Global

UNIVERSITY OF TOURISM, TECHNOLOGY AND BUSINESS STUDIES (UTB)
MODULE TITLE: GLOBAL ENTREPRENEURSHIP IN EMERGING MARKETS
MODULE CODE: ENT 3314
By Lecturer: KABERA CALLIXTE, PhD
1. Introduction
This business and management course takes an inter-disciplinary approach to understanding and
solving complex social problems. You will learn about prior attempts to address these problems,
identify points of opportunity for smart entrepreneurial efforts, and propose and develop your
own creative solutions.
The focus of this course is on individual agencywhat can you do to address a defined problem?
While we will use the lens of health to explore entrepreneurial opportunities, you will learn how
both problems and solutions are inevitably of a multi-disciplinary nature, and we will draw on a
range of sectors and fields of study.
What you'll learn:
An awareness of the opportunities and barriers for entrepreneurship in fast-growing

emerging markets
An understanding of a conceptual framework for evaluating such opportunities
An appreciation of the types of problems that lend themselves to entrepreneurial solutions
2. Course objectives
Students will explore entrepreneurship in a global setting. Topics to be explored, include

introduction to international entrepreneurship, globalization and the international environment,
culture and international entrepreneurship, selecting international business opportunities,
international legal concerns, alternative entry strategies, global marketing and research and
development, and implementing and managing a global entrepreneurial strategy, to mention but a
few.
Knowledge and Understanding
Having successfully completed the module; students should be able to demonstrate:
i. Systematic understanding of the importance of entrepreneurship in a global setting.

ii. Describe the opportunities and barriers to international trade.
iii. Identify the impact of culture on international entrepreneurship
Cognitive/Intellectual skills/Application of Knowledge
Having successfully completed the module, students should be able to:
iv. Use a range of methods and skills to Develop a global business plan
v. Analyze international business opportunities and determine the readiness of a business
organization to enter global markets
Communication/ICT/Numeracy/Analytic Techniques/Practical Skills
vi. Communicate in a variety of forms and to a variety of audiences using structured and
coherent arguments in auditing
vii. Be able to use a range of IT skills to search and network globally
General transferable skills
Having successfully completed the module, student should be able to:
viii. Work under little or no supervision as well as with others to achieve defined objectives in
global entrepreneurship setting;
ix. Take a leadership role in group work in the field of global entrepreneurship;
x. Create an international marketing strategy which includes a role for research and
development;
xi. Identify best practices for implementing and managing a global entrepreneurial strategy.
3. Module structure
The module will include lectures, discussions and class exercises. It will further focus on
presentation by students in teams, and where feasible individually.
Students are expected to work in teams, that is, 10 participants maximum in a team should
produce more than the sum of two individual contributions. Teams should be as diversified as
possible, in terms of academic interests, experience and backgrounds. Students should take turns
in making presentations so that all can obtain credit for class participation.
1. Module outline
CHAPTER I. INTRODUCTION TO GLOBAL ENTREPRENEURSHIP
1.1.Understanding international entrepreneurship

1.2.Competencies global entrepreneurs need
1.3.Challenges facing global entrepreneurs
1.4.Benefits of going global
CHAPTER II. GLOBALISATION AND TRENDS IN MANAGEMENT SYSTEM
2.1. What is globalization?

2.2. Components of Globalization
2.3. Drivers of Globalization
2.4. Globalization: Good or Bad for global economy
2.5. Managing in Global Marketplace
CHAPTER 3. INTERNATIONAL TRADE THEORY

1.1. Mercantilism
1.2.Theory of Absolute Advantage
1.3.Theory of Comparative Advantage
1.4.The Product Life-Cycle Theory
1.5. Huckster-Ohlin Theory
1.6. Theory of National Competitive Advantage
CHAPTER 4. STRATEGIES FOR GOING GLOBAL

4.1. Entry Decision
4.2. Entry Modes
4.3. Entry Mode Selection
CHAPTER 5. ORGANIZATION OF INTERNATIONAL BUSINESS
5.1. Organizational architecture
5.2. Structure
5.3. Integrating Mechanisms
CHAPTER 6. ENVIRONMENT AND INTERNATIONAL BUSINESS
6.1. Influence of culture on international business
6.2. Economic environment and its implications on international business
6.3. Political systems and international business
4. Schedule of teaching and assessment patterns
Delivery: 42 hours (In 2 consecutive weeks)

Mode of Assessment
Course Work (CW)
Group Assignment (Writing) :8%
Individual Assignment (class presentation): 12%
CAT 1 : 20%
CAT 2 : 20%
Total 60%
Final Exam :40%
NOTE: The lecturer reserves the right to alter the modality of assessment. However, students
will be notified on the changes.
CHAPTER 1. INTRODUCTION TO GLOBAL ENTREPRENEURSHIP
We are living in a world where all the major business functions in the value chain are highly
globalized and deeply integrated. According to McKinsey and Company, 80 percent of the
worlds GDP will be sold across international borders by 2027, compared to about 20 percent in
2001. Multinational business activity will grow from approximately $5 trillion to $70 trillion by
2027.
To understand how this is happening consider your desktop computer. It might have been
assembled in Mexico with Chinese components; it uses chips designed in the United States,
manufactured in Malaysia, and preinstalled with software applications that were jointly
developed in India and Ireland. According to a United Nations World Investment Report, there
are about 40,000 multinational corporations in the world with nearly 300,000 foreign affiliates. A
global business is a multinational venture incorporated in one country that has operations in one
or more other countries.
To gain a better understanding of what international entrepreneurship is about it is important to

clarify the two notions of which it is composed: international and entrepreneurship.
Entrepreneurship
There is no universally accepted definition of entrepreneurship. There seems to be agreement

however that entrepreneurship involves the creation of something new. Some authors have
argued that entrepreneurship is in essence about the creation of new organizations. The
definition of entrepreneurship as the creation of new economic activity includes new venture
creation activity, but also new economic activity of established firms. New economic activity
that constitutes entrepreneurship may involve the conversion of a new idea into a successful
innovation. The creation of new economic activity is not only associated with innovation, but
also with other entrepreneurial features such as risk-taking and proactiveness.
International: across national borders
The notion across national borders in the definition of international entrepreneurship refers to
either cross-country comparisons or organizational behavior across borders, i.e. cross-border
entrepreneurship. There is no single universally accepted definition of internationalization.
Internationalization is difficult to define since it encompasses various aspects. First,

internationalization may involve various modes or activities. While research on
internationalization of SMEs and new ventures tends to focus primarily on exports,
internationalization may involve various other modes or activities. These may include other
outward modes than (direct) exports, such as indirect export (i.e. export through intermediaries
such as agents or distributors), foreign production and joint ventures abroad, inward modes, such
as indirect imports (i.e. imports through intermediaries such as agents or distributors) and direct
imports, and linked modes such as licensing agreements and international strategic alliances.
Second, internationalization is often viewed as a process-based activity that is dynamic and
evolutionary.
International entrepreneurship emerged as a separate field of research in the past two decades
and began with an interest in cross-border entrepreneurship, in particular in internationalizing
new ventures (McDougall, 1989), but also includes SME internationalization (Lu and Beamish,
2001). In addition to cross-border entrepreneurship international entrepreneurship also includes
the study of entrepreneurship in multiple countries.
International entrepreneurship is an interdisciplinary field that draws upon the theoretical

foundations of international business and entrepreneurship. International business research,
which focuses upon the internationalization of the firm, used to be dominated by research on
large multinational enterprises, but now also pays substantial attention to SME and new venture
internationalization. The field of international entrepreneurship has been studied from various
disciplines including economics, psychology and sociology and business sub-disciplines such as
marketing, finance and strategic management.
All entrepreneurs must be able to identify opportunities, gather resources, and strike deals. They
all must also possess soft skills like vision, leadership, and passion. To win globally, though,
they must possess the following competencies.
Articulating a global purpose
Developing a crystal clear rationale for being global is critical. In 1999, for example, Robert
Wessman took control of a small pharmaceuticals maker in his native Iceland. Within weeks, he
concluded that the generics player had to globalize its core functionsmanufacturing, R&D, and
marketingto gain economies of scale, develop a large product portfolio, and be first to market
with drugs as they came off patent. Since then, Actavis has entered 40 countries, often by taking
over local companies. Wessman faced numerous hurdles, but he stuck to the strategy. Actavis
now makes 650 products and has 350 more in the pipeline. In 2007, it generated revenues of $2
billion and had become one of the worlds top five generics manufacturers.
Alliance building
Start-ups can quickly attain global reach by striking partnerships with large companies
headquartered in other countries. However, most entrepreneurs have to enter into such deals
from positions of weakness. An established company has managers who can conduct due
diligence, the money to fly teams over for meetings, and the power to extract favorable terms
from would-be partners. It has a reasonable period within which to negotiate a deal, and it has
options in case talks with one company fail. A start-up has few of those resources or bargaining
chips.
Supply-chain creation
Entrepreneurs must often choose suppliers on the other side of the world and monitor them
without having managers nearby. Besides, the best manufacturing locations change as labor and
fuel costs rise and as quality problems show up, as they did in China.
Start-ups find it daunting to manage complex supply networks, but they gain competitive
advantage by doing so. Sometimes the global supply chain lies at the heart of the business
opportunity. Take the case of Winery Exchange, cofounded by Peter Byck in 1999. The
California-based venture manages a 22-country network of wineries and breweries. Winery
Exchange works closely with retail chains, such as Kroger, Tesco, and Costco, to develop
premium private label products, and it gets its suppliers to produce and package the wines as
inexpensively as possible. The venture has succeeded because it links relatively small market-
needy suppliers with mammoth product-hungry retailers and provides both with its product
development expertise. In 2006, Winery Exchange sold 2 million cases of 330 different brands of
wine, beer, and spirits to retailers on four continents.
Multinational organization
In 2006, a simulation exercise called the Virtual Entrepreneurial Team Exercise (VETE) was
conducted for 450 MBA students in 10 business schools in Argentina, Austria, Brazil, England,
Hong Kong, Liechtenstein, the Netherlands, Japan, and the United States. The teams, each
composed of students from different schools and different countries, developed hypothetical
pitches for Asia Renal Care, a Hong Kongbased medical services start-up that had raised its
first round of capital in 1999. They experienced a slice of global entrepreneurial life in real time,
using technologies like Skype, wikis, virtual chat rooms, and, of course, e-mail to communicate
with one another. The students learned how to build trust, compensate for the lack of visual cues,
respect cultural differences, and deal with different institutional frameworks and incentivesthe
competencies entrepreneurs need for coordination, control, and communication in global
enterprises. The would-be entrepreneurs emotions ranged from elation to frustration, and their
output varied from good to excellent.
Start-ups cope with the challenges of managing a global organization in different ways. Internet
Securities used a knowledge database to share information among its offices around the world,
increasing managers ability to recognize and solve problems. RacingThePlanet used intensive
training to ensure that volunteers perform at a consistently high level during the events it holds.
Trolltech worked round the clock to meet deadlines, passing off development tasks from teams
in Norway to those in Australia as the day ends in one place and begins in the other. Inverness
Medical hired key executives wherever it could and organized the company around them rather
than move people all over the world.
Entrepreneurs shouldnt fear the fact that the world isnt flat. Being global may not be a pursuit
for the fainthearted, but even start-ups can thrive by using distance to gain competitive
advantage.
Research shows that global entrepreneurs face three distinct challenges.
Distance
New ventures usually lack the infrastructure to cope with dispersed operations and faraway
markets. Moreover, physical distances create time differences, which can be remarkably tough to
navigate. Even dealing with various countries workweeks takes a toll on a start-ups limited
staff: In North America, Europe, China, and India, corporate offices generally operate Monday
through Friday. In Israel, theyre open Sunday through Thursday. In Saudi Arabia and the UAE,
the workweek runs Saturday through Wednesday, but in other predominantly Muslim countries
like Lebanon, Morocco, and Turkey, people work from Monday through Friday or Saturday.
A greater challenge for global entrepreneurs is bridging what the British economist Wilfred
Beckerman called in 1956 psychic distance. This arises from such factors as culture, language,
education systems, political systems, religion, and economic development levels. It can
heightenor reducepsychological barriers between regions and often prompt entrepreneurs to
make counterintuitive choices. Take the case of Encantos de Puerto Rico, set up in 1998 to
manufacture and market premium Puerto Rican coffee. When founder-CEO Angel Santiago
sought new markets in 2002, he didnt enter the nearby U.S. market but chose Spain instead.
Thats because, he felt, Puerto Ricans and Spaniards have similar tastes in coffee and because of
the ease of doing business in Spanish, which reduced the psychic distance between the two
countries. When two years later, Encantos de Puerto Rico did enter the United States, it focused
initially on Miami, which has a large Hispanic population.
Context
Nations political, regulatory, judicial, tax, environmental, and labor systems vary. The choices
entrepreneurs make about, say, where to locate their companies headquarters will affect
shareholder returns and also their ability to raise capital. When the husband-and-wife team of
Andrew Prihodko, a Ukrainian studying at MIT, and Sharon Peyer, a Swiss-American citizen
studying at Harvard, set up an online photo management company, they thought hard about
where to domicile Pixamo. Should they incorporate it in Ukraine, which has a simple and low tax
structure but a problematic legal history? Or Switzerland, where taxes are higher but the legal
system is well established? Or Delaware, where taxes are higher still but most U.S. start-ups are
domiciled? Prihodko and Peyer eventually chose to base the company in the relatively tax-
friendly Swiss canton of Zug, a decision that helped shareholders when they sold Pixamo to
NameMedia in 2007.
Some global entrepreneurs must deal with several countries simultaneously, which is complex.
In 1994, Gary Mueller launched Internet Securities to provide investors with data on emerging
markets. Three years later, the start-up had offices in 18 countries and had to cope with the
jurisdictions of Brazil, China, and Russia on any given day. By learning to do so, Internet
Securities became a market leader, and in 1999, Euromoney acquired 80% of the companys
equity for the tidy sum of $43 million.
Resources
Customers expect start-ups to possess the skills and deliver the levels of quality that larger
companies do. Thats a tall order for resource-stretched new ventures. Still, they have no option
but to do whatever it takes to retain customers. In 1987, Jim Sharpe acquired a small business,
XTech, now a manufacturer of faceplates for telecommunications equipment. Initially, the
company made its products in the United States and sold them overseas through sales
representatives and distributors. However, by 2006, Cisco, Lucent, Intel, IBM, and other XTech
customers had shifted mostof their manufacturing to China. They became reluctant to do
business with suppliers that didnt make products or have customer service operations in China.
So Sharpe had no choice but to set up a subsidiary in China at that stage.
There are many benefits for entrepreneurs participating in global business activities. We group
them in three categories: strategic, financial, and production related.
Examples of strategic benefits are:
enhancing domestic competitiveness;

