INTERNATIONAL BUSINESS MANAGEMENT By Binayak Malla 11/7/2018

Class Introduction to the topic What comes to your mind when you hear the word “International Business” ? How do you think it can help you in your future profession? 11/7/2018

INTERNATIONAL BUSINESS MANAGEMENT 11/7/2018

COURSE PLAN Assessment plan is as follows: Assignments (3 assignment in group) 15% Group discussion (in class) 10% Attendance and class participation 10% Class Presentation (group topic ) 15% Project work 20% End-term Examination 30 % 11/7/2018

Chapter 1 1.1 Concept of International business and its terminology 1.2 How international business differs from domestic business?, 1.3 Concept of globalization and its forces 1.4 Trade Liberalization , 1.5 Movement of labor and capital across borders; opportunities and threats to LDCs 11/7/2018

Nepal vs. Switzerland 11/7/2018

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Current account balance =$284 million Trade to % of GDP = 48% Population: 28.2 M GDP = 19.6 B GDP per capita = $701 Inflation = 8.4 CPI Current account balance =$284 million Trade to % of GDP = 48% Merchandise export = 1 B Merchandise import = 5.95 B Population: 8.9 M GDP = 685 B GDP per capita =$ 85’594 Inflation = 0.00 Current account balance=63.8 billion Trade to % of GDP = 132% Merchandise export = 332 B Merchandise import = 296 B 11/7/2018 http://country-facts.findthedata.com/compare/156-180/Nepal-vs-Switzerland

How international business differs from domestic business? 11/7/2018

Why entry in foreign market should be done very carefully? ….. because business pioneers can certainly fail. Example: Walmart in Germany After opening 85 stores over the course of eight years, the U.S. retail giant abandoned the German market in 2006 at an estimated cost of US$1 billion. 11/7/2018

Ford in Europe Between 1988 and 2000, U.S.-based Ford Motor Company acquired European boutique brands Aston Martin, Jaguar, Volvo and Land Rover. But the automotive mammoth struggled with the luxury brands and in 2007 and 2008 sold them all off. 11/7/2018

Why entry in foreign market should be done very carefully? Coke in India In 1977, Coca-Cola left India and so lost out on one of the world's biggest markets for 16 years and return back to India in 1993 11/7/2018

Why entry in foreign market should be done very carefully? Nestlé in Africa Nestlé was hit with a boycott in Africa that started in 1977 because of its baby product and continues to this day in various regions around the world 11/7/2018

In Foreign environment forces affecting business are perceived in different ways than in domestic market: Forces Have different values - Political forces Forces Can be difficult to assess–Legal Forces Forces are interrelated –Market and labor forces Decision making is complex – Market In Foreign environment forces affecting business are perceived in different ways than in domestic market: Forces Have different values (US export embargo to sell car to Cuba)- Political forces Forces Can be difficult to assess (Mexican nationalistic law against foreign investment) –Legal Forces Forces are interrelated (costly specialized machine vs. general purpose machinery requiring a large labor force) –Market/labor forces Decision making is complex (manager in head office making decision that affects subsidies in 10 different courtiers – Cost 11/7/2018

International Business and terminologies used it it: Multinational Companies (MNCs), Global firms & Trans-national Companies (TNCs) 11/7/2018

MNCs -a kind of holding company with a number of overseas operations, each of which is left to adapt its products and marketing strategy to what local managers perceive to be unique aspects of their individual markets. Global firm as one that attempts to standardize operations in all functional areas but that responds to national market differences when necessary. 11/7/2018

Transnational Company It is used by UN and developing nations as a synonymous to Multinational enterprise. United Nation Conference on Trade and Development (UNCTAD) has defined it as : “A transnational corporation is generally regarded as an enterprise comprising entities in more than one country which operate under a system of decision-making that permits coherent policies and a common strategy. The entities are so linked, by ownership or otherwise, that one or more of them may be able to exercise a significant influence over the other and in particular to share knowledge, resources and responsibilities with the other”. 11/7/2018

Combines the characteristics of global and multinational firms: (1) trying to achieve economics of sale through global integration of its functional areas and, (2) being highly responsive to different local environment (a newer name is multicultural multinational) 11/7/2018

Globalization and its Forces What is Globalization? 11/7/2018

Artificial World 11/7/2018

Natural World 11/7/2018

Globalization and its Forces What is Globalization? How is it related with International business? Perspective; Social scientists discuss in terms of political, social, environmental, historical, geographical and cultural implications of globalization. 11/7/2018

In International business: We speak more in terms of economic globalization which means- “The tendencies towards an international integration of goods, technology, information, labor, capital or the process of making this integration happen.” 11/7/2018

