International BusinessBY: SALMAN MEHMOOD

Discussion Project Selection

◦ Company ◦ Team consist of 5-6◦ Get list of students and email ID

Globalization Globalization is the process of international integration arising from the interchange of world views, products, ideas and other aspects of culture.

Product: Spices

Ideas: Internet and use of technology

Culture: Jeans

Silk route & Spice Trade

Geography foundations (Regions of the World)

Population and geography

Economic development and geography

OPECORGANIZATION OF THE PETROLEUM EXPORTING COUNTRIES

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Introduction Founded in Bagdad, Iraq in September 1960 OPEC had its Headquarters in Geneva, Switzerland, in the first five years of its existence, since 1965 its established in Vienna, Austria. OPEC was organized to resist pressure by the "Seven Sisters" to cut oil prices "Seven Sisters" holds 85% of total output The group comprised

◦ Anglo-Persian Oil Company (now BP); ◦ Gulf Oil, ◦ Standard Oil of California (SoCal)◦ Texaco (now Chevron); ◦ Royal Dutch Shell; ◦ Standard Oil of New Jersey (Esso) ◦ Standard Oil Company of New York (Socony) (now ExxonMobil)

OPEC ensures:◦ Stabilization of prices in international oil markets.◦ Eliminating harmful and unnecessary fluctuations.◦ Protect the interest of oil Producing countries.◦ Efficient and regular supply of petroleum to consuming nations.◦ Fair return on capital for those investing in the petroleum industry.

Source: Official website http://www.opec.org

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Introduction Initially five countries Joined, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Ecuador suspended its membership from December 1992 until October 2007 (because it was unwilling or unable to pay a $2 million membership

fee and felt to produce more oil than it was allowed to under the OPEC quota). Indonesia suspended its membership in 2009 after it became a net importer of Oil. Gabon terminated its membership in 1995 (Similar concerns as of Ecuador). Presently it has 12 oil-producing countries, as its members:

◦ Algeria, ◦ Angola, ◦ Ecuador, ◦ Iran, ◦ Iraq, ◦ Kuwait, ◦ Libya, ◦ Nigeria, ◦ Qatar, ◦ Saudi Arabia, ◦ United Arab Emirates, ◦ Venezuela

Source: Official website http://www.opec.org

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Oil Market Importers

◦ USA◦ European Union◦ Japan◦ China

Source: http://en.wikipedia.org/wiki/File:Oil_Balance.png

Exporters◦ Saudi Arabia◦ Russia◦ Iran◦ UAE

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Oil Prices

Source: http://en.wikipedia.org/wiki/File:Oil_Prices_1861_2007.svg

◦ August 15, 1971 Depreciation of US $ ◦ October 6 to 25, 1973 Yom Kippur war◦ October 1973 Oil Embargo (lasted until March 1974) (oil weapon)◦ 1980 Oil Glut (over Production)◦ September 1980 – August 1988 First Persian Gulf War (Iraq and Iran)◦ Every US$1 drop in the price of a barrel of oil caused a US$1 billion drop in Iraq's annual revenues… (Iraqi Foreign

Minister Tariq Aziz)◦ Iraq-Kuwait War (2–4 August 1990)

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Oil Crises 1973 oil embargo

◦ Result of US and Western Europe’s support of Israel, against Arab nations in the Yom Kippur War of 1973.

◦ Iran and Saudi Arabia imposed an oil embargo against the West.◦ In US oil prices went from 3 $ to 12 $ /b.◦ Embargo also forced America to reevaluate the cost and source of energy, which

previously received little consideration.◦ Economic recession through out the World.◦ Increase in Unemployment & Inflation◦ Production decreased◦ Japan take the advantage and supplied fuel efficient cars to America.

Source: http://en.wikipedia.org/wiki/File:Oil_Balance.png

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Petroleum Industry• Production• Exploration Crude Oil• Recovery

Upstream

• Selling / Distribution• Derived products from

crude oil.

MidstreamDownstream

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Consumption & Production OPEC produce 37.5% of the total output.

OPEC to maintain Ceiling of 30 million b/d.

Non-OPEC crude oil production was at around 53m b/d.

