Global/International Business

Cross-National Cooperation and Agreements

I. Regional Economic Integration

Economic Integration- A process whereby countries cooperate with one

another to reduce or eliminate barriers to the international flow of products, people or
capital.

Two Approaches in International Trade

1. International approach – involves international conferences under WTO. The

purpose of these international conferences is to reduce barriers to
international trade and investment.

2. Regional Approach involves agreements among small number of nations

whose purpose is to establish free trade among themselves while maintaining
barriers to trade with the rest of the world.

Advantages of International Integration

1. Trade Creation - Member countries have:

a. wider selection of goods and services not previously available;
b. acquire goods and services at a lower cost after trade barriers due to
lowered tariffs or removal of tariffs .
c. encourage more trade between member countries the balance of money
spend from cheaper goods and services, can be used to buy more
products and services.

2. Employment Opportunities

3. Political Cooperation

Disadvantages of International Integration

1. Trade Diversion: Because of trade barriers, trade is diverted from a non-

member country to a member country despite the inefficiency in cost.

2. National Sovereignty: Requires member countries to give up some

degree of control over key policies like trade, monetary and fiscal policies.

3. Creation Of Trading Blocs: It can also increase trade barriers against

non-member countries.

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II. Major Regional Trading Groups

Trade Blocs are group of countries that are in existence within a geographical
region. Which have a motive to protect themselves from the imports of non-
members.

§ Types of Trade Blocs

a. Free Trade Area (FTA) - An agreement between two or more countries to

remove all trade barriers between themselves. A free trade area occurs
when a group of countries agree to eliminate tariffs between themselves,
but maintain their own external tariff on imports from the rest of the world.

Examples of FTA are:

1. North American Free Trade Areas (NAFTA)

- Initially, it is a BILATERAL TRADE between U.S. and CANADA.
But in 1994, Mexico joined in the agreement
- The establishment of NAFTA was January 1, 1994.
- Considered as the most POWERFUL TRADE BLOC.

Provisions of NAFTA
§ Eliminate barriers to trade & investment between US, Canada &
Mexico.
§ Duty-free market access.
§ Trade rules - safeguard, subsidies countervailing & antidumping
duties, health & safety standards.
§ Rules on trade in services & investment.
§ Protection of intellectual property.
§ Dispute settlement mechanism.

2. South Asian Association for Regional Cooperation (SAARC)

- Established on December 8, 1985
- Member Countries- Afghanistan, Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan & Sri Lanka
- Head Office - Kathmandu, Nepal

SAARC policies aim to promote:

§ Welfare economics
§ Collective self-reliance among the countries of South Asia
§ Accelerate socio-cultural development in the region
§ Develop good external relations

3. Association of Southeast Asian Nations (ASEAN)

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 - The Association of Southeast Asian Nations, or ASEAN, was
established on 8 August 1967 in Bangkok, Thailand, with the signing
of the ASEAN Declaration (Bangkok Declaration) by the Founding
Fathers of ASEAN, namely Indonesia, Malaysia, Philippines,
Singapore and Thailand.
- Member Countries- Brunei Darussalam, Cambodia, Indonesia,
Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand,
and Vietnam; with one Observer – Papua New Guinea.
- Head Office - Jakarta, Indonesia

ASEAN objectives:

§ To accelerate the economic growth, social progress and cultural

development in the region through joint endeavours in the spirit of
equality and partnership in order to strengthen the foundation for a
prosperous and peaceful community of Southeast Asian nations

§ To promote regional peace and stability through abiding respect for

justice and the rule of law in the relationship among countries in the
region and adherence to the principles of the United Nations Charter

b. Custom Union (CU) - An agreement between two or more countries to

remove tariffs between themselves and set a common external tariff on
imports from non-member countries. Each country determines its own
barriers and maintains its own external tariffs on imports against non-
members. A customs union has common policies on product regulations
and movement of factors of productions in goods, services, capital and
labor amongst members.

Example of CU is

1. Central American Common Market (CACM)

- Established by the General Treaty on Central American Economic
Integration signed by Guatemala, Honduras, El Salvador, and
Nicaragua in December 15,1960
- Head Office - Guatemala City.
- Member Countries- Guatemala, Honduras, El Salvador, Nicaragua,
Costa Rica

c. Economic Union (EU) - An agreement between two or more countries to

remove barriers to trade, allow free flow of labor and capital and coordinate
economic policies. Integration is more intense in an economic union
compared to a common market, as member countries are required to
harmonize their tax, monetary, and fiscal policies and to create a common
currency.

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 Examples of EU are:

1. Latin American Integration Association (ALADI)

- Asociación Latino Americana de Integración (ALADI) is a
Spanish abbreviation for Latin American Integration Association.
- It was created on 12 August 1980 during the Montevideo Treaty
(Uruguay), replacing the Latin American Free Trade Association
(LAFTA / ALALC)
- Member Countries- Argentina, Bolivia, Brazil, Chile, Colombia,
Cuba, Panama, Mexico, Paraguay, Ecuador, Peru, Uruguay,
Venezuela

ALADI aims at:

• Harmonious and balanced socio-economic development

• Progressive establishment of a Latin-American Common Market.

2. European Union (EU)

- The world’s largest trading bloc.
- The 2nd largest economy in the world.
- Originally called the “Economic Community” (Common Market or
The Six)
- Formed from the “Treaty of Rome” in 1957.
- It comprised of 6 founding members- Germany, France, Italy,
Belgium, Netherlands and Luxemburg.
- Head Office is at Brussels, Belgium
- Founded: November 1, 1993 in Maastricht, Netherlands
- In January 1999, a common currency € (Euro) was introduced
- In 2012, the EU was awarded the Nobel Peace Prize for advancing
the causes of peace, reconciliation, democracy and human rights in
Europe.

d. Common Market (CM) - An agreement between two or more countries to

remove all barriers to trade and allow free mobility of capital and labor
across member countries. Harmonize trade policies by having common
external tariffs against non-members.

Example of CM is:

1. Organization of the Petroleum Exporting Countries (OPEC)

- Formed at the Baghdad Conference on September 10-14, 1960
- Five founding members: Iran, Iraq, Kuwait, Saudi Arabia and
Venezuela

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 - It consists of 14 countries: Iraq, Kuwait, Iran, Saudi Arabia,
Venezuela, Libya,United Arab Emirates, Qatar, Equatorial Guinea,
Algeria, Nigeria, Ecuador, Angola, Gabon

III. Commodity Agreement – The OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent,

intergovernmental Organization, was established in Baghdad. Oil is the main
marketable commodity and foreign exchange earner. It is a vital key to
development – economic, social and political. Their oil revenues are used not only
to expand their economic and industrial base, but also to provide their people with
jobs, education, health care and a decent standard of living. Together, the 14
member-nations control nearly 80% of the world’s oil reserves, and 44% of the
world’s daily production—a powerful force used to manipulate oil prices around
the world.

Purpose of OPEC

The Main purpose of OPEC is to coordinate and unify petroleum policies

among Member Countries to ensure a steady income to the producing countries,
a steady supply of petroleum to the consuming nations as well as a fair return of
capital for investors in the petroleum industry itself.

Objectives of OPEC

• Stable oil market, with reasonable prices and steady supplies to consumers
• OPEC was made to make sure that the price of the oil in the world market will
be properly controlled.
• Their main goal is to prevent harmful increase in price of oil in global market
and make sure that nations that produce oil have a fair profit

OPEC as a Cartel

a. Quota System

• Introduced in an attempt to stabilize prices by controlling production

came in March 1982 amidst falling prices following a severe
contraction in world demand during the period 1980-86.
• They agreed upon quotas for each member country and set the
ceiling for a three-month period.
• The quota system has essentially never worked because various
members would produce beyond their quotas.

b. Basket Price

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 • The OPEC Reference Basket (ORB), also referred as the OPEC
Basket, is a weighted average of prices for petroleum blends
produced by OPEC members. It is used as an important benchmark
for crude oil prices. OPEC has often attempted to keep the price of
the OPEC Basket between upper and lower limits, by increasing and
decreasing production.

Since January 1, 2017, the OPEC reference basket consists of a weighted

average of the following crudes:

Saharan Blend (from Algeria)

Girassol (from Angola)
Oriente (from Ecuador)
Rabi Light (from Gabon)
Iran Heavy (from Iran)
Basra Light (from Iraq)
Kuwait Export (from Kuwait)
Es Sider (from Libya)
Bonny Light (from Nigeria)
Qatar Marine (from Qatar)
Arab Light (from Saudi Arabia)
Murban (from UAE)
Merey (from Venezuela)

Old line-up: Prior to June 16, 2005, the OPEC Basket did not include
petroleum blends from all OPEC members. The earlier basket consisted of
seven crudes:

Saharan Blend (from Algeria)

Minas (from Indonesia)
Isthmus (from Mexico, a non-OPEC country)
Bonny Light (from Nigeria)
Arab Light (from Saudi Arabia)
Fateh (from Dubai, UAE)
Tia Juana Light (from Venezuela)

The Strategy of International Business

Strategy and the Firm
o A firm’s strategy refers to the actions that managers take to attain the goals of
the firm.
o Profitability can be defined as the rate of return the firm makes on its invested
capital
o Profit growth is the percentage increase in net profits over time
o Expanding internationally can boost profitability and profit growth.

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Determinants of Enterprise Value

Value Creation
The value created by a firm is measured by the difference between V (the price that
the firm can charge for that product given competitive pressures) and C (the costs of
producing that product)
The higher the value customers place on a firm’s products, the higher the price the
firm can charge for those products, and the greater the profitability of the firm.

Profits can be increased by:

o adding value to a
product so that
customers are willing
to pay more for it – a
differentiation
strategy

o lowering costs – a
low cost strategy

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Michael Porter argues that superior profitability goes to firms that create superior
value by lowering the cost structure of the business and/or differentiating the product
so that a premium price can be charged.
Strategic Positioning
Michael Porter argues that firms need to
choose either differentiation or low cost,
and then configure internal operations to
support the choice.
o To maximize long run return on
invested capital, firms must:
o pick a viable position on the
efficiency frontier
o configure internal operations to
support that position
o have the right organization structure
in place to execute the strategy

Operations: The Firm As A Value Chain

A firm’s operations can be
thought of a value chain
composed of a series of distinct
value creation activities,
including production, marketing,
materials management, R&D,
human resources, information
systems, and the firm
infrastructure.
Value creation activities can be
categorized as primary
activities (R&D, production,
marketing and sales, customer
service) and support activities
(information systems, logistics,
human resources).

International business strategy

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 refers to plans that guide commercial transactions taking place between
entities in different countries. Typically, international business strategy refers
to the plans and actions of private companies rather than governments; as
such, the goal is increased profit.

Philosophies of International Business Strategy

1. Industry-based, which argues that conditions within a particular industry

determine strategy;

2. Resource-based, which argues that firm-specific differences determine

strategy;

3. Institution-based, which argues that the industry- and resource-based views

need to be supplemented by accounting for relevant societal differences of the
types mentioned above.

Organizing for International Operations

1. Commission Agent
- A person or firm who
represents businesses
in foreign transactions
in return for a
negotiated percentage
of each transaction’s
value.

2. Export Manager
- An employee who
actively searches out
foreign markets for the
firm’s goods and
services.

3. Export Department

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 - Represents the interests of foreign customers to the firm’s other
departments and to top management. Meets the increasing
demand for services by foreign customers. Makes special
arrangements for customs clearance and international shipping.
Assists foreign customers with financing of the good or services
that they are purchasing. Arranges for the collection of accounts
receivable from foreign customers.

4. International Corporation
- A firm having significant business interests that cut across
national boundaries, often focusing on importing and exporting
goods or services, and operates production and marketing units
in other countries

5. Multinational Corporation
- A firm that takes a worldwide approach to markets, services, and
products and has a global philosophy of doing business.

Strategies on going Globally/Internationally

1. Exporting Strategy
- Maintaining facilities within a home country and
transferring goods and services abroad for sale in
foreign markets

2. Licensing Strategy
- A firm (licensor) in one country giving other domestic
or foreign firms (licensees) the right to use a patent,
trademark, technology, production process, or
product in return for the payment of a royalty or fee

3. Franchising Strategy
- A parent organization (franchiser) granting other companies or individuals
(franchisees) the right to use its trademarked name and to produce and sell its
goods or services

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 4. Alliance Strategy
- Agreeing with other companies to pool physical,
financial, and human resources to achieve common
goals.

5. Multi-Domestic Strategy
- Adjusting products, services, and practices to
individual countries or regions sacrifices efficiency
in favor of emphasizing responsiveness to local
requirements within each of its markets. Local Responsiveness - refers to the
decision to distribute work in many locales versus consolidating work in one or
a few centralized locations.

6. Global Strategy
- Stressing worldwide consistency, standardization, and low relative cost,
sacrifices responsiveness to local requirements within each of its markets in
favor of emphasizing efficiency. This strategy is the complete opposite of a
multidomestic strategy. Some minor modifications to products and services may
be made in various markets, but a global strategy stresses the need to gain
economies of scale by offering essentially the same products or services in each
market.

7. Transnational Strategy
- seeks a middle ground between a multidomestic strategy and a global strategy.
Such a firm tries to balance the desire for efficiency with the need to adjust to
local preferences within various countries.

Export and Import Strategies

EXPORT

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 • Refers to the sale of goods or services produced by a company based in one
country to customers that reside in a different country

• Stimulate domestic economic activity by creating employment, production and

revenues.

EXPORT STRATEGY
PRINCIPAL TYPES OF EXPORTING

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 • Direct – products sold to an independent party outside of the exporter’s home
country

• Indirect – products sold to an itermediary in the domestic market, which then

sells the goods in the export market.

DIRECT SELLING
• Involves sales representatives, distributors or retailers.

• Direct Selling to Foreign Retailers and End Users

• Direct Selling over the internet

INDIRECT SELLING
• Export Intermediaries

• Export Management Companies – operate on a contractual basis – usually as

an agent of the exporter

• Export Trading Companies – operte based on demand rather than supply.

They identify suppliers who can fill orders in overseas markets.

