1. International Business
Chapter 3
Participants in
International Business
International Business: Strategy, Management, and the New Realities

2. Three Types of Participants in IB
The focal firm – initiator of IB transaction, including MNEs and SMEs
Distribution channel intermediary – specialist firm providing logistics and marketing services in the international supply chain
Facilitator – a firm providing special expertise in legal advice, banking, customs clearance, market research, and similar areas
International Business: Strategy, Management, and the New Realities

6. International Business: Strategy, Management, and the New Realities
The MNE as a Focal Firm
A Multinational Enterprise (MNE) is a large organization with a network of production plants, regional headquarters, and country subsidiaries in numerous countries.
Examples include: Nestlé, Sony, Unilever, Nokia, Ford, Citibank, ABB, and Shell Oil.
MNEs include those in retailing ( e.g., Carrefour and Gap) and services ( e.g., Citibank, Amazon).
Some MNEs in countries like China and Russia may be state owned.
International Business: Strategy, Management, and the New Realities

7. International Business: Strategy, Management, and the New Realities
The SME as a Focal Firm
A Small and Medium-Sized Enterprise (SME) is a relatively small player in its respective industry (in the U.S., those with less than 500 employees).
SMEs can be more flexible and quicker to respond to international opportunities.
Though their limited resources prevent them from engaging in FDI, SMEs can excel in exporting, licensing, and franchising.
International Business: Strategy, Management, and the New Realities

8. The Born Global as a Focal Firm
A Born Global (BG) firm represents a relatively new breed of the SME that undertakes early and substantial internationalization.
Primarily a niche player, born globals display high degree of entrepreneurial orientation, proactiveness, and customer service.
In the contemporary era, born globals make up the fastest growing segment of exporters in most countries.
International Business: Strategy, Management, and the New Realities

9. Evolution of a Born Global Exporter and Challenges It Overcomes
Some will exceed
$100 million
Niche
limits
Manage
transition
issues early
Create
international
position
Begin exporting
early (2 years)
Small
domestic
sales only
Product or
process
development
Time
Size
Credibility
Finance
Export
Foreign representation
Export know-how & skills
Market information
Innovation…
the next
product
International Business: Strategy, Management, and the New Realities

10. International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms
Experience early, rapid, and substantial internationalization
Fewer financial and other resources than traditional exporters
Formed by technically inclined, market-oriented business people with entrepreneurial drive
Often enjoy internationally recognized technical eminence and universal appeal in given product category
International Business: Strategy, Management, and the New Realities

11. International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms (2)
Emergence often associated with significant product/process breakthrough or innovation
Products often involve advanced technology, substantial added value, superior quality, and differentiated design
Internationalization typically via exporting and facilitated through network relationships
Heavy user of advanced IT and communications technologies
International Business: Strategy, Management, and the New Realities

12. Distinctive Features of Born Global Marketing Strategy
Typically a specialist, niche player
Distinctive product/offering
High degree of product/service quality
Personal attention to building customer relationships
Constant effort to upgrade foreign distributor effectiveness
International Business: Strategy, Management, and the New Realities

13. Globalization and Entrepreneurship
The Stanford Technology Ventures Program
Link:
International Business: Strategy, Management, and the New Realities

14. Foreign Market Entry Strategies of Focal Firms
Cross-border business transactions can be grouped into three categories:
Trade: buying and selling of products
Contractual exchange of services or intangibles: buying and selling of services
Equity ownership in foreign operations: establishing foreign presence through direct investment
International Business: Strategy, Management, and the New Realities

16. The Nature of Cross-Border Transactions
Trade (export and import) implies a home-based operation where independent partners in the foreign market are engaged to provide local services.
Contractual exchanges include licensing, franchising, service contracting, turnkey operations, and project-based partnerships.
Equity ownership is accomplished through FDI which can be implemented through acquisition or greenfield investment.
International Business: Strategy, Management, and the New Realities