Iraq is a member but its production has not been a part of any OPEC quota agreements since March 1998.

Production will reach 96 m b/d by 2020, and OPEC output will reach to 34.5 m b/d.

To meet expected output (2020) investment of 200 – 400 billion $ is required.

Due to potential growth in Asia there is substantial prospects of reshaping oil downstream.

Source: The 161st Meeting of the OPEC Conference

Technology and globalization Marketing (Cost effective Marketing)

Communication (Cell-phones)

Remodeling business transections (Cash on Delivery, Online Purchases)

Customer Service (more access to customer feedback)

Information access (Online Journals)

Oriented to more paper less mode of communication (e-mail)

Telecommuting (Work from home, Freelancing)

Business Growth (not in linear terms, but exponential)

Stocks Trading (Forex, Company Stocks, Commodity markets)

CultureWARNING! CULTURE IS NOT STATIC!

Cultural Impact Elements of culture

Business customs

Business ethics

Religion

Communication

Effect of culture on business

Culture & Elements The ideas, customs, and social behavior of a particular people or society. (belief and value systems of society)

Cultural Differences

Cultural Differences (contd)

Business Etiquettes Russia: Being on time to a business meeting in Russia is of the utmost importance. At least for one party, that is. While Americans are expected to arrive not a second after the meeting's scheduled time, Russians feel free to show up as late as they desire and are unapologetic about it. The move is designed to test the patience of their U.S. counterparts.

China: Americans working in China better have a gift ready when they show up for a business meeting. However, don't expect it to be eagerly accepted.

In China, the customary tradition is that gifts are refused up to three times before being accepted. It is important to continue offering until the present is finally taken.

Japan: While the business card has declined in importance in the U.S., that is far from the case in Japan. When doing business with the Japanese, Americans should be armed with stacks of their business cards, which should be printed in both English and Japanese.

The business card is held in very high regard in Japan, so when handing them out it is critical to pass them out with both hands, Japanese side facing up. When receiving a business card, Americans should accept it with both hands and thank them while doing so. In addition, the business card should never be written on or played with during the meeting, as both are signs of disrespect.

Business Etiquettes (contd) Brazil: Expect a complete invasion of personal space if doing business in Brazil. While it could be considered impolite in the U.S., in Brazil it is customary to stand extremely close and use lots of physical contact while talking.

While the normal reaction might be to back away, those who do risk losing out on a potential business relationship, since it is considered disrespectful.

United Arab Emirates: Left-handers may have some trouble doing business in the United Arab Emirates. In Middle Eastern countries, the left hand is considered unclean and used strictly for bodily hygiene.

It is important to eat, shake hands and pass documents with the right hand only. Using the left hand to do any of those activities would be a serious insult.

India: When at a business dinner in India, Americans better be careful what they order. Those looking to make a good impression should refrain from digging into a juicy steak or hamburger during the dinner.

Since the cow is considered a sacred animal in India, some can consider it a sign of disrespect to order any type of beef dish – or wear any type of leather — during a business lunch or dinner.

Business Etiquettes (contd) Spain: While deadlines are usually considered firm dates in the U.S., the same can't be said in Spain. When doing business

with Spaniards, U.S. business owners shouldn't expect deadlines to be made on a regular basis.

While they won't set out to purposefully miss deadlines, those in Spain view them more as a guideline and not as something that is frowned upon if missed. Americans shouldn't be insulted by this, but instead should schedule these potential delays into any timelines.

Belgium: Be prepared to spend some time just saying hello and goodbye when in business meetings in Belgium. While a handshake will suffice as a greeting in the U.S., the Belgians prefer the kiss — or the "air kiss," to be more precise.

While strangers will shake hands at first, Belgium business professionals greet each other with three air kisses once a relationship has been established. Protocol calls for the kisses to be given on the right cheek, then the left cheek and back to the right cheek. Not giving the kisses, or not following the right order when giving them, are both considered disrespectful when dealing with Belgians.

United Kingdom: When doing business with British professionals, Americans shouldn't feel as if a game of charades is breaking out when the British start tapping their nose. Rather than a fun game, the tapping indicates that what is about to be discussed should be considered private and confidential.