ADVANTAGES TO EXPORTING
• Has the ability to increase sales and profits by expanding into new markets.

• It presents an opportunity to capture significant global market share.

• Business risk being spread by diversifying into multiple markets

• Reduces per-unit costs by expanding operations to meet increased demand

• Gain new knowledge and experience

QUESTIONS TO CONSIDER IN EVALUATING THE EXPORT OPTION

• What do we want to gain from exporting?

• Is exporting consistent with our goals?

• Will exporting put undue demands on our resources? If so, how will we meet
them?

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 • Does exporting leverage our core competency?

• Does exporting fit the current configuration of our value chain?

• Do our coordination systems support the needs posed by exporting?

• Are the projected benefits of exporting worth the costs?

• Would our resources be better used to develop new domestic business?

DECIDING TO EXPORT IN ANOTHER COUNTRY

Market opportunities – which can it identify?
Foreign exchange risk – how can it protect itself?
Import and export financing – does it understand the banking systems?
Challenges of doing business in a foreign market – does it know what it will face?

CHARACTERISTICS OF EXPORTERS
• Firm characteristics moderate its export intensity.

• Size plays a role, but often management commitment, efficiency, and cost
structure matter more.

PHASES OF EXPORT DEVELOPMENT

PITFALLS OF EXPORTING

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Adjusting Financial Management : The currency and credit processes of export
require adept financial management. Companies often struggle with the fact that
completing an export sale requires them to help foreign customers obtain credit.
Adjusting Customer Management : Worldwide, customers demand a greater range of
services from their vendors. The fact that most products are available from many
vendors boosts the buyer’s negotiating power. (Contd.) 13-11 Pitfalls of Exporting

Adjusting for Information Technology : Although information technologies reduce

the cost of communications, they often increase customer expectations. Historically,
exports were arm’s-length, ship-it-and-forget-it transactions. Contact with customers
relied on hard-copy documents either faxed or posted overnight. This situation
created useful time lags with which to deal with customers’ concerns. Now, the ease
of contacting vendors via e-mail or inexpensive voice-over-Internet-protocol (VoIP)
gives customers real-time access, thereby increasing demands on the exporter.
(Contd.) 13-12 Pitfalls of Exporting

Additional Stumbling Blocks: • Insufficient commitment by top management to

overcome the inevitable demands and difficulties of export • Underestimating the
usefulness of public and private export expertise • Misestimating the costs of
shipping and the complexity of customs regulations and procedures • Poor selection
of local agents to represent the company abroad • Reacting to orders from around
the world instead of designing a purposeful sales strategy • Neglecting export
markets when the domestic market booms • Misclassifying products in terms of the
destination country’s tariff schedule, thereby incurring a higher tax or slowing delivery
• Failure to treat international distributors on an equal basis with those in the home
market • Unwillingness to modify products to meet other countries’ regulations or
cultural preferences • Failure to print service, sales, and warranty messages in local
languages • Bypassing public export assistance when the company lacks qualified
personnel • Failure to prepare for disputes with customers 13-13 Pitfalls of Exporting

DESIGNING AN EXPORT STRATEGY

• Assess the company’s export potential by examining its opportunities and
resources.

• Obtain expert counseling on exporting

• Select a market or markets.

• Formulate and implement an export strategy.

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17
EXPORT DOCUMENTATION

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Key export documents are: Pro forma invoice Commercial invoice Bill of lading
Consular invoice Certificate of origin Shipper’s export declaration Export packing list
13-23 Export Documentation

IMPORT
• The purchase of products by a company based in one country from sellers that
reside in another.

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IMPORT STRATEGY
TYPES OF IMPORTERS
Those looking for any products around the world to import and sell.
Those looking for foreign sourcing to get their products at the cheapest price.
Those using foreign sourcing as part of their global supply chain.

ADVANTAGES OF IMPORTING
• Specialization of Labor

• Global Rivalry

• Local Unavailability

• Diversification of Operation Risks

IMPORT BROKERS
• Valuing products in such a way that they qualify for more favorable duty
treatment.

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 • Qualifying for duty refunds through drawback provisions

• Deferring duties by using bonded warehouses and foreign trade zones

• Limiting liability by properly marking an import’s country of origin

IMPORT DOCUMENTATION
• Bureaucratic Impediments – the efficiency of importing is challenged by
delays, documents and fees.

• The specific documents that customs requires vary by country but usually
include an entry manifest, a commercial invoice, and a packing list

FREIGHT FORWARDERS
• An export or import specialist dealing in the movement of goods from
producer to consumer.

• Primary transportation modes:

• Surface freights (truck and rail), ocean freight, and airfreight

• Intermodal transportation – the movement across different modes from origin

to destination

COUNTER-TRADE
• An umbrella term for several sorts of trade, such as barter or offset, in which
the seller accepts goods or services, rather than currency or credit, in
payment for its products.

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DIRECT INVESTMENT AND COLLABORATIVE STRATEGIES

Why exporting may not be feasible

Companies may find more advantages by producing in foreign countries than
by exporting to them.

• When production abroad is cheaper than at home

• When transportation cost to move goods or services internationally are too
expensive
• When companies lack domestic capacity
• When products and services need to be altered substantially to gain sufficient
consumer demand abroad
• When governments inhibit the import of foreign products
• When buyers prefer products originating from a particular country

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Why Companies collaborate?

Types of Collaborative Arrangements

LICENSING
-Under licensing agreement, a company (the licensor) grants rights to intangible
property to another company (the licensee) to use in a specified geographic area for a
specified period. In exchange, the licensee ordinarily pays a royalty to the licensor. The
rights may be for an exclusive license (the licensor) can give rights to no other company
for the specified geographic area for a specified period of time) or nonexclusive (it can
give away rights). Often, governments classify intangible property into these five
categories:

• Patents, inventions, formulas, processes, designs, patterns.

• Copyrights for literary, musical, or artistic compositions.
• Trademarks, trade names, brand names.
• Franchises, licenses, contracts.
• Methods, programs, procedures, systems

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The Benefit of Licensing for Licensors The key benefit for a licensor is the ability to
exploit and enhance its brand or property. Licensing can do this by:

• increasing its brand presence at retail or distribution outlet

• creating further brand awareness to support its core products or services
• supporting and enhancing its core values by associations with the licensed
products/service or category (e.g. association with a healthy food or with a
cutting edge mode of fashion
• entering new markets (consumer or geographical) which were unfeasible with
it’s
• own resources or capabilities
• generating new revenue streams, often with little involvement or additional
financial or other resource implications

2. FRANCHISING
- Franchising may be defined as a business arrangement which allows for the
reputation, (goodwill) innovation, technical know-how and expertise of the innovator
(franchisor) to be combined with the energy, industry and investment of another party
(franchisee) to conduct the business of providing and selling of goods and services.

Background:
Franchising is a system of business that has grown steadily in the last 50 years and is
estimated to account for more than one-third of the world’s retail sales. There are few
of us how who are not touched by the results of franchising. Franchises range from the
global McDonalds to lawn cutting services such as Mr Green, valet services, medical
and dental services, to bookkeeping services and even to services helping us to
prepare our tax forms

How does it really work?

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In a basic franchising arrangement the franchisor has developed a system for
conducting business. The system has been found to be successful. The franchisor
wishing to emulate the success of that business system, usually in a different
geographic area, establishes a blueprint for others also wishing to emulate this success
to operate the same business using the same name and same systems.

Advantages of Owning a Franchise:

The main advantage of owning a franchise is the feeling of freedom that being self-
employed brings. This freedom is tempered with the knowledge that the owner has
invested in a proven system and has the training, support and encouragement of other
franchisees and the franchisor. Owning a franchise should also provide a semi-
monopoly environment in which to conduct business in a particular area. Generally,
there is also an informed ready-made customer base. There will of course be
competitors but the franchisee will be granted the sole franchise for a given area and
often will be given client listings or job sheets. Most importantly though, being part of a
franchise ensures the franchisee is part of an instantly recognizable brand, the product
or service expectations that a brand brings, and the reputation gained by the brand
over time. A franchise also offers the franchisee with the ability to capitalize on the
know-how and systems that have been proven to be successful. The quality of the
product or service provided is therefore in many ways guaranteed. Some of the
advantages a franchise offers are:

• Freedom of employment
• Proven product or service outcomes
• Semi-monopoly; defined territory or geographical boundaries
• Proven brand, trade mark, recognition
• Shared marketing, advertising, business launch campaign costs
• Industry know-how
• Reduced risk of failure
• Access to proprietary products or services
• Bulk buying advantages

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 • On-going research and development

Franchise Arrangement
The franchise arrangement is an arrangement whereby the franchisor permits –
licenses the franchisee, in exchange for a fee, to exploit the system developed by the
franchisor. The franchised system is generally a package including the intellectual
property rights-such as the rights to use the Trade Mark, trade names, logos, and “get-
up” associated with the business; any inventions such as patents or designs, trade-
secrets, and know-how of the business and any relevant brochures, advertising or
copyrighted works relating to the manufacture, sale of goods or the provision of
services to customers. The Intellectual Property is unique to the business and provides
the business with its competitive advantage and market niche. Typical Franchise
System:

• A license to use the system

• A shared development and improvement obligation
• The franchisor’s right to determine how the business operates.

Difference between licensing and franchising?

License Agreement- A license arrangement is a business arrangement where a

licensor via a monopoly right such as patent, a Trade Mark, a design or a copyright
has to exclusive right which prevents others from exploiting the idea, design, name or
logo commercially. The license allows the licensee to use make and sell, the product
or name for a fee without censure. In a Trade Mark license, for example, the licensee
will be granted full privilege to use the Trade Mark on goods or services provided that
the use is in accordance with agreed signage protocols and quality guidelines. There
is usually no training component, product development strategy and limited marketing
support. Franchise Agreement-As previously discussed, a franchising arrangement
might be considered to be a more robust arrangement for new entrants into a line of
business. The franchise agreement covers obligations on both parties and includes a

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training, mentoring and technical advice component for the franchisee. Franchise
agreement is a specialized license and will cover all aspects of IP, user obligations and
use provisions.

3. MANAGEMENT CONTRACTS
-Management contracts can be defined as a written piece of agreement which states
that the operational control of an organization is vested on a separate vendor in return
of fee. These contracts underline all the details that are required for the management
of the organization which includes, but not limited to, accounting, facility management,
personnel and marketing management. These contracts can also be helpful in sorting
out issues in case of any disagreement from either end. While structuring management
contracts, the below mentioned points should be kept in mind-the contract should
clearly and vividly state the details of the operational activities to be carried out by the
vendor.
• The process utilized by the concerned vendor should also be listed.
• The chances of risks and hazards, their potential causes and effects and their
remedies should be specified.
• This tool should be written in lucid language and verbosity should be avoided
as much as possible.

The contract should mention the legal proceedings to be taken in case of necessity.
Management contracts may differ based on the organizational policies in question.
Nevertheless, the basic layout of management contracts should abide by the above
listed points for the smooth progress of management activities.

4. TURNKEY OPERATIONS
-A turnkey business is a business that includes everything you need to immediately
start running the business.InvestorWords.com defines a turnkey operation as "A
product or service which can be implemented or
Utilized with no additional work required by the buyer (just by 'turning the key')".A
business that is being sold as a turnkey business would include tangibles such as

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inventory and equipment through intangibles such as a previously established
reputation and goodwill. The most common type of business sold as a turnkey business
is a franchise. In the case of franchises, a turnkey business often includes a building
that has been constructed to the franchise's specifications, and an exclusive territory.
Entrepreneurs considering buying a turnkey business should always do their due
diligence and be sure they know exactly what a particular turnkey operation includes;
not all turnkey businesses are created equal!

5. JOINT VENTURES
-
A Joint Venture is a cooperative enterprise in which two or more business entities enter
together. The business entities, on creation of a joint venture, may form a separate
corporation or a partnership. There are also cases where the business entities retain
their own individuality, while entering into a joint venture agreement which is operated
as a separate entity altogether.
What Happens In A Joint Venture?-

Before two or more companies join together, they decide on the terms and the
conditions of the venture. The terms are decided in a way that all participating
companies benefit in some way. When a joint venture is formed, the parent companies
pool together agreed resources like capital, human resource, profits, risks etc. They
share business expertise, technology, distribution channels and sometimes, even
clients. Joint ventures are usually viewed as strategic alliances.

6. Alliances
Strategic Alliances - a relationship not involving ownership
• usually involving two or more companies that have resources and
access to markets which could not be obtained by the alliance
members on their own
• also done when the size of the project is beyond the scope of even
large companies

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Equity Alliances - a relationship when the partners take joint ownership of a subsidiary
– a relationship in which one or more of the partners takes an ownership position in
the other company this was very common among Japanese companies in the
1980's in order to secure strong motive for making the relationship succeed.

IV. PROBLEMS OF COLLABORATIVE ARRANGEMENTS

Dissatisfaction with the results of collaboration can cause an arrangement to
break down. Problems arise for a number of reasons.

A. Collaboration’s Importance to Partners

One partner may give more attention to the collaboration than the other—
often because of a difference in size. An active partner will blame the less
active partner for its lack of attention, while the less active partner will
blame the other for poor decisions.

B. Differing Objectives
Although firms may enter into collaborative arrangements with
complementary capabilities and objectives, their views regarding such
things as reinvestment vs. profit repatriation and desirable performance
standards may evolve quite differently over time.

C. Control Problems
When no single party has control of a collaborative arrangement, the
venture may lack direction; if one party dominates, it must still consider
the interests of the other. By sharing assets with another firm, a company
may lose some control over the extent and/or quality of the assets’ use.
Further, even when control is ceded to one of the partners, both may be
held responsible for problems.

D. Partners’ Contributions and Appropriations

One partner’s ability to contribute technology, capital and other assets
may diminish (at least on a relative basis) over time. Further, in almost
all collaborations the danger exists that one partner will use the others’
contributed assets, or take more than its fair share from the operation,
thus enabling it to become a direct competitor. Such weaknesses may
cause a drag on a venture and even lead to the dissolution of the
agreement.