17. Examples of Focal Firms that are Involved in Contractual Exchanges
Turnkey Contractor: Provide engineering, design, and architectural services in the construction of airports, hospitals, oil refineries, and other types of infrastructure.
These projects are typically awarded on the basis of open bidding by the sponsor.
Examples- European Channel Tunnel, the Three Gorges Dam in China, Delhi Metro Rail Ltd. and the Hong Kong Airport.
Build-own-transfer venture- an increasingly popular type of turnkey contract in the developing economies where contractors acquire an ownership in the facility for a period of time until it is turned over to the client.
International Business: Strategy, Management, and the New Realities

18. International Collaborative Venture
In an international collaborative venture (ICV), partners pool their resources and share the cost and risks of the new venture.
Through an ICV, a focal firm can exploit partner’s complementary technologies and expertise, avoid trade barriers, connect with customers abroad, and configure value chains more effectively.
ICV represents the middle ground between FDI and exporting; the firm externalizes value adding activities such as R&D or manufacturing.
International Business: Strategy, Management, and the New Realities

19. Two Types of International Collaborative Ventures
Joint Venture: the focal firm creates and jointly owns a new legal entity together with foreign partners
Project-Based Collaborative Venture: Focal firm collaborates with foreign partners on a project with a relatively narrow scope and a well-defined timetable, without creating a new legal entity.
Firms often form project-based ventures to share the cost and risks involved in knowledge-intensive R&D projects.
International Business: Strategy, Management, and the New Realities

20. An Example of Joint Venture
Advantages: share costs and risks, gain access to needed resources, gain economies of scale, and pursue long-term strategic goals.
Hitachi formed a joint venture with MasterCard to promote a smart card system (Multos) for banking and other applications.
BP partnered with the state-controlled Hindustan Petroleum Corporation in India. The new venture built a $3 billion refinery in Punjab and established a joint marketing business, including a network of retail service stations around India.
International Business: Strategy, Management, and the New Realities

21. An Example of Project-Based Collaboration
Cisco Systems has expanded much of its operations through strategic alliances with key foreign players.
With Japan’s Fujitsu to jointly develop routers and switches that enable clients to build Internet protocol networks for advanced telecommunications.
In Italy, Cisco teamed with the telecommunications company Italtel to jointly develop network solutions for the convergence of voice, data, and video to meet growing global demands.
In China, Cisco formed an alliance with telecommunications company ZTE to tap the China and Asian markets.
International Business: Strategy, Management, and the New Realities

22. Distribution Channel Intermediary
Agents, distributors, manufacturers’ reps
Specialize in physical distribution and marketing service; connect the focal firm with the end user in the foreign market.
Assist the focal firm by providing logistics services such as warehousing and customer support.
Especially critical to exporters who do not establish foreign presence themselves.
Are based either in the home country or the host country.
International Business: Strategy, Management, and the New Realities

23. Export Management Company (EMC)
A more common intermediary in the U.S. is the Export Management Company which acts as an export agent on behalf of the focal firm.
An EMC finds export customers, negotiates terms of sale, and arranges for international shipping, typically for smaller exporters.
Most EMCs specialize in specific industries and geographic areas.
International Business: Strategy, Management, and the New Realities

24. Online Intermediaries
Disintermediation – bypassing traditional intermediaries – is made possible due to widespread use of the Internet to reach customers globally.
Examples include Amazon, Dell, eBay, and Alibaba – English-language portal based in China that specializes in business-to-business exchanges.
Traditional retailers such as Sony and Tesco have also established online presence.
One negative outcome of online retailing has been the ease with which unscrupulous marketers reach on suspecting him customers with fake products (e.g., fake pharmaceuticals).
International Business: Strategy, Management, and the New Realities

25. International Business: Strategy, Management, and the New Realities
Facilitators in IB
Facilitators assist the focal firm with specialized services required in cross-border transactions.
Facilitators include: Banks, international trade lawyers, freight forwarders, customs brokers, consultants, ad agencies, and market researchers.
International Business: Strategy, Management, and the New Realities