reduction of dependence on existing markets;
capitalizing on the growth potential of the new country market and neighboring countries;
stretching and building marketing capability;
global brand building and awareness;
finding new talent;
transferring competitive information and new product ideas from those markets to other
markets, or what we call learning local and share global activities;
Examples of financial benefits include:
finding new customers;

increasing profits and sales;
earning a greater return from set of core competencies;
increasing the universe of potential investors;
capitalizing on tax advantages;
minimizing impact of seasonalities in local markets
Production-related benefits include:
guaranteeing supply of raw materials;

acquiring technology and R&D capabilities;
cutting costs through global outsourcing;
improving purchasing power for customers buying locally;
realizing greater experience curve economies in production;
extending lifecycle for current products or services;
selling excess production capacity;
CHAPTER 2. GLOBALISATION AND TRENDS IN MANAGEMENT SYSTEM
Globalization is a process of interdependence and integration of world economies, driven by

international trade and investment and aided by information technology.
The definition of globalization will become clearer with the following example:
In a local supermarket the consumers buy toys manufactured in Chile or tomatoes grown in
Mexico, apparels made in India, Mobile Phones designed in Finland, assembled in Korea,
Footwear designed in USA and made in Indonesia or China. The personal computer at the
delivery counter has been imported from India. Person at the sales counter is wearing a shirt that
bears a tag from China, Indonesia or El Salvador and so on.
The example clearly indicates that production and marketing activities are no longer confined
within the boundary of a nation. In fact, entire production and marketing activities for a
particular product utilizes resources available in different countries of the world. If we take
example of clothes that we wear, the cotton for the shirt might have been sourced from China,
processing of raw cotton could have been done in Indonesia, fabric was made in Malaysia, the
shirt was stitched in India as per the designs provided by US designer and finally shirt was sold
by the British Salesman in Retail store owned by a US multinational.
2.2. Components of globalization
Thus, it is clear from the above example that globalization has two facets viz. Globalization of
Markets and Globalization of Production (Fig 1).
Globalization of Markets
It refers to merging of different national markets into one global marketplace. It is possible due
to reduced trade barriers and development is technology. But to sell the product in different
markets companies have to decide whether they should sell the standard product in all the market
or they should adapt the product in different counties according to local taste and preferences.
The final decision between standardization and adaptation is based on individual market
conditions and the preferences of the consumer which is primarily determined by culture, social
conditions, and economic conditions etc. of a country.
Globalization of production
Companies source goods and services from different countries of the world to take advantage of
low cost of various factors of production like land, labor and capital.
The trend is referred as

globalization of production due to
Globalization of Globalization
which the companies are now
Markets of Production
able to bring down their cost of
production and are able to offer Components
the
product at a more competitive of
Globalization
price in the international
market.
Fig 1 Components of Globalization
2.3. Drivers of globalization
This current wave of globalization has been driven by lot of factors, the most important being the
policies that have opened economies domestically and internationally. Some of the factors
behind globalization (Fig 2) are highlighted below:
Liberalization
One of the most important factors behind globalization is opening up of the world economy.
With international organizations like WTO promoting free and fair trade most of the member
countries have made their foreign trade policy more liberal and open. Lowering of trade barriers,
removal of non tariff barriers like
Global
Quota etc. and liberal norms for FII Liberal Consumer and
Institutions
Policies needs
FDIs have fostered globalization to a large
extent.
Drivers of
Strategic
Globalization
Technology Vision
Technological change
Another very important factor
behind globalization is technology. Growth On
Competition
one hand technology has enabled firms
Fig 2: Major Drivers of Globalization
to achieve economies of scale,
increase productivity, achieve break even and on the other hand technology has also
revolutionised the communication and transportation system which are backbone of international
trade. Micro processor, internet, mobile phone, wireless technologies and similar other technical
advancement have contributed enormously to the emergence of global village. Technical
advancement in the transportation like containerization and refrigeration has also made
international trade easier and faster. Advancement in the case of air and sea cargo transport has
made transportation of goods cheaper and faster.
Increased competition in the domestic market

Competition in the domestic market forces companies to explore new market. It also compels an
organization to explore new production centers in the global market which can help them in
reducing their production cost so that their product is more competitive in the international
market.
Profit advantage/ Growth opportunities / increase market share
Companies also go global to increase their market share, profit and also to look for more avenues
for growth.
Increasing consumer needs

World is a global village and with internet, consumers are aware about different products being
sold in the international market. If a product is launched in USA, consumers in different part of
the world are aware about the product. Demand by these consumers force the organization to
indulge in international trade. Further, the consumers now have more disposable income
therefore their demand is also increasing day by day.
Strategic vision of the organization

One of the very important factors behind globalization is the willingness of the management to
make their organization a leading player in the global market.
Emergence of global institutions

Global Institutions like WTO, World Bank and IMF have also played an important role in the
globalization process.
ii) World Trade Organization

WTO is responsible for ensuring free and fair trade between the member countries. Any country
that is a member of WTO has to ensure that its international trade is governed by the provisions
in General Agreement on Tariff and Trade (GATT) and General Agreement on trade in services
(GATS). WTO also has an effective dispute settlement mechanism to resolve trade dispute
between member countries.
iii) World Bank and International Monetary Fund

Both these organizations were created in 1944 during at Bretton Woods, New Hampshire. The
main aim of World Bank is to ensure economic development whereas International Monetary
Fund is responsible for ensure the stability of the international monetary system for sustainable
economic growth.
iv) United Nations

United Nations was created on 24th October 1945 with the main objective for ensuring
international peace and security through international cooperation.
2.4. Globalization: good or bad for global economy
Globalization in itself is a very controversial topic. Different set of people have different view
about globalizations, one group strongly favors globalizations and emphasize that global
economic development will not be possible without globalization. While on the other hand there
is a different set of people who believe that because of opening up of the economies, MNCs are
exploiting the resources of the poor countries.
Globalization debate-Pro
Proponents of globalization argue that
it allows poor countries and their citizens to develop economically and raise their
standards of living;
leads to employment generation;
lowers down the price of goods;
helps companies to focus on their core competencies.
Globalization debate-Con
Opponents of globalization claim that
creation of a free international free market has benefited multinational corporations
in the Western world;
destroys manufacturing job in developed countries;
MNCs shift to countries having liberal environmental and labor regulations.
2.5. Managing in global marketplace

