1. International Business Lecture 1: The business enterprise in the international environment: introduction

2. Aims of the lecture
To identify key characteristics of international business
To appreciate the role of entrepreneurship
To gain an understanding of the nature of the company, along with roles within the company
To identify the main business functions of the organization in the international context
To highlight the role of co-operative arrangements in international business
To gain an overview of key players in the international business environment

3. Figure 1.1: Comparison of the local, national and international business

4. Local business National International
Personal relations for operations and for reaching the customers
Small local firm
Local customers
Sourced through local suppliers
Local
business
Countrywide organization with local and regional units
Diverse customers within the national environment
More complex products and distribution
Use of national media to reach the customers
National
Global media to manage inter-national activities and reach customers
Domestic and foreign customers
Organization based in a home country with foreign and regional links
Sourcing of products across national borders
International
Size
Customers
Products
Seeking the Customers

5. Figure 1.2: Dimensions of the international environment

6. Entrepreneurship
Successful entrepreneurship involves identifying opportunities, pursuing new ideas and securing financial support.
It includes start-up businesses, as well as the re-focusing of existing enterprises.
Levels of entrepreneurial activity differ from country to country, and are influenced by culture.
Governments can encourage (or discourage) entrepreneurs.
The born-global company takes an international approach from the outset.

7. Small-to-medium size enterprise (SME)
An SME is usually defined as an organization employing fewer than 249 employees.
SMEs provide the bulk of jobs in most countries.
The franchise provides a means for an SME to benefit from the brand and support of an established MNE.
Franchising is often used by MNEs as a means of international expansion.

8. Figure 1.3: Early Stage entrepreneurial activity 2006

9. Figure 1.4: The global entrepreneur

10. Strategic Crossroads 1.1: McDonald’s (page 11)
What reasons lie behind the comparative success of McDonald’s franchise outlets over the company-owned ones?
How does the development license fit in with McDonald’s overall revitalization program?
In the franchise outlets, the franchisee invests more of his or her own resources and has a more entrepreneurial approach to the business. Managers of the company-owned outlets, by contrast, have less sense of ownership and a lower level of entrepreneurial drive. This question can be broadened into a discussion of an entrepreneurial approach generally, which can bring in country differences in entrepreneurial environments.
The nature of the new developmental licenses should be highlighted at the start. They provide that the underperforming outlets should be sold to local entrepreneurs, who would invest their own capital to a greater extent than under McDonald’s usual arrangements. The new owners would be imbued with a greater entrepreneurial approach, but would still benefit from the strong brand and supply chain arrangements. Whether these new owners deliver improved financial performance depends on their competitiveness in their local markets. McDonald’s executives are stressing the importance of the revitalization program to win new customers. They look to the new owners to deliver these improvements, reflecting the success of the revitalization program in the US.

11. Dynamics of the company
Forming a company offers advantages of separate legal identity to the owners.
Companies are registered in particular countries, in accordance with their national laws.
Private companies are often family owned.
In contrast, public companies …
Have numerous shareholders and tradable shares
Have a chief executive officer (CEO) and directors who are accountable to the shareholders
Are increasingly international in their ownership profiles

12. Figure 1.5: Roles within the public company

13. Figure 1.6: Changing ownership of UK equities

14. The multinational enterprise (MNE)
Pursues opportunities and co-ordinates businesses across national borders.
As it grows in size, it evolves a more complex organizational structure, often based on parent company and subsidiaries.
MNEs differ in the degree of centralized control or local autonomy in various locations.

15. Figure 1.7: MNE multi-tiered ownership structure

16. International business functions
International operations
Accounting and finance for international business
International marketing
International HRM
Research and development (R&D)
◊ These functions may be centralized or decentralized, depending on the organization’s overall culture and strategy.

17. Figure 1.8: Business functions in the international context

18. Corporate governance
Corporate governance concerns the company’s decision-making structures and processes.
‘Shareholder’ model predominates in the US and UK:
It has a single-tier board and focuses on maximizing shareholder value.
‘Stakeholder’ model is prevalent in the 2-tier boards in Europe and Japan:
It takes a wider perspective, encompassing employees in particular.
Wider stakeholder interests are now recognized in most companies, as corporate social responsibility (CSR) impacts on governance.

19. Figure 1.9: Executive managers and company stakeholders

20. Alliances, networks and joint ventures
All are co-operative arrangements which contribute to international strategy.
Alliances (often called strategic alliances) offer opportunities for pooling resources and skills in differing environments.
Networks may be intra-firm or inter-firm; both organizations and individual staff can benefit. They can be important for SMEs in their strategic expansion.
Joint ventures offer international opportunities through the formation of a new enterprise, benefiting from the strengths of both founding partners.

21. Figure 1.10: Alliances, networks and joint ventures

22. Key players in the international environment
National governments, which play both direct and indirect roles.
Regional institutions, such as the European Union (EU).
International governmental organizations, such as the World Trade Organisation (WTO).
Voluntary organizations, such as trade unions, non-governmental organizations (NGOs).
Stakeholders in the MNE.

23. Figure 1.11: MNE interactions

24. Figure 1.12: The European Union and eurozone

25. Conclusions
Businesses change in their organization and strategy as they become more international.
As more countries become integrated into global business, MNEs face challenges in adapting to diverse cultural environments.
Firms’ interactions with business partners, governments, international organizations and groups in society grow as their operations develop in different locations.
Managing stakeholder interests, including shareholders, customers and communities, is a key challenge for today’s international managers.