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- International Business
Session 2
- International vs. Domestic
OPPORTUNITIES
1. Seek
opportunities for growth through
market diversification
2. Gainnew ideas about products,
services, and business methods
3. Better
serve key customers that have
relocated abroad
4. Be
closer to supply sources, benefit
from global sourcing advantages, or
gain flexibility in the sourcing of
products
- International vs. Domestic
OPPORTUNITIES
5. Gain access to lower-cost or better-value
factors of production
6. Develop economies of scale in sourcing,
production, marketing, and R&D
7. Confront international competitors more
effectively or thwart the growth of
competition in the home market
- FDI Based Explanations:
Dunning’s Eclectic Paradigm
Three conditions determine whether or not a company
will internalize via FDI:
1. Ownership-specific advantages – knowledge,
skills, capabilities, relationships, or physical assets that
form the basis for the firm’s competitive advantage
2. Location-specific advantages – advantages
associated with the country in which the MNE is invested,
including natural resources, skilled or low cost labor, and
inexpensive capital
3. Internalization advantages – control derived
from internalizing foreign-based manufacturing,
distribution, or other value chain activities
- Factors Relevant to Choice of
Foreign Market Entry Strategy
1. The goals and objectives of the firm, such as
desired profitability, market share, or competitive
positioning;
2. The particular financial, organizational, and
technological resources and capabilities available
to the firm;
3. Unique conditions in the target country, such as
legal, cultural, and economic circumstances, as
well as distribution and transportation systems;
4. Risks inherent in each proposed foreign venture
in relation to the firm’s goals and objectives in
pursuing internationalization;
5. The nature and extent of competition from
existing rivals, and from firms that may enter the
market later;
- Participants in International
Business
1. The focal firm – initiator of IB
transaction, including MNEs and
SMEs
2. Distribution channel intermediary
– specialist firm providing logistics
and marketing services in the
international supply chain
3. Facilitator – a firm providing special
expertise in legal advice, banking,
customs clearance, market research,
and similar areas
- Types of Focal Firms
Multi-National Enterprise
Joint-Venture
SME
Born Global Firm
NGOs
- Common Characteristics of Born Global Firms
•
Emergence often associated with significant
product/process breakthrough or innovation
•
Products often involve advanced technology,
substantial added value, superior quality, and
differentiated design
•
Internationalization typically via exporting and
facilitated through network relationships
•
Heavy user of advanced IT and communications
technologies
- Foreign Market Entry Strategies of Focal Firms
Cross-border business transactions can be
grouped into three categories:
1. Trade: buying and selling of products
2. Contractual exchange of services or
intangibles: buying and selling of services
3. Equity ownership in foreign operations:
establishing foreign presence through direct
investment
- MODES of International Business
Activities
Exporting (importing)
Global sourcing (out-s, in-s, offshore)
Contract manufacturing
Licensing and Franchising (mgmt.
contract)
Foreign Direct Investment (FDI)
Strategic Alliances (Joint Venture)
- Exporting
Advantages Disadvantages
Relatively low financial Vulnerability to tariffs and NTBs
exposure Logistical complexities
Permit gradual market entry Potential conflicts with
distributors
Acquire knowledge about local
market
Avoid restrictions on foreign
investment
- Export Documentation
quotation or pro forma invoice
commercial invoice is the actual demand for
payment issued by the exporter. It includes a
description of the goods, the exporter’s address,
delivery address, and payment terms.
A packing list, indicates the exact contents of the
shipment.
Thebill of lading is the basic contract between
exporter and shipper.
The shipper's export declaration ("ex-dec”) lists
the contact information of the exporter and the
buyer (or importer), as well as a full description,
declared value, and destination of the products
being shipped.
The certificate of origin indicates the country
- Incoterms
- Who pays for what?
Landing
Unload charges Unload
from Landing at onto
Transport truck at charges Transport importer's trucks Transport
Export- to the at origin's to port, from the to Entry
Load to duty exporter's origin's port, import's Unloadin importers' destinatio -Customs Entry
truck payment port port Loading port g port n Insurance clearance -Taxation
EXW No No No No No No No No No No No No
Main Carriage NOT Paid By Seller (Free… Carrier/Alongside Ship/On Board)
FCA Yes Yes Yes No No No No No No No No No
FAS* Yes Yes Yes Yes No No No No No No No No
FOB* Yes Yes Yes Yes Yes No No No No No No No
Main Carriage Paid By Seller (Cost and Freight … and Insurance… / Carriage Paid to … and Insurance… )
CFR* Yes Yes Yes Yes Yes Yes No No No No No No
CIF* Yes Yes Yes Yes Yes Yes No No No Yes No No
CPT Yes Yes Yes Yes Yes Yes No No No No No No
CIP Yes Yes Yes Yes Yes Yes No No No Yes No No
Arrival (Delivery Duty….. Unpaid/Paid)
DEQ* Yes Yes Yes Yes Yes Yes Yes No No Yes No No
DDU Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No
DDP Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
* for ship only (+ named Port), others for all carriers (+ named Place)
- Methods of Payment -- Export
Cash in Advance
Letter of Credit
Draft
Open Account
- Global Sourcing
Importing
Outsourcing
Contract Manufacturing
- Contract Manufacturing
Hiring
firm approaches Contract
Manufacturer with Design or Formula
Type of outsourcing
Bidding Process
$ 233 billion business
Wistron, HTC
- Countertrade
Payments are made in kind rather than cash.
The focal firm is engaged simultaneously in
exporting and importing.
Also known as “two-way” or “reciprocal”
trade
Used when conventional means of payment
are difficult, costly, or nonexistent.
◦ Hard currency unavailable
◦ Developing country doesn’t have expertise to sell
in foreign markets
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