Unit - 3

UNIT 3: INTERNATIONAL STRATEGIC MANAGEMENT
UNIT 3 - INTERNATIONAL BUSINESS

MANAGEMENT 1
Strategic Management
1. The fundamental purpose of any firm is to make profit. A firm makes profit if the price
it can charge for its output is greater than its costs of producing that output is
greater than its costs of producing that output.
2. It would be worthwhile to look at how firms can increase their profitability by

expanding their operations in foreign markets.
3. In mot firms, international expansions is being driven by a belief that emerging

markets offer the greatest potential for future demand growth.
4. A firm adds value to a product when it improves the product quality or customizes the
product to consumer needs in such a way that consumers will pay more for it, that is,
when the firm differentiates its products from those offered by its competitors.
MANAGEMENT 2
Role of Strategy
1. A firm’s strategy can be defined as “the actions managers take to attain the goals
of the firm.”
2. To be profitable in a competitive global environment, a firm must pay attention to both
reducing the cost of production and to differentiating its product offerings.
3. Thus, strategy is often concerned with identifying and taking actions that will lower
the costs of production and will differentiate the firm’s product offering through
superior design, quality and functionality.
4. Firms that operate internationally are able to:

 Earn a greater return from their skills and core competencies.
 Realize location economies where they can be performed most efficiently and
 Realize greater experience curve economies, which reduces the cost of production.
MANAGEMENT 3
Choice of Strategy – Strategic Options
• Firms use strategies to compete in the international markets. These strategies

can be classified as;
A. Value Creation Strategy
B. Multi-domestic Strategy (Localization Strategy)
C. Low-cost Strategy
D. Transnational Strategy
Each strategy has its advantages and disadvantages.

MANAGEMENT 4
Choice of Strategy
A. Value Creation Strategy (Transfer of Core Competency from Parent Company to
Subsidiary)
– Firms that pursue an international strategy try to create value by transferring valuable skills
and products to foreign markets where indigenous competitors lack those skills and products.
– Most international firms have created value by transferring differentiated product offerings
developed at home.
– Microsoft develops the core architecture underlying its products at its Redmond Campus in
Washington state and also writes the bulk of the computer code there. However, the company
allows national subsidiaries to develop their own marketing and distribution strategies and to
customize for local differences such as language and culture. But, the foreign subsidiary
would not the empowered to develop new products.

MANAGEMENT 5
Choice of Strategy
B. Multidomestic Strategy:
 Firms pursuing multidomestic strategy orient themselves towards achieving maximum local
responsiveness.
 Multidomestic firms extensively customize both their product offerings and their marketing strategy
to suit different cultural differences.
 They also tend to establish a complete set of value creation activities including – production,
marketing, and Research and Development – in each major national market in which they do
business.
 Accordingly, many multidomestic firms have a high-cost structure. They generally fail to realize
value from experience curve effects and location economies.
 A multi-domestic strategy makes great sense when there are high pressures for local
responsiveness.

MANAGEMENT 6
Choice of Strategy
C. Low Cost Strategy:
• Firms that pursue a ‘global strategy’ follow ‘low cost’ strategy.
• They focus on increasing profitability by reaping the cost reductions that come from
experience curve effects and location economies.
• The production, marketing, and R&D activities of firms pursuing a global strategy are
concentrated in a few favourable locations.
• Firms that follow this type of strategy tend not to customize their product offering and
marketing strategy to local conditions because customization raises costs.
• Instead, they prefer to market a standardized product worldwide so that they can reap the
maximum benefits from the economies of scale that underlie the experience curve.

MANAGEMENT 7
Choice of Strategy
D. Transnational Strategy:
• It is worth nothing that in the modern multidomestic enterprise, core competencies do not
reside just in the home country.
• Core competencies can develop in any of the worldwide operations. The firms that pursue
transnational strategy maintain that the flow of skills and product offerings should not be
all one way from home firm to foreign subsidiary.
• Rather, these firms maintain flow of competencies from the foreign subsidiary to home
country, home country to the foreign subsidiary and from the foreign subsidiary to
subsidiary – a process they refer to as ‘global learning”.
• This type of firms would try to simultaneously achieve low-cost and differentiation
advantages.

MANAGEMENT 8
STRATEGY ADVANTAGES DISADVANTAGES
A. LOW-COST Exploit experience curve effects, Lack of local responsiveness.
location economies.
B. VALUE CREATION Transfer distinctive competencies to Lack of local responsiveness, inability to
foreign markets, and parent company realize location economies, failure to
to subsidiary but not vice versa. exploit experience curve, effects.
C. MULTI-DOMESTIC Customize product offerings and Inability to realize location economies,

marketing in accordance with local failure to exploit experience curve effects,
responsiveness. failure to transfer distinctive competencies
to foreign markets.
D. TRANSNATIONAL •Exploit experience curve location Difficult to implement due to organizational

economies effects. problems.
•Customize with local responsiveness.
•Reap benefits of global learning by
transferring competency from parent
company to subsidiary and vice versa.

MANAGEMENT 9
Factors Affecting Strategic Options
• External Constraints.
• Intra-organizational forces and managerial power-relations.
• Values and preferences and managerial attitudes towards risk.
• Impact of past strategy.
• Time constraints in choice of strategy.
• Information constraints.
• Competitor’s reaction.

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MANAGEMENT
Strategic Compulsions
• Orientation of Globalization
• Emerging e-commerce and culture
• Cut-throat competition
• Diversification
• Active pressure group
• Motive for CSR Corporate Social Responsibility and ethics

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MANAGEMENT
ENTRY STRATEGIES
• There are more than 180 countries in the world. But, all of them do not hold the
same profit potential for a firm contemplating foreign expansion.
• The choice as to which foreign markets a firm should enter must be based on
an assessment of a country’s long-run potential.
• The choice of mode for entry, timing and scale of entry are also important for a
firm doing international business.
• Once a firm decides to enter a foreign market, the question arises as to the
best mode of entry. Firms use the following modes to enter foreign markets;

MANAGEMENT 12
ENTRY STRATEGIES
1. EXPORTING
2. LICENSING
3. TURNKEY PROJECTS
4. FRANCHISING
5. JOINT VENTURES
6. WHOLLY OWNED SUBSIDIARIES
7. STRATEGIC ALLIANCES (INTERNATIONAL)
8. COUNTER TRADE
9. TAKEOVER
10. MERGERS AND ACQUISITIONS
11. FOREIGN DIRECT INVESTMENT (FDI)

MANAGEMENT
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1. Exporting
• Many manufacturing firms begin their global expansion as exporters and only
later switch to another mode for serving a foreign market.
• Exporting has two distinct advantages.
– First, it avoids the often substantial costs of establishing manufacturing

operations in the host country.
– Second, by manufacturing the product in a centralized location and

exporting it to the other national markets, the firm may realize substantial
scale economies from its global sales volume.

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MANAGEMENT
1. Exporting
Disadvantages:
1. May compete with low-cost location manufacturers.
2. Possible high transportation costs.
3. Tariff barriers.
4. Possible lack of control over marketing representatives.
• In the past, several export strategies identified growth markets and products. The
essential assumption behind such strategies is that since resources are limited,
concentration on selected products and market segments would provide better return in
terms of incremental export expansion compared to the strategy.
• The export strategy goes with the objective of giving a focused attention to products that
have high production capacity in the country and potential for export competitiveness.
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MANAGEMENT
1. Exporting
• Different Routes to Exporting: A firm may take passive approach to exporting, in which case
indirect methods are more appropriate. Conversely, it may wish to take a more direct
approach resorting to direct exporting.
1. Export Houses:
 They are trading organization in their own rights, which buy goods from domestic
producers and subsequently ship them abroad.
 The export house undertakes all the work involved with shipping, insurance, quality
insurance and finding overseas customers.
 They take the title from supplier when they buy the goods and bear all subsequent
risks and receive profits.
2. Confirming Houses:
 It is similar to export houses in purchasing goods in the country of their origin.
However, they are agents acting on behalf of foreign buyers and are paid by them on
commission basis.
 There is little difference between a confirming house and an export house as far as
the producer is concerned in the home country.
 Payment for goods is guaranteed only when goods are shipped.
MANAGEMENT
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1. Exporting
3. Buying Houses:
 It is similar to confirming houses, except that they act on behalf of foreign
buyers and take direct title to the goods.
 Many Japanese companies have set up their buying houses abroad for
sourcing their imports.
4. Piggy-backing:
 Under this system, a firm sells its goods abroad through the overseas
sales distribution facilities of another exporter, typically a larger firm
which has already developed export markets.
 Larger firms with an arrangement like this to carry complementary goods
make their own products, and earn marginal income from developed
distribution channels. But, these products take only secondary
importance.
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MANAGEMENT
1. Exporting
• Direct Export Methods: The firm can penetrate markets for exporting its goods
and services through;
a. Agents:
 Agents sell products in their local markets, usually working on a
commission basis (sometimes with the addition of a retainership).
 They have the detailed knowledge of local market, and commission basis
avoids fixed costs for the exporter.
 However, it is very important to negotiate agency agreements carefully.
 Many agents carry the goods of several suppliers, who may be close
competitors. It is important for a firm to ensure that its goods will be
properly marketed.
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MANAGEMENT
1. Exporting
 This will of course partially depend upon the rate of commission earned by the agent.
Commission raters therefore, need to be comparable with those offered by other
companies.
 Exclusivity is another relevant issue, both for the exporter and the agent. Agents are often
very keen to engage as “Sole Agent”. This contract provides exclusivity for them as the
only distributor in a particular geographic area.
 There is good reason for this type of contract, as it ensures that the agent reaps full
reward of his expenditure on marketing and sales, as well as of creating awareness and
interest in a product, which someone else subsequently does not exploit.
 However, such exclusivity is not in the exporter’s interests if an agent does not perform
up to expectations. The agreement needs careful planning and execution.
 Agency agreements can be difficult and expensive to terminate – often-local laws (even in
developed counties such as Germany) can make it very difficult to terminate an agency
agreement, even if target sales performance in well below expectations.

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MANAGEMENT
1. Exporting
b. Distributors :
• Distributors operate in a comparable ways to agents in acting as a local

business partners who provide market knowledge and information to the
exporter.
• Like an agency agreement, the appointment of a distributor avoids any increase

in fixed costs to the firm as no overhead chares are incurred.
• The distributors take title to the goods, that is they buy finished stocks from the
exporter for onward sale to the final customer.
• Distributors, therefore, earn income not from commission but from the margin
earned in the difference between the buyingBUSINESS
UNIT 3 - INTERNATIONAL and selling price. 20
MANAGEMENT
1. Exporting
• The exporter is benefited because of shorter cash flow cycle and his risk is
reduced. Further, distributor takes more interest in sale because of his
investment and profit margin.
• Distributorship is required, where there is need for specialized product

knowledge and after-sales service is needed. One example is the car industry
where there is need for servicing the car, warehousing for parts and
showrooms for sale of cars.