Companies now have a huge global market from where they can source their products and
further sell it in different countries. Managing business is thus a challenge in this huge market
place. Companies can successfully manage their operations in the global market place if they
have:
Proper understanding of business environment in different countries and also have a

proper knowledge of managing these differences.
Efficient system to control the production and marketing activities in vast
marketplace.
Thorough knowledge of trading and investment environment of different
marketplaces.
Good knowledge of the currency market i.e. how to manage currency fluctuations.
It is a fact that international trade is beneficial for overall economic development of a country.
Economists have given numerous theories to explain why countries should engage in
international trade for their economic growth. This chapter will examine all the trade theories
starting from Mercantilism to Michael Porters National Competitive advantage theory.
3.1 Mercantilism
This theory was propagated in the mid 16th century in England. According to this theory, a
countrys wealth is measured by its holding of treasure, usually gold. During that time gold was
the currency of trade between nations, therefore to increase its wealth; a country should
encourage export and restrict import, thereby resulting in an increase of its gold reserves and also
its national wealth. The drawback of this theory is that it viewed trade as a zero sum game i.e.
one countrys gain results in another countrys loss. Which is not true as international trade is a
positive sum game as demonstrated by Adam Smith and David Ricardo in their theory of
Absolute and Comparative Advantage.
3.2 Theory of Absolute Advantage
Theory of Absolute Advantage was proposed in 1776 by Adam Smith in his book Wealth of
Nations. According to this theory countries should specialize in producing goods which they
can produce more efficiently and then trade these for goods produced by other countries.
Consider the example of trade between Brazil and South Korea. Assume that Brazil and South
Korea have same amount of resources, i.e. 200 units, which can be used to produce either rice or
coffee beans. Further, Brazil requires 10 units of resources to produce one ton of coffee beans
and 20 units of resources to produce one ton of rice. On the other hand, South Korea requires 40
units of resources to produce one ton of coffee beans and 10 units of resources to produce one
ton of rice. Different combinations of rice and Coffee Beans that both Brazil and South Korea
can produce are given in Table 1. As evident from the table, Brazil has an absolute advantage in
producing Coffee beans while South Korea is more efficient in producing rice. If South Korea
and Brazil do not trade with each other then Brazil will produce and consume 10 tons of Coffee
beans and 5 tons of rice, whereas, South Korea will produce and consume 2.5 tons of coffee
beans and 5 tons of rice. The total production of these two countries without trade is 12.5 tons of
coffee beans and 15 tons of rice. On the other hand if they produce the commodity in which they
are more efficient, i.e. Brazil utilize all its resources in producing Coffee beans and South Korea
devote all the 200 units of resources in producing rice, then the total production is 20 tons each
of coffee beans and rice. Now if Brazil exports 6 tons of coffee beans to South Korea and import
6 tons of rice from South Korea than Brazil will have 14 tons of coffee beans and 6 tons to rice
for consumption and South Korea will have 6 tons of coffee beans and 14 tons of rice to
consume. After specializing in production and trading Brazil had additional 4 tons of coffee
beans and 1 ton of rice for itself and South Korea has additional 3.5 tons of coffee beans and 4
tons of rice. Therefore as a result of specialization and trade production and consumption has
increased thereby resulting in net gains for both Brazil and South Korea.
Table 1: Theory of Absolute advantage
A. Resources required to produce one ton of coffee beans
Coffee Beans Rice
Brazil 10 20
South Korea 40 10
B. Production and consumption without trade (100 units of resources are utilized
for producing Rice and 100 units for producing Coffee Beans)
Coffee Beans Rice
Brazil 10.0 5.0
South Korea 2.5 10.0
Total 12.5 15.0

C. Utilizing resources for producing commodity in which the country specializes
Coffee Beans Rice
Brazil 20.0 0.0
Total 20.0 20.0
D. Brazil trades 6 tons of Coffee Beans for 6 tons of rice from South Korea
Coffee Beans Rice
Brazil 14.0 6.0
E. Consumption pattern after specialization and Trade (Difference between B and D

above)
Coffee Beans Rice
Brazil 10.0 16.0
South Korea 3.5 4.0

3.3 Theory of Comparative Advantage
David Ricardo gave the Theory of Comparative Advantage in 1817. In his book on Principles of
Political Economy Ricardo proposed that a country should specialize in production and export
of those goods that it produces more efficiently and import goods that it produces less efficiently
from other countries.
Assume that Brazil requires 10 units of resources to produce one ton of coffee beans and 13.33
units of resources to produce one ton of rice. South Korea on the other hand requires 40 units of
resources to produce one ton of coffee beans and 20 units of resources to produce one ton of rice.
Different combinations of coffee beans and rice that both Brazil and South Korea can produce
are given in Table 2 (A).
Table 2: Theory of Comparative advantage
Coffee Beans Rice
Brazil 10 13.33
South Korea 40 20
for producing rice and 100 units for producing coffee beans)
Coffee Beans Rice
Brazil 10.0 7.5
South Korea 2.5 5.0
Total 12.5 12.5

(Ghana devotes 150 units of resources to produce coffee beans and 50 units of
resources to produce rice and in case of South Koreas 200 units are utilized for
producing rice)
Coffee Beans Rice
Brazil 15.0 3.75
Total 15.0 13.75
Coffee Beans Rice
Brazil 11.0 7.75
South Korea 4.0 6.0

above)
Coffee Beans Rice
Brazil 1.0 0.25
South Korea 1.5 1.0
Utilizing 200 units of resources Brazil can produce 10 tons of coffee beans and 7.5 tons of rice
whereas South Korea can produce 2.5 tons of coffee beans and 5 tons of rice (Table 2 B) From
the table it is evident that even though Brazil has absolute advantage in producing both coffee
beans and rice, it has comparative advantage in producing only coffee beans. Now when both the
countries produce those commodities in which they are more efficient, Brazil devote 150 units of
resources to produce coffee beans, in which it has comparative advantage, and 50 units if
resources to produce rice. South Korea devotes all its resources in producing rice (Table 2). Total
production is 15 tons of coffee beans and 13.75 tons of rice.
If Brazil export 4 tons of coffee beans for 4 tons of rice, its consumption of coffee beans and rice
increases by 1.0 and 0.25 tons respectively. South Korea also has additional 1.5 tons of coffee
beans and 1.0 ton of rice to consume. Thus production and consumption increases with
unrestricted trade.
The theories of Absolute Advantage and Comparative Advantage have the following limitations:
Both these theories are based on lots of unrealistic assumptions like:
there are two countries and two commodities and both of them have fixed amount of
resources, which is not true in real world.
there is no transportation cost
Cost of resources is same in both the countries
commodities are swapped on a one to one basis, exchange rate are not considered
3.4. Heckscher-Ohlin Theory
Swedish economists Eli Heckscher (1919) and Bertil Ohlin (1933) argued that countries will
export those goods that are made from factors of production that are locally abundant and import
goods that are made from factors of production that are locally scarce. Factors of production are
the resources available with a country in terms of land, labor and capital.
Heckscher-Ohlin theory explains the fact that china excels in export of goods that are produced
utilizing labor that is available in abundance at a comparatively less cost.
However the theory fails to prove the international trade pattern of US. As US has more capital
as compared to other nations of the world, therefore US should be exporter of capital intensive
goods and importer of labor intensive goods. On the contrary, US exports are less capital
intensive than US imports. This exception to the Heckscher-Ohlin Theory is known as Leontief
paradox.
3.5. The Product Life-Cycle Theory
Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory
in the 1960s. The theory, originating in the field of marketing, stated that a product life cycle has
three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. The
theory assumed that production of the new product will occur completely in the home country of
its innovation. In the 1960s this was a useful theory to explain the manufacturing success of the
United States. US manufacturing was the globally dominant producer in many industries after
World War II.
It has also been used to describe how the personal computer (PC) went through its product cycle.
The PC was a new product in the 1970s and developed into a mature product during the 1980s
and 1990s. Today, the PC is in the standardized product stage, and the majority of manufacturing
and production process is done in low-cost countries in Asia and Mexico.
The product life cycle theory has been less able to explain current trade patterns where
innovation and manufacturing occur around the world. For example, global companies even
conduct research and development in developing markets where highly skilled labor and
facilities are usually cheaper. Even though research and development is typically associated with
the first or new product stage and therefore completed in the home country, these developing or
emerging-market countries, such as India and China, offer both highly skilled labor and new
research facilities at a substantial cost advantage for global firms.
The theory suggests that early in a product's life-cycle all the parts and labor associated with that
product come from the area in which it was invented. After the product becomes adopted and
used in the world markets, production gradually moves away from the point of origin. In some
situations, the product becomes an item that is imported by its original country of invention
3.6 Theory of National Competitive Advantage: Porters Diamond Model
This theory is proposed by Michael Porter in 1990. Porters theory stated that a nations
competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.
His theory focused on explaining why some nations are more competitive in certain industries.
According to the theory, four attributes determine the competitive advantage of a particular
nation. These attributes are:
Factor endowments
Demand conditions
Relating and supporting industries
Firm strategy, structure and rivalry
Porter visualizes these four attributes as constituting a diamond. According to Porter, Chance and
Government are two more variables that influence the diamond.
Factor Endowments
Porters factor endowments are same as that of

Heckscher-Ohlin, but he further categorized the
factor of production as Basic factor
endowments (natural resource, climate,
location and demographics) and advanced
factor endowments (communication
infrastructure, sophisticated and skilled labor,
research and technical knowhow). Advanced
factors play an important role in determining competitive advantage of a nation. He also stressed
that by investing in advance factors a country can overcome its disadvantageous position in basic
factors.
Demand conditions
Nature of demand in home country plays an important role in determining the attributes of the
locally produced goods. If the domestic consumers are demanding and sophisticated they will
create pressure on firms to produce innovative and better quality products.
Related and Supporting Industries
Presence of related and supporting industry of international standard also contributes to a

nations competitive advantage.
Firm Strategy, structure and rivalry
Different countries follow different management ideologies, and this ideology plays an important
role in determining their competitive advantage. In case of most of the German companies,
engineers occupy the top management positions, as the focus is on manufacturing process and
product design.
Further, apart from the ideology being followed by a company, presence of rivals in the home
market also makes an industry more competitive as it creates pressure to innovate, improve
quality and to reduce cost.
CHAP 4. STRATEGIES FOR GOING GLOBAL
The choice of which market to enter is driven by an assessment of long term growth and profit
potential. The choice of mode of entry can be exporting, licensing, franchising, establishing joint
ventures, setting a wholly owned subsidiary, or acquiring an established firm in the host market.
Naturally each entry mode has its own advantages and disadvantages. Various factors which can
bring advantages or disadvantages to a firm can be transport costs, political risk, trade barriers,
economic risk, and firms strategy. The optimal entry mode depends on these factors and varies
by the situation. Thus whereas some firms may work best by setting up a wholly owned
subsidiary, others work best by acquiring an established enterprise.
In this chapter we will also focus on strategic alliances. Strategic alliances are cooperative
arrangements between actual and potential competitors. It means a variety of arrangements like
cross share holding deals, licensing arrangements, formal joint ventures, and informal
cooperative arrangements.
4.1. Entry decision
Choice of foreign markets
Two major considerations facing managers are which markets to serve and where to locate the
production to serve that market.
Because each company has unique competitive capabilities and objectives, the factors affecting
geographic expansion pattern is different from others. Most companies take into consideration,
environmental climate like relative size of the country market, the ease of operating, the
availability and cost of various resources, the relative risk and uncertainties related to a particular
market, the purchasing power of consumers, and the likely wealth of the consumers in the future.
Companies collect information about various countries through scanning process. Scanning
techniques help managers in considering alternatives that might otherwise be overlooked. They
also help limit the final detailed feasibility studies to a manageable number of those that appear
most promising. The ranking of countries is done to determine the order of entry into potential
markets and for setting the allocation of resources and the rate of expansion to different markets.
Companies frequently use several tools for comparing opportunities in various countries like
grids and matrices. Grids that rate country projects according to separate dimensions and
matrices on which companies may plot one attribute on a vertical axis and another on horizontal
axis.
Companies must develop location strategies for new investments and devise means of
deemphasizing certain areas and divesting if necessary.
Timing of entry
Once attractive markets have been identified, it is important to consider the time of entry. Entry
may be early when an international business enters a foreign market before other foreign firms
and late when it enters after other international firms have already established and developed
their business.
Scale of entry
The entry can be a large scale or a small scale entry. Entering a foreign market on a large scale
implies rapid entry. The large scale entry gives both distributors and customers reasons to
believe that the company will remain in the market for a long time. On the other hand small scale
entry allows a firm to learn about the foreign market while limiting the firms exposure to the
market.
4.2 Entry modes
Firms can use various entry modes to enter the foreign market: exporting, turnkey projects,
licensing, franchising, joint ventures, and setting up a wholly owned subsidiary in the host
country.
Exporting
Many manufacturing firms begin their global expansion as exporters and then may switch to
another mode for doing business in a foreign market.
Advantages:
Avoidance of substantial costs of establishing manufacturing operations in the host country.