E. Differences in Culture
Differences in both national and corporate cultures may cause problems
with collaborative arrangements, especially joint ventures. Firms differ
by nationality in terms of how they evaluate the success of an operation
(e.g., profitability, strategic market position and/or social objectives).

30
 Nonetheless, joint ventures from culturally distant countries tend to
survive at least as well as those between partners from similar cultures.

V. MANAGING FOREIGN ARRANGEMENTS

As a collaborative arrangement evolves, partners need to reassess certain
decisions in light of their resource bases and external environmental changes.

A. Dynamics of Collaborative Arrangements

The evolutionary costs of a firm’s foreign operations may be very high as
it switches from one operational mode to another, especially if it must pay
termination fees. Thus, a firm must develop the means to evaluate
performance by separating the controllable and uncontrollable factors at
its various profit centers.

B. Finding Compatible Partners

A firm may actively seek a partner for its foreign operations, or it can
react to a proposal from another company to collaborate with it. Potential
partners should be evaluated both for the resources they can offer and
their willingness to work together. The proven ability to handle similar
types of collaboration is a key professional qualification.

C. Negotiating Process
Certain technology transfer considerations are unique to collaborative
arrangements; often pre-agreements are set up to protect concerned
parties. The secrecy of financial terms, especially when government
authorities consult their counterparts in other countries, is an especially
sensitive area. Market conditions may dictate the need for different terms
in different countries.

D. Contractual Provisions
To minimize potential points of disagreement, contract provisions should
address the following factors:
§ The termination of the agreement if parties do not adhere to its
directives
§ Methods of testing for quality
§ The geographical limitations on the asset’s use
§ Which company will manage which parts of the operation
§ The future commitments of each partner
§ How each partner will buy from, sell to, or use intangible assets
that come from the collaborative arrangement.

E. Performance Assessment

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 All parties should establish mutual goals so all involved understand what
is expected, and a contract should spell out expectations. In addition to
the continuing assessment of the venture’s performance, a firm should
also periodically assess the possible need for a change in the type of
collaboration.

The Organization of International Business

Why do we need an Organizational Structure?
All organizations have a management structure that determines the relationships
between functions and positions and subdivides and delegates roles, responsibilities
and authority to carry out defined tasks.
The role of international organizations are helping to set the international agenda,
mediating political bargaining, providing place for political initiatives and acting as
catalysts for coalition- formation. International organizations also define the salient
issues and decide which issues can be grouped together, thus help governmental
priority determination or other governmental arrangements.
Organizational Structure
• Organization is defined by the formal structure, coordination and control
systems, and the organization culture.

• It’s the formal arrangement of roles, responsibilities and relationships within an

organization.

Types Of International Organizations

Inter-governmental organizations (IGOs)
An IGO is an organization composed primarily of sovereign states(member states),
or of other intergovernmental organizations. IGOs are established by treaty or other
agreement that acts as a charter(grant of authority/rights) creating the group.
Examples include the United Nations, the World Bank, or the European Union.
International non-governmental organizations (NGOs)
An international non-governmental organization (INGO) has the same mission
as a non-governmental organization (NGO), but it is international in scope and has
outposts around the world to deal with specific issues in many countries.
Some INGOs are operational(primary purpose is to foster the community-
based organizations within each country via different projects and operations)& some
are advocacy-based( primary purpose is to influence the policy-making of different
countries’ governments regarding certain issues or promote the awareness of a certain
issue)

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Types of Organizational Structure
Tall Organizational Structure
• Large, complex organizations often require a taller hierarchy.

• In its simplest form, a tall structure results in one long chain of command similar
to the military.

• As an organization grows, the number of management levels increases and the

structure grows taller. In a tall structure, managers form many ranks and each
has a small area of control.

Flat Organizational Structure

• Flat structures have fewer management levels, with each level controlling a
broad area or group.

• Flat organizations focus on empowering employees rather than adhering to the

chain of command.

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Virtual Organizational Structure
• Virtual organization can be thought of as a way in which an organization uses
information and communication technologies to replace or augment some
aspect of the organization.

• People who are virtually organized primarily interact by electronic means.

A Simple Organizational Structure

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Departmentalization
• When a company expands to

Ø Supply goods or services

Ø Produces variety of diff. products

Ø Engage in several diff. markets in such conditions the company can adopt
Departmentalization.

Other Types of Organizational Structures

1. Functional Structure

• Specialized jobs are grouped according to traditional business functions.

• Ideal for Co. having a narrow product line, sharing similar technology.

• Helps maximize economies of scale

• Highly efficient.

2. International division structure.

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 • Grouping each international business activity into its own division.

• Creates a critical mass of international expertise.

• Creates quick response to environmental changes enabling them to deal with

different markets.

• Prevents duplication of activities.

• Often struggles to get resources from domestic divisions.

• This structure is suited for multidomestic strategies that demand little integration
and standardization between domestic and foreign operations.

• Frustrates its ability to exploit economies of scale.

3. Product Division Structure

• These are popular among international companies with diverse products.

• Similar products are grouped under one product head e.g. Perfumes and
Cosmetics, each focusing on a single product segment for its global market.

• Suited for a global strategy

• There may be duplicate functions and activities among divisions.

• No formal means by which one product divison can learn from another
international expertise.

Matrix Division Structure

• This tries simultaneously to deal with competing pressures for global integration
and local responsiveness.

• Institutes overlaps among functional and divisional forms.

• Gives functional, product, and geographic groups a common focus.

• It makes each group share responsibility for foreign operations and enables
each group exchange information and resources more willingly.

• Drawbacks- Stop championing their group’s unique needs, and thereby

eliminate the multiple knowledge-generating and decision making relationship
that it is supposed to engage.

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Marketing Globally

GLOBAL MARKETING STRATEGY

š Defined as the process of adjusting the marketing strategies of your company
to adapt to the conditions of other countries
š marketing on a worldwide scale reconciling or taking commercial advantage
of global operational differences, similarities and opportunities in order to
meet global objectives
BENEFITS OF GLOBAL MARKETING
š Improve the effectiveness of your product or service
š Strong competitive advantage
š Increase customer awareness of your brand
š Reduce your costs and increase your savings
EXTENSION
• Presenting your product to a global marketplace without any changes
• Products are globally known and need no additional product or promotion
changes
ADAPTION
• used in a global market for a product that may be popular but needs to be
adapted to meet local customs and demand
INVENTION
• inventing a new product to meet the needs of a particular country
PRICING CONSIDERATIONS
• Taking into consideration the economic conditions of the country where
products are introduced
• To combat prices being too high in less affluent countries, a company could
make a smaller or less complex version at a lower price.
PRICING STRATEGIES
PRICE SKIMMING
• The price of a product or service is initially set very high, and then it decreases
over time

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 • Pricing strategy by which a firm charges the highest initial price that customers
will pay
Skimming is a useful strategy when:
š There are enough prospective customers willing to buy the product at the high
price
š The high price does not attract competitors
š The high price is interpreted as a sign of high quality
PENETRATION PRICING
• strategy used by businesses to attract customers to a new product or service
• the practice of offering a low price for a new product or service during its initial
offering in order to lure customers away from competitors
ADVANTAGE
š It can often increase both market share and sales volume
š the high sales volume can also lead to lower production costs and
higher inventory turnover
DISADVANTAGE
š the increase in sales volume may not necessarily lead to a profit if prices are
kept too low
š customers may switch out of curiosity but then leave the brand once prices
begin to rise
COMPETITIVE PRICING
• a company sets the price of its product or services based on what the
competition is selling their products for
• used more often by businesses selling similar products
Three options when setting the price for a good or service:
š Below competition
š At the completion
š Above competition
PRODUCT LINE PRICING
• Group of related products under a single brand sold by the same company
• Companies often expand their offerings by adding to existing product lines

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 • aim to maximize the sales of different products by creating more
complementary, rather than competitive, products
PRODUCT LINE EXTENSION
š Companies add new items to their product lines
š Allows companies to maximize their reach
DUAL PRICING STRATEGY
• Involves setting one price for the goods sold on the domestic market while
setting a completely different price for goods sold in international market
š It avoids standardizing a price on a global scale and is instead sensitive to
local market conditions

š It has the advantage of being sensitive to different markets and takes into
account factors such as local currency rates, local competition and market
distance
š If done with the intent of dumping in a foreign market, can be considered
illegal
WORLD WIDE PRICING STRATEGY
• setting one price for the goods sold on the domestic market international
market
• It's not necessarily sensitive to local market conditions
DISADVANTAGE
š The lack of sensitivity to local market conditions makes it difficult to set a
uniform price across an entire global market that consists of multiple
submarkets, each with its own supply and demand
PROMOTION STRATEGIES
GLOBAL PROMOTION
ENVIRONMENTAL FACTORS
§ Language
§ Culture
§ Regulations
GLOBAL ADVERTISING CAMPAIGNS

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 • Standardized
• Customized
GLOBAL MEDIA SELECTIONS
• Media Availability
• Habits
• Credibility
• Scheduling
GLOBAL ADVERTISING ORGANIZATION
• Agency Section
• Coordination
BARRIERS TO STANDARDIZATION
š CULTURAL DIFFERENCES
š ADVERTISING REGULATION
š MARKET MATURITY

PROMOTION STRATEGIES
š ADVERTISING
š PUBLIC RELATIONS
š SALESPROMOTION
š PERSONAL SELLING
š DIRECT MAIL

40
PUSH TACTICS
• Trade show promotions to encourage retailer demand
• Direct selling to customers in showrooms or face to face
• Negotiation with retailers to stock your product
• Efficient supply chain allowing retailers an efficient supply
• Packaging design to encourage purchase
• Point of sale displays

PULL TACTICS
• Advertising and mass media promotion
• Word of mouth referrals
• Customer relationship management
• Sales promotions and discounts
BRANDING STRATEGIES
IMPORTANCE OF BRANDS
CONSUMER SIDE
• Identification of the maker of the product

41
 • Risk reducer
• Search cost reducer
• Symbol of quality
• Symbolic devices that allow customers to represent their values and images
MANUFACTURER SIDE
• Valuable asset
• Signal of satisfied customers and quality level
• Premium prices
• Sustainable sales and profit
• Financial returns
• Competitive advantage
STANDARDIZATION STRATEGY
• The company prefers to make its brand uniform with its domestic products
• Seeks to capture benefits by minimizing variation of products
Appropriate when:
• Similar market segments exist across countries
• Customer seek similar features
• Products have universal specifications

ADAPTION STRATEGY
• Seeks to maximize responsiveness to local variations in preferences by
varying the marketing mix
• Companies meet the needs of customers more certainly as well as
governmental regulations on health or technical standards
CAN BE PURSUED WHEN THERE ARE DISTINCT:
• National preferences
• Laws and regulations
• Living standards and economic conditions
COUNTRY OF ORIGIN EFFECT

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 • Any influence (positive or negative) that the manufacturer’s country has on
consumers’ perception of a product
• Therefore the label “Made in …” on a product affects the customer choice
• Factors such as business history, economic, and technological conditions are
influential on image of a country
• Dutch cheese, French wines, Chinese silk, Japanese electronics, German car,
Italian pasta
Different Languages that people from different countries speak represent different
world views
• In the western world, the motive is “To enjoy music without being disturbed by
others”
• Japan’s motive “To listen to music without disturbing others
DISTRIBUTION STRATEGY
INTENSIVE DISTRIBUTION STRATEGY
• Company sells through as many outlets as possible, so that the consumers
encounter the product virtually everywhere they go
• Used commonly to distribute low priced or impulse purchase products

EXCLUSIVE DISTRIBUTION STRATEGY

• an agreement between a supplier and a retailer granting the retailer exclusive
rights within a specific geographical area to carry the supplier's product
• Often the supplier severely limits the number of products it supplies the retailer
as well
SELECTIVE DISTRIBUTION STRATEGY
• Lies between intensive and exclusive distribution
• This basically involves using more than one, but lesser than all the
intermediaries who carry the company’s products

MANAGING THE MARKETING MIX

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 The marketing mix is one of the most famous
marketing terms. The marketing mix is the
tactical or operational part of a marketing plan.
The marketing mix is also called the 4Ps and
the 7Ps. The 4Ps are price, place, product and
promotion. The services marketing mix is also
called the 7Ps and includes the addition of
process, people and physical evidence.
The marketing mix is . . . The set of controllable
tactical marketing tools – product, price, place,
and promotion – that the firm blends to produce
the response it wants in the target market.
The concept is simple. Think about another common mix – a cake mix. All cakes
contain eggs, milk, flour, and sugar. However, you can alter the final cake by altering
the amounts of mix elements contained in it. So for a sweet cake add more sugar!
Price
Price is the amount the consumer must exchange to receive the offering .
Solomon et al (2009).
The company’s goal in terms of price is really to reduce costs through improving
manufacturing and efficiency, and most importantly the marketer needs to increase the
perceived value of the benefits of its products and services to the buyer or consumer.
PLACE
Place includes company activities that make the product available to target consumers.
Place is also known as channel, distribution, or intermediary. It is the mechanism
through which goods and/or services are moved from the manufacturer/ service
provider to the user or consumer.
PRODUCT
Product means the goods-and-services combination the company offers to the target
market.
For many a product is simply the tangible, physical item that we buy or sell. You can
also think of the product as intangible i.e. a service.
In order to actively explore the nature of a product further, let’s consider it as three
different products – the CORE product, the ACTUAL product, and finally the
AUGMENTED product.

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The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a
seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts
down roots as it becomes an adult (maturity); after a long period as an adult the plant
begins to shrink and die out (decline).
The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle
(PLC). However, CLC focuses upon the creation and delivery of lifetime value to the
customer i.e. looks at the products or services that customers NEED throughout their
lives.
PROMOTION
Promotion includes all of the activities marketers undertake to inform consumers about
their products and to encourage potential customers to buy these products.
Promotion includes all of the tools available to the marketer for marketing
communication. As with Neil H. Borden’s marketing mix, marketing communications
has its own promotions mix. Whilst there is no absolute agreement on the specific
content of a marketing communications mix, there are many promotions elements that
are often included such as sales, advertising, sales promotion, public relations, direct
marketing, online communications and personal selling.
PHYSICAL EVIDENCE
(Physical evidence is) . . . The environment in which the service is delivered, and where
the firm and customer interact, and any tangible components that facilitate
performance or communication of the service.
Zeithaml et al (2008)
Physical Evidence is the material part of a service. Strictly speaking there are no
physical attributes to a service, so a consumer tends to rely on material cues. There
are many examples of physical evidence, including some of the following buildings,
equipment, signs and logos, annual accounts and business reports, brochures, your
website, and even your business cards.

