international business
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International Business. Wendy Jeffus Harvard Summer School. Introduction. Participation: Names…Jade, Erika/Areej, Shekinah Globalization Debate: Summary Chapter 14: Entry Strategy & Strategic Alliances Chapter 15: Exporting, Importing, and Countertrade Case Study : JCB in India - PowerPoint PPT PresentationTRANSCRIPT
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Wendy Jeffus
Harvard Summer School
International Business
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Introduction Participation: Names…Jade, Erika/Areej,
Shekinah Globalization Debate: Summary Chapter 14: Entry Strategy & Strategic Alliances Chapter 15: Exporting, Importing, and
Countertrade Case Study: JCB in India Chapter 18: Global Human Resources
Management Participation Scores
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Globalization Debate
Impact on Jobs and WagesTeams 1&10: Against GlobalizationGlobalization costs jobs & lowers wagesEliminates jobs in developed nationsForces wages lower in developed countries – ratcheting downExploits workers in developing nationsTeams 2&7: Pro GlobalizationGlobalization creates jobs & boosts wagesIncreases wealth and efficiencyGenerates labor market flexibilityCreates jobs in developed nationsAdvances developing nation’s economies
Impact on the Environment & SovereigntyTeams 3&4: Against GlobalizationSearch for lower costs causes “race to the bottom” in environmental standards.Companies exploit labor and environment simply to make cheap goods for export.Globalization is a “Menace to Democracy.” Unelected, faceless bureaucrats, unaccountable to anybody except corporate patrons, are going to rule the world.Teams 5&6: Pro GlobalizationOpen countries, receptive to trade and FDI, are far better on environmental standards.Global pressure to clean the environment.The green revolution.Globalization is the “Guardian of Democracy;” economic gains have spread freedom.
Impact on CultureTeam 8: Against GlobalizationGlobalization is homogenizing the world, destroying cultural diversity.Global consumer goods (McDonalds) are destroying cultural uniqueness in foods, entertainment, other customs and aesthetics.Globalization is creating materialistic, superficial, plastic societies.Team 9: Pro GlobalizationGlobalization allows us all to profit from our different skills and endowments.Cultures are thriving; cultural exports (music, literature) are increasing.Consumerism is superficial; deeper aspects such as moral norms and how people interact, their relationships, are not being affected.
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Wendy Jeffus
Harvard Summer School
Chapter 14: Entry Strategy and Strategic Alliances
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P.A.T.(Japan)
Hotel(USA)
Carbon(Brazil)
Pedometer(Germany)
eShop(Spain)
Group 1:Shekinah (England)Henrique (Brazil)Darshan (India)Davi (Brazil)Ipsita (India)Jonathan (Belgium)Oliver (China)Peanut Allergy Tester
Group 2: Michael (USA)Jade (Nigeria)Shublove (India)Erika (Columbia)Hotel/Spa
Group 3: Kamel (France)Geraldo (Brazil)Yanee (China)Salomon (Mexico)Maria (Norway)Carbon Trade
Group 4: Hendrik (Germany)Victor (Brazil)Susanna (Australia)Enrique (Spain)Raj (India) Pedometer for Elderly
Group 5:Jaime (Spain)Thais Gasper (Brazil)Kaushik (India)Sotonye (Nigeria)Priyanshi (India)Virtual Shopping
Group 6:Cleber (Brazil)Raghav (India)Kristoffer (Norway)Alejandro (Costa Rica)Mayank (India)Jin (China)Bharat Wire
Group 7: Dennis (Sweden)Rohit (India)Carla (Brazil)Christian (Norway)Track-o-Mat, Canada
Group 8: Austin (USA)Johannes (Germany)Sohum (Botswana)Rahil (India)Lily (China)Micro Finance
Group 9:Charlene (Germany)Sebastian (Denmark)Thais Alvarez (Brazil)Sidhesh (India)Anna (USA)Emily (China)Bulk Music Downloads
Group 10: Vishal (India)Sarah (USA)Daniel (Trinidad)Sherif (Egypt)Travel Light,United Kingdom
Baharat(China)
Track(Canada)
MicroFin(Botswana)
eMusic(S. Korea)
Luggage(UK)
Group ProjectsN.G.O.