It helps a firm achieve experience curve and location economics.
Disadvantages:
Exporting may not be appropriate if there are low cost locations for the production abroad.
High transportation costs can make exports uneconomical.
Tariff barriers also can make exports non lucrative.
Problems may arise due to the delegation of marketing activities to a local agent.
Turnkey Projects
In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client
including training. The contractor handovers the key of the plant to the foreign client to simply
turnkey and start operation.
Advantages
Best suitable for technologically complex projects.

Good strategy when FDI is limited by the host government.
This is useful in case of unstable political or economic environment in the host country.
Disadvantages
The contractor firm has no long term interest in the host country.
The company may create its own competitor in a foreign land.
If technology is the competitive advantage, then this advantage is lost.
Licensing
It is an arrangement in which a licensor grants the rights to intangible property to another entity
for a particular period, and the licensee in return, pays royalty fee. Intangible property includes
formulas, inventions, patents, processes, copyrights, designs, trademarks etc.
Advantages
The firm does not have to bear the development cost and risks associated with the foreign
market.
If the firm lacks capital and other resources in developing a foreign market, licensing can be
very useful.
Very useful in economically or politically volatile foreign market.
Useful when participation is restricted by barriers to investments.
If a firm possesses some intellectual property, but does not want to involve in the business
directly, then licensing can be very useful.
Disadvantages
The firm cannot have a tight control over manufacturing or marketing activities.
The firm cannot make a competitive move in other country by using the money generated in
a country, except the royalty money.
The firm loses its competitive advantage of technical knowhow.
Franchising
It is a kind of licensing in which the franchiser gives the intangible property on conditions that
the franchisee abides by the rules as to how it does business. Assistance to run the business on an
ongoing basis is given. Loyalty is paid in form of some percentage of the revenues generated by
the franchisee.
Advantages
market.
very useful.
Disadvantage:
Managing quality control is difficult.
Joint ventures
A joint venture entails establishing a firm that is jointly owned by two or more otherwise
independent firms.
Advantages:
A firm can take advantage from the knowledge and experience of local partner about host
countrys culture, politics, languages, social system etc.
When costs and risks in operating in a foreign market are high, a firm can share them with
the local partner.
Political opposition can be minimized by having a local joint venture partner.
Disadvantages:
Risk of losing control over technology.

Tight control over subsidiaries is difficult.
Shared ownership can lead to conflicts among the partners.
Wholly Owned Subsidiaries

The firm owns 100% of the stocks in a subsidiary located in a foreign land. It can be done in two
ways
a) Green Field Venture- The firm starts an entirely new operation.

b) Can acquire an established firm in the host country.
Advantages:
Technological competence remains intact.

Better global strategic control and coordination.
Helps in realizing location and experience curve economies.
Disadvantages:
Very costly method.

Adapting with a new culture may be difficult.
4.3. Entry mode selection
The optimal choice of entry mode for firms pursuing a multinational strategy depends to some
degree on the nature of their core competency. If a firms competitive advantage (its core
competence) is based upon control over proprietary technological know-how, licensing and joint
venture arrangements should be avoided if possible in order to minimize the risk of losing
control over that technology, unless the arrangement can be structured in a way where these risks
can be reduced significantly. When a firm perceives its technological advantage as being only
transitory, or the firm may be able to establish its technology as the dominant design in the
industry, then licensing may be appropriate even if it does involve the loss of know-how. By
licensing its technology to competitors, a firm may also deter them from developing their own,
possibly superior, technology. The competitive advantage of many service firms is based upon
management know-how. For such firms, the risk of losing control over their management skills
to franchisees or joint venture partners is not that great, and the benefits from getting greater use
of their brand names can be significant.
CHAP 5. ORGANIZATION OF INTERNATIONAL BUSINESS
The theme of this chapter is that in order to succeed an international business must have the
appropriate formal and informal organizational structure and control mechanisms.
This term refers to the totality of firms organization including the formal organization structure,
control systems and incentives, organizational culture, process and people.
What is appropriate depends upon the strategy of the firm, which is inter-related with the
demands of the industry environment.
Organization Structure
The organization structure means three things: the formal division of the organization into sub
units such as product divisions, national operations and functions. (Organizational charts), the
location of decision making responsibilities within that structure (e.g., centralized or
decentralized etc) and the establishment of integrating mechanisms to coordinate the activities of
sub units including cross functional terms or regional committees.
Control systems
Control systems are the metrics used to measure the performance of sub units and make
judgments about how the managers are running the sub units. Unilever measured the
performance of its subsidiary companies according to profitability. Profitability was the control
systems.
Incentives
Incentives are the devices used to reward the appropriate managerial behavior. Incentives are
very tied to performance metrics. E.g. a bonus for exceeding performance targets.
Process
Process is the manner in which the decisions are made and work is performed within an
organization. Examples are the processes for formulating strategy, for deciding how to allocate
the resources within the firm, or for evaluating the performance of managers and giving
feedback.
Organization culture
Organization culture is the norms and value systems that are shared among the employees of an
organization. Just are societies having distinct patterns of culture and sub couture. The
organizational culture can have a profound impact on how a firm performs.
People
People comprise not just the employees of the organization but also the strategy used to recruit,
compensate and retain those individuals and the types of people that they are in terms of their
skills values and orientation.
5.2. Structure
Vertical differentiation
This is principally about the centralization and decentralization of decision-making

responsibilities. It is concerned with identifying where in a hierarchy decision making power
should be concentrated.
There are four main arguments for centralization:
(1) Facilitating coordination
(2) Ensuring consistency between decisions and organizational objectives
(3) Providing top managers the means to push through major changes, and
(4) Avoiding duplication of activities.
There are five main arguments for decentralization:
(1) Overburdened and hence poor decision-making at the top of the organization,
(2) Increased motivation at lower levels
(3) Greater flexibility
(4) Better decisions on the spot by the people directly involved, and
(5) Increased accountability and control.
The choice between centralization and decentralization is not an absolute one. Frequently it
makes sense to centralize some decisions and decentralize others depending upon the type of
decision and the strategy of the firm. For firms pursuing a global strategy, there is clearly more
of a need for centralized decision making than for firms pursuing a multidomestic strategy. For
transnational, it is less clear, as some decisions should perhaps be centralized while others are
decentralized.
Horizontal Differentiation
This is concerned with how the firm decides to divide into sub-units. The decision is typically
made upon the basis of functions, business areas, or geographical areas.
i) Functional organization: The firm is organized on the basis of various functions like
Marketing, Finance, Manufacturing and Purchasing as shown in the figure given
below.
ii) Product organization: As firms diversify into multiple product lines, a product
division structure that allows autonomous responsibility in the operating units is
usually chosen as is shown in figure below. As can be seen in the figure for each
product there are separate functional department that is responsible for the marketing,
finance, manufacturing and purchasing activities.
iii) International division (functional): Historically, when many firms began to expand
abroad they typically grouped their international activities into an international
division. This tended to be the case whether the firm was organized on a functional
basis or based on product divisions. No matter whether the domestic structure of the
firm was based primarily upon functions or upon product divisions, the international
division tends to be organized on geographical lines.
iv) International division (product): This structure rarely lasts due to the inherent
potential for conflict and coordination problems between domestic and foreign
operations. Firms then switch to one of two structures -- a worldwide area structure
(undiversified firms) and a worldwide product division structure (diversified firms).
v) Worldwide area structure: A worldwide area structure tends to be favored by firms

that have a low degree of diversification and domestic structure based on functions.
Each area tends to have a self contained largely autonomous entity with its own set of
value creation activities.
Both formal and informal mechanisms can be used to help achieve coordination. The need for
coordination (and hence integrating mechanisms) varies systematically with the strategy of the
firm. It is lowest in multidomestic firms, higher in international firms, higher still in global firms,
and highest of all in transnational firms. Integration is inhibited by a number of impediments to
coordination, particularly different sub-unit orientations. The extent that different sub-units have
different objectives and ways of operating, integration becomes more difficult. Integration can be
achieved through formal integrating mechanisms. Formal integrating mechanisms vary in
complexity from direct contact and simple liaison roles, through teams, to a matrix structure.
However, formal integrating mechanisms can become bureaucratic. To overcome the
bureaucracy associated with formal integrating mechanisms, firms often use informal
mechanisms. These include management networks and organization culture. For a network to
function effectively it must embrace as many managers within the organization as possible.
Information systems and management development policies (including job rotation and
management education programs) can be used to establish firm wide networks. For a network to
function properly, managers in different sub-units must be committed to the same goals. One
way of achieving this is to foster the development of a common organization culture. Leadership
by example, management development programs, and human relations policies are all-important
considerations in building a common culture. Taken together, managerial networks and a
common culture can serve as valuable coordination mechanisms in international firms that can
help overcome the deficiencies of formal mechanisms.
Culture is the integrated sum total of learned behavior traits that are shared by the members of
a society- Hoeble
6.1 Influence of culture on international business
Culture is the way that we do things around here. Culture could relate to a country (national
culture), a distinct section of the community (sub-culture), or an organization (corporate culture).
You are not born with a culture, and that it is learned. So, culture includes all that we have
learned in relation to values and norms, customs and traditions, beliefs and religions and rituals.
International business needs to take into account the local culture of the country in which you
wish to market.
Main propositions about culture
- Culture is learned
- Culture is structured
- It is divided into aspects
- Culture is dynamic
- Culture derives from the biological, environmental, psychological, and historical
components of human existence
- Culture is variable
- Culture exhibits regularities that permits its scientific analysis
Cultural Framework
It uses eight categories in its analysis. The Eight categories are Language, Religion, Values and
Attitudes, Education, Social Organizations, Technology and Material Culture, Law and Politics
and Aesthetics.
i) Language: With language one should consider whether or not the national culture is
predominantly a high context culture or a low context culture (Hall and Hall 1986).
The concept relates to the balance between the verbal and the non-verbal
communication.
In a low context culture spoken language carries the emphasis of the communication i.e. what is
said is what is meant. Examples include Australia and the Netherlands.
In a high context culture verbal communications tend not to carry a direct message i.e. what is
said may not be what is meant. So with a high context culture hidden cultural meaning needs to
be considered, as does body language. Examples of a high context cultures include Japan and
some Arabic nations.
ii) Religion: The nature and complexity of the different religions an international
marketer could encounter is pretty diverse. The organization needs to make sure that
their products and services are not offensive, unlawful or distasteful to the local
nation. This includes marketing promotion and branding.
In China in 2007 (which was the year of the pig) all advertising which included pictures of pigs
was banned. This was to maintain harmony with the country's Muslim population of around 2%.
The ban included pictures of sausages that contained pork, and even advertising that included an
animated (cartoon) pig.
In 2005 France's Catholic Church won a court injunction to ban a clothing advertisement (by
clothing designers Marithe and Francois Girbaud) based upon Leonardo da Vinci's Christ's Last
Supper.
iii) Values and Attitudes: These vary between nations, and even vary within nations. So
if you are planning to take a product or service overseas make sure that you have a
good grasp the locality before you enter the market. This could mean altering
promotional material or subtle branding messages. There may also be an issue when
managing local employees. For example, in France workers tend to take vacations for
the whole of August, whilst in the United States employees may only take a couple of
week's vacation in an entire year.
In 2004, China banned a Nike television commercial showing U.S. basketball star LeBron James
in a battle with animated cartoon kung fu masters and two dragons, because it was argued that
the ad insults Chinese national dignity.
In 2006, Tourism Australian launched its ad campaign entitled "So where the bloody hell are
you?" in Britain. The $130 million (US) campaign was banned by the British Advertising
Standards Authority from the United Kingdom. The campaign featured all the standard icons of
Australia such as beaches, deserts, and coral reefs, as well as traditional symbols like the Opera
House and the Sydney Harbor Bridge. The commentary ran:
"We've poured you a beer and we've had the camels shampooed, we've saved you a spot on the
beach. We've even got the sharks out of the pool,". Then, from a bikini-clad blonde, come the
tag line:
"So where the bloody hell are you?"