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MANAGEMENT
1. Exporting
3. Direct Selling:
• Here, the exporter send his own sale team from home country for selling.
• This ensures that right type of detailed product knowledge is transferred to the
market and company learns from repeated visits to country and from direct
feedback of customers.
• However, there is drawback that no continuous presence in the market is
ensured and it is difficult to provide after-sales from home country.
4. Local Sales Office:
• It is also the beginning of direct of foreign investment.
• A branch office is a foreign entity in a host country where it is not
incorporated, but, exists as an extension of the parent.
• Corporate law in many countries allows foreign companies to open branches
that engage in production and operating activities.
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MANAGEMENT
1. Exporting
• Representative offices by law are prohibited from engaging in direct, profit-
making business activities (they instead serve as liasons, establishing contacts
with governments, doing market research and consulting activities).
• Branch offices, however, are entitled to run businesses within a specified scope
and location. These offices can open warehouses and handle shipping and sales.
• Banking operations and government dealings are greatly facilitated. They are
costly open and maintain as all necessary services like security and telephone,
etc. are required.
• Local people, appointed to sales office, may lack knowledge of parent company
and suffer from lack of effective communication from parent company.
• Further, the parent company will be held for any liability or breach of law.

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MANAGEMENT
1. Exporting
• Export Management Guidelines: Darling (198:22) has suggested some keys for
success in selecting entry strategies and executing export strategy. The firm
should look to the answers of following questions before deciding exporting as
an entry strategy:
– What alternative entry modes are available for our products in each of the
selected foreign market?
– What are the relative merits of each mode?
– What entry modes are used by out competitors?
– Should our firm use different entry modes for different market segments?
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MANAGEMENT
1. Exporting
– What are the costs of different alternative entry modes?
– How much working capital will be needed by alternative entry modes?
– How much control our firm wishes to maintain over the marketing of
products in the market?
– What type of pre-and post sales services, will the intermediary need to
provide for our product?
– What logical elements are important for the market?
– What complementary product should the intermediary handle?
– Should the intermediary be allowed to handle competitive products/
– What are the legal issues thatMANAGEMENT

must be considered?
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2. Licensing
• A licensing agreement is an arrangement whereby a licensor grants the rights to
intangible property to another entity for a specified period, and in return the licensor
receives a royalty fee from the licensee.
• Intangible property includes patents, formulas, designs, copyrights, processes and
trademarks.
• For example, Xerox, inventor of the photocopier; established a joint venture with Fuji
Photo (to enter the Japanese market) that is known as Fuji-Xerox.
• Xerox then licensed its xerographic know-how to Fuji-Xerox. In return, Fuji-Xerox paid
Xerox, a royalty fee equal to 5% of the net sales revenue that Fuji-Xerox earned from
the sales of photocopies based on Xerox’s patented know-how.

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MANAGEMENT
2. Licensing
• Licensing is appropriate where the firm has legal control over its intellectual
property, where transport costs or cost of establishing local manufacturing
facilities would be prohibitive or where rapid entry in a market is necessary to
beat the competition.
• Other circumstances in which licensing is likely to succeed are;
– The licensee will have to purchase input components or materials from the
licensor.
– The licensor is already directly exporting to more countries than it can
conveniently handle.
– It is not technically feasible or politically desirable to establish a permanent
presence in a particular country.
– The foreign market is small and does not justify the expense attached to
alternative forms of market entry.

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MANAGEMENT
2. Licensing
– The licensor is a small company with limited resources.
– There are possibilities for “technology feedback from the licensee.”
– The technology transferred under license is ‘perishable’ so that licensor

has considerable bargaining power through its ability to supply new
technology in the future.
– Licensing can be a means for testing and developing a product in a foreign

market, perhaps with a view to subsequent foreign direct investment.
– Auxiliary processes rather than a core technology can be licensed.

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MANAGEMENT
2. Licensing
• Types of Licenses:
– Licensing can take many forms, ranging from a permit to exploit an existing
patent, to extensive and complicated arrangements on industrial
cooperation.
– There are number of types of licensing arrangement. With an
“assignment” for instance a firm hands over all its property rights to a
license. The latter may, then, use it as it wishes,
– If the firm issues a “Sole License” it retains the right, but agrees not to
extend license to any one other than a single licensee during the period of
the agreement.
– “Exclusive license” requires licensor not to use its patents; trademarks,
etc;, for their own businesses while licensing contracts are in force, leaving
these rights entirely to licensees for pre-specified periods.
– “Know-how licensing” means the licensing of confidential but non-
patented technological UNIT
knowledge.
3 - INTERNATIONAL BUSINESS
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MANAGEMENT
2. Licensing
• Advantages of Licensing:
 The licensor saves on capital investments and earns a return on its
expertise and intellectual property.
 Licensees avoid research and development costs, while acquiring
manufacturing expertise.
 The licensor has complete control over its intellectual property.
 Licenses carry some of the risk of failure.
 The business of the parent organization (licensor) can remain small, with
low overheads and yet he can control extensive operations.
• Disadvantages of Licensing:
 Profits are sacrificed by allowing other firms to make the patent company’s
goods.
 The risk of License Company entering into competition once it has learned
all the licensor’s methods and trade secrets and the license period has
expired. UNIT 3 - INTERNATIONAL BUSINESS
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2. Licensing
 Possible ambiguities and interpretation difficulties regarding minimum or
maximum output levels, territory covered, basis of royalty payments
(including the frequency of payments, currency of payment and the
currency to be used) and the circumstances under which the agreement
may be terminated.
 Deciding how to control the licensee regarding quality standards,
declaration of production levels, and methods of marketing the products.
 Problems arising if the licensee turns out to be less competent than first
expected.
 Possible failure of the licensee to exploit fully the local market.
 Acquisition by the licensee of the licensor’s technical knowledge and
improving upon the same.
 The need for complex contractual agreements in certain circumstances.
 The numerous causes for disagreements and misunderstandings.
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3. Turnkey Projects
• In a turnkey project, the contractor agrees to handle every detail of the project for a
foreign client, including the training of operating personnel.
• The foreign client is handed the ‘key’ to a plan that is ready for full operation, when the
contract gets completed. Hence, the term turnkey.
• Project works undertaken by foreign companies based on the principle ‘Build, Operate
and Transfer’ are known as Turnkey Projects.
• Example: Construction given to foreign companies. It is very popularly used by
countries like UAE.
• Advantages:
– Can earn a return on knowledge asset.
– Less risky than conventional FDI
• Disadvantages:
– No long-term interest in the foreign country.
– May create a competitor
– Selling processes technology may be selling competitive advantage as well.
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MANAGEMENT
3. Turnkey Projects
• Companies building turnkey operations are frequently industrial equipment

manufacturers and construction companies.
• They also may be consulting firms and manufactures that decide an investment on
their own behalf in the country is infeasible.
• The customer for a turnkey operation is often a governmental agency. Recently, most
large projects have been in those developing countries that are moving rapidly toward
infrastructure development and industrialization.
• Key Characteristics:
– One characteristics that sets the turnkey business apart from most other
international business operations is the size of many of the contracts, frequently
for hundreds of millions dollars and into the billions. Smaller firms often serve
either as subcontractors for primary turnkey suppliers or specialize in a
particular sector.

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MANAGEMENT
3. Turnkey Projects
• The nature of the turnkey projects places importance on hiring executives with top-
level contacts abroad, as well as on ceremony and building goodwill. There are other
factors such as price, export financing, managerial and technological quality,
experience, and reputation – are necessary to sell contracts of such magnitude.
• Payment for a turnkey operation usually occurs in stages as a project develops.
Commonly 10 to 25 percent comprises the down payment, with another 50 to 65
percent paid as the contract progresses, and the remainder paid once the facility is
operating in accordance with the contract. Because of the long time frame between
conception and completion, the company performing turnkey operations can encounter
currency fluctuations and should cover itself through escalation clauses or cost-plus
contracts.

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MANAGEMENT
4. Franchising
• Franchising is basically a specialized form of licensing in which the franchiser not only
sells intangible property to the franchisee (normally a trademark), but also insists that
the franchises agree to abide by strict rules as to how it does business.
• In many respects, franchising is similar to licensing although franchising tends to

involve longer-term commitments than licensing.
• Example: McDonald’s is a good example of a firm that has grown by using franchising
strategy. McDonald’s has strict rules as to how franchisees should operate a
restaurant. These rules extend to control over the menu, staffing policies, cooking
methods, design and location of a restaurant. They also organize the supply chain for
its franchisees and provide management training to the staff.
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4. Franchising
• In franchising the franchiser provides a standard package of products, systems and
management services and the franchisee provides market knowledge, capital and personal
involvement in management. It is specialized form of licensing practiced by the service sector
firms.
• The term franchising is used to describe a wide variety of business systems which may or may
not fall into the legal definition provided earlier.
• The parties involved typically enter a franchise agreement which binds the parties together
through contractual provisions. This is an arrangement whereby someone with an idea for a
business (the franchiser), sells to another person (the franchisee) the rights to use the
business’s name, sell a product, or provide a territory the franchisee retains exclusive control
over (the area protection) as well as the extent to which the franchisee will be supported by the
franchiser (e.g. training and marketing campaigns).

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4. Franchising
• As practiced in retailing, by using the business network concept, franchising
offers franchisees the advantage of starting up a new business quickly based
on a proven trademark and formula of doing business, as opposed to having to
build a new business and brand from scratch.
• For franchisees, the main disadvantage of franchising is a loss of control. While
they gain the use of a system, trademarks, assistance, training, and marketing,
the franchisee is required to follow the system and get approval of changes
with the franchiser.
• The following information is set forth before commencement of operations:
1. Identifying information as to franchiser.
2. Business experience of franchiser’s directors and executive officers.
3. Business experience of the franchiser.
4. Litigation history.
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4. Franchising
5. Description of franchise.
6. Initial funds required to be paid by a franchisee.
7. Recurring funds required to be paid by a franchisee.
8. Affiliated persons the franchisee is required or advised to do business with by the
franchiser.
9. Obligations to purchase.
10. Revenues received by the franchiser in consideration of purchases by a
franchisee
11. Financing arrangements.