(Pakistan)
Group 11:Matthew (USA)Areej (Pakistan)Education NGO
Optional: Jade (Nigeria)Nutrition Consulting
Consult.(Nigeria)
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P.A.T.(Japan)
Hotel(USA)
Carbon(Brazil)
Pedometer(Germany)
eShop(Spain)
Baharat(China)
Track(Canada)
MicroFin(Botswana)
eMusic(S. Korea)
Luggage(UK)
Group ProjectsN.G.O.
(Pakistan)Consult.
(Nigeria)
Image sources•http://images.google.com
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Which Foreign Markets? The choice must be based on an assessment of
a nation’s long-run profit potential The attractiveness of a country depends upon
balancing the benefits, costs, and risks associated with doing business in that country
Benefits include– Size of market– Present wealth of the consumers in the market– Likely future wealth of consumers– Economic growth rates
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Timing the Entry Advantages frequently associated with entering
a market early are commonly known as first-mover advantages
– The ability to preempt rivals and capture demand by establishing a strong brand name
– Ability to build sales volume– Ability of early entrants to create switching costs
Disadvantages associated with entering a foreign market before other international businesses are referred to as first-mover disadvantages
– Pioneering costs are costs that an early entrant has to bear– Possibility that regulations may change
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First Mover Disadvantage Risk - Without previous experience to draw upon, first movers
usually make the worst mistakes in terms of judging whether a product will be suitable for the market. Successive companies can reduce risk by learning from these mistakes.
– Example – China’s market over the last decade clearly shows the divide. Some rushed in, others chose to wait, convinced that many of the first-movers would get their fingers burned.
– Example - Silicon Valley, is full of companies that had first-mover advantage but still failed; it has been estimated that only about one in a hundred Silicon Valley start-ups survives for more than two years.
The first-mover advantage is no absolute guarantee of success, and often, late-arriving (and occasionally inferior?!) products take over the market from the first-movers.
– Example - Sony learned this to its cost, when its Betamax video recorder system was driven out of the market by VHS.
Source: FT.com (Financial Time’s Online Management Dictionary)http://content.answers.com/main/content/wp/en/thumb/7/72/180px-Betavhs2.jpg
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First Mover Disadvantage– Visicalc, the first desktop spreadsheet program, faded away as
Lotus took over the field with 1-2-3. In time the Lotus software was itself crushed by Microsoft's Excel.
– Prodigy Communications was a first mover in online connections (and it had powerful backers at its launch in 1984). AOL came along much later.
– Dumont led the way in selling TV sets when they were new gadgets, but the company lost out to latecomers like RCA and Motorola.
– Chux was the leading disposable diaper yet succumbed to Procter & Gamble.
– Ampex had a commanding position in video recorders and tapes for two decades until Sony took over.
http://www.forbes.com/forbes/2007/0618/154.html, Image Sources: http://www.earlytelevision.org/images/DuMont-RA-108-hd.jpghttp://www.aresluna.org/attached/pics/computerhistory/articles/25latzakratkami/visicalc-reklama.big.jpg
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More Examples Hotmail and Yahoo weren’t the first companies to offer free email. "Juno was first
and had a $20 million ad budget" – Investors tend to invest in me-too companies because they have a degree of comfort that
they're investing in an established market. "We're more impressed to know there are competitors," agrees Neil Weintraut of 21st Century Intenret Venture Partners
The computer industry is littered with companies that were first to market and lost the race big time - remember the Osborne portable computer or the Gavilan notebook?
"History imposes first mover advantage honors," notes Roger McNamee of Integral Capital Partners. "If you asked who was the first computer game software company a lot of people might say Electronic Arts because they're still standing, but EA was about the 41st game software company to get funding."
Source: “The Myth of the First Mover Advantage” by David Needle; http://www.roguepc.com/images/juno2.gifhttp://www.uweb.ucsb.edu/~rverduzco10/images/thunderbird-hotmail.jpg; http://cache.eb.com/eb/image?id=23627&rendTypeId=4http://oldcomputers.net/pics/gavilan-capsules.jpg
Is yourcompany afirst mover?
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Scale of Entry Large scale entry
– Strategic Commitments - a decision that has a long-term impact and is difficult to reverse.
Pros: May cause rivals to rethink market entry, better chance to capture first mover advantages like switching costs, economies of scale & shows potential customers and distributors that you’re committed to the market.