PEOPLE
(People are) . . . All human actors who play a part in service delivery and thus influence
the buyers’ perceptions; namely, the firm’s personnel, the customer, and other
customers in the service environment.
Zeithaml et al (2008).
People are the most important element of any service or experience. Services tend to
be produced and consumed at the same moment, and aspects of the customer
experience are altered to meet the individual needs of the person consuming it.

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PROCESS
Process is) . . . The actual procedures, mechanisms, and flow of activities by which the
service is delivered – this service delivery and operating systems.
Zeithaml et al (2008).
There are a number of perceptions of the concept of process within the business and
marketing literature. Some see processes as a means to achieve an outcome, for
example – to achieve a 30% market share a company implements a marketing
planning process. However in reality it is more about the customer interface between
the business and consumer and how they deal with each other in a series of steps in
stages, i.e. throughout the process.

Global Marketing in the 21st Century

§ The world is shrinking rapidly with the advent of faster communication,

transportation, and financial flows.
§ International trade is booming and accounts for 20 percent of GDP worldwide.
§ Global competition is intensifying.
§ Higher risks with globalization.

Global marketing

Is particularly important for products that have universal demand, such as food
and automobiles. Thus a beverage company is likely to be in more markets than say,
a wooden toy company; but even a wooden toy company may find niche markets in
diverse corners of the world.

Global Marketing Defined:

• the coordinated performance of marketing activities to create exchanges

across countries that satisfy individual, organizational , and societal objectives
• Global marketing is conducted across countries (not domestic or foreign)
• Global marketing coordinates activities across different country markets
• Global marketing should be motivated by individual, organizational, and
societal goals

Why Should Firms Engage in Global Marketing?

46
 • To Survive and Grow

1. Learn to satisfy consumers in diverse conditions

2. Manage marketing tasks more efficiently and effectively
3. Preempt or counter competitive attacks in more than one market
4. Expand customer base to include developed and developing nations

• To Capitalize on the Attractiveness of Additional Country Markets

1. The U.S. is attractive-but won’t accommodate unlimited growth

2. Expand market size by expanding into other countries
3. Maurice G. Hardy: Why expand into other countries? A. Keep competitors in
their own countries; b. Take advantage of growing opportunities in Europe and the
Pacific

• To Operate Within a Global Marketplace

1. Goods, services, capital, technology, and labor are going global

2. Reduced government restrictions are affecting global marketing
3. Bilateral and multilateral negotiations are reducing restrictions
What is Unique about Global Marketing?
Country market environments different
• Economic Environment ( Purchasing Power, Competitive Intensity,
Economy’s Health)

1. Fiscal policies - tax rates and spending programs of government

2. Monetary policies - regulate money supply

• Financial Environment

1. Exchange rate - price of one currency in relation to another

47
 2. Exchange rate fluctuations can adversely or favorably affect performance of
a firm

• Political Environment

1. Tariff barriers - taxes on imports paid to customs officials - include

a. Specific - fixed amount per physical unit of import
b. Ad -valorem ( on the value ) - percentage of estimated value of import
2. Nontariff barriers include
a. Import quotas
b. Exchange controls
c. Buy-domestic policies
d. administrative red tape
• Cultural Environment

1. Differences encourage marketing adaptations

2. Similarities encourage standardization
3. Balancing the two is a key to success

• Globalization (Standardization)
– Developing standardized products marketed worldwide with a
standardized marketing mix
– Essence of mass marketing
– Selling largely the same products and using the same marketing
approaches worldwide.
• Global localization (Adaptation)
– Mixing standardization and customization in a way that minimizes costs
while maximizing satisfaction
– Essence of segmentation
– Think globally, act locally
– Producer adjusts the marketing mix elements to each target market,
bearing more costs but hoping for a larger market share and return.
Global Product Strategies
§ Straight Product Extension:
– Marketing a product in a foreign market without any change.

48
 § Product Adaptation:
– Adapting a product to meet local conditions or wants in foreign markets.
§ Product Invention:
– Creating new products or services for foreign markets.

FIRST STEPS IN DECIDING TO MARKET GLOBALLY

• Questions to ask:
• Will our product sell well in the new target culture?
• Is our target market familiar yet with our product, or our name?
• Are we comfortable doing business in this particular place?
• How well developed is the infrastructure?
• Steps to take:
• Prepare an international business plan.
• Conduct research into foreign markets.
• Evaluate distribution possibilities.
• Evaluate methods for financing the operation.
• Learn the rules and regulations in the new country.

STRATEGIES FOR ENTERING FOREIGN MARKETS

• Firm’s risk and degree of control both increase with greater involvement.
• Export-trading companies—buy products from domestic producers and resell them
abroad.
• Export-management companies—provide expertise in reaching foreign buyers,
handle necessary paperwork, and ensure goods meet local legal requirements.
• Offset agreement—small firm teams with international company and serves as
subcontractor on a large foreign project.

CONTRACTUAL AGREEMENTS

49
Provide flexibility and may be good ways to take services
abroad.

• Franchise - Contractual arrangement in which a wholesaler or

retailer agrees to meet the operating requirements of a
manufacturer or other franchiser.
• Foreign licensing - Agreement that grants foreign marketers
the right to distribute a firm’s merchandise or to use its
trademark, patent, or process in a specified geographic area.
• Subcontracting—production of goods and services assigned
to local companies.
• Can prevent misunderstanding of local culture and
regulations and provide protection from import duties.

Why Should We Study Global Marketing?

• Influence Product Choices of Consumers

• Influence standard of living
• Influence Job Opportunities
• Influence the society

Global Manufacturing and Supply Chain Management

Global Manufacturing Strategies
• Global Manufacturing strategies- A Global Manufacturer is a company that
manufactures components, sub-assemblies, assemblies, and finished
products for another company by leveraging raw material, manufacturing
capabilities, cost, and an efficient supply chain that spans across the world.
• We define Global Manufacturing at manufacturing in lower cost parts of the
world to Western Quality Standards. We achieve that success by having
‘boots on the ground.’
Concepts for global manufacturing strategies
The main concepts, are the following: .
• Outsourcing - A part of the functions and/or resources of an organization are
transferred to be taken care of by a service provider outside the organization.

50
 • Insourcing - Opposite to outsourcing.

• Global sourcing - An organization is purchasing services from just the right

place at just the right prize (not necessarily only from countries having lower
labor costs).

• Off-shoring - To transfer functions and/or resources from a country having

higher labor costs to a far away country with lower labor costs (e.g.
transferring manufacturing from Finland to China, or transferring them just to
the opposite direction, e.g. transferring R&D from China to Finland).

• Near-shoring - To transfer functions and/or resources from a country having

higher labor costs to a close-to country with lower labor costs (e.g. transferring
manufacturing from Finland to Estonia, or transferring them just to the
opposite direction, e.g. transferring R&D from Estonia to Finland).
Based on business strategy

A manufacturing strategy based on a business strategy includes three

objectives: competitive priorities, manufacturing objectives and action plans.

• In the first phase, competitive priorities are defined, they should answer
what the manufacturing strategy function should achieve regarding to cost,
quality, flexibility and delivery in order to support the business strategy
effectively.

• In the second phase, manufacturing objectives are determined on the base

of the competitive priorities. Manufacturing objectives have relative emphasis
on performance measures that are related with cost, time, and quality.

• In the third phase, manufacturing objectives are used to result action plan.
In action plan it is described possible improvement programs and recognizing
its expected effects on specific operating objectives. Process model of
manufacturing strategy.

Essentially, manufacturing strategy comprises a set of well-coordinated objectives

and action programs aimed at securing sustainable advantages over competitors. It
deals with the importance of manufacturing in business strategy and guides
manufacturing decisions at functional level of company

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 The global manufacturing strategy involves manufacturing strategy involves
manufacturing operations spread among countries.
Leong and Ward (1995) suggested six Ps of manufacturing strategies
• Planning
• Pro activeness
• Pattern of actions
• Portfolio of manufacturing capabilities
• Programs of improvement
• Performance measurement

A manufacturing strategy is defined as a statement of how manufacturing supports

the overall business objectives through the appropriate design and utilization of
manufacturing resources and capabilities.
Resources and capabilities provide a basis of intensity of strengths or competencies
to global manufacturers to avail the opportunities and to overcome threats,
Manufacturing in China – Advantages and Disadvantages
A company with manufacturing operations in the United States continues to
experience skyrocketing operating costs.

• High labor costs brought about by previous multiyear aggressive bargaining unit
agreements
• The principles of “lean”, “six sigma” and “total productive maintenance” may have
been applied by internal and external resources (operations consultants) with little
added measurable bottom line gains.
• Demand and pricing of increasing numbers of customers now located in Asia as a
result of long delivery times and shipping costs.
• The firm may have had to make significant investment in inventory and warehouse
costs in Asia to try to improve their delivery times.
• The Board of Directors may be witnessing more and more of the company’s
competition moving operations to Asia enabling them to reduce their costs.

Potential Benefits

• Proximity to your customers.

A nearby production source for your market with new location

• Existing Customer Interest

Existing Customers will anticipate lesser price for your products and faster
delivery associated with the one produced in the U.S. Inviting asian customers

52
 after establishing your facility in China, will have a positive impact on your
sales as they will recognize your physical presence and actually manufacturing
your products in China.

• Attract new customers

With your presence in China, you can readily identify and invite new potential
customers that you never able to visit to your operations in U.S. Having your
facility set foot in China enables you to introduce your products to new
customers. This by combining with hiring Chinese sales and application
engineers will enable you to go beyond the use of distributors.

• Market Size
If you have a good product to sell to your customers, it is not only by reducing your
operational cost but it can be a potential significant increase in the existing and new
customer sales as you penetrate and grow your market share in this most thickly
populated country in the world.

• Operational Costs
The much publicized topic of discussions of manufacturing in China. However,
many cost elements that adds up to your total manufacturing costs.

• Labor- If you are into a highly labor intensive industry. You have the
opportunity to significantly reduce costs compare to the U.S. Salaries for
technical and management workforce are lower compare to the labor rate for
hourly type positions.

• Raw Materials and Supplies- Chances are materials costs are reduced
depending on the specific raw material requirements. You cannot anticipate
saving on materials like nickel and copper as this is dictated by the global price. One
of the biggest challenges, however, is locating and then qualifying a reliable
supplier.
• EQUIPMENT- You may have the possibility to save on equipment cost but it is also a
”buyer beware” market in China , products known to be sub standard” You get what
you pay for”. You will need to research meticulously before proceeding in your
equipment purchases.
• TAXES- In China, taxation is complicated. Currently U.S. companies can use income
earned and re invest it in the operations without tax implications in the U.S. Hire an
established accounting firm with Asian exposures to determine what suits you.
• Environmental cost- With the strong campaign against global warming. Strict
policies and regulations are being imposed. An associated cost with hiring an
environmental consultant is expected plus the modification of your equipment
to meet emission requirement for air, water, solid, waste and noise.
• Management objective- the CEO, the Board of Directors, stockholders, etc.
may send you encouragement for establishing some level of manufacturing in
China. An amount of fear from the top management for taking such move
from a known comfort location of manufacturing in the U.S. knowing what it
takes to successfully moved operations on the other world where language,
culture and government is so different.

53
 Potential Disadvantages/Risks

• Utility and Process Gas Costs

Electricity- The cost of electricity in China is two to three times possibly expensive
than in the U.S. Since there is electricity involved in their respective processes, the
added costs for power likely more than out-weighed any labor savings.

• Land
Land Purchasing a land in China is not allowed. You are only able to purchase the
“right” to operate for 50-year period. You can resell but reselling your property is not
same in the west. Developing your land by literally cutting down mountain, filling
swampy area ,building roads to your property add costs to your investment.

• Intellectual property risks

Intellectual property risks - Keep your manufacturing advantage confidential
over your competition. Your employees may share the information with your
competition while still working for you and eventually quit your company and
start up their company to make the same thing.

• Legal issues.

Legal issues- Litigation in China is nothing compare to the U.S.

There is no independent bar association and resolution of any legal issues can be
challenging if you are dealing with the government. You should have any contracts
reviewed by consultants familiar with Chinese contracts.

• Government-
The local government can make your job easier or harder depending upon on how
good that relationship . Relationship is crucial in your success. Build and maintain
positive relationship, which is best done by your local general manager.

• Employee Attrition
Employee Attrition- Despite very low wages compared with the west.
Chinese employee signs a contract with the company which is usually good for
one year. Take note that attrition can be challenge in China. This is very
common during Chinese holidays, like the Chinese New Years celebration,

• Language/ Cultural barriers

Language/ Cultural barriers- You need to understand that it is ‘different” in China

not just the language. No” doesn’t always mean “no” and “yes” doesn’t always mean,
“yes”. Chinese is a difficult language to learn. You need to find qualified employees

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 for your key positions with good English skills (both writing and speaking) to
insure that you can communicate technical, legal and other business related topics.

• .Hidden” or “Extra Costs”

When you are implementing a building project there are numerous consultants that
the government requires you to hire

• Safety-
Enforce safety rules as diligent as you can. Chinese are not always safety conscious.
They have an attitude and takes short cut which is dangerous to their health and so
with others health and safety. This will be your challenge and it is important that you
emphasize this with them frequently.

• Currency
As possible you should negotiate your contracts in U.S. dollars but you might find
that difficult to do for the same reason you don’t want to pay in RMB the Chinese
would not want to have you pay in U.S. dollars as the value of the Chinese RMB
increases and they are getting less for their rent.

• Importing used equipment

Additional cost to consider for shipping your equipment to Chinese destination. Clean
up and inspection cost can be of thousand of dollars in order to meet the Chinese
customs requirement. The Chinese government also restricts importation of some
equipment.

