international business : challenges in a changing world international business lecture 1: the...
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International Business: Challenges in a Changing World
International Business
Lecture 1:
The business enterprise in the international
environment: introduction
International Business: Challenges in a Changing World
Aims of the lectureAims of the lectureTo identify key characteristics of international business
To appreciate the role of entrepreneurship
To gain an understanding of the nature of the company, along with roles within the company
To identify the main business functions of the organization in the international context
To highlight the role of co-operative arrangements in international business
To gain an overview of key players in the international business environment
International Business: Challenges in a Changing World
Figure 1.1: Comparison of the local, national and international
business
International Business: Challenges in a Changing World
Personal relations for operations
and for reaching the customers
Small local firm
Local customers
Sourced through local
suppliers
Local business
Countrywide organization with local and regional
units
Diverse customers within
the national environment
More complex products and distribution
Use of national media to reach the customers
National business
Global media to manage inter-
national activities and reach customers
Domestic and foreign
customers
Organization based in a home
country with foreign and
regional links
Sourcing of products across national borders
International business
Size
Cus
tom
ers
Prod
ucts
Seek
ing
the
Cus
tom
ers
International Business: Challenges in a Changing World
Figure 1.2: Dimensions of the international environment
International Business: Challenges in a Changing World
EntrepreneurshipEntrepreneurship
• Successful entrepreneurship involves identifying opportunities, pursuing new ideas and securing financial support.
• It includes start-up businesses, as well as the re-focusing of existing enterprises.
• Levels of entrepreneurial activity differ from country to country, and are influenced by culture.
• Governments can encourage (or discourage) entrepreneurs.
• The born-global company takes an international approach from the outset.
International Business: Challenges in a Changing World
Small-to-medium size enterprise Small-to-medium size enterprise (SME)(SME)
• An SME is usually defined as an organization employing fewer than 249 employees.
• SMEs provide the bulk of jobs in most countries.
• The franchise provides a means for an SME to benefit from the brand and support of an established MNE.
• Franchising is often used by MNEs as a means of international expansion.
International Business: Challenges in a Changing World
Figure 1.3: Early Stage entrepreneurial activity 2006
International Business: Challenges in a Changing World
Figure 1.4: The global entrepreneur
International Business: Challenges in a Changing World
Strategic Crossroads 1.1: McDonald’s (page 11)
What reasons lie behind the comparative success of McDonald’s franchise outlets over the company-owned ones?
How does the development license fit in with McDonald’s overall revitalization program?
In the franchise outlets, the franchisee invests more of his or her own resources and has a more entrepreneurial approach to the business. Managers of the company-owned outlets, by contrast, have less sense of ownership and a lower level of entrepreneurial drive. This question can be broadened into a discussion of an entrepreneurial approach generally, which can bring in country differences in entrepreneurial environments.
The nature of the new developmental licenses should be highlighted at the start. They provide that the underperforming outlets should be sold to local entrepreneurs, who would invest their own capital to a greater extent than under McDonald’s usual arrangements. The new owners would be imbued with a greater entrepreneurial approach, but would still benefit from the strong brand and supply chain arrangements. Whether these new owners deliver improved financial performance depends on their competitiveness in their local markets. McDonald’s executives are stressing the importance of the revitalization program to win new customers. They look to the new owners to deliver these improvements, reflecting the success of the revitalization program in the US.
International Business: Challenges in a Changing World
Dynamics of the companyDynamics of the company
• Forming a company offers advantages of separate legal identity to the owners.
• Companies are registered in particular countries, in accordance with their national laws.
• Private companies are often family owned.• In contrast, public companies …
– Have numerous shareholders and tradable shares– Have a chief executive officer (CEO) and directors
who are accountable to the shareholders– Are increasingly international in their ownership
profiles
International Business: Challenges in a Changing World
Figure 1.5: Roles within the public company
International Business: Challenges in a Changing World
Figure 1.6: Changing ownership of UK equities
International Business: Challenges in a Changing World
The multinational enterprise (MNE)The multinational enterprise (MNE)
• Pursues opportunities and co-ordinates businesses across national borders.
• As it grows in size, it evolves a more complex organizational structure, often based on parent company and subsidiaries.
• MNEs differ in the degree of centralized control or local autonomy in various locations.
International Business: Challenges in a Changing World
Figure 1.7: MNE multi-tiered ownership structure
International Business: Challenges in a Changing World
International business functionsInternational business functions
• International operations
• Accounting and finance for international business
• International marketing
• International HRM
• Research and development (R&D)
◊ These functions may be centralized or decentralized, depending on the organization’s overall culture and strategy.
International Business: Challenges in a Changing World
Figure 1.8: Business functions in the international context
International Business: Challenges in a Changing World
Corporate governanceCorporate governance
• Corporate governance concerns the company’s decision-making structures and processes.
• ‘Shareholder’ model predominates in the US and UK: – It has a single-tier board and focuses on maximizing
shareholder value.• ‘Stakeholder’ model is prevalent in the 2-tier boards
in Europe and Japan:– It takes a wider perspective, encompassing
employees in particular.• Wider stakeholder interests are now recognized in
most companies, as corporate social responsibility (CSR) impacts on governance.
International Business: Challenges in a Changing World
Figure 1.9: Executive managers and company stakeholders
International Business: Challenges in a Changing World
Alliances, networks and joint Alliances, networks and joint venturesventures
• All are co-operative arrangements which contribute to international strategy.
• Alliances (often called strategic alliances) offer opportunities for pooling resources and skills in differing environments.
• Networks may be intra-firm or inter-firm; both organizations and individual staff can benefit. They can be important for SMEs in their strategic expansion.
• Joint ventures offer international opportunities through the formation of a new enterprise, benefiting from the strengths of both founding partners.
International Business: Challenges in a Changing World
Figure 1.10: Alliances, networks
and joint ventures
International Business: Challenges in a Changing World
Key players in the Key players in the international environmentinternational environment
• National governments, which play both direct and indirect roles.
• Regional institutions, such as the European Union (EU).
• International governmental organizations, such as the World Trade Organisation (WTO).
• Voluntary organizations, such as trade unions, non-governmental organizations (NGOs).
• Stakeholders in the MNE.
International Business: Challenges in a Changing World
Figure 1.11: MNE interactions
International Business: Challenges in a Changing World
Figure 1.12: The European Union and eurozone
International Business: Challenges in a Changing World
ConclusionsConclusions• Businesses change in their organization and strategy as
they become more international.
• As more countries become integrated into global business, MNEs face challenges in adapting to diverse cultural environments.
• Firms’ interactions with business partners, governments, international organizations and groups in society grow as their operations develop in different locations.
• Managing stakeholder interests, including shareholders, customers and communities, is a key challenge for today’s international managers.