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Introduction to International Business

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Part A: 22 Multiple choice questions. Part B: Answer 2 of 3 questions from Hill text ... Transferring capital from one location to anther involves transaction costs ... – PowerPoint PPT presentation

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Title: Introduction to International Business


1
Introduction to International Business
  • Final Review
  • April 27, 2007
  • Sanny Liao/Brian Chen

2
Exam Format
  • Exactly the same as the midterm
  • Non-cumulative. Covers chapters 12, 14, 15, 16,
    17, 18, and 20
  • Exam Format
  • Part A 22 Multiple choice questions
  • Part B Answer 2 of 3 questions from Hill text
  • Part C Answer 1 of 2 questions from articles
  • Part D Answer 1 of 2 questions from the cases

3
Chapter 12 The Strategy of International
Business --Overview
  • Focus shift
  • from the environment ? actions managers can take
    to compete more effectively as an international
    business
  • This chapter looks at how firms can increase
    their profitability by
  • expanding their operations in foreign markets
  • the different strategies that firms pursue when
    competing internationally
  • and the various factors that affect a firms
    choice of strategy.

4
Chapter 12 Review
  • Strategy and the Firm
  • Strategy
  • set of action managers can take to attain the
    goal of the firm in most case, it is to
    maximize profitability
  • Value Creation
  • a way to increase profitability
  • Strategic position - firms should be explicit
    about it choice between value creation, and
    configure its internal operation to support their
    choice.
  • Operations The Firm as a Value Chain
  • Global Expansion, Profitability and Profit Growth
  • Expanding the Market Leveraging Products and
    Core Competencies
  • Location Economies
  • performing a value creation activity in the
    optimal location for that activity
  • Experience Effects
  • systematic reduction of costs over the life of
    a product through learning effects and economies
    of scale
  • 2 main types of competitive pressure - cost
    pressures and pressures for local responsiveness
  • Choosing a Strategy
  • Global Standardization Strategy
  • High cost pressures, low customization pressures
  • Localization Strategy
  • Low cost pressures, high customization pressures

5
Chapter 14 Entry Strategy and Strategic
Alliances
  • Key concept first mover advantage, first mover
    disadvantage, core competencies
  • Firms must consider 3 basic decision when it
    wants to expand into foreign markets
  • Which foreign market?
  • When to enter (1st mover advantages and
    disadvantages)
  • Scale of entry and subsequent strategic commitment

6
Chapter 14 Modes of Entry
  • 5 modes of entry (know the benefits and costs,
    p494)
  • Exporting
  • Turnkey projects
  • Licensing
  • Franchising
  • Joint ventures
  • When should a firm choose greenfield or
    acquisition ventures?
  • Strategic Alliances
  • Cooperative agreements between potential or
    actual competitors
  • Advantages
  • 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

7
Chapter 15 Exporting, Importing and Countertrade
- Overview
  • This chapter discusses how exporting is carried
    out
  • Exporting is not just for large enterprises.
    This chapter covers the problems that small and
    large exporting firms face and how they address
    these problems.

8
Chapter 15 Review
  • Exporting can be very profitable, but firms are
    often slow to recognize these opportunities, are
    ignorant about the market that they are going
    into, and the procedures to export, etc.
  • Solution
  • Improving Export Performance
  • Information Sources (DOC ITA/ USFCSA, SBA,
    state/city agencies, commercial banks)
  • Export Management Companies (EMC)
  • Choosing exporting strategies carefullly
  • Export and Import Financing
  • Lack of Trust/ Letter of Credit
  • Draft/ Bill of Lading
  • Know the Typical International Trade Transaction
  • Export Assistance
  • ExportImport Bank/ Export Credit Insurance

9
Chapter 16 Global Production, Outsourcing, and
Logistics
  • Overview this chapter discusses factors that
    firms should consider in determining the optimal
    way to manage production internationally
  • 4 Main topics
  • Where should production be located at?
  • The evolving strategic role of foreign factories
  • Benefits and costs of outsourcing
  • How to manage a global supply chain efficiently?

10
Chapter 16 Review
  • Factors that firms should consider in determining
    where to locate production
  • Country factors (economic, political, and
    cultural differences, trade barriers, location
    externalities, exchange rates)
  • Technological factors (high/low fixed costs,
    minimum efficient scale, feasibility of flexible
    manufacturing and mass customization)
  • Product factors (value to weight ratio,
    universality)
  • Evolving role of foreign factories
  • Upward migration from provider of cheap labor to
    research centers, economic development of
    developing countries
  • Outsourcing dilemma essentially a make-or-buy
    decision
  • Also evolved over time
  • When to make? When to buy?
  • Things to recognize when managing a global supply
    chain
  • We like just-in-time systems because it reduces
    inventory holding costs and has the potential to
    help firms improve product quality
  • BUT JIT leaves firms with no buffer stock of
    inventory
  • Information technology can aid the functioning of
    JIT

11
Chapter 17 Global Marketing and RD Overview
  • Focus
  • how marketing and RD can be performed so they
    will reduce the costs of value creation and add
    value by better serving customer needs.
  • Standardization or not?
  • By mass-producing a standardized output, the firm
    can realize substantial unit cost reductions from
    experience curve and other scale economies.
  • But ignoring country differences in consumer
    tastes and preferences can lead to failure.
  • Thus, an international businesss marketing
    function needs to determine when product
    standardization is appropriate and when it is
    not, and to adjust the marketing strategy
    accordingly.

