INTERNATIONAL BUSINESS MANAGEMENT

Manuela Arevalo
Angela Rozo
Paula Cubillos

Process management in the implementation of the strategy

1. Explain (briefly)the types of entry modes (Exporting, Contractual, Investment).

considering:

● Main characteristics
● Main advantages and disadvantages
● Criteria for entry mode selection

Exporting
- Dedicated to international trade, mainly by addressing export and import
activities.

Lidensing - This phase is associated with low risk.

Franchising
- In indirect export modes the manufacturer uses independent export
intermediaries located in its own country, so the manufacturer doesn’t
have a direct contact with international customers: export commission
Joint house, export/import broker, export management company, export
venturing trading company.
alliances
- Advantages: – low entry cost – low financial risk – entry difficulties are
lied on the domestic intermediary – low staffing requirements – lack of
marketing costs
FDI Wholly-
owned - Disadvantages: – low profitability of the transactions – full dependence
subsidaries on the domestic intermediary – lack of knowledge on the foreign market(s)
greenfield
brownfield - While implementing direct exporting, exporters take on the duties of
intermediaries and make direct contact with customers in the foreign
market: own representative office, foreign agent, foreign distributor, s
own distribution network.

- Advantages:
● Direct Export through a foreign agent - – low entry cost –
moderate financial risk
● Direct Export through a foreign distributor- – relatively low
staffing requirements – lack of marketing costs
● Direct Export through a representative office - – physical presence
on foreign markets – direct contact with foreign Customer
 ● Direct Export through an own foreign distribution network - –
physical presence on foreign markets – very good direct contact
with foreign customers

- Disadvantages:
● Direct Export through a foreign agent - – low profitability of the
transactions – high dependence on the foreign agent
● Direct Export through a foreign distributor- – an agent can find a
better provider – high transport costs – potential trade barriers
● Direct Export through a representative office - – the relatively high
costs of maintaining a representative office – high transport costs
● Direct Export through an own foreign distribution network - – high
entry cost – high cost of maintaining the own distribution network

- Cooperative export that includes export grouping and piggybacking,

Advantages: – distribution of costs for partners – synergy effect .
Disadvantages: – dependency on the export partner(s)

- The criteria for their selection are: scope of capital commitment, scope
of management commitment, scope of control, scope of risk, scope of
potential profits, scope of input costs.

- Issues related to financing (capital resources), in case of small and

medium-sized enterprises in particular, make it impossible to choose more
advanced modes of presence in foreign markets.

Contractual - Relates to cooperative relations implemented through contacts with

foreign partners, mostly manufacturers.

- These modes include inter alia international licensing, international

franchising, international subcontracting, and also various assembly
operations.

● Management contracts - An exporter provides management

services for a company that is owned by the importer.
- Advantages: – low capital commitment – low risk – gaining experience
on the foreign market(s) by domestic managers
- Disadvantages: – relatively low profitability

● Turn-key operations - Any complete construction of any

industrial plant abroad.
- Advantages: – potential higher profits – chance of a permanent presence
on the foreign market(s) after the completion of the investment
- Disadvantages: –require high costs – a form difficult to implement –
high financial risks

● Subcontracting - The foreign counterparty shall have a domestic

manufacturing company to execute a specific order (components or
 semi-finished products)
- Advantages: – low capital commitment – low risk
- Disadvantages: – relatively low profitability – inability to gain
international experience – weak position of the exporter in negotiations
with the consignee

● Licensing- Sales abroad of rights covered by a patent or design or

any intellectual property to be used for commercial purposes.
- Advantages: – low entry costs – low financial risk – ensuring a steady
income – a strong presence in foreign markets by commercial.
- Disadvantages: – the possibility to lose control over technologies and
know-how – lack of control over the maintenance of the quality on the
foreign market(s)

● Franchising- Sales of the rights by the domestic franchisor to

conduct commercial activity by a foreign franchisee.
- Advantages: – low entry cost – the possibility of rapid foreign expansion
– the possibility of a simple expansion of both the large and distant
markets.
- Disadvantages: – requires some control cost – sharing profits gaining
from foreign markets between the foreign franchisee(s) and a domestic
franchisor – requires appropriate qualifications of franchisees.

Taking into account four determinant groups of decision-making:

● internal factors associated with the firm, including the product and
its advantage as a subgroup of these factors
● external factors dealing with the environment of the host country,
as well as the home country
● specific characteristics of different modes that has been discussed
above
● transaction-specific factors.

Investment - The physical and the constant presence of international businesses in

foreign markets by making the investment in the form of setting up their
foreign branches or foreign subsidiaries.

- These modes are based on foreign direct investment.

- They provide lower production costs and a direct presence in a foreign

market. Foreign investment can be created in two ways, as: brownfield
investment that is the mergers and acquisitions (M&A) of local firms,
greenfield investment that is by investing from the beginning

- As for the organization term, the investment modes are usually divided
into two basic types: a foreign branch, a subsidiary.