It is important to be looking for that signal, or risk sharing something the Brit had intended to keep secret from others.

Discussion Group Info (negative marking for people without any group)

Presence on Facebook (Bonus marks for those who will be on FB by tonight 12:00 AM)

Review the companies and discuss the realm for opting company.

What cultural impact it can make on the business.

References http://www.thejohnboyer.com/world-regions/

http://www.forbes.com/sites/gregsatell/2013/04/02/4-ways-in-which-technology-is-transforming-business/

http://smallbusiness.chron.com/technology-improve-business-2188.html

https://www.pinterest.com/pin/83879611783596702/

http://www.businessnewsdaily.com/5176-unusual-international-business-customs.html

Mercantilism The main economic system used during the sixteenth to eighteenth centuries. The main goal was to increase a nation's wealth by imposing government regulation concerning all of the nation's commercial interests. It was believed that national strength could be maximized by limiting imports via tariffs and maximizing exports.

This approach assumes the wealth of a nation depends primarily on the possession of precious metals such as gold and silver.

This approach stressed upon Export only without anyone wanted to Import

People revolt against the idea and stressed upon Free Trade

Mercantilism spurred an increase in European global exploration as countries searched for new sources of raw materials.

Definitions Absolute advantage refers to a country’s ability to produce a certain good more efficiently than another country.

Specialization refers to a country’s decision to specialize in the production of a certain good or list of goods because of the advantages it possesses in their production.

Opportunity cost refers to what you sacrifice in making an economic choice. In this instance, it refers to the value of the goods you sacrifice in deciding to produce one good instead of another.

Comparative advantage refers to a country’s ability to produce a particular good with a lower opportunity cost than another country.

Discussion Review the companies and discuss the realm for opting company.

What cultural impact it can make on the business.

Apply Porter’s Five Forces on a regional company.

Business Models A business model defines how the enterprise delivers value to customers, gets them to pay for that value, and converts those payments to profit.

To expend business following business models are used:◦ Franchising◦ Licensing◦ Agency◦ Distribution

Franchising Franchisor gives the franchisee permission to not only use its intellectual property but also its operating system.

In addition to their trademarks, franchisees often use franchisors' distribution systems and marketing campaigns to sell the franchisors' products or services.

Franchisees however, are normally granted an exclusive territory in which to operate.

Payments: Upfront fee, royalties, and sometimes even a monthly or annual fee.

Examples: McDonald’s, KFC, Subway

Licensing Businesses sometimes grant other organizations licenses to give them permission to use their intellectual property.

A license is a contract through which one party grants another permission to use its patents, trademarks, copyrights, designs or trade secrets.

The agreement does not transfer ownership of the intellectual property.

Licensors can sometimes license their intellectual property to two or more organizations operating in the same geographic region

Payments: Royalty or Licensing fee is paid.

Examples: Microsoft Office, Driving License

Agency A company (known as the principal) appoints an individual or company to act as its agent.

The agent has authority to negotiate the sale or purchase of either goods or services on behalf of the principal. It may also negotiate and conclude such transactions on behalf of and in the name of that principal.

The principal is bound by the agent and a direct contract is created between the principal and the end customer;

The agent does not buy goods for trading on its own account.

Payments: The agent is remunerated by the principal on a commission basis.

Examples: Sales Agent, Recruitment Agency

Distribution Takes the title and risk to those goods and resells them to its own customers.

Takes its remuneration from the margin it adds to cover costs and profit.

Does not generally receive a commission from the supplier.

Contracts separately with the supplier and its end customer when buying and reselling the products.

Payments: Purchase products from the Company

Examples: Abu Dawood

Discussion Dealership:

Going Global: Purpose Building sales and profits

Gaining competitive knowledge and ideas

Achieving economies of scale

Gain your global market share

Reduce dependence on existing markets

Exploit international trade technology

Extend sales potential of existing products

Stabilize seasonal market fluctuations

Sell excess production capacity

Maintain cost competitiveness in your domestic market

Going Global: framework Know your company and your industry

◦ Before you can determine if your products and/or services are a fit for the global marketplace, you should have a clear picture of where your company (and the industry in which it operates) is today, and where it will be (as well as where you want it to be) tomorrow. Don’t forget to consider supply constraints and other factors that might change your product or service lines later.