v) Education: The level and nature of education in each international market
will vary. This may impact the type of message or even the medium that you
employ. For example, in countries with low literacy levels, advertisers would
avoid communications which depended upon written copy, and would favor
radio advertising with an audio message or visual media such as billboards.
The labeling of products may also be an issue.
vi) Social Organizations: This aspect of cultural framework relates to how a
national society is organized. For example, what is the role of women in a
society? How is the country governed - centralized or devolved? The level
influence of class or casts upon a society needs to be considered. For example,
India has an established caste system - and many Western countries still have
an embedded class system. So social mobility could be restricted where caste
and class systems are in place. Whether or not there are strong trade unions
will impact upon management decisions if you employ local workers.
vi) Technology and Material Culture: Technology is a term that includes many other
elements. It includes questions such as Is there energy to power our products? Is
there a transport infrastructure to distribute our goods to consumers? Does the local
port have large enough cranes to offload containers from ships? How quickly does
innovation diffuse? Also of key importance, do consumers actually buy material
goods i.e. are they materialistic?
vii) Law and Politics: The underpinning social culture will drive the political and legal
landscape. The political ideology on which the society is based will impact upon your
decision to market there. For example, the United Kingdom has a largely market-
driven, democratic society with laws based upon precedent and legislation, whilst
Iran has a political and legal system based upon the teachings and principles Islam
and a Sharia tradition.
viii) Aesthetics: These relate to your senses, and the appreciation of the artistic nature of
something, including its smell, taste or ambience. For example, is something
beautiful? Does it have a fashionable design? Was an advert delivered in good taste?
Do you find the color, music or architecture relating to an experience pleasing? Is
everything relating to branding aesthetically pleasing?
Individuals and firms must develop cross-cultural literacy. International businesses that are ill
informed about the practices of another culture are unlikely to succeed in that culture. One
way to develop cross-cultural literacy is to regularly rotate and transfer people
internationally.
Dressing habits, living styles, eating habits and other consumption patterns, priority of needs
are dictated/influenced by culture. Some Thai and Chinese and most of the Indians do not
consume beef. Thailand Chinese believe that consumption of beef is improper and Indians
(particularly Hindus) believe that eating beef is a sin as they believe cow is sacred. The
eating habits vary widely. Chinese cat fish stomachs, and birds nest soup, Japanese eat
uncooked sea food, Iraqis eat dried, salted locusts and snakes while drinking. The French eat
snails, Americans and Europeans eat mostly nonvegetarian food. Indians eat mostly
vegetarian food. It was surprising to the rest of the world to know that there were pure
vegetarians
in India. Similarly, dressing habits also vary from country to country based on their culture.
We observe different dress styles of West, Middle East, India, and Pacific etc. Wearing
saree by Indian women is a peculiar dressing habit, which is influenced by the culture.
Similarly, wearing burka/ parcia by the women of Middle East is another example for the
influence of culture on the dressing.
6.2. Economic Environment and its implications on international business
There are four broad types of economic systems: market, command, mixed, and state-directed
.In reality almost all are mixed to some extent, for even the most market oriented systems have
some governmental controls on business and even the most command based systems either
explicitly allow some free markets to exist or have black markets for some goods and services.
Yet, all countries can be considered to be at some point on a continuum between pure market and
pure command.
Market economy
In a pure market economy, the goods and services that a country produces, as well as the
quantity in which they are produced, is not planned by anyone. Rather price and quantity are
determined by supply and demand.
Command economy
In a pure command economy, the government plans what goods and services a country produces,
the quantity in which they are produced, and the price at which they are sold.
Mixed economy
A mixed economy includes some elements of each. In Canada, for example, while most business
is privately owned and operated under market principles, health care, electrical power, and liquor
distribution are run by state owned enterprises in most provinces.
State-directed economy
In a state-directed economy, the government plays a significant role in directing the investment
activities of private enterprises through industrial policy. Both Japan and South Korea are
often cited as examples of state-directed economies.
Political system refers to the system of Government in a nation. The economic and legal systems
of the country are often shaped by its political system. There are two separate polarities to
consider when discussing political systems: collectivism vs. individualism and democracy vs.
totalitarianism.
Democratic or totalitarian
These two dimensions are interrelated, systems that emphasize collectivism tend to be
totalitarian while, systems, that pace a high value on individualism tend to be democratic.
Collectivism vs. individualism
Collectivism
This is a political system that stresses the primacy of collective goals over individual goals.
The system, which advocates Collectivism, is called socialism and these activists are called
socialists.
Socialism
Socialism roots from the intellectual lessons from Karl Marx (1818-1883). Marxs basic
argument is that in a capitalist society where individual freedom is not restricted, the few benefit
at the expense of many. Marx advocated state ownership of the basic means of production,
distribution and exchange (business). His point is that if the state owned the means of
production, the states could ensure that the workers were fully compensated for their labor.
Individualism
This is the opposite of collectivism.
Individualism refers to a philosophy that an individual should have the freedom in his or her
economic and political pursuits.
Individualism focuses on (1) guaranteeing individual freedom and self-expression, and (2) letting
people pursue their own economic self-interest in order to achieve the best overall good for
society.
Democracy Vs. totalitarianism
Democracy
Democracy refers to apolitical system in which the government is by the people, exercised either
directly or through elected representatives.
Totalitarianism
Totalitarianism is a form of Government in which one person or political party exercises absolute
control over all spheres of human life, and opposing political parties are prohibited.
There are four major forms of totalitarianism: communist, theocratic, tribal, right wing (often
military).
Bibliography
Bhalla V. K. & Ramu Shiva S. (2005). International Business, Environment and Management.
Anmol Publications Pvt. Ltd.
Hill Charles W L & Jain Arun K. (2005). International Business, Tata McGrawHill Publishing
Company Ltd.
Robert D. Hirsich (2014). International Entrepreneurship - Starting, Developing, and Managing a

Global
Porter M. E. (1990) The competitive advantage of nations. Harvard: Free Press
Thakur Manab, Burton Gene E. & Srivastava B. N. (2002), International Management Concepts
& Cases, Tata McGraw Hills Publishing Co. Ltd.
UNIVERSITY OF TOURISM, TECHNOLOGY AND BUSINESS STUDIES (UTB)

MODULE TITLE: GLOBAL ENTREPRENEURSHIP IN EMERGING MARKETS
MODULE CODE: ENT 3314
By Lecturer: KABERA CALLIXTE, PhD
1. Introduction
This business and management course takes an inter-disciplinary approach to understanding and
solving complex social problems. You will learn about prior attempts to address these problems,
identify points of opportunity for smart entrepreneurial efforts, and propose and develop your
own creative solutions.
The focus of this course is on individual agencywhat can you do to address a defined problem?
While we will use the lens of health to explore entrepreneurial opportunities, you will learn how
both problems and solutions are inevitably of a multi-disciplinary nature, and we will draw on a
range of sectors and fields of study.
What you'll learn:
An awareness of the opportunities and barriers for entrepreneurship in fast-growing

emerging markets
An understanding of a conceptual framework for evaluating such opportunities
An appreciation of the types of problems that lend themselves to entrepreneurial solutions
2. Course objectives
Students will explore entrepreneurship in a global setting. Topics to be explored, include

introduction to international entrepreneurship, globalization and the international environment,
culture and international entrepreneurship, selecting international business opportunities,
international legal concerns, alternative entry strategies, global marketing and research and
development, and implementing and managing a global entrepreneurial strategy, to mention but a
few.
Knowledge and Understanding
Having successfully completed the module; students should be able to demonstrate:

xii. Systematic understanding of the importance of entrepreneurship in a global setting.
xiii. Describe the opportunities and barriers to international trade.
xiv. Identify the impact of culture on international entrepreneurship
Cognitive/Intellectual skills/Application of Knowledge
xv. Use a range of methods and skills to Develop a global business plan
xvi. Analyze international business opportunities and determine the readiness of a business
organization to enter global markets
Communication/ICT/Numeracy/Analytic Techniques/Practical Skills
xvii. Communicate in a variety of forms and to a variety of audiences using structured and
coherent arguments in auditing
xviii. Be able to use a range of IT skills to search and network globally
General transferable skills
Having successfully completed the module, student should be able to:
xix. Work under little or no supervision as well as with others to achieve defined objectives in
global entrepreneurship setting;
xx. Take a leadership role in group work in the field of global entrepreneurship;
xxi. Create an international marketing strategy which includes a role for research and
development;
xxii. Identify best practices for implementing and managing a global entrepreneurial strategy.
3. Module structure
The module will include lectures, discussions and class exercises. It will further focus on
presentation by students in teams, and where feasible individually.
Students are expected to work in teams, that is, 10 participants maximum in a team should
produce more than the sum of two individual contributions. Teams should be as diversified as
possible, in terms of academic interests, experience and backgrounds. Students should take turns
in making presentations so that all can obtain credit for class participation.
2. Module outline
CHAPTER I. INTRODUCTION TO GLOBAL ENTREPRENEURSHIP

CHAPTER II. GLOBALISATION AND TRENDS IN MANAGEMENT SYSTEM

2.2. Components of Globalization
2.3. Drivers of Globalization
2.4. Globalization: Good or Bad for global economy
2.5. Managing in Global Marketplace