12
Chapter 17 Review
  • The Globalization of Markets and Brands
  • But differences persist
  • Market Segmentation
  • Groups of consumers who purchasing behavior
    differs from others
  • Product Attributes
  • Cultural Differences
  • Fish cakes in Great Britain, Coq au vin in France
  • Economic Development
  • Top of the line four-wheel-drive SUVs in the US
    only
  • Product and Technical Standards
  • TV signals NTSC in US and some Asian countries,
    PAL/SECAM in Europe
  • Distribution Strategy
  • Differences between Countries
  • Retail concentration channel length channel
    exclusivity channel quality
  • Choosing a Distribution Strategy
  • Depends on the factors above
  • Communication Strategy
  • Barriers to International Communication
  • Benetton Ads with varying success in different
    countries

13
Chapter 18 Global Human Resource Management
  • Overview this chapter discusses how firms can
    most effectively manage its human resource
    internationally
  • Firms must customize its HR strategies to fit its
    firm-wide international strategies

14
Chapter 18 Review
  • Firms should first decide on its international
    strategy
  • Global Standardization Strategy
  • Localization Strategy
  • Transnational Strategy
  • International Strategy
  • Firms should then decide its international human
    resource management strategy according to a
    benefit and cost analysis (p623, table 18.1)
  • Ethnocentric
  • Polycentric
  • Geocentric
  • There is a high attrition rate about expatriates,
    why in Japan, why in the U.S.?
  • Ways to mitigate the attrition of expatriates
  • Selection training
  • Why is performance appraisal in foreign locations
    tough?
  • What are the components of expatriate pay?

15
Chapter 20 Financial Management in the
International Business
  • Involves a set of 3 questions
  • Investment decisions what activities to finance
  • Financing decisions how to finance
  • Money management decisions how to manage the
    firms financial resources most efficiently

16
Investment Decisions
  • Evaluate the expected profitability of
    investments to the parent company through capital
    budgeting
  • Quantify the benefits, costs and risks of an
    investment
  • We care about cash flow to the parent company
    more than the to the project itself
  • Investment in Iraq
  • Adjust for political risks
  • Investment in Argentina (has a history of
    currency devaluation)
  • Adjust for economic risks

17
Financing Decisions
  • Firms who need money to invest can obtain capital
    through 2 main ways
  • Debt issue cost is interest rate
  • Equity issue cost is dividend and expected
    capital gain
  • The cost of capital is lower if a firm can raise
    money internationally (especially true for firms
    in developing countries, but is limited by
    government regulations and exchange rate
    uncertainties)
  • The debt/equity mix vary across countries

18
Global Money Management The Efficiency Objective
  • Def Money Management decisions
  • Attempt to manage the firms global cash
    resources most efficiently through minimizing
    cash balances and reducing transaction costs.
  • Cash balances is necessary for firm operations
    but offer very little return. Transferring
    capital from one location to anther involves
    transaction costs
  • Def Transaction Costs are costs of exchange,
    including commissions and transfer fees.
  • Firms can use centralized depositories and
    multilateral netting to more efficiently manage
    the global cash resources
  • Centralized depository more efficient for firms
    to hold all their cash in one centralized
    depository than to hold them in many different
    locations
  • Multilateral netting pay the net difference in
    cash flow among various locations, rather than
    making multiple payments

19
The Tax Objective
  • Tax credit allows an entity to reduce the taxes
    paid to the home government by the amount of
    taxes paid to the foreign government
  • Tax treaty an agreement between two countries
    where the income is earned
  • Deferral principle parent companies are not
    taxed on foreign soruce income until they
    actually receive a divident

20
Managing the Differences in Tax Rates Across
Countries
  • International businesses can transfer funds from
    one location to another via unbundling many
    techniques
  • Dividend remittances
  • Royalty payments and fees remuneration paid to
    the owners of technology, patents, or trade names
    for use are often tax-deductible locally
  • Transfer prices the price at which goods and
    services are transferred between entities within
    the firm (can be used to reduce tax liabilities,
    reduce exposure to currency devaluations, reduce
    import duties when an ad valorem tariff is in
    force)
  • Fronting loans loan between a parent and it
    subsidiary channeled through a financial
    intermediary (again can be used to reduce tax
    liabilities)

21
Suggestion on how to study for material in the
book
  • Concentrate on the material covered in these
    slide and mini-summaries after each section (not
    at the end of the chapter) provided in the book
    for a general idea

22
Articles to Focus On
  • Wireless Wonder
  • The Future of Fast Fashion
  • With Profits Elusive, Wal-Mart to Exit Germany
  • Wal-Mart to Enter India in Venture
  • Western Firms Find Hiring, Retention in China
    Surprisingly Tough

23
Cases to Focus On
  • Diebold
  • Megahertz Communications
  • Competitive Advantage at Dell, Inc.
  • Molex

24
Good Luck!
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