Cons: Fewer resources to pursue other markets (hindering strategic flexibility)
Small scale entry– Pros: Gives the firm time to learn about market & reduces risk– Cons: Lack of scale, may be harder to capture first mover
advantages, etc.
Consult.(Nigeria)
eMusic(S. Korea)
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Entry Modes Firms can use six different methods to
enter a market1. Exporting
2. Turnkey Projects
3. Licensing
4. Franchising
5. Joint Ventures
6. Wholly Owned SubsidiariesIn
crea
sed
Con
trol
Increased Risk
Wholly OwnedSubsidiary
Joint Venture
Exporting
Licensing
Franchising
Turnkey Projects
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Exporting
Dr. Obioha had started by exporting ethnic hair care products to West Africa. He realized one way he could ensure the top-notch quality, of his merchandise was to manufacture the products himself. He was from Nigeria, so he started in the territory that he knew the best.
Then he moved to European countries. After about five years, the entrepreneur recognized the need for his quality skin care throughout the world. The product has been on the market now since 1990.
Exporting– Advantages:
Avoids cost of establishing manufacturing operations
May help achieve experience curve and location economies
– Disadvantages: May be hard to compete
with low-cost manufacturers– Possible high
transportation costs– Tariff barriers
Possible lack of control over marketing reps
http://www.bluefieldinc.com/BF_Corporate.htmlhttp://findarticles.com/p/articles/mi_qa5342/is_200111/ai_n21481091
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Turnkey projects Advantage:
– Less risky than conventional FDI
Disadvantages:– May create a competitor– Selling process
technology may be selling competitive advantage as well
Contractor agreesto handle everydetail of projectfor foreign client
Forum hotel in Warsaw, Poland 1974 - Skanska S.A.1st turnkey projectoutside of Sweden
http://www.skanska.pl/skanska/templates/page.asp?id=11579http://www.bouygues.com/us/
After reconstructing and upgrading Lebanon's power grid in 1995, Bouygues Construction handed over the Beirut Seafront redevelopment in May 2000
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Licensing A licensing agreement is an arrangement
whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from the licensee.– Example: Warner licenses images from the Harry
Potter books.– Example: Coca Cola (see Next Slide)
http://www.sfondideldesktop.com/Images-Movies/Harry-Potter/Harry-Potter-0036/Harry-Potter-0036.jpg; zipcar.com
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Licensing
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Licensing Advantages
– Reduces development costs and risks of establishing foreign enterprise
– Unfamiliar or politically volatile market– Overcomes restrictive investment barriers– Others can develop new business applications
Disadvantages– Less control over manufacturing, marketing, etc.– Limits the ability to coordinate a strategy across countries.– Risk loosing control of technology Agreement where
licensor grants rights to intangible property to another entity for a specified period
of time in returnfor royalties.
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Franchising Franchising is an advanced form of licensing in
which the franchisor, like “McDonalds” allows an entrepreneur (the franchisee) the right to use an entire business system in exchange for compensation.
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Franchising
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Franchising a McDonalds Imagine that you're opening your own McDonald's. To do this, you have to buy a McDonald's franchise. In order to qualify for a conventional franchise, you have to have
$175,000 (not borrowed). – Your total costs to open the restaurant, will be anywhere from $430,000 to
$750,000, which goes to paying for the building, equipment, etc. – Forty percent of this cost has to be from your own (non-borrowed) funds. – You'll pay an initial franchise fee of $45,000 directly to McDonald's. The
other costs go to suppliers, so this is the only upfront fee you pay to McDonald's.
– Then, you'll go through a rigorous nine-month training period where you'll learn about the McDonald's way of doing things -- things like their standards for quality, service, value, formulas and specifications for menu items, their method of operation, and inventory control techniques.
– You'll have to agree to operate the restaurant from a single location, usually for 20 years, following their guidelines for decor, signage, layout and everything else that makes McDonald's McDonald's.
Source: http://money.howstuffworks.com/franchising1.htm
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Franchising a McDonalds Once you've completed training and are ready to go, McDonalds will offer you a location they've already developed.
– The exterior of the building will be complete, but you will have to take care of interior additions such as kitchen equipment, seating and landscaping.
– You'll get constant support from a McDonald's Field Consultant, who can advise you on details and will visit regularly.
– You'll pay McDonald's a monthly fee of 4 percent of your sales, and either a flat base rent or a percentage rent of at least 8.5 percent of your sales. How much money you make depends on many things, including the location and its popularity, the efficiency of your operating costs, and your ability to manage and control the business.