1.1. Mercantilism
1.2.Theory of Absolute Advantage
1.3.Theory of Comparative Advantage
1.4.The Product Life-Cycle Theory
1.5. Huckster-Ohlin Theory
1.7. Theory of National Competitive Advantage
CHAPTER 4. STRATEGIES FOR GOING GLOBAL
4.1. Entry Decision
4.2. Entry Modes
4.3. Entry Mode Selection
CHAPTER 5. ORGANIZATION OF INTERNATIONAL BUSINESS
5.2. Structure
6.1. Influence of culture on international business
6.2. Economic environment and its implications on international business
4. Schedule of teaching and assessment patterns
Delivery: 42 hours (In 2 consecutive weeks)

Mode of Assessment
Course Work (CW)
Group Assignment (Writing) :8%
Individual Assignment (class presentation): 12%
CAT 1 : 20%
CAT 2 : 20%
Total 60%
Final Exam :40%
NOTE: The lecturer reserves the right to alter the modality of assessment. However, students
will be notified on the changes.
CHAPTER 1. INTRODUCTION TO GLOBAL ENTREPRENEURSHIP
We are living in a world where all the major business functions in the value chain are highly
globalized and deeply integrated. According to McKinsey and Company, 80 percent of the
worlds GDP will be sold across international borders by 2027, compared to about 20 percent in
2001. Multinational business activity will grow from approximately $5 trillion to $70 trillion by
2027.
To understand how this is happening consider your desktop computer. It might have been
assembled in Mexico with Chinese components; it uses chips designed in the United States,
manufactured in Malaysia, and preinstalled with software applications that were jointly
developed in India and Ireland. According to a United Nations World Investment Report, there
are about 40,000 multinational corporations in the world with nearly 300,000 foreign affiliates. A
global business is a multinational venture incorporated in one country that has operations in one
or more other countries.
To gain a better understanding of what international entrepreneurship is about it is important to

clarify the two notions of which it is composed: international and entrepreneurship.
Entrepreneurship
There is no universally accepted definition of entrepreneurship. There seems to be agreement

however that entrepreneurship involves the creation of something new. Some authors have
argued that entrepreneurship is in essence about the creation of new organizations. The
definition of entrepreneurship as the creation of new economic activity includes new venture
creation activity, but also new economic activity of established firms. New economic activity
that constitutes entrepreneurship may involve the conversion of a new idea into a successful
innovation. The creation of new economic activity is not only associated with innovation, but
also with other entrepreneurial features such as risk-taking and proactiveness.
International: across national borders
The notion across national borders in the definition of international entrepreneurship refers to
either cross-country comparisons or organizational behavior across borders, i.e. cross-border
entrepreneurship. There is no single universally accepted definition of internationalization.
Internationalization is difficult to define since it encompasses various aspects. First,

internationalization may involve various modes or activities. While research on
internationalization of SMEs and new ventures tends to focus primarily on exports,
internationalization may involve various other modes or activities. These may include other
outward modes than (direct) exports, such as indirect export (i.e. export through intermediaries
such as agents or distributors), foreign production and joint ventures abroad, inward modes, such
as indirect imports (i.e. imports through intermediaries such as agents or distributors) and direct
imports, and linked modes such as licensing agreements and international strategic alliances.
Second, internationalization is often viewed as a process-based activity that is dynamic and
evolutionary.
International entrepreneurship emerged as a separate field of research in the past two decades
and began with an interest in cross-border entrepreneurship, in particular in internationalizing
new ventures (McDougall, 1989), but also includes SME internationalization (Lu and Beamish,
2001). In addition to cross-border entrepreneurship international entrepreneurship also includes
the study of entrepreneurship in multiple countries.
International entrepreneurship is an interdisciplinary field that draws upon the theoretical

foundations of international business and entrepreneurship. International business research,
which focuses upon the internationalization of the firm, used to be dominated by research on
large multinational enterprises, but now also pays substantial attention to SME and new venture
internationalization. The field of international entrepreneurship has been studied from various
disciplines including economics, psychology and sociology and business sub-disciplines such as
marketing, finance and strategic management.
All entrepreneurs must be able to identify opportunities, gather resources, and strike deals. They
all must also possess soft skills like vision, leadership, and passion. To win globally, though,
they must possess the following competencies.
Articulating a global purpose
Developing a crystal clear rationale for being global is critical. In 1999, for example, Robert
Wessman took control of a small pharmaceuticals maker in his native Iceland. Within weeks, he
concluded that the generics player had to globalize its core functionsmanufacturing, R&D, and
marketingto gain economies of scale, develop a large product portfolio, and be first to market
with drugs as they came off patent. Since then, Actavis has entered 40 countries, often by taking
over local companies. Wessman faced numerous hurdles, but he stuck to the strategy. Actavis
now makes 650 products and has 350 more in the pipeline. In 2007, it generated revenues of $2
billion and had become one of the worlds top five generics manufacturers.
Alliance building
Start-ups can quickly attain global reach by striking partnerships with large companies
headquartered in other countries. However, most entrepreneurs have to enter into such deals
from positions of weakness. An established company has managers who can conduct due
diligence, the money to fly teams over for meetings, and the power to extract favorable terms
from would-be partners. It has a reasonable period within which to negotiate a deal, and it has
options in case talks with one company fail. A start-up has few of those resources or bargaining
chips.
Supply-chain creation
Entrepreneurs must often choose suppliers on the other side of the world and monitor them
without having managers nearby. Besides, the best manufacturing locations change as labor and
fuel costs rise and as quality problems show up, as they did in China.
Start-ups find it daunting to manage complex supply networks, but they gain competitive
advantage by doing so. Sometimes the global supply chain lies at the heart of the business
opportunity. Take the case of Winery Exchange, cofounded by Peter Byck in 1999. The
California-based venture manages a 22-country network of wineries and breweries. Winery
Exchange works closely with retail chains, such as Kroger, Tesco, and Costco, to develop
premium private label products, and it gets its suppliers to produce and package the wines as
inexpensively as possible. The venture has succeeded because it links relatively small market-
needy suppliers with mammoth product-hungry retailers and provides both with its product
development expertise. In 2006, Winery Exchange sold 2 million cases of 330 different brands of
wine, beer, and spirits to retailers on four continents.
Multinational organization
In 2006, a simulation exercise called the Virtual Entrepreneurial Team Exercise (VETE) was
conducted for 450 MBA students in 10 business schools in Argentina, Austria, Brazil, England,
Hong Kong, Liechtenstein, the Netherlands, Japan, and the United States. The teams, each
composed of students from different schools and different countries, developed hypothetical
pitches for Asia Renal Care, a Hong Kongbased medical services start-up that had raised its
first round of capital in 1999. They experienced a slice of global entrepreneurial life in real time,
using technologies like Skype, wikis, virtual chat rooms, and, of course, e-mail to communicate
with one another. The students learned how to build trust, compensate for the lack of visual cues,
respect cultural differences, and deal with different institutional frameworks and incentivesthe
competencies entrepreneurs need for coordination, control, and communication in global
enterprises. The would-be entrepreneurs emotions ranged from elation to frustration, and their
output varied from good to excellent.
Start-ups cope with the challenges of managing a global organization in different ways. Internet
Securities used a knowledge database to share information among its offices around the world,
increasing managers ability to recognize and solve problems. RacingThePlanet used intensive
training to ensure that volunteers perform at a consistently high level during the events it holds.
Trolltech worked round the clock to meet deadlines, passing off development tasks from teams
in Norway to those in Australia as the day ends in one place and begins in the other. Inverness
Medical hired key executives wherever it could and organized the company around them rather
than move people all over the world.
Entrepreneurs shouldnt fear the fact that the world isnt flat. Being global may not be a pursuit
for the fainthearted, but even start-ups can thrive by using distance to gain competitive
advantage.
Research shows that global entrepreneurs face three distinct challenges.
Distance
New ventures usually lack the infrastructure to cope with dispersed operations and faraway
markets. Moreover, physical distances create time differences, which can be remarkably tough to
navigate. Even dealing with various countries workweeks takes a toll on a start-ups limited
staff: In North America, Europe, China, and India, corporate offices generally operate Monday
through Friday. In Israel, theyre open Sunday through Thursday. In Saudi Arabia and the UAE,
the workweek runs Saturday through Wednesday, but in other predominantly Muslim countries
like Lebanon, Morocco, and Turkey, people work from Monday through Friday or Saturday.
A greater challenge for global entrepreneurs is bridging what the British economist Wilfred
Beckerman called in 1956 psychic distance. This arises from such factors as culture, language,
education systems, political systems, religion, and economic development levels. It can
heightenor reducepsychological barriers between regions and often prompt entrepreneurs to
make counterintuitive choices. Take the case of Encantos de Puerto Rico, set up in 1998 to
manufacture and market premium Puerto Rican coffee. When founder-CEO Angel Santiago
sought new markets in 2002, he didnt enter the nearby U.S. market but chose Spain instead.
Thats because, he felt, Puerto Ricans and Spaniards have similar tastes in coffee and because of
the ease of doing business in Spanish, which reduced the psychic distance between the two
countries. When two years later, Encantos de Puerto Rico did enter the United States, it focused
initially on Miami, which has a large Hispanic population.
Context
Nations political, regulatory, judicial, tax, environmental, and labor systems vary. The choices
entrepreneurs make about, say, where to locate their companies headquarters will affect
shareholder returns and also their ability to raise capital. When the husband-and-wife team of
Andrew Prihodko, a Ukrainian studying at MIT, and Sharon Peyer, a Swiss-American citizen
studying at Harvard, set up an online photo management company, they thought hard about
where to domicile Pixamo. Should they incorporate it in Ukraine, which has a simple and low tax
structure but a problematic legal history? Or Switzerland, where taxes are higher but the legal
system is well established? Or Delaware, where taxes are higher still but most U.S. start-ups are
domiciled? Prihodko and Peyer eventually chose to base the company in the relatively tax-
friendly Swiss canton of Zug, a decision that helped shareholders when they sold Pixamo to
NameMedia in 2007.
Some global entrepreneurs must deal with several countries simultaneously, which is complex.
In 1994, Gary Mueller launched Internet Securities to provide investors with data on emerging
markets. Three years later, the start-up had offices in 18 countries and had to cope with the
jurisdictions of Brazil, China, and Russia on any given day. By learning to do so, Internet
Securities became a market leader, and in 1999, Euromoney acquired 80% of the companys
equity for the tidy sum of $43 million.
Resources
Customers expect start-ups to possess the skills and deliver the levels of quality that larger
companies do. Thats a tall order for resource-stretched new ventures. Still, they have no option
but to do whatever it takes to retain customers. In 1987, Jim Sharpe acquired a small business,
XTech, now a manufacturer of faceplates for telecommunications equipment. Initially, the
company made its products in the United States and sold them overseas through sales
representatives and distributors. However, by 2006, Cisco, Lucent, Intel, IBM, and other XTech
customers had shifted mostof their manufacturing to China. They became reluctant to do
business with suppliers that didnt make products or have customer service operations in China.
So Sharpe had no choice but to set up a subsidiary in China at that stage.
There are many benefits for entrepreneurs participating in global business activities. We group
them in three categories: strategic, financial, and production related.
Examples of strategic benefits are:
enhancing domestic competitiveness;

reduction of dependence on existing markets;
capitalizing on the growth potential of the new country market and neighboring countries;
stretching and building marketing capability;
global brand building and awareness;
finding new talent;
transferring competitive information and new product ideas from those markets to other
markets, or what we call learning local and share global activities;
Examples of financial benefits include:
finding new customers;

increasing profits and sales;
earning a greater return from set of core competencies;
increasing the universe of potential investors;
capitalizing on tax advantages;
minimizing impact of seasonalities in local markets
Production-related benefits include:
guaranteeing supply of raw materials;

acquiring technology and R&D capabilities;
cutting costs through global outsourcing;
improving purchasing power for customers buying locally;
realizing greater experience curve economies in production;
extending lifecycle for current products or services;
selling excess production capacity;
CHAPTER 2. GLOBALISATION AND TRENDS IN MANAGEMENT SYSTEM