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4. Franchising
• Advantages of Franchising:
 As s franchisees are self-employed and not employees, they are highly motivated to
succeed in their own business. There are no strikes, go-slows, work to rules or other
industrial problems.
 While franchisers retain control of distribution systems, new and unfamiliar market
segments can be entered using the skills, experiences and local background knowledge
of neighborhood based franchisees.
 Since large distribution networks and tied to suppliers from single company, there
exists opportunities for bulk buying of raw materials at big discounts.
 As a franchise operation grows, trademarks, brand names and product styles become
more widely dispersed and familiar to public. The franchiser's name becomes
internationally recognized.
 The nucleus of the franchiser’s organization remains small and overheads are low.
Large profits can result from a limited capital base. Yet risks are shared with
franchisees. Moreover, routine administrative problems are dealt by outlet, not central
office.
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4. Franchising
• Disadvantages:
1. The brand image of the franchised product may deteriorate for reasons
beyond the franchisees control, including policy mistakes made by the parent
organization.
2. Since royalties are invariably expressed as fixed percentages of turnovers,
hard working and successful franchisees will have to pay ever-increasing
sums to their franchisers, thus discouraging the more able. Yet, franchisees
that fail loose everything.
3. Franchise contracts cover relatively short periods, normally 5 years.
A successful franchise that has increased the profitability of an outlet will find
that it reverts to the franchiser following expired of the contract. The
franchiser, will then, demand higher royalties in line with the increased value
of the outlet. During the contact period, however, the franchisee is tied to a
particular product unable to modify the good or introduce alternatives.

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4. Franchising
4. Franchisers control only the overall format of the outlet, not day-to-day operations.
Badly outlets offering poor quality and inadequate service can ruin the carefully
nurtured public image. McDonalds are very careful in this area.
5. Aggregate returns to the franchiser are less than what it should have earned if all the
outlets were directly owned and controlled by it.
6. Host government’s regulations may also make the repatriation of income from
franchise difficult as its operations may be deemed to impinge on competition law.
7. For the consumer, in the longer term consumer choice may be limited by extensive
standardization, for which relatively high prices must be paid.
8. It also discourages innovation and change on the part of franchisees.

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5. JOINT VENTURES
• A Joint Venture entails establishing a firm which is jointly owned by two or
more otherwise independent firms.
• Establishing a joint venture with a foreign firm has long been a popular mode
for entering a new market.
• The most typical joint venture is a 50/50 venture, in which there are two
parties, each of which holds a 50% ownership stake.
• There could be a joint venture in which a firm has a majority share and thus
lighter control.
• A Joint Venture is a strategic alliance between two or more parties to
undertake economic activity together.
• The parties agree to create a new entity together by both contributing equity,
and they then share in the revenues, expenses and control of the enterprise.
• The venture can be for one specific projects only, or a continuing business
relationship such as the Sony Ericsson joint venture.
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5. JOINT VENTURES
• International Joint Ventures have been increasingly used since 1970s.
• Joint Ventures are used as a means of lessening political and economic risks by the amount of
the partner’s contribution to the joint venture. JVs provide a less risky way to enter markets
that pose legal and cultural barriers than would be the case in an acquisition of an existing
company.
• A joint venture is different from strategic alliance or collaborative relationships in that a joint
venture is a partnership of tow or more participating companies that have joined forces to
create a separate legal entity. Joint ventures are different from minority holdings by an MNC in
a local firm.
• Joint ventures are very common in the oil and gas industry. It is often cooperation's between a
local and foreign company. Some countries require foreign companies to form JV with domestic
firms in order to enter a market. This requirement often forces technology transfers and
managerial control to the domestic partner.
• Four factors are associated with joint ventures.
– JVs are established, separate, legal entities
– They acknowledge intent by the partners to share in the management of the JV
– They are partnerships between legally incorporated entities such as companies, chartered
organizations, or governments,
UNIT 3 and not between
- INTERNATIONAL individuals
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– Equity positions are held by each of the partners.
MANAGEMENT
5. JOINT VENTURES
Dimension Strategic Alliance Joint Venture

Goal Short Term Long Term
Equity No Yes

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5. JOINT VENTURES
• Advantages of JV:
– Firms can expand into several foreign markets simultaneously for low capital cost.
– The local partner provides valuable knowledge of local market, culture, and useful
government linkages.
– Partners can avoid the need to purchase local premises and hiring of new employees, thus
reducing start time and cost by sharing the distribution network, premises and employees
of local partner on delegation.
– The political risks are minimized and business failure risks are shared.
– JVs may be the only way in some countries where government does not permit fully owned
subsidiary or 100% control
– JVs are cheaper than acquisitions.

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5. JOINT VENTURES
• Disadvantages of JV:
– Profits have to be shared between partners.
– Transfer pricing problems may arise as goods and services pass between
partners.
– JV partners may be locked into long-term investments from which it is difficult to

withdraw.
– JVs success depends upon close coordination and trust between parties.
– Shared ownership gives wide scope for conflicts and battles for control between
investing firms and the activating firms.
– Risk of giving control of its technology to its partner.

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5. JOINT VENTURES
• Criteria for Selecting a Partner:
– Knowledge of political situation, economy and custom of the country.
– General Management
– Access to markets for goods produced in the country.
– Marketing Personnel and expertise.
– Local capital.
– Contacts and relationships with governments of host countries.
– Plants, facilities, and land of local partners.
– Capability of recruiting local labour and dealing with labour unions.
– Access to local financial institutions – creditworthiness
– Past track record if available.

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5. JOINT VENTURES
• Finally, it is advisable that before a JV is finally agreed, a business plan is put in
place, which is agreed by both partners covering key issues such as;
– Each partner’s inputs, finance, management skills, land, technology, etc.
– Joint venture outputs, products and markets served.
– Profits distribution-fees, i.e. dividends and cash flow.
– Levels of autonomy – methods of decision-making for the joint venture.
– Marketing policies – i.e. budgets and nature of the marketing mix.
– R&D Policy – Scope, Cost, Outputs to Partners.
– Personnel Policy – i.e. skills, training, recruitment and so on.
– Procurement Policy – i.e. relation to partner’s operations.
– Production Policy – i.e. investment levels, extent of outsourcing and so on.
– The exit policy – i.e. if one partner wants to leave the JV; procedure for
that. UNIT 3 - INTERNATIONAL BUSINESS
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6. Wholly Owned Subsidiaries
• In a wholly owned subsidiary, the firm owns 100% of the stock.
• In business, a subsidiary is a company controlled by another company or corporation, normally its
parent Company.
• A wholly owned subsidiary in a foreign market can be done two ways;
– The firm can either set up a new operation in that country (Or)
– It can acquire an established firm and use that firm to promote its products.
• The most common way that this control is achieved is through the ownership of share in the
subsidiary by the parent.
• A subsidiary may itself have subsidiaries. An these, in turn, may have subsidiaries of their own.
• A parent and all its subsidiaries together are calla GROUP.
• When ownership is not shared, a subsidiary is termed Wholly Owned Subsidiary.
• Advantages:
– No risk of losing technical competence to a competitor.
– Tight control of operations.
– Realize learning curve and location economies.
• Disadvantage:
– Bear full cost and risk
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7. STRATEGIC ALLIANCES
• An strategic alliance is “a strategic cooperative agreement or agreement between tow or more
firm, from at least two different countries, which involves exchange, sharing or co-development
for achieving strategically significant objectives that are mutually beneficial and beyond what a
single firm could achieve alone.”
• Strategic alliances refer to cooperative agreements between potential or actual competitors.
These alliances run the range from joint ventures, in which two or more firms have equity
stakes, to short-term contractual agreements, in which companies agree to cooperate on a
particular task.
• Most international strategic alliances can be categorized as;
a. Vertical : Alliance between competitors. In vertical alliance, though cooperating with one
another, both partners retain their strategic autonomy. An example is Microsoft has
several strategic alliances with governments; governments and Microsoft work together
to develop e-government strategies, IT related security issues, and so on.
b. Horizontal: In Horizontal alliances, existing or potential rival companies want to enhance
their respective-capabilities and competitive positions in non-competing lines of
operations or markets. Notable examples are the alliances formed by GM and Toyota,
Siemens and Philips, Canon and Kodak, IBM and Apple, and so on.
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7. STRATEGIC ALLIANCES
• Collaborative ventures are classified in different ways, and a list could include:
- Information Cooperation:
- Trade Associations
- Joint Ventures
- Purchasing Arrangements
- Selling Agreements
- Consortia
- Strategic Alliances

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8. Countertrade
• What is 'Countertrade‘?
– Countertrade is a reciprocal form of international trade in which goods or
services are exchanged for other goods or services, rather than for hard
currency.
– International trade conducted in this matter is more common in lesser-developed
countries with limited foreign exchange or credit facilities.
– Countertrade can be classified into three broad categories: barter, counter-
purchase and offset.
• BREAKING DOWN 'Countertrade‘:
– In any form, countertrade provides a mechanism for countries with limited access
to liquid funds to exchange goods and services with other nations.
– Countertrade is part of an overall import and export strategy that ensures a
country with limited domestic resources has access to needed items.
– Additionally, it provides the exporting nation with an opportunity to offer goods and
services in a larger international market, promoting growth within the industry.
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8. Countertrade
• Barter:
– Barter forms the oldest countertrade arrangement, and essentially involves the
direct exchange of goods and services having an equivalent value but with no cash
settlement. Often, the act involved in bartering is referred to as a trade.
• Counter Purchase:
– In a counter purchase, the overseas seller agrees to buy goods or services
sourced from the buyer's country up to a defined amount. The value of the goods
or services being supplied to the buyer is generally considered equal to the
amount the seller agrees to purchase.
• Offset:
– In an offset arrangement, the seller assists in marketing products manufactured
by the buying country or allows part of the assembly of the exported product to be
carried out by manufacturers in the buying country; this practice is often found in
the aerospace, defense and certain infrastructure industries, and is more
common for big ticket items. An offset arrangement may also be referred to as
industrial participation or industrial cooperation.
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8. Countertrade
• Benefits and Drawbacks:
– A major benefit of countertrade is it facilitates conservation of foreign currency,
which is a prime consideration for cash-strapped nations, and provides an
alternative to traditional financing that may not be available in developing nations.
Other benefits include increased employment, higher sales, better capacity
utilization and ease of entry into challenging markets.
– A major drawback of countertrade is the value proposition may be uncertain,
especially in cases where the goods being exchanged have significant price
volatility. Other disadvantages of countertrade include complex negotiations,
potentially higher costs and logistical issues.
– Additionally, concerns about how the activities interact with various trade policies
can also be a point of concern in regards to open market operations, opportunities
for trade advancement, and the shifting terms and conditions instituted by the
developing nations that could lead to discrimination in the marketplace.

