit individuals who are fluent in the foreign culture
so that your data collection and conversion efforts are not lost in translation.
3. Financing -Conducting effective international market research will likely not be a cheap
endeavor, and for this reason it is recommended that companies only take on a scope of
research that realistically fits their budget.
4. Scaling – Some companies attempt to replicate successful market research strategies used by
large multinational firms; however this approach does not translate well to small and
medium sized enterprises (SMEs).
5. Sampling – Whenever quantitative research is conducted, there is always an opportunity for
collection errors to occur. In international market research, it is especially important to make
sure you are evaluating the individuals in a market that are truly representative of the
population. Failure to do this accurately could result in a skewed perception of the market’s
demographics and consumer demand, which could consequently lead to poor decision
making.
6. Forecasting - Be realistic in your projection of how much market share you can acquire in a
foreign location. It is a common mistake to be overly optimistic when envisioning your
potential market share, which is simply the portion of the market that is hypothetically
accessible.

INTERNATIONAL MARKETING RESEARCH PROCEDURE

The following are the basic steps in planning international marketing research:

1)Definition of the objectives of research in light of marketing problem to be investigated and

decisions to be made.

2) Determining the information required to throw light on the problem to be solved.

3) Determining the methodologies and planning the collection of information.

4) Actual collection of information from predetermined sources.

5) Analysis and interpretation of information.

6) Preparation of the report.

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1)Defining Research Objectives: The first step in starting the process of international marketing
research is to define the objectives. The clear definition of objectives helps the researcher to identify
the appropriate sources of information and select the suitable methodologies for collection of
information.

2)Determining Information Required: The information required in the light of research objectives
has to be listed out for planning of data collection. For example, if one of the objectives is to find out
the market potential for a new product, it is necessary to spell out the specific kinds of information
that will throw light on market potential, so that research can be planned to collect the required
information.

3) Determining Methodologies: For collection of different kinds of information from various sources,
different methodologies are used in marketing research.

For example, the method of desk research is used to collect information from secondary sources and
survey research is used to collect data from the primary sources. In desk research various kinds of
statistical or non-statistical techniques are used for compilation and analysis of data. Similarly, in
survey research various techniques are used for generating quantitative and qualitative data on the
objectives of the research study.

4) Actual Collection of Information: Actual collection of data involves appropriate planning of

fieldwork for contacting respondents or other sources for the survey. Respondent contact can be
made either personally or via mail or telephone or online, depending on the nature of research. It is
very crucial stage in conducting survey research, for on the effective conduct of fieldwork will
depend the success of the survey.

5) Analysis and Interpretation: The field data collected via various methods are to be properly
edited, analyzed and interpreted in the light of the research objectives initially set out. It is important
that analysis and interpretation is done in an objective manner in order to avoid the possibility of
bias or any kind of subjectivity.

6) Preparation of the Report: The information and data collected through research is, after analysis,
presented in the form of a report. The report usually contains not only the findings of the research
but also the comments and recommendations of the researcher.

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TECHNIQUES OF INTERNATIONAL MARKETING RESEARCH

DESK RESEARCH:

• It basically involves collection of information from documentary sources or other published

and unpublished sources. In other words, information and data already exist in published or
unpublished form. Through desk research the sources of such data are searched and relevant
documents, publications etc. are collected.
• This stage of searching for sources of published or what is also called secondary data, is also
referred to as bibliography research or library research. Search for the sources of secondary
data or the collection of documents etc. is only the preliminary part of desk research. The
actual desk research involves compilation, processing and analysis of secondary data in
accordance with the objectives of research.
• In international marketing research, desk research plays a very important role. In respect of
most of the countries, a good amount of general economic, political and market information
is available from secondary sources.
• Information on the countries' industrial and economic profile, government policies and
regulations, size, composition and destination of foreign trade and host of other general
information is often available for desk research

Sources of Data for DR

1. Government sources Information provided by governments covers wide areas like

population, economy, policies, programmes, industries, institutions, rules and regulations
etc. and are published in the forms of reports, documents etc.
2. Semi-government sources In many countries there are specialised semi-government
agencies or institutions charged with specific tasks such as monitoring of consumption
trends, foreign trade, industrial development, income distribution, purchasing power of
people, health, education etc.
3. Private sources There are research institutions, publishing houses, banking and financial
institutions, chambers of commerce, trade associations and a host of others similar
organisations
4. International sources International organisations within and outside the UN system publish a
wealth of statistical data and information relating to markets. The important ones among
these organisations are: Food and Agricultural Organisations (FAO), International Labour
Organisation (ILO), United Nations Conference on Trade and Development (UNCTAD), UN
Economic Commission; International Monetary Fund (IMF), Organisation for Economic
Cooperation and Development (OECD), International Trade Centre (ITC), and number of
others

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Limitations of desk research

• The data may have been collected and manipulated for a specific use, therefore it may be
incomplete, ambiguous or out of context.
• Data maybe compiled in different ways in different countries making comparability difficult.
• Data may be corrupted by methodological and interpretive problems, for example,
definitional error, sampling error, section error, non response error, language, social
organisations, trained workers, etc.
• Data may be nonexistent, unreliable or incomplete thus making inter country comparisons
very difficult
• Data may be inflated or deflated for political purposes

A. The main difference between desk research and survey research is that is case of desk research
the data are already available to research whereas in case of survey research data are generated
in course of doing the research.
B. Most of the desk research on foreign market can be done in the exporter's country itself but
survey research has to be carried out with the potential markets abroad through direct contact
with people there.
C. Often desk research provides the general background or framework for planning and conducting
survey research for collection of primary information specific to exporter's needs.

Methods of Sample Selection

Random Sampling methods ensures that every `unit' or `member' the universe has an equal chance
of being included in the sample. If properly drawn. the random sample provides most accurate
statistical results.

Quota Sampling is based on selection of `unit' in the same proportions of characteristics as they exist
in the universe. The characteristics used as `quota' are pre-determined and their proportions in the
`universe' must be known in-advance for drawing quota sample.

Cluster Sampling involves dividing a geographies area (say a town or district) into smaller areas
(wards or blocks). From these smaller areas, a sample of areas is drawn at random and then every
relevant `unit' within the sample areas are surveyed. In international marketing research it often
becomes necessary to modify sampling techniques to suit varying field conditions. However, it
should be ensured that the survey findings do not get unduly biased or distorted due to wrong
application of sampling techniques.

TECHNIQUES OF INTERVIEWING

• Personal interview
• Telephone interview
• Mail or postal survey
• Online survey

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ANALYSIS OF FIELD DATA

• Editing involves selecting data which are relevant and putting them into consistent form. It is
also necessary to check the data for accuracy and reliability to check that the information is
free from bias.
• Organizing of research data is to arrange them according to the areas of interest and putting
them into workable format.
• Classifying involves dividing the information into meaningful categories
• Tabulating involves counting of responses/ replies to survey questions.

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IMPORTANT TOPICS BRAND AND LUXURY

 Different types of brands-stock, cult

 Product levels
 Brand definition
 Product definition
 Difference between product and brand
 POP, POD
 Connected packaging
 Competitive advantage
 Positioning strategies
 David ackur model
 Cbb model
 Brand elements
 Can services be branded
 Globe strategy
 Brand mantra
 Brand value chain
 Brand knowledge
 Brand management process

QUESTION

Analyse the brand element of SUGAR cosmetics

Analyse the brand element of UBER

Explain brand knowledge/ elaborate on components of brand elements/brand knowledge

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