● Branch- The creation of an organizational unit of the parent

 company on a foreign market, which is an organizational and legal
part of that company.
- Advantages: – full control – holding centralized control – relatively
good image of the branch on the local market
- Disadvantages: – relatively complicated registration procedures

● Joint venture subsidiary- The creation of a foreign subsidiary

jointly controlled (minority and majority interests) by the parent
company and a foreign partner.
- Advantages: – synergy effect – a combination of knowledge of the
exporter and a local partner – spreading the risk between the exporter and
the partner
- Disadvantages: – high entry cost – high risk – potential conflicts of
interest of the exporter and the partner – complicated registration
procedures

● Wholly-owned subsidiary- The creation of a foreign subsidiary

wholly owned (100%) by a parent company.
- Advantages: – full control – holding centralized control – good image of
such a company on the local market – potentially the highest profitability
- Disadvantages: – high entry cost – high risk – complicated registration
procedures

2. Making the deal real how GE Capital integrates acquisitions

a) Explain briefly the integration-acquisition process proposed by GE Capital Services.

The integration-acquisition is the process by which one company melds with another after
the deal is done. It is basically a continuous or an ongoing challenge that begins with an
appropriate diligence process, and then goes through the continuous management of the
newly formed company.

Companies manage this process as a one time event, but few companies go through this
process in order to develop a pattern. Many times this integration-acquisition implies bad
experiences such as loss of employment, restructuring of responsibilities, reduction of power
and other things that involve a lot of stress, and for this reason it has been sought to improve
this process, since it is an urgent challenge and faced by many companies today.

For several years now, this integration-acquisition process has been discussed. But it is
currently well established to be modified into the “Pathfinder Model”. This model divides the
process into 4 stages of action, which are the following; Assimilation, pre acquisition,
foundation building and rapid integration. Two or three threads are handled at each action
stage, such as; capitalizing on success and long-term plan evaluation and adjustment in
assimilation stage, due diligence, negotiation and announcement and close in pre acquisition
stage, strategy formulation, acquisition integration workout and launch in foundation
building stage and finally, course assessment and adjustment, and implementation in rapid
integration stage. Also, each action stage includes best practices and specific steps that the
manager can take to support the process, like for example; continue developing common
tools, practices, processes and language and use audit staff for integration audit in
assimilation stage, identify business and cultural barriers to integration success and develop
communication strategy in pre acquisition stage, use feedback and learning to continually
adapt integration plan, and initiate short-term management exchange in rapid integration
stage, and orient new executives to GE Capital business rhythms and nonnegotiables and
provide sufficient resources and assign accountability in foundation building stage.

b) Explain the lessons learned by GE from the process.

➔ Lesson 1:
This lesson demonstrates that acquisition integration doesn't begin when the
documents are signed but way before that. It is essential that the company recognize
the existence of predictable issues that can be anticipated before closing the deal. So
that GE executives found out that daily meetings with functional captains from
different areas could develop preliminary plans for managing the acquisition
correctly. Furthermore, this lesson states that it's necessary to be sensitive about the
whole process taking into account the management style, the values, and culture of
the companies because these differences could make the merge more tedious instead
of facilitating them.
➔ Lesson 2:
This lesson establishes that integration management is a full-time job and that having
a person in front of this process makes a big difference. However, this person can't be
the general manager of the acquiring business because his attention is centered on the
other units, and have no time to deal with cultural differences or the adaptation
process. On the other hand, the business leaders from the acquired company are the
ones that have more incentives to make the merge work but they don't have sufficient
knowledge about the acquiring company so they typically focus their energy on
personal issues like protecting, reassuring, and outplacing their people.
Due to these observations, a new role is created in the acquisitions and integrations
process: the integration manager. This person must work closely with managers of the
acquired company, create strategies to facilitate communication, and disclose
important information, teach to the managers how the work is done in the acquiring
company but also it's important to help the acquiring company to understand a little
about the acquired company.
➔ Lesson 3:
All of the structural changes including management decisions, key roles, reporting
relationships, layoffs, and more must be done quickly but taking into account that the
dignity of every employee matters regardless of the position. These changes must be
 notified within days of the acquisition because the uncertainty that lasts for months
can reduce the performance of workers and drain value from the acquisition. One of
the most important advices from this lesson is that the acquiring company can’t tell
the new staff that everything will be as usual when they know that changes are
unstoppable, some jobs are going to be lost because there are new ways to increase
productivity, or it is a task that can be divided among several people from the
acquiring company, what is important is to find the best time to carry out these
restructurings but always with respect towards these workers.
➔ Lesson 4:
A successful integration melds not only technical aspects of the businesses but also
the different cultures. One of the biggest concerns of the integration process is the
disparity among the workers of each company due to their nationality, customs, and
more. The real challenge is figuring out how the acquiring company can speed the
process of getting a certain amount of workers to make a team even if they were
competitors before, so GE creates four steps.
Meet, greet, and plan: It consists of organizing the orientation and planning sessions
with the new employees and their counterparts in the acquiring company.
Communication: It is not only about giving information on reports or bulletins but to
understand that communication and involvement are valued and considered to be
critical success factors creating a relationship based on trust between the employees
and the acquiring company.
Address the cultural issues: Cultural problems get in the way of fast and effective
integration, that's why GE, specifically, started to work with a consulting firm to
construct a systematic process of cross-cultural analysis.
To move from the few to the many, cascade the integration process: The results of
the cultural workout must be shared between the employees and the management
team, so they can digest and consider the implications of this data. However, a more
powerful way to spread cultural integration is the short term projects because this
includes members from both companies closing the gap between cultures.