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9. Takeover
• What is a 'Takeover‘?
– A takeover occurs when an acquiring company makes a bid in an effort to assume control of a target
company, often by purchasing a majority stake. If the takeover goes through, the acquiring company
becomes responsible for all of the target company’s operations, holdings and debt. When the target
is a publicly traded company, the acquiring company makes an offer for all of the target’s
outstanding shares.
• Reasons for a Takeover:
– A takeover is virtually the same as an acquisition, except the term "takeover" has a negative
connotation, indicating the target does not wish to be purchased.
– A company may act as a bidder by seeking to increase its market share or achieve economies of
scale that help it reduce its costs and thereby increase its profits.
– Companies that make attractive takeover targets include those that have a unique niche in a
particular product or service; small companies with viable products or services but insufficient
financing; a similar company in close geographic proximity where combining forces could improve
efficiency; and otherwise viable companies that are paying too much for debt that could be
refinanced at a lower cost if a larger company with better credit took over.

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9. Takeover
• Friendly takeovers:
– A "friendly takeover" is an acquisition which is approved by the management.
– Before a bidder makes an offer for another company, it usually first informs the
company's board of directors.
– In an ideal world, if the board feels that accepting the offer serves the
shareholders better than rejecting it, it recommends the offer be accepted by the
shareholders.
– In a private company, because the shareholders and the board are usually the
same people or closely connected with one another, private acquisitions are
usually friendly.
– If the shareholders agree to sell the company, then the board is usually of the
same mind or sufficiently under the orders of the equity shareholders to
cooperate with the bidder. This point is not relevant to the UK concept of
takeovers, which always involve the acquisition of a public company.

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9. Takeover
• Hostile takeovers: A "hostile takeover" allows a suitor to take over a target
company whose management is unwilling to agree to a merger or takeover .
A takeover is considered "hostile" if the target company's board rejects the offer,
but the bidder continues to pursue it, or the bidder makes the offer directly after
having announced its firm intention to make an offer.
• Reverse takeovers: A "reverse takeover” is a type of takeover where a private

company acquires a public company. This is usually done at the instigation of the
larger, private company, the purpose being for the private company to effectively
float itself while avoiding some of the expense and time involved in a conventional
IPO.
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10. Mergers and Acquisitions
• What is 'Mergers and Acquisitions - M&A‘?
– Mergers and acquisitions (M&A) is a general term that refers to the

consolidation of companies or assets. M&A can include a number of
different transactions, such as mergers, acquisitions, consolidations,
tender offers, purchase of assets and management acquisitions. In all
cases, two companies are involved. The term M&A also refers to the
department at financial institutions that deals with mergers and
acquisitions.

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• Merger: In a merger, the boards of directors for two companies approve the
combination and seek shareholders' approval. After the merger, the acquired
company ceases to exist and becomes part of the acquiring company. For example,
in 2007 a merger deal occurred between Digital Computers and Compaq whereby
Compaq absorbed Digital Computers.
• Acquisition: In a simple acquisition, the acquiring company obtains the majority
stake in the acquired firm, which does not change its name or legal structure. An
example of this transaction is Manulife Financial Corporation's 2004 acquisition of
John Hancock Financial Services, where both companies preserved their names
and organizational structures.
• Consolidation: A consolidation creates a new company. Stockholders of both
companies must approve the consolidation, and subsequent to the approval, they
receive common equity shares in the new firm. For example, in 1998 Citicorp and
Traveler's Insurance Group announced a consolidation, which resulted in Citigroup.
•
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• Tender Offer: In a tender offer, one company offers to purchase the outstanding stock of the
other firm at a specific price. The acquiring company communicates the offer directly to the
other company's shareholders, bypassing the management and board of directors. Example:
when Johnson & Johnson made a tender offer in 2008 to acquire Omrix Biopharmaceuticals for
$438 million. While the acquiring company may continue to exist — especially if there are
certain dissenting shareholders — most tender offers result in mergers.
• Acquisition of Assets: In a purchase of assets, one company acquires the assets of another
company. The company whose assets are being acquired must obtain approval from its
shareholders. The purchase of assets is typical during bankruptcy proceedings, where other
companies bid for various assets of the bankrupt company, which is liquidated upon the final
transfer of assets to the acquiring firm(s).
• Management Acquisition: In a management acquisition, also known as a management-led buy
out (MBO), the executives of a company purchase a controlling stake in a company, making it
private. Often, these former executives partner with a financier or former corporate officers in
order to help fund a transaction. Such an M&A transaction is typically financed
disproportionately with debt, and the majority of shareholders must approve it. For example, in
2013, Dell Corporation announced that it was acquired by its chief executive manager, Michael
Dell.
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10. Mergers Vs Acquisitions

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BASIS FOR COMPARISON MERGER ACQUISITION
Meaning The merger means the fusion of When one entity purchases the
two or more than two companies business of another entity, it is
voluntarily to form a new company. known as Acquisition.
Formation of a new company Yes No
The mutual decision of the Friendly or hostile decision of
companies going through mergers. acquiring and acquired companies.
Minimum number of companies 3 2
involved
Purpose To decrease competition and For Instantaneous growth
increase operational efficiency.
Size of Business Generally, the size of merging The size of the acquiring company
companies is more or less same. will be more than the size of
acquired company.
Legal Formalities More Less

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• The types of Merger are as under:
– Horizontal
– Vertical
– Concentric
– Reverse
– Conglomerate

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• Examples of Mergers and Acquisitions in India
• Acquisition of Corus Group by Tata Steel in the year 2006.
• Acquisition of Myntra by Flipkart in the year 2014.
• The merger of Fortis Healthcare India and Fortis Healthcare International.
• Acquisition of Ranbaxy Laboratories by Sun Pharmaceuticals.
• Acquisition of Negma Laboratories by Wockhardt

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• Nowadays, only a few numbers of mergers can be seen; however, acquisition is
getting popularity due to extreme competition.
• The merger is a mutual collaboration between the two enterprises in becoming

one while the acquisition is the takeover of the weaker enterprise by the
stronger one. But both of them gain the advantage of Taxation, Synergy,
Financial Benefit,
• Increase in Competitiveness and much more which can be beneficial, however

sometimes adverse effect can also be seen like an increase in employee
turnover, clashing in the culture of organizations and others but these are rare
to happen. UNIT 3 - INTERNATIONAL BUSINESS
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11. Foreign Direct Investment
• What is a 'Foreign Direct Investment - FDI‘?
– Foreign direct investment (FDI) is an investment made by a company or individual in one

country in business interests in another country, in the form of either establishing
business operations or acquiring business assets in the other country, such as ownership
or controlling interest in a foreign company.
– Foreign direct investment are distinguished from portfolio investments in which an

investor merely purchases equities of foreign-based companies.
– The key feature of foreign direct investment is that it is an investment made that
establishes either effective control of, or at least substantial influence over, the decision
making of a foreign business.

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• Apart from being a critical driver of economic growth, foreign direct investment (FDI)
is a major source of non-debt financial resource for the economic development of
India. Foreign companies invest in India to take advantage of relatively lower wages,
special investment privileges such as tax exemptions, etc. For a country where foreign
investments are being made, it also means achieving technical know-how and
generating employment.
• The Indian government’s favourable policy regime and robust business environment
have ensured that foreign capital keeps flowing into the country. The government has
taken many initiatives in recent years such as relaxing FDI norms across sectors such
as defense, PSU oil refineries, telecom, power exchanges, and stock exchanges, among

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• Importance of FDI:
– Foreign direct investment is critical for developing and emerging market countries. Their
companies need the sophisticated investors' funding and expertise to expand their
international sales. Developing Asia attracted more foreign investment than either the
European Union or the United States.
– The developed world also needs cross-border investment, but for different reasons. Most
of these countries' investment is via mergers and acquisitions between mature
companies. These global corporations' investments were for either restructuring or
refocusing on core businesses.
– In 2015, world FDI rose 38 percent to $1.76 trillion. There was a surge in cross-border
mergers and acquisitions. Once the merger and acquisition activity was subtracted from
the calculations, FDI only gained 15 percent. (Source: “Annual 2016 FDI Report” UNCTAD,
June 24, 2016.) In 2014, FDI declined 16 percent to $1.2 trillion. That unusual drop-off was
investment in the developed world declined 28 percent. Most of it was a single massive U.S.
divestment. In 2013, FDI was up 9 percent to $1.45 trillion. (Source: "Annual 2015 FDI
Report," UNCTAD, June 24, 2015.)

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• Advantages of Foreign Direct Investment
– Foreign direct investment benefits the global economy, as well as investors and recipients. Capital goes to
the businesses with the best growth prospects, anywhere in the world. That's because investors seek the
best return with the least risk. This profit motive is color-blind and doesn't care about religion or politics.
– That gives well-run businesses, regardless of race, color or creed, a competitive advantage. It reduces the
effects of politics, cronyism and bribery. As a result, the smartest money rewards the best businesses all
over the world. Their goods and services go to market faster than without unrestricted FDI.
– Individual investors receive the extra benefits of lowered risk. FDI diversifies their holdings outside of a
specific country, industry or political system. Diversification always increases return without increasing
risk.
– Recipient businesses receive "best practices" management, accounting or legal guidance from their
investors.

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• They can incorporate the latest technology, operational practices and financing tools. By
adopting these practices, they enhance their employees' lifestyles. That raises the standard of
living for more people in the recipient country. FDI rewards the best companies in any country.
It reduces the influence of local governments over them.
• Recipient countries see their standard of living rise. As the recipient company benefits from the
investment, it can pay higher taxes. Unfortunately, some countries offset this benefit by offering
tax incentives to attract FDI.
• Another advantage of FDI is that it offsets the volatility created by "hot money." That's when
short-term lenders and currency traders create an asset bubble. They invest lots of money all
at once, then sell their investments just as fast.
• That can create a boom-bust cycle. that ruins economies and ends political regimes. Foreign
direct investment takes longer to set up and has a more permanent footprint in a country
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• Disadvantages of Foreign Direct Investment
– Countries should not allow too much foreign ownership of companies in
strategically important industries. That could lower the comparative advantage of
the country.
– Second, sophisticated foreign investors might strip the business of its value
without adding any. They can sell off unprofitable portions of the company to local,
less sophisticated investors. They can use the company's collateral to get low-cost
local loans. Instead of reinvesting it, they lend the funds back to the parent
company.
• Free Trade Agreements and FDI
– Trade agreement are a powerful way for countries to encourage more FDI. A great
example of this is NAFTA, the world's largest Free Trade Agreement.
– It increased FDI between the United States, Canada and Mexico to $452 billion by
2012.