Think of franchising as paying someone for their business strategy, marketing strategy, operations strategy, and the use of their name. That's pretty much what franchising is -- you are establishing a relationship with a successful business so you can use its systems and capitalize on its existing brand awareness in order to get a quicker return on your own investment. You are using its proven system and name, and running it by its rules.
Are you still your own boss? In some respects, no. You still have to answer to someone else and follow thier direction. You don't really own the business; you own the assets you've purchased in order to establish the business.
Source: http://money.howstuffworks.com/franchising1.htm
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FranchisingAdvantages:
– Reduces costs and risk of establishing enterprise– Quality control
Disadvantages:– May prohibit movement of profits from one country
to support operations in another country
Franchiser sellsintangible propertyand insists on rules
for operating business
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Joint Venture A form of collaboration between two or more
firms to create a jointly owned enterprise.
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Licensing (& JV) To enter the Japanese market Xerox (inventor of the
photocopier) established a joint venture with Fuji Photo. (25/75)
Xerox licensed its xerographic know-how to Fuji Xerox. Fuji Xerox paid a royalty fee equal to 5% of the next
sales revenue that Fuji Xerox earned from the sales of photocopiers based on Xerox’s patented know-how
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Joint VenturesAdvantages:
– Benefit from local partner’s knowledge– Shared costs/risks with partner– Reduced political risk
Disadvantages:– Risk giving control of technology to partner– May not realize experience curve or location
economies– Shared ownership can lead to conflict
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Wholly Owned SubsidiaryThe parent firm owns 100% of the stock.Subsidiaries could be Greenfield
investments or acquisitionsAdvantages:
– No risk of losing technical competence to a competitor– Tight control of operations– Realize learning curve and location economies
Disadvantage:– Bear full cost and risk
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Wholly Owned Subsidiaries 2006 - Swedwood International a wholly-owned
subsidiary of IKEA built it’s first U.S. plant in Virginia
IKEA wanted control – Quality– Operations– Company secrets
http://www.pittced.com/news/ikea-subsidiary-swedwood-to-build-first-u.s.-manufacturing-facility-in-vir-2.html
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Core Competencies and Entry Mode The optimal entry mode for firms depends to
some degree on the nature of their core competencies
A distinction can be drawn between firms whose core competency is– Technological know-how (avoid licensing & JVs)– Management know-how (franchisee/JV is okay)
The greater the pressures for cost reductions are, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries
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Core Competencies and Entry Mode Technological Know-
How– Licensing and joint-venture
arrangements should be avoided if possible
– Should probably use a wholly owned subsidiary
– Exceptions include An arrangement can be
structured to reduce the risk of licensees
If the technological advantage is only transitory
Management Know-How
– The firm’s valuable asset is normally a brand name
– The result is that franchising and subsidiaries are very attractive
– Often times a joint venture is politically more acceptable
P.A.T.(Japan)
Carbon(Brazil)
MicroFin(Botswana)
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Acquisition or Greenfield
Pros:– Quick to execute– Preempt competitors– Possibly less risky
Cons:– Disappointing results– Overpay for firm– Culture clash– Problems with proposed
synergies
Pros:– Can build the subsidiary it
wants– Easy to establish
operating routines
Cons:– Slow to establish– Risky– Preemption by aggressive
competitors
Greenfield Ventures Pros and Cons:
Acquisitions Pros and Cons:
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Acquisition or GreenfieldAcquisitions are
attractive if:– There are well established
firms already in operation– Competitors want to enter
the region
Greenfield ventures are attractive if:
– There are no competitors– Competitors have a
competitive advantage that consists of embedded competencies, skills, routines, and culture
Image Source:http://earthfirst.com/wp-content/uploads/2008/06/trump-hair.jpg
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Strategic AlliancesCooperative agreements between potential or
actual competitorsAdvantages:
– Facilitate entry into market– Share fixed costs– Bring together skills and assets that neither company has
or can develop– Establish industry technology standards
Disadvantages:– Competitors get low cost route to technology and markets
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University of Victoria’s Strategic Alliances
http://external.uvic.ca/http://external.uvic.ca/corp-rels/Strategic-Alliance-Logo-Listing.gif
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ASQ Project Management’s Strategic Alliances
http://www.asqprojects.com/images/partners.gif
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Soaring Word’s Strategic Alliances
http://www.soaringwords.org/content/images/strategic_alliances.gif
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Phoenix Banking’s Strategic Alliances
http://www.vistaatm.com/about/alliances/logos.jpg
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Alliances are PopularHigh cost of technology developmentCompany may not have skill, money or
people to survive aloneGood way to learnGood way to secure access to foreign
marketsHost country may require some local
ownership
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Partner SelectionGet as much information as possible on
the potential partnerCollect data from informed third parties
– Former partners– Investment bankers– Former employees
Get to know the potential partner before committing
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Structuring the Alliance to Reduce Opportunism
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P.A.T.(Japan)
Hotel(USA)
Carbon(Brazil)
Pedometer(Germany)
eShop(Spain)
Baharat(China)
Track(Canada)
MicroFin(Botswana)
eMusic(S. Korea)
Luggage(UK)
N.G.O.(Pakistan)
Consult(Nigeria)
Image sources•http://images.google.com
Potential Partners
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Wendy Jeffus
Harvard Summer School
Chapter 15: Exporting, Importing and Countertrade
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Remember Parkers?