• Leveraging the supply chain for growth

With manufacturers focused on entering new markets and creating new products,
ensuring the supply chain is ready for growth will be a top priority. However,
manufacturers will first need to focus on improving their supply chain visibility and
flexibility if they hope to reduce the risk of partnering with new suppliers and creating
new value chains.

Low visibility, high risk With much now riding on their supply chain’s ability to meet
new demands and growth expectations, many are increasingly worried about an
unexpected supply chain failure. In fact, when asked what posed the greatest risk to
their growth agenda, supply chain failure ranked third, behind only economic
disruption and market disruption (two factors that, arguably, are outside of their direct
control). Thirty- seven percent of all respondents ranked supply chain failure as a
‘significant’ risk. The fact that manufacturers worry about supply chain risk is not
entirely surprising. Just 13 percent of our respondents said they have ‘complete’
visibility past their Tier 1 suppliers and into their Tier 2 and beyond. About two-fifths
reported ‘enhanced’ visibility, giving them full transparency into their Tier 1 suppliers
and into some Tier 2 suppliers. Forty-three percent admitted they had either limited or
no visibility

55
at all into their supply chain. “The best way to reduce the risk of supply chain failure is
by achieving greater visibility, and managing it cross-functionally deeper into the end-
to-end supply chain.”
Information Technology and Supply Chain Management
4 Uses Of Technology To Improve Supply Chain Management

1.) Computerized Shipping and Tracking

With the aid of modern technologies and Internet-based software, you can simplify
the supply process and dramatically reduce shipping errors. Software like flash view
enables savvy business owners to consolidate all aspects of their supply chain in one
place.
To allow you:
• To digitalize organize date
• Monitor
• Manage shipping and tracking information
• Create electronic invoices with ease

Through the use of , supply chain management technologies you can greatly reduce:
• the time spent shipping
• receiving,
• tracking
• and compiling order data, which will save your company both time and money.

Not only will flash view improve the operational efficiency of your supply chain, it will
also greatly enhance the customer experience by providing consumers
• the ability to continuously track the status of their orders.

Through digitalized tracking, you can significantly reduce shipping errors and more
rapidly respond to the errors that do occur. In this day and age, having technology

56
like flash view is essential to running a thriving corporation that is both business and
consumer-friendly.

Reduce:
• significantly reduce shipping errors
• more rapidly respond to the errors that do occur

2.) Radio Frequency Identification (RFID)

RFID-Vital piece of technology that can provide innumerable benefits to the business
owner.
• RFID chips are placed on every product and provide a way for business
owners to easily track their inventory.

Increased visibility RFID chips provide

• substantially improve your supply chain efficiency- by detecting any order
anomalies as they occur
• enabling employees to immediately correct mistakes
• it allows for easier and more consistent tracking
• enabling business owners to have maximum control and visibility over their
products at all times.

Since RFID chips provide computerized product management, they can

• eliminate the potential for errors

• simplify the supply chain
• reduce operating costs.

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3.) Use Social Media to Streamline Supply Chain

Social media is a popular technology that has swept the world. With over 288 million
Twitter users and 1.23 billion Facebook users, it’s no wonder many businesses are
turning to social media to gain visibility for their company. In fact, over 70 percent of
all Fortune 500 companies rely on social media as part of their marketing strategy
and supply chain management. Through the use of social media, you can create
more open communication with customers
• Increase the visibility of your company
• Improve the demand on your products
• Utilize cost-effective and time-efficient marketing strategies
• Lower your operational costs, and enhance your company’s overall
productivity.

Social media can be used to interact with customers,

• Respond to questions
• Report accidents or weather conditions that may impede delivery schedules
• Create automated updates about your inventory
4.) Simplify Your Supply Chain
The more links there are in your supply chain,
• the more convoluted and complex that chain becomes.
By simplifying the supply chain and disposing of unnecessary links,
• you can improve efficiency and reduce expenditures
• Work directly with the manufacturers whenever possible
• rather than purchasing through an intermediary source.
• By working directly with the manufacturer you can greatly reduce expenses
and create a simpler and more efficient supply chain

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• Reducing the links in your supply chain will also enable you to lower the risks
associated with shipping and receiving

Global trade is contingent on such factors

• as weather,
• international border security,
• economic collapse,
• and natural disasters,
Simplifying your suppliers to as few manufacturers as possible will improve the
reliability and efficiency of your supply chain and leave your business less vulnerable
to unforeseen disaster.

In order to improve as a business, it’s essential to

• continually adapt to emerging technologies in order to stay ahead of the
competition.

By integrating modern technologies into your business plan,

• you can greatly enhance your productivity as a company, while cutting costs
and improving customer satisfaction and client retention.

Customers will likely be turned off of a business that

• routinely has shipping delays,
• shipping errors,
• or products that are out of stock.

Enhancing your supply chain

• can minimize risk and
• improve your reputability in the eyes of the public.

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4 Key Areas For Managing Supply Chain Risk In The Global Supply Chain

• Due to increasing customer demand and competitive pressures, many

startups, small businesses and larger enterprises face restructuring their organization
to exploit the opportunities presented by going global.

This presents several areas of concern of supply chain risk that today’s executives
must address in order to manage and mitigate the risks involved,.
• Logistical
• Economic
• Political
• Cultural
• Competitive
• Infrastructural concerns

Generally, today’s global company operates within a complex supply chain that
• requires a coordinated flow of information
• services,
• goods and payments within and across international boundaries.

Optimizing profits in this environment includes

• sourcing from geographical regions with the lowest procurement costs,
• assembling and manufacturing in least cost regions,
• and commercializing products in high demand areas, all of which may be in
completely different continents.

1.) Comprehensive Management Strategies needed to Decrease the Kinks in the

Supply Chain
As recent events, such as hurricanes Katrina and Rita, have demonstrated, one
disruption causes disruptions along the entire supply chain.
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• A comprehensive risk management strategy must incorporate steps to identify,
analyze and implement risk mitigation tactics that address potential disruptions
across multiple countries.
• In order to manage international supply chain risks, organizations need to first
identify those risks.
Two trends impacting the dynamics of international supply chains include
• consolidation and
• globalization of companies leading to increased uncertainty in logistics
operations at the tactical, operational and strategic levels.
• These uncertainties become greater when factoring in such issues as rapidly
fluctuating oil prices or unstable political movements.

2.) Compliance to Local Laws in Geographic Areas of Uncertainty to Decrease

Lead Times
Moreover, going global means
• uncertainty in local laws and cultural norms that may impact a business, and
differences in more concrete concerns, such as uncertainty in supplier reliability and
lead times also cause increased uncertainty.
Advancing technology
• has minimized some aspects of lengthy lead times,
• the physical transport of materials and finished goods remains at risk.
• This can be seen today in the continuing port strikes along the western coast
of the United States. Thus, international supply chains are highly complex, continually
evolving, characterized by layers of uncertainty, and strategically critical to all levels
of the company.

3.) The Categorization of Supply Chain Risk Strategies: Atomistic/Holistic &

Qualitative/Quantitative
Supply chain risk can be categorized into types of risk and sources from atomistic to
holistic.
• Generally, atomistic sources take only a limited link in the supply chain for
assessment, and the approach is used for non-complex, low-value, and highly
available materials and components.

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• Holistic sources require a comprehensive analysis of the entire supply chain,
and this approach is most appropriate for assessing risks to high-value, rare, unique,
or complex materials or components, since disruption of these materials would have
a wide effect on supply chain operations.
• Understanding these differences is necessary to delegate responsibilities in
the management of risks.

Similarly, supply chain risks can be categorized as qualitative or quantitative.

• Qualitative risks include inadequacies in reliability, accuracy and precision of
the materials or components,
• while quantitative risks include overstocks, out-of-stocks, customer discounts,
obsolescence or lack of availability of materials and components.
• Both categories may create the need for holistic assessments along the
supply chain, and may significantly impact the speed to market.

4.) Supply Chain Risk Mitigation Requires Talent, Expertise, Speed to Market &
Attention to Detail

While all risks cannot be completely eliminated, selecting an expert logistics service
provider, such as Flash Global, can be a critical component of a comprehensive risk
management plan.
• Moreover, have an expert partner can enhance an organization’s ability to
proactively focus on the probability of uncertain events, while using risk mitigation
methods to minimize disruptions after they occur.
• Thus, the crucial factor in risk mitigation and management is the ability to
identify potential losses from unexpected events.
Employing the framework and infrastructure assets of a logistics service expert
provides three main benefits:
1. An integrated framework for addressing supply chain risks that provides an
extensive knowledge of the components of risk, the ability to create risk profiles, and
then use those profiles to produce a targeted strategy for in individual business.
2. Technology with which to assess risk along both the quantitative and
qualitative dimensions, and offer holistic methods to evaluate those risks.

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3. A framework that addresses the dynamic nature of international supply chain.
Thus, as needs change, the framework can adapt to update profiles and re-evaluate
risks, thereby fine-tuning the overall risk management plan.
In the search for a logistics services provider, a business should seek out providers
that offer a complete suite of services including:
• Trade and compliance
• Inventory management
• Asset recovery
• Order management
• Flexible, customizable solutions
• Recycling
• Robust reporting and data analytics
• Warehouse services
• IOR/EOR compliance and services
• Field service
• Network modelling
• Transportation
Companies operating in the global marketplace can reap a wide variety of benefits by
• outsourcing logistics and international supply chain management to a service
provider. With a multitude of business models, a logistics provider can offer a tailored
menu of services, such as distribution, or a comprehensive solution for enterprise
logistics that includes international freight forwarding, domestic logistics, audit
services, freight payment, business intelligence, transportation management system
technology, and warehouse sourcing.
Quality and Supply Chain Management

Is Your Global Supply Chain Quality Trustworthy?

Wouldn’t it be great for your company to be on CBS, ABC, USA Today, Time, CNN,
and most local affiliates on the very same day? Absolutely! Unless of course the US
Consumer Product Safety Commission just announced a recall of your product.

Wal-Mart announced a recall of nearly 175,00 children’s dolls because the toys
could overhead and potentially burn children.

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That kind of press could kill your company in one day. The question to ask is: How
do you ensure this doesn’t happen to you?

The answer: You need a transparent and trustworthy supply chain. From the
component level to the finished goods, you need a plan.

Global supply chain quality is an ongoing process, not an event. You cannot write a
manual and distribute it around the globe. The process starts with a well-defined
plan:

• A Global Quality Plan. That plan becomes part of your culture as it rolls out
and becomes intertwined with the manufacturing processes of your
company. Yes it takes time, but you have to have an action plan for
quality. The playbook is just the beginning.

Melissa Xue, Global Quality Manager at East West, says, “Quality is a process – an
ongoing process that should never end.

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 A continuous improvement plan, a system to inspect incoming raw materials, in
production components, sampling testing final assembly, and inspecting finished
goods are absolutely essential to create and maintain a world class quality program.”

• This quality process must be in place whether you manufacture in the US or

Vietnam. “You can expect what you inspect” is attributed to William Deming,
an American professor who promoted the Plan-Do-Check-Act, later known as
the Deming Cycle for quality continuous improvement.

• Anything critical to the success of your business is inspected. You do not hire
the cheapest accounting firm to audit your financials,

• you find the best.

• most capable to inspect the P&L. or profit and loss.

What should you do to ensure your product makes the news for its quality not lack
thereof:

• Insist on a transparent supply chain partner

• Go visit
• Ask for ongoing data – inspection
• Demand quality
• Partner with like-minded and similar value organizations

Manufacturing your product should never be an unknown variable. Surprises are fun
at birthdays, not when you open a box or container of your merchandise. Your
product is as good as your entire supply chain. Don’t trust it with just anyone.

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 Regardless of whether you have one manufacturing plant or multiple plants across
the globe, you face:

• Increasing global competition

• A need to produce the highest quality products
• A continual need to drive down costs
• Supplies sourced from across globe

From Perkins gas and diesel engine provider

The same quality standards – wherever we build your engine

Wherever your engine comes off the production line – from Peterborough to Hosur or
Wuxi to Seguin – it will meet exactly the same high standards of performance,
reliability and durability. Quality won’t deviate, because they follow the same
stringent processes and use the same quality components wherever we build your
engine.

With manufacturing sites in China, India, North America, South America and the UK,
Perkins is a truly global business.

Some Original Equipment Manufacturers (OEMs) may believe that an engine

produced in North America is superior to one tooled in Asia or assembled in South
America. But it’s a misconception. Whichever manufacturing facility builds your
engine, the same consistent global quality is 100 percent assured.

Here’s how to achieve it:

• Standardized working – every operator, regardless of where they are in the world,
follows a consistent two-month training program before they work on the production
line. When they get there, they follow the same Caterpillar Production System
(CPS) used in all manufacturing facilities, ensuring the same efficient processes,
tested and validated components, and stringent quality controls are implemented at
every facility
• Consistent quality standards – They follow a methodology called BIQ (built-in
quality). This is a process where we strive to catch every problem in the process,
find its root cause and ensure it never happens again
• Regional suppliers – whether they’re international names or local companies, all
work to the same levels of excellence. All parts are approved in accordance with
Company global advanced product quality planning process

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• Rigorous testing – state-of-the-art test systems, material labs and computer-aided
design capabilities ensure that components can be validated and tested to the
company global high standards
• No-fault-forward mentality – we use in-process verification during the build of an
engine. That means that operators follow clear, detailed instructions about what
they have to do and the checks they need to follow. The engine cannot progress
through the process until every detail is complete
• Intelligent tooling – this helps build with more precision when needed. So when
tightening a bolt, they use intelligent tooling to control the speed and torque, and
even the angle that the bolt turns to. This is then checked within the software of the
tool. If it goes out of parameters, we lock the engine in station and don’t allow it
proceed until it’s been rectified
• Automated measurement – offering variety to our customers is one of the company
key strengths, but it can provide challenges in manufacturing. Certain components
can look very similar – they might only have a 2mm difference, but otherwise be
identical. In those instances, they use various methods of measurement control
after the operator fits the component. If it detects an error, they stop the engine
from progressing until it’s corrected

All the systems and processes are followed to the letter by technicians across our
global network. So the quality message is clear. Our consistency is global – and it
never deviates.