“Globalization” in an economic sense was popularized by Theodore Levitt when he published an article titled “Globalization of Market” in Harvard Business Review (1983) , where he mentioned that “…future belonged to global corporations that did not cater to local differences in taste but instead adopted strategies that operated as if the entire world (or major regions of it) were a single entity….” 11/7/2018

Globalization forces Political forces Technological forces Market Cost Competition 1) Political Forces: Trend towards the unification and socialization of social community. Regional trading arrangements such as NAFTA , EU have presented firms with significant marketing opportunities. The progressive reduction of barriers to trade and encouragement of foreign investment by the govt. 2) Technological TV, Satellite, internet- email, facebook, twitter, videoconferencing, e-commerce, 3) Market Saturation of home market inspires companies to enter foreign markets. According to the Dow Jones survey of the world’s largest companies, 84% of the respondents expect that international markets will generate most of their growth in the next five years 4) Cost MNCs achieve economy of scale by globalizing product lines to reduce development, production and inventory cost. Companies can also move to new location where the cost are lower. 5) Competition Competition is intense and new firm from newly industrialized and developing countries keen to enter world markets many sectors. Companies are defending their home markets from competitors by entering the competitors’ home markets to distract them. 11/7/2018

What are its Advantages and Disadvantages?? Trade liberalization What are its Advantages and Disadvantages?? 11/7/2018

Trade Liberalization It involves removing barriers to trade between different countries and encouraging free trade. 11/7/2018

Advantages of Trade Liberalization Allows countries to specialize in producing the goods and services where they have a comparative advantage. This enables a net gain in economic welfare. Lower prices. The removal of tariff barriers can lead to lower prices for consumers . E.g. removing tariff could reduce the price of goods in the home market and encourage international trade. 11/7/2018

Advantages of Trade Liberalization Increased competition. This should act as an incentive to increase efficiency and cut costs or it may act as an incentive for an economy to shift resources into new industries where they can maintain a competitive advantage. Economies of scale. Trade liberalization enables greater specialization. This can enable big efficiency savings from economies of scale http://www.economicshelp.org/blog/glossary/trade-liberalisation/ Increased competition. Trade liberalization means firms will face greater competition from abroad. This should act as an incentive to increase efficiency and cut costs or it may act as an incentive for an economy to shift resources into new industries where they can maintain a competitive advantage. Economies of scale. Trade liberalization enables greater specialization. This can enable big efficiency savings from economies of scale 11/7/2018

Problems of Trade Liberalisation Shift in the balance of an economy may often cause structural unemployment from certain industries closing. Trade liberalisation could lead to greater exploitation of the environment. Trade liberalisation often leads to a shift in the balance of an economy. Some industries grow, some decline. Therefore, there may often be structural unemployment from certain industries closing. Trade liberalisation can often be painful in the short run, as some industries and some workers suffer from the decline in uncompetitive firms. Trade liberalisation could lead to greater exploitation of the environment, e.g. greater production of raw materials, trading toxic waste to countries with lower environmental laws. 11/7/2018

Problems of Trade Liberalisation Damaging for developing economies who cannot compete against well established industrialized nation. Because of this argument, some argue that trade liberalisation often benefits developed countries more than developing countries. 11/7/2018

Discussion Topic: Movement of labor and capital across borders; opportunities and threats to LDCs 11/7/2018

Causes of labor movement: Push – pull factors: PUSH factor: The “push” of population, unemployment and crisis pressures in less developed countries. Pull factor: The “pull” of changing demographics and labor market needs in many industrialized counties. 11/7/2018

Opportunities and threats: Key words; Remittances, labor migration, poverty elevation, rise in living standard, loss of industry job and agricultural productivity, short term vs. long term economic impact, FDI etc. Remittances: For the sending countries, which are mainly developing and Least developed countries, the most visible economic and quantifiable benefit stems from remittances. Nepal is third among the countries receiving the highest proportion of remittance in terms of gross domestic product (GDP) with the country receiving remittance worth 25 percent of GDP in 2012, according to a report made public by the World Bank (WB). Nepal received remittance worth 23.1 percent of GDP in the fiscal year 2068/69 and 22.1 percent in 2069/70, according to the economic survey. The country had received Rs 359.60 billion of remittance in 2068/69 when GDP was Rs 1.53 trillion while the figure was Rs 434.58 billion in 2069/70 when the estimated GDP was Rs 1.71 trillion. Tajikistan topped the list in 2012 at 48 percent followed by Czech Republic at 31 percent while Moldova is fourth at 24 percent. WB estimated the remittance inflow of developing countries to grow by 6.3 percent and reach US$ 414 billion in 2013. China and India received around one/third of the remittance income of developing countries in 2012, according to WB.    11/7/2018