Lecture notes
International Business Management Lecture Notes
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- The University Of Strathclyde (UOS)
International Business Management Lecture Notes
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International Business ManagementLecture 1
• International business refers to:
o Performance of trade and investment activities by firms across national borders
▪ Cavusgil et al., (2017)
• Business activities that involve a transfer of resources, goods, services, knowledge, skills, or
information across national boundaries
▪ (Shenkar et al. 2014)
• IB facilitates global economy and interconnectednesss, sustainable competitive advantage,
creates opportunities to support sustainability and corporate citizenship
o Firms ‘forced’ to care about aspects out with normal commercial functions
What?
• MNE’s
o Large companies with substantial resources
• SME’s
o Fewer than 500 employees, comprising over 90% of all firms
o Fewer than 250 in Europe
• Born-globals
o Young SME’s that internationalise at or near founding
• Government and Non-Governmental Organisations
o Pursuing special causes i.e. UNICEF
Why?
• Seek opportunities for growth through market diversification
o i.e. H&M
• Earn higher margins and profits
o American Standard & Toto (Japan)
o Bathroom fixtures company expanded in newly industrialised countries i.e. Indonesia,
Vietnam etc.
• Gain new ideas and products, services and business methods
o i.e. Toyota – JIT (just-in-time) inventory techniques
• Serve key customers that have relocated abroad
o i.e. Nissan in Britain
o Suppliers followed
• Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the
sourcing of products
o i.e. extracting companies
• Gain access to lower-cost or better-value factors of production
o i.e. Canon’s production in China
• Develop economies of scale in sourcing, production, marketing and R&D
o i.e. by increasing production volume
• Confront international competitors more effectively or thwart the growth of home market
competition
o i.e. Caterpillar in Japan to hinder Komatsu
• Invest in a potentially rewarding relationship with a foreign partner
, o i.e. French computer company Groupe Bull with Toshiba in Japan
• Ball et al., (10th ed)
o In IB, the firm must deal with many different forces:
▪ External forces;
• Competitive, distributive, economic, socioeconomic, financial, legal,
physical, political, sociocultural, labour, technological
▪ Internal forces;
• Production factors, activities of the organisation
o Which have different values
o Can be difficult to access
o Are interrelated
▪ Thus, making decision-making more complex
o Firms doing IB face 4 major types of risk, which managers need to understand,
anticipate and take proactive action to reduce their effects
• Four types of risk:
o Cross-cultural risk
▪ Cultural differences
▪ Negotiation patterns
▪ Decision-making styles
▪ Ethical practices
o Country risk
▪ Harmful or unstable political systems
▪ Laws and regulations unfavourable to foreign firms
▪ Inadequate or underdeveloped legal system
▪ Bureaucracy and red tape
▪ Corruption and other ethical blunders
▪ Government intervention, protectionism and barriers to trade and
investment
▪ Mismanagement or failure of the national economy
o Currency (financial) risk
▪ Currency exposure (exchange rate fluctuation, inflation)
▪ Asset valuation
▪ Foreign taxation
▪ Inflationary and transfer pricing
o Commercial risk
▪ Weak partner (joint venture issues)
▪ Operational problems
▪ Timing of entry
▪ Competitive intensity
▪ Poor execution of strategy
,Motivations for Internationalisation
• Proactive
o i.e. stimuli to attempt strategy change, based on the firm’s interest in exploiting
unique competences or market possibilities
▪ managerial urge can be the proactive action for internationalism
▪ profit and growth goals
▪ technology competence/unique product
▪ foreign market opportunities/market information
▪ economies of scale
▪ tax benefits
• Reactive
o i.e. pressures or threats in the firm’s home market or foreign markets to which the
firm reacts and adjusts passively by changing its activities over time
▪ competitive pressures
▪ domestic market: small and saturated
▪ overproduction/excess capacity
▪ unsolicited foreign orders
▪ extend sales of seasonal products
▪ proximity to international customers/psychological distance
Motives differ…
• A lot of literature looking at motives for internationalisation
• Many factors contribute to firms’ reasons to internationalise:
o home and host market conditions
o firm-specific factors i.e. size
o sector the firm operates in
▪ Hutchinson et al., (2007) on retailers’ motives
• SME’s:
o Client following abroad
▪ Bell (1995)
o International orientation of management
▪ Oviatt and McDougall (1995); Rueber and Fischer (1997); Moen (2002)
o Strong international business networks
▪ Oviatt and McDougall (1995); Coviello and Munro (1995)
o Limited domestic demand/end of life cycle
▪ Oviatt and McDougall (1995)
o Exploiting international niche
▪ Knight and Cavusgil (1996)
• EMNE’s (emerging market multinationals):
o “to acquire and maintain resources necessary to become globally competitive
▪ (Gaffney, Kedia and Clampit, 2013, p.109)
o EMNEs motives to internationalise are on a continuum of Asset Exploitation and Asset
Augmentation
▪ Exploit existing capabilities
, ▪ Acquire new capabilities
Motivators of Retailers
• Niche opportunities in the new market
• Size of the market
• Level of economic prosperity
• Retailer’s operating format
• Underdeveloped nature of retailing
• Favourable exchange rates
• Favourable operating environment e.g. regulation
• Saturation in the home market
• Real estate investment potential
• Favourable labour climate
• Share price of company acquired in the market
o (Alexander, 1990; Williams 1992; Quinn, 1999; Hutchinson et al., 2007)
Globalisation
• “Ongoing economic integration and growing interdependency of countries worldwide”
o Cavusgil et al., (2017)
• Trade and collaboration are facilitated by:
o Sophisticated global systems for flow of products, technology, money, knowledge
o Multilateral regulatory agencies
▪ i.e. World Trade Organisation, International Monetary Fund
Phases of Globalisation
Phase of Globalisation Approximate Period Triggers Key Characteristics
First Phase 1830 to late 1800s, Introduction of Rise of manufacturing:
peaking in 1880 railroads and ocean cross-border trade of
transport commodities, largely
by trading companies
Second Phase 1900 to 1930 Rise of electricity and Emergence and
steel production dominance of early
MNEs (mainly from
Europe and North
America) in
manufacturing,
extractive and
agricultural industries
Third Phase 1948 to 1970s Formation of General Focus by
Agreement on Tariff industrialising
and Trade (GATT); Western countries o
conclusion of WWII; reduce trade barriers;
Marshall Plan to rise of MNEs from
reconstruct Europe Japan; development of
global capital markets;
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