copyright © 2013 pearson education, inc. publishing as prentice hall 3-1 a framework for...

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

3-1

A Framework for International Business

by Cavusgil, Knight, & Riesenberger

Chapter 3: Organizational Participants That Make

International Business Happen


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In this chapter, you’ll learn about:

1. Four types of participants in international business

2. Focal firms in international business

3. International entry strategies of focal firms

4. Distribution channel intermediaries in international business

5. Facilitators in international business

6. Governments in international business

Learning Objectives


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Four Types of Participants in International Business

1. Focal firm: Initiator of an international business transaction, e.g., MNEs and SMEs

2. Distribution channel intermediary: Specialist firm that provides distribution, logistics, and marketing services in the international value chain

3. Facilitator: Firm that provides special expertise in banking, the law, customs clearance, market research, or another field

4. Governments: Active in international business as suppliers, buyers, and regulators


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Global Value Chain in the Automotive Industry

• Manufacture of the Chevrolet Malibu illustrates the national & geographic diversity of suppliers in a truly global value chain

• Suppliers are headquartered in Britain, France, Germany, Japan, the U.S., and elsewhere. The components are typically manufactured in low-cost countries & shipped to the General Motors plant in Fairfax, Kansas, USA


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The Multinational Enterprise (MNE)

• A large organization with a network of production plants, marketing subsidiaries, & regional headquarters in numerous countries;e.g., Ford, Sony, Unilever, Citibank, McDonald’s, GE, & the Tata Group

• Historically the most important type of focal firm

• In China, Russia, and other countries that emphasize socialism, some MNEs are state owned


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Multinational Enterprises, Ranked by Industry Sector Size


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Small and Medium-Sized Enterprise (SME) as a Focal Firm

• A relatively small player in its respective industry, usually defined as a firm with 500 or fewer employees

• SMEs constitute the great majority of firms worldwide; they usually create the most new jobs

• Characterized by limited resources, which often prevent internationalizing via FDI. Instead, SMEs usually internationalize via exporting

• There are many more SMEs doing international business today than ever before


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The Born Global as a Focal Firm

• A relatively new breed of SME that undertakes early and substantial internationalization

• Usually niche players, typically exhibit a high degree of innovation, entrepreneurial orientation, & a “borderless” mindset

• Usually leverage information and communications technologies to internationalize early and operate effectively in world markets

• Make up the fastest-growing segment of exporters in most countries


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A Classification of International Entry Strategies


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Foreign Market Entry Strategies of Focal Firms

• Exporting: Sale of products or services to customers located abroad, from a base in the home country or a third country

• Importing or Sourcing: Focal firms procure numerous parts, components, and services from suppliers around the world

• Licensing: Granting the right to a foreign partner to use certain intellectual property in exchange for royalties

• Franchising: Granting the right to a foreign partner to use an entire business system in exchange for fees and royalties

• Turnkey Contracting: Focal firms that finance and implement all phases of a construction project & then hand it over to foreign customers.


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Foreign Market Entry Strategies of Focal Firms (cont.)

• Foreign direct investment (FDI): The transfer of assets to another country or the acquisition of assets in that country

• Equity joint venture: When a focal firm creates and jointly owns a new legal entity created through an equity investment or pooling of assets

• Project based, non-equity venture: When focal firms collaborate on a specific project without creating a new entity


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Distribution Channel Intermediary

• Specializes in physical distribution and marketing; connects the focal firm with the end user in the foreign market

• Assists focal firm by providing logistics services such as warehousing and customer support

• Especially critical to exporters

that do not engage in FDI

• Based either in the foreignmarket or home country


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Foreign-Based Intermediaries

Foreign Distributor

• Takes title to the exporter’s goods & performs marketing functions (sales, promotion, & after-sales service) on exporter’s behalf

• Serves as the extension of the focal firm in the foreign market

• Arranges for local transportation and advises focal firm on how to function effectively in the local market


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Foreign-Based Intermediaries (cont.)

Agent

• Also known as a broker

• Does not take title to the goods

• Works on a commission basis to bring the buyer and seller together

Manufacturer’s Representative

• Works for the exporter under contract to represent and sell its merchandise in designated territories

• Acts as a contracted salesperson in a designated territory


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Domestic-Based Intermediaries

Trading Company

• An intermediary that handles imports and exports of various raw materials, parts, and finished products

• Large trading companies are typically high-volume, low-margin resellers

• Many deal primarily in commodities such as grains, minerals, coal, and metals (e.g., Cargill in the U.S.)

• In Japan, trading companies are key players in international trade; e.g., Mitsubishi, Marubeni, Mitsui, Sumitomo—all firms in Fortune’s Global 500


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Domestic-Based Intermediaries (cont.)

Export Management Company (EMC)• Common in the U.S. and numerous other countries

• Acts as an export agent on behalf of the focal firm; finds export customers, negotiates terms of sale, & arranges for international shipping, typically for smaller exporters

• Most specialize in specific industries and geographic areas


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Online Intermediaries

• This process of bypassing traditional intermediaries is made possible by the Internet

• Examples include Amazon, Dell, and eBay

• Traditional retailers, such as Tesco and Walmart, have also established an online presence

• One negative outcome isunscrupulous marketers that prey on unsuspecting customers with fake products (e.g., pharmaceuticals)


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Facilitators

• Assist the focal firm with specialized services required in international transactions

• Examples include logistics service providers (e.g., DHL, FedEx), banks, international trade lawyers, freight forwarders, customs brokers, consultants, advertising agencies, market researchers, insurance companies, &tax accountants


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Types of Facilitators

• Logistics Service Provider: a firm specializing in transport, distribution, and storage of focal company products

• Customs Broker: firms that specialize in clearing products through customs in various destination countries


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Governments

• Governments exist at the local, provincial, national, and supranational levels to make and enforce laws & regulations & to provide essential economic security by devising fiscal and monetary policies.

• Central banks in each country issue currency and regulate national money supplies

• Sovereign wealth funds are state-owned investment funds that undertake systematic, global investment activities to generate income or to achieve policy objectives


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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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