Dr Zain Yusufzai Regional and Global Strategy Chapter # 1 (page2-34).

Introduction:
International Business: - The study of transactions taking
place across national borders for satisfying the needs of
individuals and organizations.

Multinational Enterprise: - A company headquartered

in one country but having operations in other countries
(pizza hut, Macdonald, total finaelf, shell, ford motor
Suzuki, Citicorp).

Activities of multinational enterprise classified into two

major categories:

1. Exports and imports; 2. Foreign direct

investment;
1. Exports and Imports:
Exports: Goods and services produced by a firm in one
country and then sent to another country.
Imports: goods and services produced in one county and
bough in by another country.
Exports and Imports are seen as physical goods (clothes,
oil, cars) contrary to prevailing believes they
also include services such as those provided by
international airlines, cruise lines ,reservation
agencies , and hotels.
European Union (E.U.): single largest exporter followed
by North America and Asia.
European Union (E.U.): single largest importer followed
by Asia and North America.
Majority export, import activities involve:-
 Manufactured goods: - such as industrial
machinery, computers, cars, televisions,
electronic goods.
 Increasing proportion of world trade in services.

Why is study of international business important (Two

reasons)?

1. Trade is historical bases of international business

and trade activities that help us understand
Multinational enterprise (MNE) practices and
strategies.

Why some countries export or import certain items?

Some countries have trade agreements (NAFTA)
North American free trade Agreement. A regional free
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trade agreement between three countries USA,

Canada and Mexico.

First reason: information about exports and imports

helps us understand:

 The impact of international business on world

economies:
Example: Japan imports all of its oil:
Price change in oil globally affects auto
exports due to rise in manufacturing
costs
Second reason: World wide exports, imports begin
to slow down: A sign of world economies
are going into recession (slump).

2. Foreign direct investment (FDI):

 Equity funds invested in other nations;
 Driver of international business and many
companies , to establish footholds in world market
place by setting up operations in foreign market or by
acquiring businesses there;

Recent data reveals two important trends:

First: US a prime site for FDI by both Japan and
countries in Western Europe.
Second: US invested heavily in 1. Western Europe 2.
Latin America, Caribbean
3. North America and 4. Japan.

These four regions account for over 95 % of stock of all

US FDI.

Triad: The Three Major Trading and investment blocks

in the international arena:
 United States of America (USA).
 European Union (EU).
 Japan.

First segment: US have the largest economy in the world

with Gross Domestic Product (GDP) of
over $10 Trillion (Canada and Mexico
included due to NAFTA, 1994).
Second segment: Collective GDP of EU is greater than
that of Japan or USA.

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Example: - in terms of imports and exports: EU accounts

for
 more than 34% of all imports
 In addition, 35% of all world exports.
 60% of all intra EU trade.
France, Germany, Luxembourg, Netherlands and UK
accounts for $550 billion of investment in the USA.

Third segment: The triad in Japan:

 Japan is the worlds fifth largest importer
 Third largest exporter
 Japan accounts for 27% of all the imports
 Japan accounts for 30% of all the exports
 Invested $400 billion in EU
 Invested $100 billion in USA

Total Global Environment (Dynamic):

 Introduction of local and international trade

regulation
 The impact of technology
 Rise of small and medium sized multinationals

World Economies:

USA a market for exported goods; from all regions of the

world as well as a major source of FDI.

Reason for Strong USA economy:

 Willingness of USA business to cut their workforce
 Reorganize their operations
 Invest heavily in research and development

Large number of layoffs of employees and closures of

businesses around the world to stay afloat or go under

Organization for Economic Cooperation and

Development: (OECD)
A group of 30 relatively wealthy member countries that
facilitates a forum for the discussion of economic, Social
and Governance issues across the world.

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International trade regulation:

International business trend; the emergence of trade and
investment liberalization.
Firms in triad countries have prospered in open markets.
Triad rivalry has led to setbacks in trade liberalization
 Japan and China threatened with trade sanctions by
the USA, unless they allow US firms to sell products
and services in their countries.
 Trade conflicts between EU and US over banana ,
beef hormones, and export subsidies:
Disputes of this nature are not settled by countries but
by an international organization like (WTO) World
Trade Organization: to regulate international
commerce.

World Trade Organization (WTO): Established:

January 1, 1995

An international organization that deals with the rules of

trade among member countries. One of its most
important functions is to act as a dispute settlement
mechanism.

General Agreement of Tariffs and Trade (GATT):

Established 1947

A major trade organization that has been established to

negotiate trade concessions among member countries.

Today the WTO is enforcing the provisions of GATT.

WTO can enforce its decisions, so countries that refuse to

comply can find themselves suffering severe consequences
in the form of trade retaliation. International trade
liberalizations has arrived and this helps stimulate
international business transactions and to prevent
countries from discriminating against others.

Technology:

 Major development changing the way MNEs

conducting business:

Two areas are having major impact

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1. communication technology that has advanced at a

rapid rate that all businesses now use computers and
rely on the World Wide Web (WWW); to both access
and send information.
Cellular technology individuals can now remain in
constant contact with both customers and their home
office.