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An International Company Parker’s Maple Barn
– Note: the population of Mason, NH was 1,147 at the 2000 census.
– http://www.parkersmaplebarn.com/
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Why? Falling barriers to trade… Transportation is cheaper and faster… Communication technology is new…
– The internet …more widely used…
– The fax machine (first invented in 1843) …and is faster, more convenient, and less
expensive!– Cost of a 3-minute phone call from NY to London in
1930? $244.65
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The Opportunity…The global market is
– 5 times larger than any domestic market…China has 1,338,612,968 people according to the
World Fact Book (July 2009) while the world population is 6,790,062,216.
– Much larger than many markets!The global market is 1,457 times larger than the
market in Singapore.– 2009 Population: 4,657,542
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Information Sources U.S. Department of Commerce (www.commerce.gov)
– to foster, promote, and develop the foreign and domestic commerce – www.recovery.gov
International Trade Administration (trade.gov/index.asp)– strengthening the competitiveness of U.S. industry, promoting trade and
investment, and ensuring fair trade and compliance with trade laws and agreements.
Export.gov– Market research and trade leads from the U.S. Department of
Commerce’s Commercial Service – Export finance information from Export-Import Bank and the Small
Business Administration– Agricultural export assistance from USDA
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Leads… Apparel & Textiles
– Joint Venture/Franchise for Sporting Goods Location: Karachi, Pakistan Expiration: 05/30/2010
Services– U.S. Pest Control Technology Wanted Location: Safat, Kuwait
Expiration: 10/06/2009– Looking to partner with a U.S company operating in Market Research
Location: Casablanca, Morocco Expiration: 03/30/2010 Healthcare
– Immediate: Chilean Company Needs a Manufacturer of Screening Equipment to Location: Santiago, Chile Expiration: 09/14/2009
Travel (2007)– Chartered Airlift Providers for Cricket World Cup Location: Kingston 5,
Jamaica Expiration: 12/31/2007– Jilin City Developing Beidahu Ski Resort for 2007 Asian Winter Games
Location: Jilin City, China Expiration: 12/31/2007
http://www.export.gov/industry/
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Trade Commissions– Maintained by many large cities– Provide business counseling, information gathering,
and financing
Commercial banks and major accounting firms
Other Information Sources
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The Minnesota Mining & Manufacturing Company (Ch. 13) Main Principles:
– Enter on a small scale to reduce risks “Make a little, sell a little”
– Add additional product lines (once the initial products become successful)
– Hire local talent to promote the firm’s products UK & Germany – office cleaning crews passed out products Italy – product distributors passed out samples Malaysia – hired young people to pass out samples
“FIDO” First In Defeats Others
Export Strategy
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Export and Import Financing
Preference of a US Exporter
Preference of a French Importer
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A problem… Firms engaged in international trade have to
work with someone whom…– They have never met…– Lives in a different country…– Speaks a different language…– Follows (or doesn’t follow) a different legal system…– And if something goes wrong…– May be difficult to find.