Determine how your business model translates.◦ There are numerous ways for companies to enter foreign markets, including exporting, importing, joint

ventures, licensing and off-shore production. For firms that produce, manufacture or resell goods, exporting is usually the easiest and least risky method. If you are interested in exporting, don’t overlook indirect exporting, where an intermediary familiar with (and approved by the government to conduct) business in the target country handles the actual transfer of goods.

Going Global: framework Identify and investigate target markets.

◦ As with starting a business you need to find a market that is hungry for what you have to offer. However, the issue isn’t just demand. You must consider all the factors, positive and negative, that impact your ability to penetrate a market.

Develop a business plan.◦ The business plan you created when you opened your firm, and any subsequent plans you have made for

operating and/or expanding domestically, won’t translate directly to foreign markets. You may be able to adapt it, or you may need a new plan entirely. There are many issues to consider, including:◦ Potential markets/sources/customers.◦ Import/export pricing strategies.◦ Initial financing streams and anticipated revenues.◦ Additional costs (e.g. marketing; shipping; inventory storage; storefront; travel).◦ Legal, regulatory and licensure requirements.◦ Potential partnership or investment opportunities, if you are interested.◦ Sales model (Internet or location-based).

Going Global: Challenges You may need to wait for long-term gains

Hire staff to launch international trading

Modify your product or packaging

Develop new promotional material

Incur added administrative costs

Dedicate personnel for traveling

Wait long for payments

Apply for additional financing

Deal with special licenses and regulations

References http://www.myownbusiness.org/global_expansion/

http://www.forbes.com/sites/theyec/2013/10/08/five-steps-to-expand-your-business-globally/2/

Discussion Paper 60 % slides and 40% project.

More objective then subjective.

Discussion about Groups Select a company and your group.

What cultural impact it can make on the business.

Apply Porter’s Five Forces on a regional company.

Which region to focus and why,

Tea Houses – Coffee Houses Tea (China, India, Europe)

Coffee (Yemen, Arab, Iran, Egypt, Syria, Turkey)

Chess (India, Persia, Arab, Europe)

Shesha (India, Iran, Arab, Turkey)

Kahwa (Kashmir, Arab, Afghans)

Culture of Tea houses, Coffee Houses.

Trade Policy

Trade Policy Laws related to the exchange of goods or services involved in international trade including:

◦ Taxes, ◦ Subsidies, ◦ Tariffs◦ Inspection Regulations,◦ Quotas◦ Import/export regulations.

Purpose of trade policy is to help a nation’s international trade run more smoothly, by setting clear standards and goal which can be understood by potential trading partners.

Nations attempt to protect their local Industries with trade policies, which place a heavy burden on importers, allowing domestic producers of goods and services to get ahead in the market with lower prices or more availability.

Pakistan’s Exports Rice,

Kinnows,

Mangoes,

Furniture,

Cotton fiber,

Cement,

Tiles,

Marble,

Textiles,

Leather goods,

Tobacco and beverages 19 %

Salt

Sports goods

Cutlery,

Surgical instruments,

Software,

Carpets,

Livestock meat, 11 %

Seafood

Defense equipment

Pakistan Imports Machinery. 8.3 %

Petroleum. 32.1 %

Electronic Equipment. 7 %

Chemicals. 4.1 %

Vehicles and spare parts. 2.8%

Edible Oil. 4.5 %

Fertilizers. 1.7 %

Plastic material. 4.1 %

Iron ore and steel. 4.8 %

Paper Board

Pharmaceutical products.

Wheat.

Tea.

World TradePakistan is on 66th number with estimate of 25billion USD trade (2013)

Top Trading Partners

Tools of Trade Policy

What is Protectionism / Free TradePROTECTIONISM

Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition.

Typical methods of protectionism are import tariffs, quotas, subsidies or tax cuts to local businesses and direct state intervention.

FREE TRADE

The unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas.

Free trade is a win-win proposition because it enables nations to focus on their core competitive advantage(s), thereby maximizing economic output and fostering income growth for their citizens.