Our commitment to exceptional quality means our processes never stand still. We’re
always looking to innovate and find new ways to improve them – and we do this on a
global scale.

Through a global manufacturing council, which all our facilities are members of,
theyreview ideas that teams have globally. If it’s good for all our sites, they roll that

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improvement out across the globe. By doing so, to ensure they continue to raise the
bar when it comes to quality.

“Some OEMs may think that engine quality depends on

manufacturing location, but it’s a false perception. We combine global
processes with local execution to ensure that every engine is built to
the same specification and quality standards, and all perform with the
same level of performance, reliability and durability.”
Ian Jolly, manufacturing engineering manager with responsibility for
our global processes

Sustainability
MANUFACTURING IN THE MODERN WORLD
Manufacturing has changed. Computers and automation make factories cleaner,
safer, and more efficient than they used to be, and guarantee consistent high quality.
That’s good news for the planet, for employees, and most of all for the customer.

The company is leading the way in this new world of safe, sustainable, automated
and computerized manufacturing.

A safe, environmentally responsible manufacturing facility is also an efficient and

profitable facility. Today, regular monitoring ensures the highest standards for the
health and safety for our employees, the environmental sustainability of our
manufacturing processes and the quality of our products. Every engine that leaves
our facilities benefits from the same high standards of quality and care. The company
is accredited to internationally recognized standards of performance.

Consistent quality
Modern processes, built around automation and computerized controls, mean that we
not only produce engines to the highest quality – we produce every engine to the
highest quality.

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Each decade saw new and improved manufacturing processes
‘No fault forward’ is the watchword in our manufacturing facilities. Sophisticated
computerized checks at each stage of the production process mean that an engine
cannot move on to the next stage until every component has been fitted correctly,
with each nut tightened to the precise specification.

Where necessary, individual processes are carried out in safe areas where the air is
filtered and its quality monitored to ensure that no contaminants get into sensitive
parts of the engine.

There are no exceptions, every engine that leaves the factory is an engine that we
can be proud of.

A safety culture
All facilities observe a strict safety culture, with the aim of eliminating all workplace
incidents and health risks. Any incident or potential incident is investigated thoroughly
to see what lessons can be learned and avoid any repetition.

People are the greatest asset. No job is worth doing if it can’t be done safely.

All emissions inside and outside the factories are carefully monitored and controlled –
part of a sustainability policy that benefits not just our own employees, but also the
people who live near our facilities and the planet as well

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Machines are modern and sophisticated and ensure the highest standards of safety
Engines under construction and heavy pieces of equipment still have to be moved
around the factory – but by careful planning of the production process, we keep such
movement to a minimum. And when heavy lifting can’t be avoided, modern lifting
equipment and robots are used so that employees are not put at risk.

“For a modern company, there is no distinction between safety,

environmental responsibility and efficiency. They’re all part of
providing the best possible service to the customer”
Richard Porter, health, safety, fire and security manager

Caring for the environment

The company achieved consistently high standards of sustainability and
environmental responsibility across all our facilities, whether by applying energy-
saving technology to control our use of heat, light and water, or by managing our
manufacturing and production processes to reduce our reliance on long-distance
transportation.

Transportation is costly and uses energy, but it’s a big part of any global
manufacturer’s operation. We do our best to keep it to a minimum. Our policy of
serving local markets by manufacturing around the world helps to reduce the length
of the journeys our products need to make. And outsourcing our transportation
requirements means that energy is used more efficiently – trucks that carries engines
in one direction can return filled with a different cargo.

Safe, sustainable and efficient

There are many good reasons for running a modern operation that is safe,
sustainable, and driven by the need for consistent quality. Increased efficiency makes

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good business sense and increases profitability. But it’s also good for the employees,
good for the environment, and good for the customers.

In this article quality control strategies are defined as

• consisting of an inspection strategy (including inspection

characteristic, device and location etc.) and
• the implementation of quality measures (including poka-yoke
measure, process improvement, supplier qualification etc.).

Currently these strategies completely focus on the considered process, without

adequately regarding the specific site roles and taking the impact (cost / benefit) on
the production network into account, although there are quality-related
influencing factors on all three levels, as that results in the fact that quality measures
may not be carried out after intra-site cost / benefit analysis even though they had a
positive effect in a holistic view of the production network.

Also, cross-site optimization potentials in the inspection planning (e.g. higher

utilization of expensive measuring equipment at other sites) cannot be realized, or
redundant tests at different locations may be carried out, which can lead to significant
inefficiencies in the production network. Lack of transparency in the overall process
also leads to long time intervals between cause of failure in the production process
and identification of the failure. This causes a potential quality defect to be
recognized too late. This means that there is value added to defective intermediate
products and an increasing transport of scrap, which results again in higher costs and
long replacement times. There is also the risk that through the increasing reduction
of stocks in the production process, quality defects lead to significant disturbances,
for example production shutdowns in the downstream value chain, and this way
possibly propagate towards the final customer .

International Human Resource Management

Human Resource Management
It refers to the activities an organization carries out to use its human resources
effectively.
These activities include:
i. Determine firm’s HR strategy
ii. Staffing
iii. Performance Evaluation
iv. Management Development
v. Compensation
vi. Labour relations

Importance of HRM
i. Related to the strategy of the firm.
ii. Influence on the character, development, quality and productivity of firm’s HR
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 iii. Helps firms to achieve strategic goal of reducing cost of value creation
iv. Helps firms add value by serving customer needs better.

How different is International HRM?

Several key factors make International HRM different from domestic management:
i. Different labour markets
ii. Mobility problems: legal, economic, cultural barriers
iii. Different management styles
iv. Varied compensation practices
v. Labour laws.

Key Issues
i. How to staff key management posts in the Co.?
ii. How to develop managers, who can do business in different countries?
iii. How to compensate people in different nations?
iv. How to evaluate the performance of managers in different countries?
v. Expatriate managers
Strategic role of International HRM

Strategic Role of International HRM

v Strategy is implemented through organizational architecture.
v Right people at right postings.
v Effective training to acquire right skill set to help perform jobs effectively.
v Behaviour, congruent with the desired organizational culture.
v Compensation must create incentives for actions inline with the strategy.
v Performance appraisal to measure the behaviour, firm wants to encourage.

Staffing Policy
Staffing policy is concerned with the selection of employees for particular jobs.
i. Selecting individuals who have the skill to do a particular job.
ii. Tool for developing and promoting the desired corporate culture (norms & value
system) of the firm.

Types of staffing policies

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There are three types of staffing policies in IB:

i. Ethnocentric approach
v All key management positions are filled by parent – country nationals.
v One’s own culture is superior
v Overlooks important cultural factors
v Maintain a unified corporate culture
v Create value by transferring core competencies
v Limits advancement opportunities for host country nationals
v Leads to resentment, lower productivity, and high turnover in employees.

ii. Polycentric approach

v Decentralized control
v Business Units in different countries have autonomy from home office, like a
local Co.
v No standard forms or procedures
v Recruits host country nationals to manage subsidiaries, while parent country
nationals occupy key positions at corporate HQ.
v Firm is less likely to suffer from cultural myopia.
v Less expensive to implement
v Host country nationals have limited opportunities to gain experience outside
their own countries
v Gap due to language barriers, cultural differences may isolate corporate HQ
from foreign subsidiaries.

iii. Geocentric approach

v It seeks the best people for key jobs, throughout the organization, regardless of
nationality.
v Hybrid of Ethno and Poly
v Based on informed knowledge of home and host countries.
v Enables firms to make best use of its HR
v Helps the firm to build a cadre of international executives, who feel at home
working in No. of countries.
v Helps building a strong unifying corporate culture and informal management
network.
v Reduces cultural myopia
v Enhance local responsiveness.

Expatriate Managers
¡ Expatriates are citizens of one country, who are working in another country.
¡ Inpatriates is a subset of expatriates who are citizens of a foreign country,
working in the home country of their multinational employer. (e.g., citizen of
India, who moves to U.S to work for Microsoft)

Expatriate selection
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 ¡ Four dimensions that predict success in a foreign posting:
¡ Self-orientation – self-esteem, self-confidence, mental wellbeing, adapt their
interest in food, sports, music and hobbies.
¡ Others orientation – ability to interact with host country’s nationals, relationship
development and willingness to communicate by learning local language.
¡ Perceptual ability – to understand the particular behavior of people in host
countries, empathies.
¡ Cultural toughness – relationship between country of assignment and how well
an expatriate adjusts.

Training and Management Development

v After selection, the next step is training the manager to do the specific job.
v MDP is a broader concept, it is intended to develop a manager’s skills over her
career in the firm, e.g., sending managers on various foreign postings over
years to build her cross cultural sensitivity and experience.
v To enhance management and leadership skills of executives.
v MDP have a strategic purpose, and helps reinforce desired culture of the firm
by creating an informal network.
Types of training
i. Cultural training – understanding the culture of host country, enhance
effectiveness, familiarization trip before formal transfer.
ii. Language training – manager’s ability to interact, help build rapport and improve
manager’s effectiveness.
iii. Practical training – adjust to day to day life in host country, establish a routine,
successful adaptation, support network of friends

Performance Appraisal
v These are the systems used to evaluate the performance of managers against
some criteria, that the firm judges to be important for the implementation of
strategy and attainment of competitive advantage.
v Important elements of control system.
v 2 groups evaluate the performance of Expatriates, - Host country managers and
home country managers.
v Biasness by cultural frame of reference and expectations
v Unfair evaluation
v Due to proximity, onsite manager should evaluate soft variables of expatriate’s
performance.
v Consultation of home country manager to balance out.

Compensation
v National differences in compensation
v Payments according to global standards or country specific standards.
v Issues in compensation practices:

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 i. How compensation should be adjusted to reflect national differences in
economic circumstances and practices?
ii. How should the expatriate managers be paid?

Expatriate Pay
v Acc. To “Balance Sheet Approach”, it equalizes purchasing power across
countries so employees can enjoy the same living standard in their foreign
posting, as the enjoyed at home.
v It also provides financial incentives to offset qualitative differences between
assignment locations.

Components of a typical compensation package

i. Base Salary – in same range as base salary for similar position in home country.
ii. Foreign Services Premium – extra pay to work outside country of origin. Offered
as inducements to accept foreign postings. Compensates for living in an
unfamiliar country.
iii. Allowances –
a) Hardship allowance – difficult location, where basic amenities like health care
schools, etc are deficient.
b) Housing allowance – to afford same quality of housing
c) Cost of living allowance – maintain standard of living
d) Education Allowance – expatriate’s children receive same standard of education
as in home country
iv. Taxation
v. Benefits – Medical, pension, etc.

Expatriates Management

Three (3) dimensions of expatriate managers:

• The self-dimension: The skills that enable a manager to maintain a positive

self-image and psychological well-being.

• The relationship dimensions: The skills required to foster relationships with

the host-country nationals.

• The perception dimension: Those skills that enable a manager to accurately

perceive and evaluate the host environment.

Six (6) important factors of expatriated managers:

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 • Cultural intelligence (CQ) :ability to adapt across cultures through sensing the
different cues regarding appropriate behavior across cultural settings or in
multicultural settings.

• Family situation: ability to keep in touch with families collaboratively and

continuously.

• Flexibility and adaptability: ability to fit changed circumstance.

• Job knowledge and motivation: ability to transfer knowledge smoothly and

transfer international assignment into career advancement.

• Relational skills: ability to build up relationships more actively.

• Extra cultural openness: ability to communicate with others more openly.

Selection
- Personal qualities that predict success in the International environment

Ø Strong language skills

Ø An extensive cultural knowledge
Ø Positive personality traits
Ø A positive attitude towards other cultures
Ø Cross-cultural communication skills (the new “norm”)
Ø Mature emotional regulation such as coping ability

“Big Five” – the predictors of expatriate selection

a. Reliability: the consistency of a performance measure; the degree to which a

performance measure is free from random error.

b. Validity: the extent to which a performance measure assesses all relevant-and

only the relevant-aspects if job performance .

c. Generalizability: the degree to which the validity of a selection method

established in one context extends to other contexts.

d. Utility: the degree to which the information provided by selection methods

enhances the effectiveness of selecting personnel in real organizations.

e. Legality: describe the government’s role in personnel selection decisions,

particularly in the areas of constitutional law, federal laws, executive orders, and
judicial precedent.

The significance of implementing a successful selection of Expatriate

Management strategy

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 • Expatriate are used to transfer technologies, in joint ventures, to transmit
organizational culture, to enter new markets, and to develop the international
skills of employees. (Bennett, Aston & Colquhoun, 2000)

• Effective expatriate selection has been identified as a major mechanism to

enhance expatriate success. (Bolino&Feldman,2000; Kealey, 1996; Solomon,
1996).

• As We move into 21st century, the pressure of managing expatriate managers

well will not diminish-it will accelerate.

Cross-Cultural Training (CCT) Figures

• 2 in 5 managers fail when sent abroad due to insufficient preparation

• 18% of American companies vs. 33% of European, African & Middle

Eastern companies provide some training

• 22% of American companies do virtually nothing in terms of training

The Importance of Cross-Cultural Training (CCT) Figures

• Cross-cultural adjustment is found to be the most significant factor determining

the success of international assignments

• Training facilitates effective cross-cultural interactions

• Training was found to be effective for reducing uncertainty and increasing self-
efficacy -> cross-cultural adjustment

Types of Cross-Cultural Training (CCT)

• Most common: language training & overview of cultural differences

• Two main categories: didactic & experiential learning

• Additional categories: attribution, cultural awareness, cognitive-behavior

modification and interaction training

Cross-Cultural Training – Emerging Issues

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 • Need for in-country, real-time training - CCT is likely to be more effective
when delivered upon arrival in the host country than prior to the foreign
assignment.

• Developing a global mindset – companies operate in global context; all

employees need to think globally even if they act local.