Globalization is a process of interdependence and integration of world economies, driven by
international trade and investment and aided by information technology.
The definition of globalization will become clearer with the following example:
In a local supermarket the consumers buy toys manufactured in Chile or tomatoes grown in
Mexico, apparels made in India, Mobile Phones designed in Finland, assembled in Korea,
Footwear designed in USA and made in Indonesia or China. The personal computer at the
delivery counter has been imported from India. Person at the sales counter is wearing a shirt that
bears a tag from China, Indonesia or El Salvador and so on.
The example clearly indicates that production and marketing activities are no longer confined
within the boundary of a nation. In fact, entire production and marketing activities for a
particular product utilizes resources available in different countries of the world. If we take
example of clothes that we wear, the cotton for the shirt might have been sourced from China,
processing of raw cotton could have been done in Indonesia, fabric was made in Malaysia, the
shirt was stitched in India as per the designs provided by US designer and finally shirt was sold
by the British Salesman in Retail store owned by a US multinational.
2.6. Components of globalization
Thus, it is clear from the above example that globalization has two facets viz. Globalization of
Markets and Globalization of Production (Fig 1).
Globalization of Markets
It refers to merging of different national markets into one global marketplace. It is possible due
to reduced trade barriers and development is technology. But to sell the product in different
markets companies have to decide whether they should sell the standard product in all the market
or they should adapt the product in different counties according to local taste and preferences.
The final decision between standardization and adaptation is based on individual market
conditions and the preferences of the consumer which is primarily determined by culture, social
conditions, and economic conditions etc. of a country.
Globalization of production
Companies source goods and services from different countries of the world to take advantage of
low cost of various factors of production like land, labor and capital.
The trend is referred as

globalization of production due to
Globalization of Globalization
which the companies are now
Markets of Production
able to bring down their cost of
production and are able to offer Components
the
product at a more competitive of
Globalization
price in the international
market.
Fig 1 Components of Globalization
2.7. Drivers of globalization
This current wave of globalization has been driven by lot of factors, the most important being the
policies that have opened economies domestically and internationally. Some of the factors
behind globalization (Fig 2) are highlighted below:
Liberalization
One of the most important factors behind globalization is opening up of the world economy.
With international organizations like WTO promoting free and fair trade most of the member
countries have made their foreign trade policy more liberal and open. Lowering of trade barriers,
removal of non tariff barriers like
Global
Quota etc. and liberal norms for FII Liberal Consumer and
Institutions
Policies needs
FDIs have fostered globalization to a large
extent.
Drivers of
Strategic
Globalization
Technology Vision
Technological change
Another very important factor
behind globalization is technology. Growth On
Competition
one hand technology has enabled firms
Fig 2: Major Drivers of Globalization
to achieve economies of scale,
increase productivity, achieve break even and on the other hand technology has also
revolutionised the communication and transportation system which are backbone of international
trade. Micro processor, internet, mobile phone, wireless technologies and similar other technical
advancement have contributed enormously to the emergence of global village. Technical
advancement in the transportation like containerization and refrigeration has also made
international trade easier and faster. Advancement in the case of air and sea cargo transport has
made transportation of goods cheaper and faster.
Increased competition in the domestic market

Competition in the domestic market forces companies to explore new market. It also compels an
organization to explore new production centers in the global market which can help them in
reducing their production cost so that their product is more competitive in the international
market.
Profit advantage/ Growth opportunities / increase market share

Companies also go global to increase their market share, profit and also to look for more avenues
for growth.
Increasing consumer needs

World is a global village and with internet, consumers are aware about different products being
sold in the international market. If a product is launched in USA, consumers in different part of
the world are aware about the product. Demand by these consumers force the organization to
indulge in international trade. Further, the consumers now have more disposable income
therefore their demand is also increasing day by day.
Strategic vision of the organization

One of the very important factors behind globalization is the willingness of the management to
make their organization a leading player in the global market.
Emergence of global institutions

Global Institutions like WTO, World Bank and IMF have also played an important role in the
globalization process.
ii) World Trade Organization

WTO is responsible for ensuring free and fair trade between the member countries. Any country
that is a member of WTO has to ensure that its international trade is governed by the provisions
in General Agreement on Tariff and Trade (GATT) and General Agreement on trade in services
(GATS). WTO also has an effective dispute settlement mechanism to resolve trade dispute
between member countries.
iii) World Bank and International Monetary Fund

Both these organizations were created in 1944 during at Bretton Woods, New Hampshire. The
main aim of World Bank is to ensure economic development whereas International Monetary
Fund is responsible for ensure the stability of the international monetary system for sustainable
economic growth.
iv) United Nations

United Nations was created on 24th October 1945 with the main objective for ensuring
international peace and security through international cooperation.
2.8. Globalization: good or bad for global economy
Globalization in itself is a very controversial topic. Different set of people have different view
about globalizations, one group strongly favors globalizations and emphasize that global
economic development will not be possible without globalization. While on the other hand there
is a different set of people who believe that because of opening up of the economies, MNCs are
exploiting the resources of the poor countries.
Globalization debate-Pro
Proponents of globalization argue that
it allows poor countries and their citizens to develop economically and raise their
standards of living;
leads to employment generation;
lowers down the price of goods;
helps companies to focus on their core competencies.
Globalization debate-Con
Opponents of globalization claim that
creation of a free international free market has benefited multinational corporations
in the Western world;
destroys manufacturing job in developed countries;
MNCs shift to countries having liberal environmental and labor regulations.
2.9. Managing in global marketplace

Companies now have a huge global market from where they can source their products and
further sell it in different countries. Managing business is thus a challenge in this huge market
place. Companies can successfully manage their operations in the global market place if they
have:
Proper understanding of business environment in different countries and also have a

proper knowledge of managing these differences.
Efficient system to control the production and marketing activities in vast
marketplace.
Thorough knowledge of trading and investment environment of different
marketplaces.
Good knowledge of the currency market i.e. how to manage currency fluctuations.

It is a fact that international trade is beneficial for overall economic development of a country.
Economists have given numerous theories to explain why countries should engage in
international trade for their economic growth. This chapter will examine all the trade theories
starting from Mercantilism to Michael Porters National Competitive advantage theory.
3.1 Mercantilism
This theory was propagated in the mid 16th century in England. According to this theory, a
countrys wealth is measured by its holding of treasure, usually gold. During that time gold was
the currency of trade between nations, therefore to increase its wealth; a country should
encourage export and restrict import, thereby resulting in an increase of its gold reserves and also
its national wealth. The drawback of this theory is that it viewed trade as a zero sum game i.e.
one countrys gain results in another countrys loss. Which is not true as international trade is a
positive sum game as demonstrated by Adam Smith and David Ricardo in their theory of
Absolute and Comparative Advantage.
3.2 Theory of Absolute Advantage
Theory of Absolute Advantage was proposed in 1776 by Adam Smith in his book Wealth of
Nations. According to this theory countries should specialize in producing goods which they
can produce more efficiently and then trade these for goods produced by other countries.
Consider the example of trade between Brazil and South Korea. Assume that Brazil and South
Korea have same amount of resources, i.e. 200 units, which can be used to produce either rice or
coffee beans. Further, Brazil requires 10 units of resources to produce one ton of coffee beans
and 20 units of resources to produce one ton of rice. On the other hand, South Korea requires 40
units of resources to produce one ton of coffee beans and 10 units of resources to produce one
ton of rice. Different combinations of rice and Coffee Beans that both Brazil and South Korea
can produce are given in Table 1. As evident from the table, Brazil has an absolute advantage in
producing Coffee beans while South Korea is more efficient in producing rice. If South Korea
and Brazil do not trade with each other then Brazil will produce and consume 10 tons of Coffee
beans and 5 tons of rice, whereas, South Korea will produce and consume 2.5 tons of coffee
beans and 5 tons of rice. The total production of these two countries without trade is 12.5 tons of
coffee beans and 15 tons of rice. On the other hand if they produce the commodity in which they
are more efficient, i.e. Brazil utilize all its resources in producing Coffee beans and South Korea
devote all the 200 units of resources in producing rice, then the total production is 20 tons each
of coffee beans and rice. Now if Brazil exports 6 tons of coffee beans to South Korea and import
6 tons of rice from South Korea than Brazil will have 14 tons of coffee beans and 6 tons to rice
for consumption and South Korea will have 6 tons of coffee beans and 14 tons of rice to
consume. After specializing in production and trading Brazil had additional 4 tons of coffee
beans and 1 ton of rice for itself and South Korea has additional 3.5 tons of coffee beans and 4
tons of rice. Therefore as a result of specialization and trade production and consumption has
increased thereby resulting in net gains for both Brazil and South Korea.
Table 1: Theory of Absolute advantage
Coffee Beans Rice
Brazil 10 20
South Korea 40 10
for producing Rice and 100 units for producing Coffee Beans)
Coffee Beans Rice
Brazil 10.0 5.0
Total 12.5 15.0
Coffee Beans Rice

Brazil 20.0 0.0
Total 20.0 20.0
Coffee Beans Rice
Brazil 14.0 6.0

above)
Coffee Beans Rice
Brazil 10.0 16.0
South Korea 3.5 4.0

3.3 Theory of Comparative Advantage
David Ricardo gave the Theory of Comparative Advantage in 1817. In his book on Principles of
Political Economy Ricardo proposed that a country should specialize in production and export
of those goods that it produces more efficiently and import goods that it produces less efficiently
from other countries.
Assume that Brazil requires 10 units of resources to produce one ton of coffee beans and 13.33
units of resources to produce one ton of rice. South Korea on the other hand requires 40 units of
resources to produce one ton of coffee beans and 20 units of resources to produce one ton of rice.
Different combinations of coffee beans and rice that both Brazil and South Korea can produce
are given in Table 2 (A).
Table 2: Theory of Comparative advantage
Coffee Beans Rice
Brazil 10 13.33
South Korea 40 20
for producing rice and 100 units for producing coffee beans)
Coffee Beans Rice
Brazil 10.0 7.5
South Korea 2.5 5.0
Total 12.5 12.5