What is Tariff and Non Tariff barrierTARIFF BARRIER

Tariffs barriers represent taxes on imports of commodities into a country/region and are among the oldest form of government intervention in the economic activity.

◦ Ad valorem (tariffs are calculated as a fixed percentage)

◦ Specific tariff (fixed amount of money that does not vary with the price of the good)

NON-TARIFF BARRIER

Non tariff barriers represent the great variety of mechanisms that countries use in order to restrict the imports. For example:

◦ Quota (quantitative restrictions)◦ Licensing (permits unrestricted importation or

exportation);◦ Standards (classification, labeling and testing of

products)◦ Embargo (Embargo is a specific type of quotas

prohibiting the trade)◦ Voluntary export restriction (threat of sanctions to

limit the export of certain goods)

Types of Non-Tariff Barriers to Trade

Specific Limitations on Trade:◦ Import Licensing requirements◦ Proportion restrictions of foreign domestic goods (local content

requirements)◦ Minimum import price limits◦ Fees◦ Embargoes

Customs and Administrative Entry Procedures:◦ Valuation systems◦ Anti-dumping practices◦ Tariff classifications◦ Documentation requirements

Standards:◦ Standard disparities◦ Intergovernmental acceptances of testing methods and standards◦ Packaging, labeling, and marking

Government Participation in Trade:◦ Government procurement policies◦ Export subsidies◦ Countervailing duties◦ Domestic assistance programs

Charges on imports:◦ Prior import deposit subsidies◦ Administrative fees◦ Special supplementary duties◦ Import credit discrimination◦ Variable levies◦ Border taxes

Others:◦ Voluntary export restraints◦ Orderly marketing agreements

What is the difference between Tariff Barriers and non Tariff Barriers

The purpose of both tariff and non tariff barriers is same that is to impose restriction on import but they differ in approach and manner.

Tariff barriers ensure revenue for a government but non tariff barriers do not bring any revenue. Import Licenses and Import quotas are some of the non tariff barriers.

Non tariff barriers are country specific and often based upon flimsy grounds that can serve to sour relations between countries whereas tariff barriers are more transparent in nature.

Why Are Tariffs and Trade Barriers Used?

Tariffs are often created to protect infant industries and developing economies, but are also used by more advanced economies with developed industries. Here are five of the top reasons tariffs are used:

Protecting Domestic Employment ◦ The levying of tariffs is often highly politicized. The possibility of increased competition from imported

goods can threaten domestic industries. These domestic companies may fire workers or shift production abroad to cut costs, which means higher unemployment and a less happy electorate.

Protecting Consumers ◦ A government may levy a tariff on products that it feels could endanger its population. For example,

South Korea may place a tariff on imported beef from the United States if it thinks that the goods could be tainted with disease.

Why Are Tariffs and Trade Barriers Used?

Infant Industries ◦ The use of tariffs to protect infant industries can be seen by the Import Substitution Industrialization

(ISI) strategy employed by many developing nations. The government of a developing economy will levy tariffs on imported goods in industries in which it wants to foster growth. This increases the prices of imported goods and creates a domestic market for domestically produced goods, while protecting those industries from being forced out by more competitive pricing. It decreases unemployment and allows developing countries to shift from agricultural products to finished goods.

National Security ◦ Barriers are also employed by developed countries to protect certain industries that are deemed

strategically important, such as those supporting national security. Defense industries are often viewed as vital to state interests, and often enjoy significant levels of protection. For example, while both Western Europe and the United States are industrialized, both are very protective of defense-oriented companies.

Who benefits from Trade Barriers

The benefits of tariffs are uneven. Because a tariff is a tax, the government will see increased revenue as imports enter the domestic market. Domestic industries also benefit from a reduction in competition, since import prices are artificially inflated. Unfortunately for consumers - both individual consumers and businesses - higher import prices mean higher prices for goods. If the price of steel is inflated due to tariffs, individual consumers pay more for products using steel, and businesses pay more for steel that they use to make goods. In short, tariffs and trade barriers tend to be pro-producer and anti-consumer.