• Self-training (Internet; specific software) – free resources, flexible timing,

alternative to professional consulting and academic community

Cross-Cultural Training– Best Practices

Global Compensation Packages

Compensation Challenges

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 • Further Corporate interests abroad
• Minimize workers’ financial risks
• Encourage employee expatriation
• Repatriation issues
• Enhance overseas experiences
• Promoting lowest - cost strategies
• Promoting differentiation strategies

Common Approaches to Developing Expatriate Compensation Packages

Approaches Advantages Disadvantages

Balance Sheet -Can keep the expatriate -It complexes to administer

-Goodsand services whole from a and intrudes into the
-Housing compensation perspective expatriate’s finances.
-Income taxes with respect to incumbents
-Reserve in the same or similar
positions in their home
country.

-It allows for ease of

movement between
foreign assignments and
back to the home country.

Localization -The ease of -It usual needs for

It involves basing the administration and equity negotiated supplements
expatriate’s salary on the with local nationals. and pay based on host
local (host country’s) country economics versus
salaries. performance and job
responsibilities.

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 Approaches Advantages Disadvantages

Lumpsum -It does not intrude into the -the calculation of the
It uses the home country’s expatriate’s finances lumpsum, it involves a
system for determining complex and time-consuming
base salary. -Employer does not pay for analysis.
things the expatriate does not
want

Negotiation -it is conceptually simple; -Tends to be costly

employer and each individual
To determine the package expatriate simply find a -It will creates comparability
through mutual negotiation mutually agreeable package. problems when an increasing
between the employee and number of expatriates are
employer. compensated

Cafeteria • It is a more cost- • It has a limit to choices

The total salary level is effective method, and amounts
determined by the expatriate is offered a
organization and the selection of options to
employee choose from

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Compensation Strategies For Expatriates

To validate the performance of

To develop clear and defined
the expatriate against clearly
business goals similar to
defined goals: Did the
those of home-based
executive meet these goals,
executives. The executive has
and if the answer is no, the
to look at the assignment as
company has to think about 3
a step in career progression,
things: whether the goals are
allowing the company to
achievable, is this the right
reduce the excessive
person for the role, a local
assignment-related
hire could better understand
allowances and present the
the market, is there enough
executive with a clearly
local talent available to meet
defined path.
the expectations.

When it occurs and why it is a problem?

An expatriate of a multinational corporation returns to the country of his/her origin from

an overseas assignment.

Reasons:

a. culture shock (changes happen in expatriation period).

b. work-dissatisfaction: high-status position with high autonomy –a less highly

profiled role; career opportunities diminished; ‘let-down’, no longer “special” or
different.

c. problems for all family members (lower income, housing, schooling).

Influences of Bad Repatriate Retention Management

Cost ($1.5 million/loss of a repatriate )

a. Extensive direct costs are incurred when firms must replace departing executives
who posses valuable international and corporate experience.

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 b. Indirect costs also occur when repatriates withdraw crucial market knowledge,
host-country client relationships, and international skills upon their departure to
other employers.

-Loss of high-potential employees to accept overseas positions.

Possible Solutions

-Evidence-Based Executive Coaching

a. Definition: ‘the intelligent and conscientious use of best current knowledge

integrated with practitioner expertise in making decisions about how to deliver
coaching to individual coaching clients and in designing and teaching coach
training programs’.
b. Methods: Provide invaluable support for expatriate executives through what is
usually a time of high pressure of rapid change; Engage in creative dialogue
relevant to the emotional, cognitive and behavioral aspects of issues that are of
great importance in complex overseas assignments.
c. Benefits: operate interactively in-the-moment across the individual’s affective,
behavioral and cognitive domains, facilitating contextually appropriate and
creative change processes through all points of the expatriate experience.

A Model of Repatriation Practice

a. Benefits: provide a sense of career continuity; demonstrate the value the

company places on expatriate assignments; reduce repatriation turnover.

b. Four stages of the strategy

* Planning for Repatriation: developing principles and philosophy; providing and

fairness to repatriate.
* The Repatriate agreement: including the assignment period, details of return,
incentive payment, a guarantee of a job equal to or better than the one before
leaving, provision for re-entry training, and a repatriation program to support
the person and help the family readjust upon return.
* Repatriation program: ensure positions, give repatriates challenging
assignments, and take use of their experience; a repatriation manager is
responsible for tracking, supporting, and assessing.
* Evaluation of the Repatriation Strategy: outcome measures (the impact of the
programs on repatriate retention, satisfaction and job commitment), process
evaluation (assessment of the effectiveness of different strategies), deficit audit
(the identification of gaps in support), and quality assessment (continuous
benchmarking of the overall strategy against other similar businesses) .

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International Labor Organization (ILO)

q The International Labour Organization (ILO) is a specialized agency of

the United Nations system which seeks the promotion of social justice
and internationally recognized human and labour rights.
Vision
To be a global center of excellence articulating a network of national vocational
training and education for work institutions.
Mission
To develop a permanent learning and South-South and Triangular Cooperation
community among national vocational training institutions, disseminating knowledge,
experiences and good practices in the field of vocational training and human
resources development.

When & Why ILO was created

q The ILO was created in response to the consciousness that followed the First
World War at the Peace Conference, which convened first in Paris and then in
Versailles. The ILO is the only major surviving outcome of the Treaty of
Versailles on 11 April 1919.

q The ILO provides technical assistance, mainly in the following fields:

• vocational training and vocational rehabilitation;

• employment policy;
• labour administration;
• labour law and industrial relations;
• conditions of work;
• management development;
• cooperatives; • social security;
• labour statistics, and occupational safety & health.

q The ILO formulates international labour standards. These standards take the
form of Conventions and Recommendations, which set minimum standards in
the field of fundamental labour rights: freedom of association, the right to
organize, the right to collective bargaining, the abolition of forced labour,
equality of opportunity and treatment, as well as other standards addressing
conditions spanning across the entire spectrum of work-related issues.

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 q International labour standards are legal instruments drawn up by the ILO’s
constituents (governments, employers and workers) which set out basic
principles and rights at work.

Governing Body
The Governing Body decides the agenda of the International Labour Conference,
elects the director-general, requests information from member states concerning
labour matters, appoints commissions of inquiry and supervises the work of the
International Labour Office.
Guy Ryder was the ILO's director-general since 2012.
This guiding body is composed of 28 government representatives, 14 workers
representatives, and 14 employers representatives.
Ten of the government seats are held by member states that are nations of
"chief industrial importance," as first considered by an "impartial committee." The
nations are Brazil, China, France, Germany, India, Italy, Japan, the Russian
Federation, the United Kingdom and the United States.

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Tripartite structure of the ILO
The ILO has a tripartite structure unique in the
United Nations system, in which employers’ and
workers’ representatives – the “social partners”
– have an equal voice with those of
governments in shaping its policies and
programmes.

THE INTERNATIONAL MONETARY SYSTEM

What Is The International Monetary System?
Ø International monetary systems are sets of internationally agreed rules,
conventions and supporting institutions, that facilitate international trade, cross

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 border investment and generally there allocation of capital between nation
states.
Ø International monetary system refers to the system prevailing in world foreign
exchange markets through which international trade and capital movement are
financed and exchange rates are determined.
What Was The Gold Standard?
Ø The gold standard refers to a system in which countries peg currencies to gold
and guarantee their convertibility
Ø the gold standard dates back to ancient times when gold coins were a medium
of exchange, unit of account, and store of value
Ø later, payment was made in paper currency which was linked to gold at a fixed
rate
Ø The gold standard worked well from the 1870s until 1914, but many
governments financed their World War I expenditures by printing money and
so, created inflation
Ø People lost confidence in the system and demanded gold for their currency
putting pressure on countries' gold reserves, and forcing them to suspend gold
convertibility
Ø By 1939, the gold standard was dead
What Was The Bretton Woods System?
Ø In 1944, representatives from 44 countries met at Bretton Woods, New
Hampshire, to design a new international monetary system that would facilitate
postwar economic growth
Ø Under the new agreement
Ø a fixed exchange rate system was established
Ø only the U.S. dollar was directly convertible to gold
What Institutions Were Established At Bretton Woods?
Ø The Bretton Woods agreement also established two multinational institutions
1. The International Monetary Fund (IMF) to maintain order in the
international monetary system through a combination of discipline and
flexibility
2. The World Bank to promote general economic development
Why Did The Fixed Exchange Rate System Collapse?

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 Ø Bretton Woods worked well until the late 1960s
Ø The U.S. government had to provide dollar reserves to all countries who
wanted to intervene in their currency markets. Lead to problem of lack of
international liquidity.

Ø The growing expenditure associated with Vietnam resulted in more printing of

dollars to finance expenditure and forced foreign governments to run up
holdings of dollar reserves.
Ø In 1971, the U.S. government “closed the gold window” by decree of President
Nixon.
Who Is Right?
Ø There is no real agreement as to which system is better
Ø We know that a Bretton Woods-style fixed exchange rate regime will not work
Ø But a different kind of fixed exchange rate system might be more enduring
What Type of Exchange Rate System Is In Practice Today?
Ø Various exchange rate regimes are followed today
Ø 16% of IMF members follow a free float policy
Ø 21% of IMF members follow a managed float system
Ø 40% of IMF members follow pegged agreements
Ø the remaining countries use less flexible systems and other managed
arrangements.
What Does The Monetary System Mean For Managers?
Ø Managers need to understand how the international monetary system affects
1. Currency management - government intervention can influence exchange
rates
2. Business strategy - exchange rate movements can have a major impact on the
competitive position of businesses
3. Corporate-government relations - businesses can influence government policy
towards the international monetary system

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Global Capital Market

Ø Is a financial market in which long term debt or equity backed securities are
bought and sold.
Ø Market in which money is provided for periods longer than a year.
Capital markets bring together investors and borrowers
Ø investors - corporations with surplus cash, individuals, and non-bank
financial institutions
Ø borrowers - individuals, companies, and governments
Ø markets makers - the financial service companies that connect
investors and borrowers, either directly (investment banks) or indirectly
(commercial banks)
Ø capital market loans can be equity or debt

2 SEGMENTS OF CAPITAL MARKET

PRIMARY MARKET
Ø investors buy directly from the issuing company
SECONDARY MARKET
investors trade securities among themselves.
The secondary markets include the New York Stock Exchange, the London Stock
Exchange and the Nasdaq.
IPO ( INITIAL PUBLIC OFFERINGS), the issuer obtains the assistance of
an underwriting firm, which helps determine what type of security to issue, the
best offering price, the amount of shares to be issued and the time to bring it to
market.
Benefits both borrowers and investors.
Ø Borrowers:
Ø Increases the money supply.
Ø Lowers the cost of capital.
Ø Investors:
Ø Provides a wide range of investment opportunity.
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 Ø Diversifies investor risk.
Ø
Two factors are responsible for the growth of capital markets
1. Advances in information technology
Ø the growth of international communications technology and advances in
data processing capabilities
Ø 24-hour-day trading
Ø so, shocks that occur in one financial market spread around the
globe very quickly

2. Deregulation by governments
Ø has facilitated growth in international capital markets
Ø governments have traditionally limited foreign investment in
domestic companies, and the amount of foreign investment
citizens could make
Ø since the 1980s, these restrictions have been falling
Eurocurrency (It’s not the euro!)
Eurocurrency is any currency banked outside its country of origin.
Eurodollars are dollars banked outside the United States.

The Eurobond market is attractive because

1. It lacks regulatory interference
Ø since companies do not have to adhere to strict regulations, the cost of
issuing bonds is lower
2. It has less stringent disclosure requirements than domestic bond markets
Ø it can be cheaper and less time consuming to offer eurobonds than
dollar-denominated bonds
3. It is more favorable from a tax perspective
Ø Eurobonds can be sold directly to foreign investors
Bonds are an important means of financing for many companies
Ø the most common bond is a fixed rate which gives investors fixed cash
payoffs
Ø The global bond market grew rapidly during the 1980s and 1990s and
continues to grow today
There are two types of international bonds
Ø Foreign bonds
Ø Eurobonds
FOREIGN BONDS
Sold outside borrower’s country and denominated by the currency of the country
where issued. They each have a nickname:
Ø Yankee Bonds: Foreign bonds sold in the US (Honda issuing a bond in
NY denominated in the US $)
Ø Samurai Bonds: Foreign bonds sold in the Japan (IBM issuing a bond in
Japan denominated in Japanese Yen).

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 Ø Bulldog Bonds: Foreign bonds sold in Britain (Ford issuing a bond
denominated in £ sold in London).
Eurobonds:
Ø Underwritten by a bank syndicate and placed in countries other than the
one in whose currency the bond is denominated.
Ø Issued by multinational corporations, large domestic corporations, and
international institutions.
Ø Not offered in capital market, or to residents, of the country whose
currency they are denominated.
The global equity market allows firms to
1. Attract capital from international investors
Ø many investors buy foreign equities to diversify their portfolios
2. List their stock on multiple exchanges
Ø this type of trend may result in an internationalization of corporate
ownership
3. Raise funds by issuing debt or equity around the world
Global Equity Market
Ø Two trends:
Ø Internationalization of corporate ownership.
Ø Companies broadening stock ownership by listing stock on foreign
exchanges (BMW selling its stocks on NYSE). This allows them to:
Ø Tap into larger pool of funds for investment.
Ø Lowering capital costs.
Ø Facilitate future acquisitions.
Ø Stock and stock options for local employees, suppliers and
bankers.
Ø Increasing, firms from developing countries are taking advantage of the
opportunity to access these funds.

Political economy of international trade

Free trade occurs when governments do not attempt to restrict what citizens can buy
from another country or what they can sell to another country
¦ Free trade refers to a situation where a government does not attempt to
restrict what its citizens can buy from another country or what they can sell to
another country
¦ Free trade is the economic policy of not discriminating against imports from
and exports to foreign jurisdictions. Buyers and sellers from separate
economies may voluntarily trade without the domestic government applying
tariffs quotas, subsidies or prohibitions on their goods and services. Free trade
is the opposite of trade protectionism or economic isolationism.