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The solution
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Tools Used to Aid Transactions Letters of Credit (LOC)
– Bank guarantee on behalf of importer to exporter assuring payment when exporter presents specified documents
This can be quite complicated and expensive in some countries Drafts (Bill of Exchange)
– Written order by exporter, telling an importer to pay a specified amount of money at a specified time
Sight drafts - payable on presentation to the drawee Time draft - negotiable instrument allowing for delay in payment
Bill of Lading (“Title”)– Issued to the exporter by the common carrier transporting the merchandise– Serves three purposes:
1. Receipt - merchandise described on document has been received by carrier2. Contract - carrier is obligated to provide transportation service in return for a certain
charge3. Document of title – can be used to obtain payment or a written promise before the
merchandise is released to the importer
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Typical International Transaction
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www. Exim.gov
Export Assistance Two forms of government-backed assistance
prospective U.S. exporters can draw on for financing
– Export-Import Bank (www.exim.gov) Referred to as Eximbank Provides loans and loan-guarantee programs Makes commercial banks more willing to lend
cash to foreign enterprises Lends money to foreign borrowers to purchase
U.S. exports– Export Credit Insurance (www.fcia.com)
Provided by Foreign Credit Insurance Association (FCIA)
Consists of private commercial institutions operating under the guidance of Export-Import Bank
Provides credit insurance in case importer defaults in payment
Commercial and political risks taken into account
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The Role of Government in the Export/Import Environment
Political– Protecting jobs and industries– National security– Retaliation
Economic– Develop/protect infant industry– Strategic trade policy
First mover advantage The ‘catch-up’ argument
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Types of Countertrade Barter (Countertrade)
– Direct exchange of goods and services between two parties without a cash transaction– Two-fold problems
If goods are not exchanged simultaneously, one party ends up financing the other for a period Goods may be unwanted, unusable, or have a low re-sale value
Counterpurchase– China buys industrial equipment from a US firm and the US firm promises to spend some of
the proceeds on Chinese textiles Offset
– One party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale
– Party can fulfill the obligation with any firm in the country to which the sale is being made– Gives exporter greater flexibility to choose goods to be purchased
Switch trading– Occurs when a third-party trading house buys the firm’s counterpurchase credits and sells
them to another firm that can better use them Compensation or buybacks
– Occurs when a firm builds a plant in a country or supplies technology, equipment, training, or other services
– Agrees to take certain percentage of plant’s output as partial payment for the contract
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A Note on Barter Barter (or Countertrade) is when companies
trade goods and services rather than entering foreign exchange markets or paying cash. – The Economist adds that “[Barter] is often popular
when the quality of money is low or uncertain, perhaps because of high inflation or counterfeiting, or when people are asset-rich but cash-poor, or when taxation or extortion by criminals is high.”
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Barter (Continued) It’s a huge industry!
In fact, the International Reciprocal Trade Association (www.irta.com) estimates that the annual value of barter trade by North American Companies is approximately $10B…– …and that over a half a million firms will use the
services of commercial barter companies this year.
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Examples General Motors swapped locomotives for tea in
Sri Lanka. Coca Cola has traded for Korean toothpick frills
and Bulgarian forklifts. In the Balkans, McDonnell Douglas accepted
crystal software, cutting tools, leather coats and canned hams--yes, canned hams--as partial payments for jet aircraft!
Source: www.cfoasia.com/archives/9811-48.htm
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Barter…
Tina Ames, owner of Craftsmen Cafe, got a new roof in exchange for a pickup truck she no longer needed.
Silver Cup Coffee owner Christian Kar has bartered for Web site design, a walk-in freezer, a phone system, vehicle maintenance, plumbing, catering for a company party and a parking lot paint job.
Joe Gallenberger, owner of Cream City Music, often trades guitars for advertising
http://money.cnn.com/2009/06/23/smallbusiness/fair_trade.fsb/
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How many Chickens is a Fighter Jet Worth? Thai economists are trying to work out the answer as the Government is
hoping to barter chickens and rice to pay for everything from military aircraft to subway trains.
When the Prime Minister opened the bidding for Thailand's Bt1.7 trillion public works program, he said his Government was interested in alternative "financing mechanisms" — namely, bartering.
The highlight of the new projects is an expansion of the public transport system, expected to cost Bt550 billion. The Defense Ministry also wants to barter for fighter jets it is considering buying from Russia, Sweden or the US.
The Government believes that bartering for such big-ticket items would help keep the country's foreign debt ratio below 50 per cent of gross domestic product.