The effect of tariffs and trade barriers on businesses, consumers and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. During this time period, businesses will profit and the government will see an increase in revenue from duties. In the long term, businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergence of substitutes for their products. For the government, the long-term effect of subsidies is an increase in the demand for public services, since increased prices, especially in foodstuffs, leave less disposable income.

Trade Agreements A trade agreement is a wide ranging tax, tariff and trade treaty that often includes investment guarantees. The most common trade agreements are of the preferential and free trade types are concluded in order to reduce (or eliminate) tariffs, quotas and other trade restrictions on items traded between the signatories.

◦ Bilateral Trade Agreement: A trade agreement is classified as bilateral (BTA) when signed between two sides.

◦ Multilateral Trade Agreement: A trade agreement signed between more than two sides (typically neighboring or in the same region) is classified as multilateral.

General Agreement on Trade and Tariff (GATT)

A treaty created following the conclusion of World War II. The General Agreement on Tariffs and Trade (GATT) was implemented to further regulate world trade to aide in the economic recovery following the war. GATT's main objective was to reduce the barriers of international trade through the reduction of tariffs, quotas and subsidies.

Formed in 1947 and signed into international law on January 1, 1948, GATT remained one of the focal features of international trade agreements until it was replaced by the creation of the World Trade Organization.

World Trade Organization (WTO) The WTO came into being on January 1st 1995.

It was the outcome of the lengthy (1986-1994) Uruguay round of GATT negotiations.

The WTO was essentially an extension of GATT. It extended GATT in two major ways. First GATT became only one of the three major trade agreements that went into the WTO (the other two being the General Agreement on Trade in Services (GATS) and the agreements on Trade Related Aspects of Intellectual Property Rights (TRIPS)).

Principles of the WTO◦ Trade Without Discrimination◦ No Most Favored Nation (MFN) Treatment - no special deals to trading partners, all members of WTO must be treated the

same◦ No National Special Treatment - locals and foreigners are treated equally◦ Predictability through Binding - promising not to raise tariffs is called binding a tariff and binding leads to greater certainty for

businesses◦ Promoting Fair Competition◦ Encouraging Development and Economic Reform

North American Free Trade Agreement (NAFTA)

NAFTA is an agreement signed by Canada, Mexico, and the United States, creating a trilateral rules-based trade bloc in North America.

The agreement came into force on January 1, 1994.

Principal of NAFTA:◦ NAFTA was created to eliminate barriers to trade and investment between the US, Canada and Mexico. ◦ NAFTA also seeks to eliminate non-tariff trade barriers and to protect the intellectual property right of

the products.◦ Direct investment into production in one country by a company in another country, either by buying a

company in the target country or by expanding operations of an existing business in that country.

European Union (EU) The EU is a unique economic and political partnership between 28 European countries that together cover much of the continent.

The EU was created in the aftermath of the Second World War. The first steps were to foster economic cooperation: the idea being that countries who trade with one another become economically interdependent and so more likely to avoid conflict.

European Economic Community (EEC), created in 1958, and initially increasing economic cooperation between six countries, which evolved into an organization spanning policy areas, from development aid to environment. A name change from the EEC to the European Union (EU) in 1993 reflected this.

Principal of EU:◦ The EU has delivered half a century of peace, stability and prosperity, helped raise living standards, and launched a single

European currency, the euro.◦ Human dignity, freedom, democracy, equality, the rule of law and respect for human rights: these are the core values of the

EU.◦ Abolition of border controls between EU countries, people can travel freely throughout most of the continent. And it's

become much easier to live and work abroad in Europe.

Foreign Exchange Rate Foreign exchange rate: between two currencies is the rate at which one currency will be exchanged for another e.g (PKR 103 For USD 1 $).

A market-based exchange rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply.

The transaction demand is highly correlated to:◦ Country's level of business activity, ◦ Gross domestic product (GDP), ◦ Employment levels.

Main point of Exchange Rate:◦ If PKR depreciate against dollar the import will contract◦ If PKR depreciate against dollar the export will expand◦ If PKR depreciate against dollar then domestic production increases◦ If PKR depreciate against dollar then Public Debt increases◦ If PKR depreciate against dollar then inflation would increase

The EndBEST OF LUCK