- While many nations are nominally committed to free trade, they tend to

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 intervene in international trade to protect the interests of politically important
groups
Governments use various methods to intervene in markets including

1.Tariffs - taxes levied on imports that effectively raise the cost of imported products
relative to domestic products .
-Specific tariffs - levied as a fixed charge for each unit of a good imported
-Ad valorem tariffs - levied as a proportion of the value of the imported good .
• Tariffs
-increase government revenues
-force consumers to pay more for certain imports
-are pro-producer and anti-consumer
-reduce the overall efficiency of the world economy
2. Subsidies - government payments to domestic producers
– Subsidies help domestic producers
-compete against low-cost foreign imports
-gain export markets
-Consumers typically absorb the costs of subsidies
3. Import Quotas - restrict the quantity of some good that may be imported into a
country
– Tariff rate quotas - a hybrid of a quota and a tariff where a lower tariff is
applied to imports within the quota than to those over the quota
– A quota rent - the extra profit that producers make when supply is
artificially limited by an import quota
4. Voluntary Export Restraints - quotas on trade imposed by the exporting
country, typically at the request of the importing country’s government
– Import quotas and voluntary export restraints
1. benefit domestic producers
2. raise the prices of imported goods
5. Local Content Requirements - demand that some specific fraction of a good
be produced domestically

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 – benefit domestic producers
– consumers face higher prices
6. Administrative Policies - bureaucratic rules designed to make it difficult for
imports to enter a country
– polices hurt consumers by limiting choice
7. Antidumping Policies – aka countervailing duties - punish foreign firms that
engage in dumping and protect domestic producers from “unfair” foreign
competition.
Countervailing Duties

Tariffs levied on imported goods to offset subsidies made to producers of these

goods in the exporting country. Countervailing duties (CVD) are meant to level the
playing field between domestic producers of a product and foreign producers of
the same product who can afford to sell it at a lower price because of
the subsidy they receive from their government. If left unchecked, such
subsidized imports can have a severe effect on domestic industry, forcing factory
closures and causing huge job losses. As export subsidies are considered to be
an unfair trade practice, the World Trade Organization (WTO) – which deals with
the global rules of trade between nations – has detailed procedures in place to
establish the circumstances under which countervailing duties can be imposed by
an importing nation.

• dumping - selling goods in a foreign market below their costs of

production, or selling goods in a foreign market below their “fair” market
value
• enables firms to unload excess production in foreign markets
• may be predatory behavior - producers use profits from their
home markets to subsidize prices in a foreign market to drive
competitors out of that market, and then later raise prices

International Business Operations

The term "international business" refers to all those business activities which
involve cross-border transactions of goods, services, and resources between two or
more nations.

International business is nowadays characterised by rapid changes and the growing

importance of international markets. In the last quarter of the twentieth century,
international business has known a revolution in global competition. In Europe, we
have recently witnessed the transition to a common currency: the Euro. China joined
the World Trade Organization and forms, together with almost 150 other countries, the

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largest trade organization ever. Many companies are driven by the need to capture
economies greater than nationale scale.

The biggest companies in the world in 2016 (The Fortune 500 2016 - Top 10)
1. Walmart - annual revenue: $482bn. The US retail giant owns Asda in the UK.
2. State Grid - $330bn
3. China National Petroleum - $299bn
4. Sinopec Group - $294bn
5. Royal Dutch Shell - $272bn
6. Exxon Mobil - $246bn
7. Volkswagen - $237bn
8. Toyota - $237bn
9. Apple - $234bn
10. BP - $226bn

Challenges of Operating a Business in a Global Economy

Even as a small business, you operate at some level in the global economy, and the
fate of world economics may ultimately impact how you do business. While the world
faces global environmental issues, your small piece of the environmental infrastructure
plays a role. Foreign competition impacts local competitiveness and security is a
priority that challenges every business owner. To maintain your viability in the
increasingly global marketplace, you must consider the challenges and how you will
address them.

Compliance and Regulations

Whether you are a small business shipping homemade handbags through a website
or a consulting firm offering your services to multinational corporations, you must
understand and follow various rules and regulations that govern your goods and
services. You must comply with the tax laws of different countries as well as statutory
export regulations. Some countries have strict policies about the types of business
practices allowed in their countries that often include human resource and pension
restrictions and rules if you hire a foreign workforce.

Legal Issues

When you conduct trade in another country, you'll have to be familiar with that country's
laws. You may also have to pay additional taxes and import duties in the United States
if you are importing products from other countries. The legal complexities of
international business can be challenging, and without proper legal advice you might
be subject to fines and penalties. Make sure you have excellent international lawyers
who have a firm grounding in the laws of their home countries.

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Culture and Language

One of the advantages of a global economy is that more small businesses can compete
competitively. However, few small businesses are prepared to handle the customer
service calls from China, Vietnam and other emerging markets key to the success of a
global competitor. If your sales are increasingly going overseas, you have to find ways
to navigate the language barriers that may crop up in emails and phone calls. At the
same time, cultural differences can play a big role in your success in the global market.
For example, in China, the color red is a symbol of luck, while in other countries, it
represents a warning sign. Religious and cultural boundaries must be understood to
run effective marketing campaigns abroad.

Environmental Impact

Recycling is rapidly becoming a common practice in most U.S. companies as business

leaders realize the impact their behavior has on global environmental issues. You may
be challenged to incorporate successful recycling programs because they may be cost-
prohibitive or just inconvenient. Energy-saving devices such as compact fluorescent
light bulbs make a dent in world energy consumption, but they may not be viable for
your office. Challenges abound for developers looking to build new factories or office
space. Food, energy and transportation companies all face environmental pressures
to use fewer natural resources and offer products made with recyclable materials.

Political Problems

Many people are strongly opposed to outsourcing, globalization and other international
business practices. You may lose some of your customer base if you begin trading in
other countries. Moreover, if your company is involved in human rights abuses in other
countries -- even if you had no idea these abuses were occurring -- you may be subject
to an onslaught of bad publicity and lost business

Technology and Communication

One of the biggest challenges facing globally competitive marketplaces is the

communication issues that crop up when technology doesn’t keep up in every sector.
When your company relies on disparate systems that can’t communicate with each
other, your bookkeeping gets bogged down, and orders slow or cease. Access to vital
information may be compromised when technological systems are not standardized.
You’ve got to rely on translations and reports from foreign staff members instead of
using a centralized system when the technology you rely on to run your business isn’t
compatible with the technology used by your buyers, foreign offices and global sales
force.

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20 Factors to Consider Before Going Global

As with any new business plan, the first step you should take before crossing borders
is to do your homework. Take these 20 critical factors into account before you begin:

Factor 1: Get company-wide commitment. Every employee should be a vital

member of your international team, from the executive suite to customer service
through engineering, purchasing, production and shipping. You're all in it for the long
haul.

Factor 2: Define your business plan for accessing global markets. An

international business plan is important in order to define your company's present
status and internal goals and commitment, but it's also necessary if you plan to
measure your results.

Factor 3: Determine how much you can afford to invest in your international
expansion efforts. Will it be based on ten percent of your domestic business profits
or on a pay-as-you-can-afford process?

Factor 4: Plan at least a two-year lead-time for world market penetration. It takes
time and patience to build a great, enduring global enterprise, so be patient and plan
for the long haul.

Factor 5: Build a website and implement your international plan sensibly. Many
companies offer affordable packages for building a website, but you must decide in
what language you'll communicate. English is unarguably the most important language
in the world, but only 28 percent of the European population can read it. That
percentage is even lower in South America and Asia. Over time, it would be best to
slowly build a site that communicates sensibly and effectively with the world.

Factor 6: Pick a product or service to take overseas. You can't be all things to all
people. Decide on something. Then stick with it.

Factor 7: Conduct market research to identify your prime target markets. You
want to find out where in the world your product will be in greatest demand. Market
research is a powerful tool for exploring and identifying the fastest-growing, most
penetrable market for your product.

Factor 8: Search out the data you need to predict how your product will sell in a
specific geographic location. Do you want to sell a few units to a customer in
Australia or ten 40-foot containers on a monthly basis to retailers in France? Doing

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your homework will enable you to find out how much you'll be able to sell over a specific
period of time.

Factor 9: Prepare your product for export. You should expect to adapt your product
to some degree for sale outside your domestic markets before you make your first sale.
Packaging plays a vital role in enabling international connections. Make yours the best
in its class, and you'll be able to sell it anywhere in the world.

Factor 10: Find cross-border customers. There is no business overseas for you
unless you can locate customers first.

Factor 11: Establish a direct or indirect method of export. It all boils down to export
strategy and how much control you wish to exercise over your ventures. On the other
hand, readiness to seize an opportunity is more important than having your whole
strategy nailed down beforehand.

Factor 12: Hire a good lawyer, a savvy banker, a knowledgeable accountant and
a seasoned transport specialist, each of whom specializes in international
transactions. You may feel you can't afford these professional services, but you really
can't afford to do without them.

Factor 13: Prepare pricing and determine your landed costs. Be ready to test out
your price on your customer. See what reaction you get and then negotiate from there.

Factor 14: Set up terms, conditions and other financing options. Agree on terms
of payment in advance, and never, ever sell on open account to a brand new customer.
No ifs, ands or buts. Just don't.

Factor 15: Brush up on your documentation and export licensing procedures. If

you find it too time consuming, hire a freight forwarder who can fill you in on the spot.
Ask a lot of questions. Use their expertise to your advantage.

Factor 16: Implement an extraordinary after-sales service plan. The relationship

between your company and your overseas customer shouldn't end when a sales is
made. If anything, it should be just the start of a long relationship which requires more
of your attention. The "care and feeding" of your customers will determine if they keep
coming back for more.

Factor 17: Make personal contact with your new targets, armed with culture-
specific information and courtesies, professionalism and consistency. Your goal
should be to enter a different culture, adapt to it and make it your own.

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Factor 18: Investigate international business travel tips. The practical aspects of
international business can make or break the success of your trip. In preparing to go
boldly where you've never gone before, plan accordingly.

Factor 19: Explore cross-border alliances and partnerships. In charting your

global strategy, consider joining forces with another company of similar size and
market presence that's located in a foreign country where you're already doing
business, or would like to. Gauge your readiness-or willingness-to take on a 50/50
partnership and what it can and cannot do for you.

Factor 20: Enjoy the journey. Never forget that you are the most important and
valuable business asset you have, and that the human touch is even more precious in
our age of advanced technology. Take the best possible care of yourself, your
employees, your suppliers and your customers, and your future will be bright,
prosperous and happy.

Going global doesn't have to be a scary proposition. By considering and developing

these twenty essential factors before going global, your organization can realize the
full potential of globalization and capture dramatic revenue growth.

Global Research and Development

Global Marketing

Globalization is the growing interdependence of national economies – involving

primarily customers, producers, suppliers and governments in different markets.

Global marketing reflects the trend of firms selling and distributing products and
services in many countries around the world.

It is associated with governments reducing trade and investment barriers, firms

manufacturing in multiple countries and foreign firms increasingly competing
in domestic markets.

Basically global marketing consists of finding and satisfying global customer needs
better than the competition, and of coordinating marketing activities within the
constraints of the global environment.

Starbucks’ Marketing Strategy in China

• China is now Starbucks’ second largest market
• First targeted largest Chinese cities and are now expanding to second-tier cities.
• Starbucks’ strategy includes changing China’s preference of tea to coffee
• To do this, Starbucks targets the young professional class who are open to Western
culture.
• Fill stores with educational brochures, have frequent tasting sessions.
• Starbucks has also adopted to Asian preferences

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• Added more seating, offers traditional Chinese cakes during mid-autumn festival.
• Developed fruity drinks for consumers that do not prefer coffee’s bitter taste.

There are at least five key ways in which the concept of marketing has developed in
the last 50 years:
1. Traditional marketing matches products and services with customer
requirements.
2. The marketing mix allocates a mix of the 'four Ps': price, place, product, and
promotion to each market segment.
3. Environmental marketing uses PESTLE analysis, in which the environment is
examined in six aspects.
4. Relationship marketing develops and sustains a longer term relationship with
the customer.
5. Global marketing searches for homogenous global segments that can be
satisfied by producing standardized products.

The restraining forces to Global Marketing. There are at least ten reasons why
companies fail to make a successful move to Global Marketing:
1. Too much red tape.
2. Trade barriers.
3. Transportation difficulties.
4. Lack of trained personnel.
5. Lack of export incentives.
6. Unfavourable conditions overseas.
7. Slow payments by buyers.
8. Lack of competitive products.
9. Payment defaults.
10. Language barriers.
Global Marketing Product Attributes

Cultural differences
Most important - the impact of tradition.
Impact is greatest in foodstuffs and beverages.
Scent preferences differ from country to country.

Some tastes and preferences becoming cosmopolitan:

Coffee (Japan).
American-style frozen dinners (Europe).

Economic differences

Consumer behavior is influenced by economic development.

Consumers in highly developed countries tend to have extra performance attributes
in their products.

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Consumers in less developed countries tend not to demand these extra performance
attributes.
Cars: no air-conditioning, power steering, power windows, radios and cassette
players.
Product reliability is more important.

Product and technical standards

Government standards can prevent the introduction of global products

Different technical standards impede global markets, as well
Come from idiosyncratic decisions made long ago
Different television signal frequencies

Global Research and Development

Global R&D management is the discipline of designing and leading R&D processes
globally, i.e. across borders, in multi-cultural and multi-lingual settings, and cutting
across multiple time zones.

Global R&D is a key business function that companies conduct to develop new
products and procedures or improve existing products and procedures.

The history of the iPhone

The iPhone has come a long way since Apple, with Steve Jobs at the helm, launched
the device in June 2007.

While the 1st generation featured a 3.5-inch display, consumers now can purchase
the smartphone that revolutionized the industry with a display as large as 5.5 inches.

Apple spent $10.39 billion on R&D in 2016 — its highest annual spend ever.

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Apple R&D Expense (Annual)

Global R & D

ü For MNC’s, R&D is a key function to develop and sustain firm-specific

advantages in international markets.

ü 94% of the world’s largest R & D spenders conduct some elements of their R
& D’s overseas.

The Need to Integrate R&D, Marketing and Production

High failure rate ratio between new products development and profit goals.

Reasons for failure:

Limited product demand
Failure to adequately commercialize product
Inability to manufacture product cost-effectively

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