– The scheme envisions trading farm goods already in government stocks, such as surplus rice, instead of using cash for at least part of the payment to foreign companies.
– A barter trade committee has been created to assess the bids for the public works projects and negotiate how much chicken, rice or tapioca could be used to finance the deal.
Some foreign companies are skeptical.– French engineering conglomerate Alstom, doubted whether barter was the best
payment option. "A company like us, we don't do barter, we sell trains. We cannot sell chickens," said Nazir Rizk, who heads the Thai subsidiary.
http://www.theasianjournal.com/2006newsqtr1/20060129-1.htm
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Barter (Countertrade)
Advantages Means to finance an export deal
when other means are not available
Unwilling firms may lose an export opportunity and be at a competitive disadvantage
Disadvantages No hard currency Exchange of unusable or poor-
quality goods that cannot be disposed profitably
Expenses relating to maintaining an in-house trading department to arrange and manage countertrade deals
Barter (Countertrade) is most attractive to huge multinationals that can use their worldwide network of contacts to most profitably dispose goods
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Think outside of the box…
http://fc08.deviantart.net/fs37/f/2008/257/a/6/Think_Outside_the_Box_by_PSRADICH.jpg
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Take a Break… JCB team if you haven’t done so, load your
presentation on the desktop, grab a drink, meet your classmates…
see you in 10 min.
Image source: http://www.graduatejunction.net/images/take_a_break.jpg
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Wendy Jeffus
Harvard Summer School
Chapter 18: Global Human Resources Management
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Human Resource Management Four major tasks of HRM
– Staffing policy Who do you hire?
– Management training and development How do you train them?
– Performance appraisal How do you critique their performance?
– Compensation policy What should you pay them?
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HRM Strategic role: HRM policies should be congruent with the
firm’s strategy and its formal and informal structure and controls (as well as the firm’s culture)
Summer 2006 Intern trip to Sea World San Antonio
Source: Company websites
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More “LUV” Culture
Rapping Flight Attendant– http://www.youtube.com/watch?v=ivjybzdXVmI
GAAP Explained by the “Rapping Flight Attendant”– http://www.youtube.com/watch?v=7P2-vEtXSug
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International HRM Task complicated by profound differences
between countries:– Labor Markets
Skilled labor, average workday, influence of unions,
– Culture Role of women, role of religion, distance between the boss
and the employee, emphasis on time!
– Legal Handshake, legal support, labor laws
– Economic Systems Fixed vs. floating currencies
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International Human Resource Mgmt.
HR plays a large role in an organization’s architecture
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Staffing Policy Staffing policy
– Selecting individuals with skills to do a particular job– But also a tool for developing and promoting
corporate culture
3 types of Staffing Policy
Source: Company website
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1. Ethnocentric Policy Key management positions filled by parent-
country nationals (belief: Home country skills are superior)
Advantages:– Overcomes lack of qualified managers in host nation– Unified culture– Helps transfer core competencies
Disadvantages:– Produces resentment in host country– Can lead to cultural shortsightedness
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2. Polycentric Policy Host-country nationals manage subsidiaries Parent company nationals hold key headquarter
positions (belief: each host country is unique) Advantages:
– Alleviates cultural shortsightedness– Inexpensive to implement– Helps transfer core competencies
Disadvantages:– Limits opportunity to gain experience of host country nationals
outside their own country– Can create gap between home and host country operations
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3. Geocentric Policy Seek best people, regardless of nationality (belief: there
are both similarities and differences) Advantages:
– Enables the firm to make best use of its human resources– Equips executives to work in a number of cultures– Helps build strong unifying culture and informal management
network Disadvantages:
– National immigration policies may limit implementation– Expensive to implement due to training and relocation– Compensation structure can be a problem
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Nestlé: Global HRM Headquarters: Vevey, Switzerland ~250,000 employees, (100 different nationalities) Emphasis on language skills (You must be fluent in English and in
two other languages) All entry level graduate positions featured are international careers.
– Engineering– Nestlé Audit Group– Nestlé Productivity Team– Marketing & Sales
Expatriates at Nestlé make a long-term commitment to carry out a series of two to three year assignments abroad, moving from one country to another.