2. Production of goods and services: Modern factories

can now produce goods in a shorter period of time
and with fewer defects than ever before thanks to the
introduction of six sigma quality programs. these
programs are designed to increase quality and to
eliminate defects , thus allowing firms to compete in
any international market
Six Sigma is as statistical term that means 3.5 errors per
million, effectively y eliminating performance problems
and ensuring that products work as intended
Companies using this program for success:
 Nokia has been able to dominate the international
cellular business.
 Hewlett-Packard has become the world leader in
printers.
 “International business strategy in action:
Amazon.com; fast growth of new service businesses.

Small and medium sized enterprises (SMEs):

Definition of SMEs varies according to the nation.
 In the US SMEs are companies with up to 500
employees.
 In EU, SMEs have between 11 and 200 employees
and sales of under US $40 billion.
 In Japan SMEs in industries have up to 300
employees while in wholesale ad retail have to 150
and 50 employees respectively.
Developing countries use the World Bank benchmark of
11 to 150 employees and sales of under US $5 billion.

Globalization and Strategic Management:

Major world economies are slowing down and this in turn
is placing pressure on multinational enterprises to
maintain growth and profitability.

Three areas how companies are coping with this

international environment:

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1. Misconceptions about multinational enterprises,

and how they formulate their international
strategies.
2. The criteria those are important to MNEs in
achieving strategic competitive advantage.
3. Examine some of the examples of MNEs using
present concepts.

Regional triad strategies: (misconceptions).

1. The belief that multinationals have far flung
operations and earn most of their revenues
overseas. (Nestle sited as example).
 Most MNEs earn the bulk of their revenues either
within their home country or by selling in nearby
locales. (85% of automobiles sold in USA, are
built in North America by ford motor co,
Chrysler, Daimler).
 In service sector employs 70% of all work force in
North America, Western Europe and Japan these
activities all essentially local or regional.
2. Belief MNEs are globally monolithic and
excessively powerful in political terms.
3. MNEs develop homogeneous products for the
world market and through their efficient
production techniques are able to dominate local
markets.

Strategic Alliance:
A business relationship in which two or more companies
work together to achieve a collective advantage.

Maintaining economic competitiveness:

American companies manage to achieve and then
maintain international competitive advantage: HOW?
 Continuing to be innovative: for example in the
computer industry Intel’s research and development
(R&D) created a continuing flow of new age
computer chips, each more powerful then its
predecessor.
 Industrial equipment , financial services , shipping ,
entertainment

Why are some firms able to innovate consistently while

others cannot?

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“Success of nations in international competition is

determined by four abroad attributes that individually
and interactively determine national competitive
advantage: (Michael Porter of Harvard University).
1. factor conditions:
2. demand conditions
3. related and supporting industries
4. The environment in which firms compete”.

1. Factor conditions: Land, labor and capital

 Country has a large, relatively uneducated
workforce, it will seek to export goods that are highly
labor intensive
 Workforce is highly educated, the country will seek to
produce goods and services that tap the intellectual
abilities of these people
2. Demand conditions:
 Help seller understand what buyers want
 If changes become necessary, such as customer
desires for a product that is smaller, lighter, or more
fuel efficient, the local sellers has early warning and
adjust or innovate for the market before a distant
competitors can respond.

3. Related and supported industries:

 Suppliers located near the producer, these firms often
provide lower-cost inputs that are not available to the
producer’s distant competitors.
 Suppliers know what is happening in the industry
environment and in a position to both forecast and
react to these changes. By sharing this information
with the producer they help the producer maintain its
competitive position.
 This interaction is mutually beneficial to both parties.

4. Firm strategy, structure, and rivalry:

Firms are created, organized, and managed, as well as the
nature of domestic rivalry.
Nations tend to do well where the management practices
favored by the national environment are suited to their
industries ‘source of competitive advantage.
 In Italy, Fragmented industries:
 In Germany, tend to have hierarchical organizations
that emphasize technical or engineering content;

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 In Japan, require unusual cooperation across

functional lines and that demand management of
complex assembly operations :
 National goals are important
 Area of importance is domestic rivalry : Nations with
leading world positions often have a number of
strong, local rivals :

Porter’s determinants as a system:

All four depends on each others
Demand conditions: - sophisticated buyers provide a
company with feed back how to
modify or improve its product.
Factor conditions: - information will not be useful if the
firm lacks personnel with the skills
to carry out these functions.
Related and supporting industries: - if suppliers can
provide the company with low cost
inputs and fresh ideas for
innovation.
Firm strategy, structure, and rivalry: - firm clearly and
easily dominates the industry, does
not feel the need to upgrade the
quality of its products and services,
it will eventually lose this
competitive advantage.
Multinationals in action: how these companies are
functioning:
Example: - Volkswagen, Carrefour, Kawasaki, and
Suzuki;

Strategic Management:
Managerial actions that include strategy formulation,
strategy implementation, evaluation, and control and
encompasses as wide range of activities, including
environmental analysis of external and internal
conditions and evaluation of organizational strengths and
weaknesses.

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