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• Foreign Direct Investment Statistics: Who keeps track of FDI statistics? Just about everyone.
Here's a guide to the most important agency reports.
– The United Nations Conference on Trade and Development - UNCTAD publishes the Global
Investment Trends Monitor. It summarizes FDI trends around the world. For example, UNCTAD
reported that FDI set a record in 2012 of $1.5 trillion. It surpassed that record in 2015.
– Organization for Economic Cooperation and Development: These FDI statistics are released
quarterly for the developed countries within the OECD. It reports on both inflows and outflows.
The only statistics it doesn't capture are those between the emerging markets themselves.
– IMF - In 2010, the IMF published its first Worldwide Survey of Foreign Direct Investment
Positions. This annual worldwide survey is available as an online database. It covers investment
positions from 2009 on for 72 countries. The IMF assembled this information with the help of
the European Central Bank such Eurostat, OECD and UNCTAD.
– Bureau Of Economic Analysis - This agency reports on the FDI activities of foreign affiliates of
U.S. Companies. It provides the financial and operating data of these affiliates. It says which
U.S. companies were acquired or created by foreign ones. It also describes how much U.S.
companies have invested overseas.

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Factors affecting the Entry Mode
Internal Factors External Factors
1. Market Size 1. Company Objectives
2. Market Growth 2. Availability of Company Resources
3. Government Regulations 3. Level of Commitment
4. Level of Competition 4. International Experience
5. Level of Risk 5. Flexibility

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Standardization vs. Differentiation
• Standardization might be beneficial for international operations because it offers the
potential to standardize global operations: “The global corporation operates with
resolute constancy – at low relative cost – as if the entire world (or major regions of
it) were a single entity; it sells the same things in the same way everywhere”
(Levitt 1983, pp. 92-93).
• With standardization, producers obtain global economies of scale and experience curve
benefits in production, distribution, marketing and management. Also there are cross
border segments of consumers. These are consumers with homogeneous consumption
patterns across cultures. Typically, these cross-border segments are younger, richer
and more urban than the rest of the population (Quelch 1999, p. 2).

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• Standardization and adaptation of the marketing strategy are two extremes of a continuum, i.e., as
adaptation increases standardization decreases and vice versa. The discussion of standardization versus
local adaptation on a strategic level can affect diverse aspects of the marketing strategy (Hollensen 2014,
pp. 474-476):
• Regional perspective:
– Full standardization in this context relates to a global marketing strategy, in which the same
marketing strategy is applied to all markets served by the company.’
– In contrast, in a multinational marketing strategy, individual marketing strategies are developed for
each local market; thus, each country market is considered separately.
– A mixture of standardization and adaptation is represented by the multi-regional marketing strategy.
– This strategy distinguishes several homogeneous regions and develops specific marketing strategies
for each one (e.g. European Marketing, North American Marketing).
• Marketing process perspective:
– A standardization of marketing processes relates to standardized decision-making processes for
cross-country or multi-regional marketing planning.
– Standardization in this context relates to, for example, the standardized launch of new products or
standardized marketing controlling activities, and seeks to rationalize the general marketing
process.
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• Marketing components/marketing mix perspective:
– From the marketing components perspective, standardization or differentiation affect the
degree to which the individual elements of the marketing mix are unified into a common
approach.
– A fully standardized approach consists of standardization across all marketing

components.
– On the other hand, a fully differentiated approach implies the adaptation of all marketing
mix elements to local requirements.
– A mixed strategy implies that some components are standardized or adapted to one
degree, others to a different degree.

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Factors Favoring Standardization Factors Favours Differentiation
•Economies of scale, e.g. in R&D, production Local environment-induced adaptation, e.g.
and marketing (experience curve effects) government and regulatory influences, legal
• Global competition issues, differences in technical standards (no
• Convergence of tastes and consumer needs experience curve effects)
(consumer preferences are homogeneous)  Local competition.
• Centralized management of international Variation in consumer needs (consumer
operations (possible to transfer experience needs are heterogeneous, e.g. because of
across borders) cultural differences).
• A standardized concept is used by Fragmented and decentralized management
competitors. with independent country subsidiaries.
• High degree of transferability of competitive  An adapted concept is used by
advantages from market to market competitors.
• Easier communication, planning and control Low degree of transferability of
(e.g. through Internet and mobile technology). competitive advantages from market to
• Stock cost reduction market

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Global Portfolio Management
• Global Portfolio investments means the purchase of stocks, bonds and money
market instrument by foriegner’s for the purpose of realizing financial return
which does not result in a foreign management, ownership and control.
• Portfolio investment is part of the capital account on balance of payment
statistics.
• Factors affecting Global Portfolio Investment:
– Interest Rates
– Exchange Rates
– Tax rates on interest and dividends

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Global Portfolio Management
• Problems of Global Portfolio Management:
– Unfavourable exchange rate movement.
– Frictions in international financial market.
– Manipulation of security prices.
– Unequal access to information.

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The Organization of International Business
• Artfully engineering an organization that configures globally dispersed resources to meet the
mandates of multinational operations is the frontier of international business.
• Although most international managers find it easier to decide what to do, many believe the basis
of competitive advantage is devising an organization of such clarity that the intricate task of
creating value while effectively mediating worldwide integration versus local differentiation is
straightforward.
• Organization Structure, Framework, Systems and Values:
– Organization within the international company is a function of how the company defines the
formal structure that specifies the framework for work, develops the systems that
coordinate and control what gets done, and cultivates a set of shared values and ideals
among employees around the world.

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Organization Structure
• Organization Structure: It is the formal arrangement of roles,
responsibilities, and relationships within an organization – is powerful tool with
which to implement strategy.
• Ultimately, a company’s choice of structure depends on many factors, including
the configuration of the company’s value chain in terms of the location and
type of foreign facilities, as well as impact of international operations on total
corporate performance.

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• Vertical Differentiation: Centralization vs. Decentralization
– Companies determine where in their hierarchy the authority to make decisions should go by working
out the issues of centralization versus decentralization.
Centralization Decentralization
Premise: Premise :
-Decisions should be made by senior -Decisions should be made by the
managers who have the experience, and employees who are closest to and most
judgment to find the best course of familiar with the situation
actions for the company. -The effective configuration and
-The effective configuration and coordination of the value chain depend on
coordination of the value chain depend on headquarters letting local managers deal
the headquarters retaining authority over with local market conditions.
what happens. -Decentralized decision making ensures
-Centralized decision making ensures that that operations in different countries work
operations in different countries help towards achieving global objective by
achieve global objectives. meeting national goals.

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Advantages : Advantages :
-Facilities coordination of the value -Decisions made by those who directly
chain. deal with customers, competitors, and
-Ensures that decisions are consistent markets.
with strategic objectives. -Encourages lower-level managers to
-Gives senior executives the authority to exercise initiative.
direct major change. -Motivates greater effort to do a better
-Preempts duplicating activities across job by lower-level employees.
various subsidiaries. -Enables more flexible response to rapid
-Reduces the risk that lower-level environmental changes.
employees make costly, wrong decisions. -Permits holding subsidiary managers
-Ensures consistent dealing with more accountable for their unit’s
stakeholders – government officials, performance.
employees, suppliers, consumers, and
the general public. UNIT 3 - INTERNATIONAL BUSINESS
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Disadvantages : Disadvantages :
-Discourages initiative among lower level -Puts the organization at risk if many bad
employees. decisions are made at lower levels.
-Demoralized lower-level employees simply -Impedes cross-unit coordination and capture
wait to be told what to do. of strategic fits.
-Information flows from the top down, -Subsidiary will likely favour its own projects
thereby preempting possible innovations form and performance at the expense of global or
bottom-up information flow. overall performance.
Factors Encouraging More Centralization: Factors Encouraging More Decentralization:
- General Environment and specific industry call -General Environment and specific industry call
for global integration and worldwide uniformity for local responsiveness.
of products, purchases, methods, and policies. -Products, purchases, methods, and policies are
-- Interdependent subsidiaries that share value suitable for local adaptation.
activities or deal with common competitors -Economies of Scale can be achieved via
and customers. national production.
-Need for company to move its resources – -Lower-level managers are capable and
capital, personnel, or technology – from one experienced at making decisions.
value activity to another. -- Decisions are relatively minor but must be
-- Lower-level managers are not as capable or made quickly.
experienced at making decisions as upper-level -Company is geographically dispersed.
managers. -Low need for foreign nationals to reach senior-
-Decisions are important and the risk of loss is headquarters positions.
great.

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• An organizational structure defines how activities such as task allocation, coordination,

and supervision are directed towards the achievement of organizational aims.
• Horizontal Differentiation:
– The Design of the Formal Structure: Horizontal differentiation describes how the
company designs its formal structure to perform three functions:
• Specify the total set of organizational tasks.
• Divide those tasks into jobs, departments, subsidiaries, and divisions so the
work gets done.
• Assign authority and authority relationships to make sure work gets done in
ways that support the company’s strategy.

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• Factors affecting the organization structure;
– External Environment
– Overall aims and objectives of the organization
– Job Structure
– Organizational Climate
– Management Approach
– Organization Design and Culture
– Intensity of Decisions and Activities etc.

