INTERNATIONAL BUSINESS NOTES .docx - INTERNATIONAL BUSINESS...

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INTERNATIONAL BUSINESS NOTES 14/09/16 International Business: identifying, understanding & managing the effects of relevent distances b/w a company’s home country & host country, in pursuit of a desired bus. outcome When internationalizing, companies try to REPLICATE home country advantages… thought process: Distance  Difference (causes probs)  Cost (internalize the cost)  Risk Flaws w/ data: missing subtleties, don’t rely on spreadsheets CLASS 2 PREP AND NOTES Distance Still Matters Reading CPA: Country Portfolio Analysis, focusing on national GDP, levels of consumer wealth, and people’s propensity to consume -Not a good indicator of whether to invest, since ignores costs and risks of doing business in a new market -Company’s actual and potential markets are plotted on a simple grid -Measure of per capita income on one axis and some measure of product performance e.g. per capita fast food consumption Size of bubble reflects size of the market in terms of GDP or absolute consumption -Can alter this by taking distance into account, which paints a better picture Costs & Risks: barriers crated by distance (geographic, cultural, administrative/political, economic) G: 20% of trade of 1000 miles apart, if 5000 miles apart C&A : 10x more likely to trade with a former colony, common currency increases trade by 340%, common membership in regional trading bloc increases trade by 330% Geographic : cost of transportation, communications *companies that deal w large products, or high degree of coordination for operations -Physical size of the country, average within-country distances to borders, access to waterways and ocean, topography
-Cross border equity flows falls significantly as geographic distance rises (due to telephone traffic/# of branches of multinational banks) *Keep in mind information networks & transportation infrastructures Culture: affects consumers product preferences (not for commodities though) -Cultural attributes determine how people interact w/ one another + companies -Religious beliefs, race, social norms & language -Social norms e.g. Chinese being ok with copyright infringement due to Confucius -Cultural attributes e.g. colour, preference of small/big -Food Administrative/Political Distance : colony-colonizer -Preferential trading agreements, common currency, political union *ties must be friendly though e.g. Pakistan India Barriers: tariffs, trade quotas, restrictions on FDI, subsidies & Favoritism for domestic competitors Protecting domestic Industries Measures more likely to be implemented if: a) It is a large employer (large voting bloc can swing government) b) It is seen as a national champion (nationalism) + the more the gov has invested in that industry, the more protective it will be c) It is vital to national security: e.g. high tech sectors e.g. telecommunications d) It produces staples e) Produces an “entitlement” good or service: e.g. health care sector f) Exploits natural resources, foreign companies seen as robbers g) Involves high sunk-cost commitments -Institutional infrastructure (e.g. legal system), corruption, etc.

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