– International expatriates have the opportunity to work in many locations – mainly in Asia, Africa, Eastern Europe and Latin America.
http://www.nestle.com/Careers/Introduction/Careers.htm
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The Expatriate Problem Expatriate: citizens of one country working in
another– Expatriate failure: premature return of the expatriate
manager to his/her home country Cost of failure is high: estimate = 3X the expatriate’s annual
salary plus the cost of relocation.
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US multinationals– Inability of spouse to adjust– Manager’s inability to adjust– Other family problems– Manager’s personal or
emotional immaturity– Inability to cope with larger
overseas responsibilities
Japanese Firms– Inability to cope with larger
overseas responsibilities– Difficulties with the new
environment– Personal or emotional
problems– Lack of technical competence– Inability of spouse to adjust
Reasons for Expatriate Failure
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Expatriate Selection Reduce expatriate failure rates by improving
selection procedures An executive’s domestic performance does not
(necessarily) equate to his/her overseas performance potential
Employees need to be selected not solely on technical expertise, but also on cross-cultural fluency
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1. Self-Orientation– Possessing high self-esteem, self-confidence and mental well-
being
2. Others-Orientation– Ability to develop relationships with host country nationals – Willingness to communicate
3. Perceptual Ability– The ability to understand why people of other countries behave
the way they do– Being nonjudgmental and flexible in management style
4. Cultural Toughness– Relationship between country of assignment and the expatriate’s
adjustment to it
Four Attributes that Predict Success
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Training Cultural training:
– Seeks to foster an appreciation of the host country’s culture
Language training: – Can improve expatriate’s effectiveness, aids in
relating more easily to foreign culture, and fosters a better firm image
Practical training: – Ease into the day-to-day life of the host country
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Management Development Development:
– Broader concept involving developing manager’s skills over his or her career with the firm
Several foreign postings over a number of years Attend management education programs at regular intervals
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Repatriation of Expatriates
Didn’t know what position they hold upon return.
Firm vague about return, role and career progression.
Took lower level job.
Leave firm within one year.
Leave firm within three years
10 20 30 40 50 60 70percent
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Management Development & Strategy Development programs designed to increase the
overall skill levels of managers through:– Ongoing management education– Rotation of managers through a number of jobs within
the firm to give broad range of experiences Used as a strategic tool to build a strong unifying
culture and informal management network
How will you develop (and keep) talent?
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Performance Appraisal Problems:
– Unintentional bias Host nation biased by cultural frame of reference Home country biased by distance and lack of experience working
abroad
Expatriate managers believe that headquarters unfairly evaluate and under-appreciate them
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Compensation Two issues:
1. Pay Should you pay executives in different countries according
to the standards in each country OR equalize pay on a global basis?
2. Method of payment
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Compensation in Various Countries
Additional source: US Bureau of Labor Statistics http://www.bls.gov/fls/
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Compensation in Various Countries
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Typically use balance sheet approach– Equalizes purchasing power to maintain same
standard of living across countries – Provides financial incentives to offset qualitative
differences between assignment locations
Expatriate Pay
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Components of Expatriate Pay Base Salary
– Same range as a similar position in the home country Foreign service premium
– Extra pay for work outside country of origin Allowances
– Hardship, housing, cost-of-living, and education allowances Taxation
– Firm pays expatriate’s income tax in the host country Benefits
– Level of medical and pension benefits identical overseas
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The Balance Sheet Approach
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International Labor Relations Key Issue
– Degree to which organized labor can limit the choices of an international business
Aims to foster harmony and minimize conflicts between firms and organized labor
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Concerns of Organized Labor Multinational can counter union bargaining
power with threats to move production to another country
Multinational will keep highly skilled tasks in its home country and farm out only low-skilled tasks to foreign plants– Easy to switch locations if economic conditions
warrant– Bargaining power of organized labor is reduced
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Friday Review Session Sever Hall Room 202 (Here)
– 1:00pm – 3:30pm
Yu & Pong will be available to Review/Edit your final project reports.
You can also practice your presentations (if you’re ready).– Remember there is a 10min time limit on final
presentations!
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Remember… “Today is very difficult, tomorrow is much more
difficult, but the day after tomorrow is very beautiful, most people die tomorrow evening.”
– Jack Ma founder, chairman and chief executive officer of Alibaba Group
Image soure: Wikipedia & Alibaba.comhttp://resources.alibaba.com/images/imagebox/20061101/c91/c9a217935bf0b6a384233275432f8198_063501.jpg