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Common Organizational Structures for International Business
A. Functional Structure
B. International Division Structure
C. Product Division Structure
D. Geographic Area Division Structure
E. Matrix Division Structure

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Organizational Structures for International Business
A. Functional Structure

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B. International Division Structure

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C. Product Division Structure

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D. Geographic Area Division Structure

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E. Geographic Area Division Structure

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Matrix Organization
 Another kind of departmentation is matrix or grid organization or project or
product management.
 However, pure project management need not imply a grid or matrix.
 The essence of matrix organization normally is the combining of functional and
project or product patterns of departmentation in the same organization
structure.
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Matrix Organization (in Engineering)
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Matrix Organization
Advantages Disadvantages
Oriented toward end results. Conflict in organization authority exists.
Professional identification is maintained. Possibility of disunity of command.
Pinpoints product-profit responsibility. Requires manager effective in human

relations.
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Matrix Organization
• Guidelines for Making Matrix Management Effective: Matrix management can be made more effective
by following these guidelines:
– Define the objectives of the project or task.
– Clarify the roles, authority, and responsibilities of managers and team members.
– Ensure the influence is based on knowledge and information, rather than on rank.
– Balance the power of functional and project managers.
– Select an experienced manager for the project who can provide leadership.
– Undertake organization and team development.
– Install appropriate cost, time, and quality controls that report deviations from standards in a timely manner.
– Reward project managers and team members fairly.
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Strategic Business Units
Introduction:
• Companies have been using an organizational device generally referred to as a Strategic
Business Unit (SBU).
• SBUs are distinct businesses set up as units in a larger company to ensure that certain
products or product lines are promoted and handled as though each were an independent
business.
• To be called an SBU, generally, a business unit must meet specific criteria. It must have its own
mission, distinct from the missions of other SBUs; have definable groups of competitors;
prepare its own integrative plans, fairly distinct from those of other SBUs; manage its own
resources in key areas; and be of an appropriate size, neither too large nor too small. In
practice, it might be difficult to establish SBUs that meet all of these criteria.
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 From each SBU, a manager (usually a business manager) is appointed with the
responsibility of guiding and promoting the product from the research laboratory
through product engineering, market research, production, packaging, marketing
and with bottom-line responsibility for its profitability.
 Thus, an SBU is given its own mission and goals as well as a manager who, with
the assistance of full-time or part-time staff (people from other departments
assigned to the SBU on a part-time basis), will develop and implement strategic
and operating plans for the product.
 The major benefit of utilizing an SBU organization is to provide assurance that a
product will not get “lost” among other products (usually those with larger sales
and profits) in a large company.
 It preserves the attention and energies of a manager and staff whose job is to
guide entrepreneurial attention and drive so characteristic of the small company.
In fact, it is an excellent means of promoting entrepreneurship, which is likely to
be lacking in a large company.
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• Potential Problems with Strategic Business Units:
– C.K.Prahald and Gary Hamel, two professors in strategic management, suggest that companies
should invest in their core competencies and watch out for the tyranny of SBUs.
– The core competency is the organization’s collective learning, especially the capability to coordinate
the different production skills and the integration of these skills into what they call “streams of
technology”.
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Organizational Structures for International Business (Refer the Text Book and fill it in on own)
Functional International Product Division Geographic Area Matrix Division

Structure Division Structure Structure Division Structure Structure
Merits -Useful to carry -Managed with -To manage a -Using geographic Global integration
out the specialized variety of diverse divisions. and local
instructions. personnel. products. -Commonly responsiveness.
-Easy to form - To serve different - Single product associated with - Attains the benefit
types of markets. segment in global companies pursuing of functional and
market multi-domestic divisional
strategies. structures.
Limitations -Highly -Less popular due to -Cost of distribution - Potential for -Difficult to manage
bureaucratic in shared logistics. is high. duplication of work if there is any lack
nature. - Not acceptable to -Can’t lessen the among areas as the of cooperation.
- High cost of Independent firms. adaptation. company locates -Multiple lines of
maintenance. similar value command.
activities.
Suitability -Narrow Range of - Specialized - For Example tag - Nestle which had - MNC’s with
products. product orientation Heur Watches more than 500 preference to attain
- like Exxon Mobil. in the global market. countries in nearly multiplicity of
90 countries that command.
sells 8000 brands to
almost every country
in the world.

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MANAGEMENT
Contemporary Structures of International Business
A. Learning Organization: Learning organization is a company that facilitates the learning of its members
and continuously transforms itself. The concept was coined through the work and research of Peter
Senge and his colleagues.
B. Virtual Organizations: A virtual organization is the antithesis of a traditional vertical hierarchy. Rather
than seeking to control value chain activities through direct ownership of businesses. Virtual
organizations acquire resources or strategic capabilities by creating a temporary network of
independent companies, suppliers, customers, and even rivals.
C. Modular Structure: A modular organizational structure refers to a business that can be separated and
recombined to work more efficiently. Automotive, computer and appliance manufacturers have been on
the cutting edge of modular study, but the principle can be applied to any business, large or small. The
key lies in the ability to remove emotion from the equation as you determine which modules, or
departments, of your business are effective and which can be outsourced to create a tighter
organization.
D. Network Structures: An emergent structural option for managers is the network structure, in which a
small core organization outsources value activities that it does not command a core competency to
those that do. A network structure helps MNCs to outsource activities, from manufacturing to service
calls, while still maintaining a unifying sense of organization.

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MANAGEMENT
Organization Structures for the Global Environment
 Organization structures differ greatly for enterprises operating in the global environment.
 The kind of structure depends on a variety of factors, such as the degree of international
orientation and commitment.
 A company may begin internationalizing its operation by simply creating at its headquarters an
international department, headed by an export manager.
 As the company expands its international operation, foreign subsidiaries and later international
division may be established in various countries, reporting to a manager in change of global
operation at headquarters or possibly the Chief Executive Officer (CEO).
 With further growth of the international operations, several countries may be grouped into
regions, such as Africa, Asia, Europe, and South America.
 Furthermore, the European division (and other divisions as well) may then be divided into
groups of countries, such as the European Union (EU) countries, and Eastern European
countries.
 Companies may also choose other forms of departmentation in addition to the geographic
pattern,
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The Virtual Organization
 The virtual organization is a rather loose concept of a group of independent firms or people that
are connected through, usually, information technology.
 These firms may be suppliers, customers, and even competing companies.
 The aim of the virtual organization is to gain access to another firm’s competence, to gain
flexibility, to reduce risks, or to respond rapidly to market needs.
 Virtual organizations coordinate their activities through the market where each party sells its
goods and services.
 Virtual organizations may have neither an organization chart nor a centralized office building.
 The technological possibilities are exciting, but how do they manage people we never see?
Clearly, many unanswered questions surround the virtual organization.
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The Boundaryless Organization
 Jack Welch, former CEO of General Electric, stated his vision for the company as a
“Boundaryless company”.
 It means “open, anti-parochial environment, friendly toward the seeking and sharing of
new ideas, regardless of their origin.”
 The purpose of this initiative was to remove barriers between the various departments
as well as between domestic and international operations.
 To reward people for adopting the “integration model” bonuses were awarded to those
who not only generated new ideas but also shared them with others.
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Controlling of International Business
(Refer Chapter 15: PP.579 – 609)
• Control Systems:
– Control Mechanisms
• Reports
• Visits to Subsidiaries
• Management Performance Evaluations
• Cost and Accounting Comparisons
• Evaluative Measurements
• Information Systems
– Organization Cultural Control
• The Importance of Culture
• Culture and Values
• Culture and Value Chain
• Challenges and Pitfalls
• Organization Culture and Strategy
– Control Methods
• Market Control
• Bureaucratic Control
• Clan Control
• Coordination Systems
• Coordination by Standardization
• Coordination by Plan
• Coordination by Mutual Adjustment
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MANAGEMENT
The Strategic Planning Process
Although specific steps in formulation of a strategy may vary, the process can be built, at least conceptually, around the key elements.
Adapted and modified from Heinz Weihrich ‘The TOWS Matrix: A Tool for Situational Analysis,” Long Range Planning, Vol. 15, No.2 (1982), Pp.54-66.
Executive
Orientation Present and
Inputs Values Future Medium,
-People Vision External Short-range
- Capital Threats and Planning
- Managerial Skills Opportunities
-Technical Skills
- Others
Goals of Enterprise Evaluation
Industry Development
Stakeholders Profile and Implementation Leadership
Analysis of Alternative
-Employees Strategies Strategic Control
-Consumers Choice
-Suppliers
- Stock-holders
-Governments
-Community Mission Internal
(Purpose) Weaknesses Re-engineering
-Others and Strengths Organization
Major
Objectives Structure
Strategic Staffing
Intent
Consistency
testing
Contingency
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Control System
• Control systems regulate the allocation and utilization of resources.
• In so doing, they facilitate the coordination process, no matter whether anchored in
standardization, planning, or mutual adjustment routines.
• That being said, the criterion that determines the effectiveness of control systems is
how well it compels actions that support the company’s strategy.
• Control Methods: Methods of control include the following;
– Market Control: External market mechanisms, like price competition and relative
market share, to establish internal performance benchmarks and standards.
– Bureaucratic Control: It uses centralized authority to install an extensive set of
rules and procedures to govern a broad range of activities.
– Clan Control: MNC’s relies on shared values among employees to idealize the
preferred behaviours. Clan control encourages employees to identify strongly with
the shared idea of what’s important in the company. The identification then guides
and controls how they do their job.
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MANAGEMENT
Control System
• Control Mechanisms:
a. Reports:
• Timely reporting
• Offer right information
• Monitor performance
• Reward personnel.
b. Visits to Subsidiaries:
 The corporate personnel visit to the tropical subsidiaries only when there are blizzards
at home.
 The visits can serve the goal of controlling foreign operations because they enable the
visitors to collect information and offer advice and directives.

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MANAGEMENT
Control System
• Control Mechanisms:
c. Management Performance Evaluations:
- To evaluate subsidiary managers separately from their subsidiary’s performance to avoid penalizing or
rewarding them for conditions beyond their control.
- However, what is within a subsidiary manager’s control varies from company to company (because of decision-making
authority differences) and from subsidiary to subsidiary (because of local conditions)
- One way to overcome the problems of evaluating performance is to look at the budget agreed on by headquarters and
subsidiary managers.
d. Cost and Accounting Comparisons:
c. Different costs among subsidiaries may prevent a meaningful comparison of their operating performance.
d. Different accounting practices can also create reporting and accountability problems. Headquarters needs to apply
discretion in interpreting the data it uses to evaluate subsidiary performance, especially if it is comparing performance
with competitors from other countries whose accounting methods differ.
e. Evaluative Measurements:
c. Headquarters should evaluate subsidiaries and their managers on a number of indicators rather than emphasizing one.
d. Financial criteria tend to dominate the evaluation of foreign operations and their managers, particularly when an MNE
relies on plans to coordinate and a bureaucracy to control international operations.
f. Information Systems: Corporate management often requires additional data to coordinate and control operations. Here are
some examples of key needs.
- Information generated for centralized coordination
- Information non external conditions
- Information that can be used as feedback from parent to subsidiaries
- Information for external reporting needs
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MANAGEMENT
Promoting an Appropriate Organization Culture
The effectiveness of an organization is also influenced by

the organization culture, which affects the way the
managerial functions of planning, organizing, staffing,
Environment A Environment B
Planning: Goals are set in an autocratic manner. Decision- Planning: Goals are set with a great deal of participation.
making is centralized. Decision making is decentralized.
leading, and controlling are carried out.
Organizing: Authority is centralized. Authority is narrowly Organizing: Authority is decentralized. Authority is broadly
defined. defined.
Staffing: People are selected on the basis of friendship. Staffing: People are selected on the basis of performance
Training is in a narrowly defined specialty. criteria. Training is in many functional areas.
Leading: Managers exercise directive leadership. Leading: Managers practice participative leadership.
Communication flow is primarily top-down. Communication flow is top-down, bottom-up, horizontal,
and diagonal.
Controlling: Superiors exercise strict control. Focus is on Controlling: Individuals exercise a great deal of self-
financial criteria. control. Focus is on multiple criteria.
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• Defining Organization Culture:

 As it relates to organizations, Culture is the general pattern of bheaviour, shared
beliefs, and values that members have in common.
 Culture can be inferred from what people say, do, and think within an organizational
setting.
 It involves the learning and transmitting of knowledge, beliefs, and patterns of
behaviour over a period of time, which means that an organization culture is fairly
stable and does not change fast.
 It often sets the tone for the company and establishes implied rules for the way people
should behave. Many company slogans give a general idea of what a particular
company stands for.
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 Many company slogans give a general idea of what a particular company
stands for.
 Here are some examples:
 General Electric: “Progress is our most important product.”
 AT&T: “Universal Service”
 Du Pont: “better things for better living through chemistry.”
 Asea Brown & Boveri (ABB): “think globally, act locally.”
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• The Influence of the Leader on Organization Culture:

 Managers, especially top managers, create the climate for the enterprise. Their values
influence the direction of the enterprise.
 Although the term “value” is used differently, a value can be defined as a fairly permanent belief
about what is appropriate and what is not that guides the actions and behaviour of employees in
fulfilling the organization’s aims.
 Values can be thought of as forming an ideology that permeates everyday decisions.
 Changing a culture may take a long time, even five to ten years. It demands changing values,
symbols, myths, and behaviour. It may require, first, understanding the old culture, then
identifying a subculture in the organization, and rewarding those living this new culture.
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 A clear vision of a common purpose elicits commitment.
 Moreover, when people participate in the decision-making
process and exercise self-direction and self-control, they feel
committed to their own plans.
 But, espoused values need to be reinforced through rewards
and incentives, ceremonies, stories, and symbolic actions.
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Control System – Organizational Culture
Organization Culture: Organization culture is the shared meaning and beliefs that shape how employees act. It is the set of
fundamental assumptions about the organization and its goals and practices that members of the company share. Organization
culture is a system of shared Values about what is important and beliefs about how the world works.
The Importance of Culture::
- Powerful tool that can be managed to encourage and support the goals and behaviours that help the company
achieve its strategy.
- It helps to enable work climate, atmosphere, traditions and ethical standards.
- Culture is a critical component of a company’s transition from “good” to “great” status.
- Great companies developed organization culture that gave employees a consistent way to relate to their job, to each other, to
customers, to shareholders, and to business partners.
Culture and Values:
• Successful companies develop an organization culture that instills in their employees degrees of enthusiasm and job
involvement above and beyond that justified by economic rewards alone.
• “Objectives don’t get you there. Values do.” – Jack Welch of GE.
• A strategy-supportive culture stimulate people to take on the challenge of realizing the company’s vision, to do their jobs
competently and with enthusiasm, and to collaborate with others.
• Organization culture lessens the need to regulate employees behaviours with elaborate structures to force changes in roles
or revising systems to force change in interpersonal relationships.
• Rather, success will likely follow from reshaping the individual attitudes and actions of managers that then support the work
ethic that triggers the individual-level behaviours of learning and collaboration.
• Finally, the shared values that make up organization culture influence what employees perceive, how they interpret, and
what they do to respond to their world.

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MANAGEMENT
Culture and Value Chain:
- Sophisticated value chain configurations produce more interdependence among
subsidiaries.
- Maximizing coordination and maintaining control of value activities spurs
managers to contact their peers in other subsidiaries more frequently.
- To set up cross-cultural teams to tackle issues common to foreign operations.
Challenges and Pitfalls:
– Rather than letting the organization’s culture emerge naturally, companies
increasingly develop and manage, just as they do with regard to their structure
and systems, their set of shared values and beliefs.
– Importance of knowledge-generating and decision-making relationships to the
MNE’s competitiveness.
– To overcome these challenges, many companies promote closer contact among
managers from different countries.
– The aim is to convey a shared understanding of global goals and norms along with
improving the transfer of ideas and best practices from one country to another.

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MANAGEMENT
• Sharing Knowledge and Best Practices:
• Besides spreading best practices throughout the organization, this sort of knowledge
sharing improves managers’ understanding of the company's culture.
• “Global management is more closely aligned with the corporate strategies and goals.”
• Organization Culture and Strategy:
• The principles and practices of organization culture vary with the requirements of the
company’s strategy.
• The company implementing a global strategy aims to develop a forceful culture that helps
everyone around the world understand and the accept a standard set of goals, priorities,
and practices.
• Essentially, a global strategy’s requirement to standardize value activities usually also
requires standardizing employees’ views about purposes and practices.
• Adapting value activities for local markets requires accepting more local autonomy, a
requirement that rests on sensitivity to local outlooks and norms.
• Despite specific differences, organization culture shares similar attributes across the
different types of strategies.

118
MANAGEMENT
119
MANAGEMENT
Quality Control Dimensions
 Performance
 Features
 Reliability
 Conformance
 Durability
 Serviceability
 Aesthetics
 Perceived Quality

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MANAGEMENT
Basic Steps in Control System in an International Business
• Step 1: Set Control Standards for Performance
• Step 2: Measure actual performance
• Step 3: Compare performance against standards
• Step 4: Respond to Deviations

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MANAGEMENT
Global Business Performance
• Performance of Global Business: It is defined as “periodic review of operations to

ensure that the objectives of the enterprises are being accomplished.”
• Various Performance Indicators:
– Return on Investment (RoI)
– Management Audit
– Management Information System
– Programme Evaluation Review Technique
– Budget Training and Review

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MANAGEMENT
Global Business Performance
• Global business performance is a flexible, web based solution that provides the
key components to support global decision-making.
• It offers the integration and management multiple, cross-country data sources
including POS, retailer direct, syndicated and consumer data.
• Global Business Performance identifies trends and opportunities and delivers
sales and performance insights across regions, countries and categories, only
days after data is available.

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MANAGEMENT
Managing Human Resources While Moving Toward 2020
 The future is difficult to predict.
 Yet managers do have to make decision to prepare for the future.
 Knowledge workers are the most critical for gaining a competitive
advantage.
 The areas which have the greatest potential for improving productivity are;
 Managing Knowledge
 Providing Services and support to customers.
 Improving operations and production processes
 Developing businesses and Strategies
 Managing Marketing and Sales Activities
 Managing Human Resource and Training
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Performance Appraisal
• Introduction:
• 1. Managerial appraisal has sometimes been referred to as the Achilles’ heel of managerial staffing.
• 2. It is the basis for determining who is promotable to a higher position.
• 3. It is also important to management development because it is difficult to determine whether
development efforts are aimed in the right direction if a manager’s strengths and weaknesses are not
known.
• 4. Appraisal is, or should be, an integral part of a system of managing. Knowing how well a copying
managerial positions are actually managing effectively.
• 5. If a business, a government agency, a charitable organization, or even a university is to reach its goals
effectively and efficiently, ways of accurately measuring management performance must be found and
implemented.
• 6. Effective performance appraisal should also recognize the legitimate desire of employees for progress
in their professions.
• 7. One way to integrate organizational demands and individual needs is through career management, which
can be a part of performance appraisal.
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Choosing Appraisal Criteria
a. The appraisal should measure performance in accomplishing goals and plans as well as performance as
a manager.
b. No one wants a person in a managerial role who appears to do everything right as a manager but who
cannot turn in a good record of profit making, marketing, controllership, or whatever the area of
responsibility may be.
c. Nor should one be satisfied to have a “performer” in a managerial position who cannot operate
effectively as a manager. Some star performers may have succeeded by chance and not through
effective managing.
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• Performance in Accomplishing Goals:

1. In assessing performance, systems of appraising against verifiable preselected goals
have extraordinary value.
2. Given consistent, integrated, and understood planning designed to reach specific
objectives, probably the best criteria of managerial performance relate to the ability
to set goals intelligently, to plan programs that will accomplish those goals, and to
succeed in achieving them.
3. Those who have operated under some variation of this system often claim that these
criteria are inadequate and that elements of luck or other factors beyond the
manager’s control are not excluded when arriving at any appraisal.
4. In too many cases, managers who achieve results owing to sheer luck are promoted,
and those who do not achieve the expected results because of factors beyond their
control are blamed for failures.
5. Thus, appraisal against verifiable objectives is, by itself, insufficient.
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Performance as Managers:
 The system of measuring performance against preestablished objectives should be supplemented by an
appraisal of the manager as a manager.
 Managers at any level also undertake non-managerial duties, and these cannot be overlooked. However, the
primary purpose for which managers are hired and against which they should be measured is their
performance as managers, which means they should be appraised on the basis of how well they understand
and undertake the managerial functions of planning, organizing, staffing, leading, and controlling. The standards
to use in the area are the fundamental of management; but, first, appraising against performance objective
should be examined.
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Appraising Managers Against Verifiable Objectives
 One widely used approach to managerial appraisal is the system of evaluating managerial performance
against the setting and accomplishing of verifiable objectives.
 A network of meaningful and attainable objectives is basic to effective managing.
 This is simple logic, since people cannot be expected to accomplish a task with effectiveness or efficiency
unless they know what the end points of their efforts should be.
 Nor can any organized enterprise be expected to do so.
• The Appraisal Process:

1. Superiors determine how well managers set objectives and how well they have performed against them.
2. In case where appraisal by results has failed or has been disillusioning, the principal reason is that
managing by objectives was seen only as an appraisal technique.
3. MBO must be a way of managing, a way of planning, as well as the key to organizing, staffing, leading, and
controlling.
4. Were the goals adequate? Did they call for “stretched” performance? These questions can be answered
only through the judgment and experience of a person’s superior, although this judgment can become
sharper with time and experience, and it may be even more objective if the superior can use the goals of
other managers in similar positions for comparison.
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 In assessing the accomplishment of goals, the evaluator must take into account such
considerations as whether the goals were reasonable attainable in the first place,
whether factors beyond a person’s control unduly helped or hindered the person in
accomplishing goals, and what the reasons for the results were.
 The reviewer should also note whether an individual continued to operate against
obsolete goals when situations changed and revised goals were called for.
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• Different Views on Appraisal Issues:

a. Subjective Versus Objective Evaluation:
a. There are those who still maintain that subjective rating of subordinates is sufficient.
b. After all, it is argued, managerial performance is difficult to evaluate.
c. On the other side of the argument are those who maintain that an appraisal must be completely
objective and only numbers count, either a person achieves the previously set objective or not.
d. Appraisal should focus on results, but one must be careful to avoid the “numbers game.”
e. Figures can be manipulated to suit the individual, thus defeating the purpose of appraisal.
f. Also, pursuing a limited number of verifiable criteria may ignore other, not only important to look at
performance figures but also at the causes of positive or negative deviations from standards,
although this may involve some subjective judgment.
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b. Judging Versus Self-appraisal:
 There is the view that managers have the authority vested in their position, and therefore
they should be sole judge in assessing the performance of their subordinates.
 But, many managers dislike being placed in the role of a judge, especially when they are asked
to evaluate subordinates on personality characteristics.
 Similarly, employees feel uncomfortable being judged on factors that have questionable
relationships to the tasks they are doing. The other view holds that people should be asked to
appraise themselves.
 It is realized that some subordinates maybe harsher on themselves than their superior would
be; but other individuals may rate themselves unreasonable high, especially if the rating
influences their salary.
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b. Judging Versus Self-appraisal:
 The Management By Objectives (MBO) philosophy places emphasis on self-control and self-direction.
 But, this presupposes that verifiable objectives have been previously set (primarily by the subordinate in
conjunction with the superior) against which performance can be measured.
 Indeed, if this is done well, appraising is relatively easy. There should be no surprises during the appraisal
meeting; subordinates know what they want to achieve and superiors know what contributions they can
expect from their subordinates.
 Besides, the comprehensive appraisal, periodic and constant monitoring of performance can uncover
deviations from standards. Generally, then, subordinates should have an opportunity to exercise self-control,
but the superior still has the Veto Power in case of controversy about the objective that is the basis for
performance appraisal.
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c. Assessing Past Performance Versus Future Development:
 Some managers see the purpose of appraisal primarily as assessing past performance,
but other focus on the developmental aspects of appraisal.
 The improvement orientation in the latter is toward the future.
 With the emphasis on self-appraisal and responsible self-direction, the judgmental aspect
in appraisal is considerably reduced.
 To be sure, one should learn from past mistakes, but one should use these insights or
translating them into development plans for the future.
 Clearly, appraisal can be an excellent opportunity to emphasize a person’s strength and to

prepare action plans for overcoming weaknesses, as discussed in the career planning.
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Three Kinds of Reviews – Logic and Application
• Three kinds of appraisals:
• 1. A Comprehensive Review:
– Conducted at least once in a year.

– For example, annual performance reviews.
• 2. Progress or Periodic Reviews:
– Reviews can be short and relatively informal.

– Help to identify problems or barriers that hinder effective performance.
– Keep communication open between the superior and the subordinates.
– Priorities can be rearranged and objectives can be renegotiated if warranted by changed situations.
• 3. Continuous Monitoring:
– Does not have to wait for the next periodic review to correct it.
– The superior and the subordinate discuss the situation immediately so that corrective actions can be taken
at once in order to prevent a small deviation from developing into a major problem.
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Strengths of Appraisal against Verifiable Objectives
• The strength of appraising against accomplishment of objectives are almost as those of MBO .
Both are part of the same process. The objective is effective managing and improving quality of
managing.
• Appraising on the basis of performance against verifiable objectives has the great advantage of
being operational.
• Appraisals are not apart from the job managers do, but are a review of what they actually did
as managers.
• The appraisal can be carried on in an atmosphere in which superiors work cooperatively with
subordinates rather than sitting in judgment of them.
• The key questions are as follows;
– How well a person did?
– Whether goals were missed or accomplished?
– What are the reasons behind it?
– How much in the way of goal attainment should expected?
Weaknesses of Appraisal against Verifiable Objectives.
• It is entirely possible for a person to meet or miss his/her goals through no effort or
fault of their own.
• Overemphasis on output rather than process will possibly demotivate a person.
• Unpredictable market environment or industry trend may hamper the performance.
• Non-performers can hardly feel for differential treatment.
• Short-term goals accomplishment alone will not guarantee the long term success of an
individual.
Appraising Managers as Managers: A Suggested Program
• It is not enough to appraise a manager broadly, evaluating only performance of the

basic functions of the manager, appraisal should go further.
• The best approach is to utilize the basic techniques and principles of management as
standards.
• If they are basic, as they have been found to be in a wide variety of managerial
positions and environments, they should serve as reasonably good standards.
• The evaluator has to set specific benchmarks for measuring how well subordinates
understand the functions of managing.
• There should be standards regarding Work Habits, Dress habits, Cooperation,
Intelligence, Judgment and Loyalty. The focus of attention should be on what may be
expected of a manager as a manager.
• Managers should be rated on how well they perform the activities. The scale suggested
is 0 to 5 scale and numerical ratings should be assigned. Each ratings has to be
defined.
• To further reduce the subjectivity and to increase the discrimination between
performance levels, the program requires that;
1. Comprehensive Annual Appraisal
2. The ratings be reviewed by the superiors superior and
3. The raters be informed that their own appraisal will depend in part on how ell
they discriminate on the ratings of performance levels when evaluating their
subordinates.
 Obviously, objectivity is enhanced by the number and the specificity of the
checkpoint questions.
S.NO. ADVANTAGES DISADVANTAGES

1. Gives operational meaning. Applies only to managerial aspects
not to technical.
2. Standard reference of text for Complex dimensions are not useful
interpretation of concepts and for measurement.
terms
3. Uniformity in the system and Possibility of “subjectivity”.
work.
A Team Evaluation Approach
• It is another approach to performance appraisal.
• The appraisal process includes the following steps;

– Selection of job-related criteria
– Development of examples of observable behaviour
– Selection of four to eight raters (Peers, Associates, Other Supervisors, and, naturally, the immediate
superior)
– Preparation of the rating forms applicable to the job
– Completion of the forms by the raters
– Integration of various ratings
– Analysis of the results and preparation of the report.

A Team Evaluation Approach
• This approach has been used not only for appraisal but also for the selection of people
for promotion and for personnel development, and even for dealing with alcoholism.
• Merits:
– High degree of accuracy in appraising people by obtaining several inputs rather than input from the
superior only.
– It can be used identify raters’ bias.
– It is quite fair and transparent approach.
Application of Performance Review Software
• Annual Review of performance is often disliked by both superiors and subordinates.

• Moreover, it is time consuming.
• Many companies have recently developed software that may make the evaluations among
superiors through a structured inputs.
• The paper-based evaluation may be replaced or complemented with Web-based appraisal.
• It is sure that computer-based program is no substitute for the human interaction between the
superior and the subordinate. The computer database can be used to identify the training needs,
management development, and for identifying those individuals who are ready for promotion to
a position within the total organization.
• It can save time and cost. However, it is not a one-stop solution to all performance review
issues and tasks.
End of Unit 3!

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UNIT 3: INTERNATIONAL STRATEGIC MANAGEMENT

UNIT 3 - INTERNATIONAL BUSINESS

2. It would be worthwhile to look at how firms can increase their profitability by

3. In mot firms, international expansions is being driven by a belief that emerging

4. Firms that operate internationally are able to:

• Firms use strategies to compete in the international markets. These strategies

A. Value Creation Strategy

B. Multi-domestic Strategy (Localization Strategy)

Each strategy has its advantages and disadvantages.

UNIT 3 - INTERNATIONAL BUSINESS

UNIT 3 - INTERNATIONAL BUSINESS

UNIT 3 - INTERNATIONAL BUSINESS

UNIT 3 - INTERNATIONAL BUSINESS

UNIT 3 - INTERNATIONAL BUSINESS

C. MULTI-DOMESTIC Customize product offerings and Inability to realize location economies,

D. TRANSNATIONAL •Exploit experience curve location Difficult to implement due to organizational

UNIT 3 - INTERNATIONAL BUSINESS

• Intra-organizational forces and managerial power-relations.

• Values and preferences and managerial attitudes towards risk.

• Impact of past strategy.

• Time constraints in choice of strategy.

UNIT 3 - INTERNATIONAL BUSINESS

• Emerging e-commerce and culture

• Active pressure group

• Motive for CSR Corporate Social Responsibility and ethics

UNIT 3 - INTERNATIONAL BUSINESS

UNIT 3 - INTERNATIONAL BUSINESS

6. WHOLLY OWNED SUBSIDIARIES

7. STRATEGIC ALLIANCES (INTERNATIONAL)

10. MERGERS AND ACQUISITIONS

11. FOREIGN DIRECT INVESTMENT (FDI)

• Exporting has two distinct advantages.

– First, it avoids the often substantial costs of establishing manufacturing

– Second, by manufacturing the product in a centralized location and

UNIT 3 - INTERNATIONAL BUSINESS

1. May compete with low-cost location manufacturers.

2. Possible high transportation costs.

4. Possible lack of control over marketing representatives.

UNIT 3 - INTERNATIONAL BUSINESS

• Distributors operate in a comparable ways to agents in acting as a local

• Like an agency agreement, the appointment of a distributor avoids any increase

• Distributorship is required, where there is need for specialized product

UNIT 3 - INTERNATIONAL BUSINESS

UNIT 3 - INTERNATIONAL BUSINESS

– What are the relative merits of each mode?

– What entry modes are used by out competitors?

– How much working capital will be needed by alternative entry modes?

– What logical elements are important for the market?

– What complementary product should the intermediary handle?

– Should the intermediary be allowed to handle competitive products/

– What are the legal issues thatMANAGEMENT

UNIT 3 - INTERNATIONAL BUSINESS

UNIT 3 - INTERNATIONAL BUSINESS

– There are possibilities for “technology feedback from the licensee.”

– The technology transferred under license is ‘perishable’ so that licensor

– Licensing can be a means for testing and developing a product in a foreign

– Auxiliary processes rather than a core technology can be licensed.

UNIT 3 - INTERNATIONAL BUSINESS

• Companies building turnkey operations are frequently industrial equipment

UNIT 3 - INTERNATIONAL BUSINESS

UNIT 3 - INTERNATIONAL BUSINESS

• In many respects, franchising is similar to licensing although franchising tends to

UNIT 3 - INTERNATIONAL BUSINESS