(Ghana devotes 150 units of resources to produce coffee beans and 50 units of
resources to produce rice and in case of South Koreas 200 units are utilized for
producing rice)
Coffee Beans Rice
Brazil 15.0 3.75
Total 15.0 13.75
Coffee Beans Rice
Brazil 11.0 7.75
South Korea 4.0 6.0

above)
Coffee Beans Rice
Brazil 1.0 0.25
South Korea 1.5 1.0
Utilizing 200 units of resources Brazil can produce 10 tons of coffee beans and 7.5 tons of rice
whereas South Korea can produce 2.5 tons of coffee beans and 5 tons of rice (Table 2 B) From
the table it is evident that even though Brazil has absolute advantage in producing both coffee
beans and rice, it has comparative advantage in producing only coffee beans. Now when both the
countries produce those commodities in which they are more efficient, Brazil devote 150 units of
resources to produce coffee beans, in which it has comparative advantage, and 50 units if
resources to produce rice. South Korea devotes all its resources in producing rice (Table 2). Total
production is 15 tons of coffee beans and 13.75 tons of rice.
If Brazil export 4 tons of coffee beans for 4 tons of rice, its consumption of coffee beans and rice
increases by 1.0 and 0.25 tons respectively. South Korea also has additional 1.5 tons of coffee
beans and 1.0 ton of rice to consume. Thus production and consumption increases with
unrestricted trade.
The theories of Absolute Advantage and Comparative Advantage have the following limitations:
Both these theories are based on lots of unrealistic assumptions like:
there are two countries and two commodities and both of them have fixed amount of
resources, which is not true in real world.
there is no transportation cost
Cost of resources is same in both the countries
commodities are swapped on a one to one basis, exchange rate are not considered
3.4. Heckscher-Ohlin Theory
Swedish economists Eli Heckscher (1919) and Bertil Ohlin (1933) argued that countries will
export those goods that are made from factors of production that are locally abundant and import
goods that are made from factors of production that are locally scarce. Factors of production are
the resources available with a country in terms of land, labor and capital.
Heckscher-Ohlin theory explains the fact that china excels in export of goods that are produced
utilizing labor that is available in abundance at a comparatively less cost.
However the theory fails to prove the international trade pattern of US. As US has more capital
as compared to other nations of the world, therefore US should be exporter of capital intensive
goods and importer of labor intensive goods. On the contrary, US exports are less capital
intensive than US imports. This exception to the Heckscher-Ohlin Theory is known as Leontief
paradox.
3.5. The Product Life-Cycle Theory
Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory
in the 1960s. The theory, originating in the field of marketing, stated that a product life cycle has
three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. The
theory assumed that production of the new product will occur completely in the home country of
its innovation. In the 1960s this was a useful theory to explain the manufacturing success of the
United States. US manufacturing was the globally dominant producer in many industries after
World War II.
It has also been used to describe how the personal computer (PC) went through its product cycle.
The PC was a new product in the 1970s and developed into a mature product during the 1980s
and 1990s. Today, the PC is in the standardized product stage, and the majority of manufacturing
and production process is done in low-cost countries in Asia and Mexico.
The product life cycle theory has been less able to explain current trade patterns where
innovation and manufacturing occur around the world. For example, global companies even
conduct research and development in developing markets where highly skilled labor and
facilities are usually cheaper. Even though research and development is typically associated with
the first or new product stage and therefore completed in the home country, these developing or
emerging-market countries, such as India and China, offer both highly skilled labor and new
research facilities at a substantial cost advantage for global firms.
The theory suggests that early in a product's life-cycle all the parts and labor associated with that
product come from the area in which it was invented. After the product becomes adopted and
used in the world markets, production gradually moves away from the point of origin. In some
situations, the product becomes an item that is imported by its original country of invention
3.6 Theory of National Competitive Advantage: Porters Diamond Model
This theory is proposed by Michael Porter in 1990. Porters theory stated that a nations
competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.
His theory focused on explaining why some nations are more competitive in certain industries.
According to the theory, four attributes determine the competitive advantage of a particular
nation. These attributes are:
Factor endowments
Demand conditions
Relating and supporting industries
Firm strategy, structure and rivalry
Porter visualizes these four attributes as constituting a diamond. According to Porter, Chance and
Government are two more variables that influence the diamond.
Factor Endowments
Porters factor endowments are same as that of

Heckscher-Ohlin, but he further categorized the
factor of production as Basic factor
endowments (natural resource, climate,
location and demographics) and advanced
factor endowments (communication
infrastructure, sophisticated and skilled labor,
research and technical knowhow). Advanced
factors play an important role in determining competitive advantage of a nation. He also stressed
that by investing in advance factors a country can overcome its disadvantageous position in basic
factors.
Demand conditions
Nature of demand in home country plays an important role in determining the attributes of the
locally produced goods. If the domestic consumers are demanding and sophisticated they will
create pressure on firms to produce innovative and better quality products.
Related and Supporting Industries
Presence of related and supporting industry of international standard also contributes to a

nations competitive advantage.
Firm Strategy, structure and rivalry
Different countries follow different management ideologies, and this ideology plays an important
role in determining their competitive advantage. In case of most of the German companies,
engineers occupy the top management positions, as the focus is on manufacturing process and
product design.
Further, apart from the ideology being followed by a company, presence of rivals in the home
market also makes an industry more competitive as it creates pressure to innovate, improve
quality and to reduce cost.
CHAP 4. STRATEGIES FOR GOING GLOBAL
The choice of which market to enter is driven by an assessment of long term growth and profit
potential. The choice of mode of entry can be exporting, licensing, franchising, establishing joint
ventures, setting a wholly owned subsidiary, or acquiring an established firm in the host market.
Naturally each entry mode has its own advantages and disadvantages. Various factors which can
bring advantages or disadvantages to a firm can be transport costs, political risk, trade barriers,
economic risk, and firms strategy. The optimal entry mode depends on these factors and varies
by the situation. Thus whereas some firms may work best by setting up a wholly owned
subsidiary, others work best by acquiring an established enterprise.
In this chapter we will also focus on strategic alliances. Strategic alliances are cooperative
arrangements between actual and potential competitors. It means a variety of arrangements like
cross share holding deals, licensing arrangements, formal joint ventures, and informal
cooperative arrangements.
4.1. Entry decision
Choice of foreign markets
Two major considerations facing managers are which markets to serve and where to locate the
production to serve that market.
Because each company has unique competitive capabilities and objectives, the factors affecting
geographic expansion pattern is different from others. Most companies take into consideration,
environmental climate like relative size of the country market, the ease of operating, the
availability and cost of various resources, the relative risk and uncertainties related to a particular
market, the purchasing power of consumers, and the likely wealth of the consumers in the future.
Companies collect information about various countries through scanning process. Scanning
techniques help managers in considering alternatives that might otherwise be overlooked. They
also help limit the final detailed feasibility studies to a manageable number of those that appear
most promising. The ranking of countries is done to determine the order of entry into potential
markets and for setting the allocation of resources and the rate of expansion to different markets.
Companies frequently use several tools for comparing opportunities in various countries like
grids and matrices. Grids that rate country projects according to separate dimensions and
matrices on which companies may plot one attribute on a vertical axis and another on horizontal
axis.
Companies must develop location strategies for new investments and devise means of
deemphasizing certain areas and divesting if necessary.
Timing of entry
Once attractive markets have been identified, it is important to consider the time of entry. Entry
may be early when an international business enters a foreign market before other foreign firms
and late when it enters after other international firms have already established and developed
their business.
Scale of entry
The entry can be a large scale or a small scale entry. Entering a foreign market on a large scale
implies rapid entry. The large scale entry gives both distributors and customers reasons to
believe that the company will remain in the market for a long time. On the other hand small scale
entry allows a firm to learn about the foreign market while limiting the firms exposure to the
market.
4.2 Entry modes
Firms can use various entry modes to enter the foreign market: exporting, turnkey projects,
licensing, franchising, joint ventures, and setting up a wholly owned subsidiary in the host
country.
Exporting
Many manufacturing firms begin their global expansion as exporters and then may switch to
another mode for doing business in a foreign market.
Advantages:
Avoidance of substantial costs of establishing manufacturing operations in the host country.

It helps a firm achieve experience curve and location economics.
Disadvantages:
Exporting may not be appropriate if there are low cost locations for the production abroad.
High transportation costs can make exports uneconomical.
Tariff barriers also can make exports non lucrative.
Problems may arise due to the delegation of marketing activities to a local agent.
Turnkey Projects
In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client
including training. The contractor handovers the key of the plant to the foreign client to simply
turnkey and start operation.
Advantages
Best suitable for technologically complex projects.

Good strategy when FDI is limited by the host government.
This is useful in case of unstable political or economic environment in the host country.
Disadvantages
The contractor firm has no long term interest in the host country.
The company may create its own competitor in a foreign land.
If technology is the competitive advantage, then this advantage is lost.
Licensing
It is an arrangement in which a licensor grants the rights to intangible property to another entity
for a particular period, and the licensee in return, pays royalty fee. Intangible property includes
formulas, inventions, patents, processes, copyrights, designs, trademarks etc.
Advantages
market.
very useful.
Disadvantages
The firm cannot have a tight control over manufacturing or marketing activities.
The firm cannot make a competitive move in other country by using the money generated in
a country, except the royalty money.
The firm loses its competitive advantage of technical knowhow.
Franchising
It is a kind of licensing in which the franchiser gives the intangible property on conditions that
the franchisee abides by the rules as to how it does business. Assistance to run the business on an
ongoing basis is given. Loyalty is paid in form of some percentage of the revenues generated by
the franchisee.
Advantages
market.
very useful.
Disadvantage:
Managing quality control is difficult.
Joint ventures
A joint venture entails establishing a firm that is jointly owned by two or more otherwise
independent firms.
Advantages:
A firm can take advantage from the knowledge and experience of local partner about host
countrys culture, politics, languages, social system etc.
When costs and risks in operating in a foreign market are high, a firm can share them with
the local partner.
Political opposition can be minimized by having a local joint venture partner.
Disadvantages:
Risk of losing control over technology.

Tight control over subsidiaries is difficult.
Shared ownership can lead to conflicts among the partners.
Wholly Owned Subsidiaries

The firm owns 100% of the stocks in a subsidiary located in a foreign land. It can be done in two
ways
c) Green Field Venture- The firm starts an entirely new operation.

d) Can acquire an established firm in the host country.
Advantages:
Technological competence remains intact.

Better global strategic control and coordination.
Helps in realizing location and experience curve economies.
Disadvantages:
Very costly method.

Adapting with a new culture may be difficult.
4.3. Entry mode selection
The optimal choice of entry mode for firms pursuing a multinational strategy depends to some
degree on the nature of their core competency. If a firms competitive advantage (its core
competence) is based upon control over proprietary technological know-how, licensing and joint
venture arrangements should be avoided if possible in order to minimize the risk of losing
control over that technology, unless the arrangement can be structured in a way where these risks
can be reduced significantly. When a firm perceives its technological advantage as being only
transitory, or the firm may be able to establish its technology as the dominant design in the
industry, then licensing may be appropriate even if it does involve the loss of know-how. By
licensing its technology to competitors, a firm may also deter them from developing their own,
possibly superior, technology. The competitive advantage of many service firms is based upon
management know-how. For such firms, the risk of losing control over their management skills
to franchisees or joint venture partners is not that great, and the benefits from getting greater use
of their brand names can be significant.
CHAP 5. ORGANIZATION OF INTERNATIONAL BUSINESS
The theme of this chapter is that in order to succeed an international business must have the
appropriate formal and informal organizational structure and control mechanisms.
This term refers to the totality of firms organization including the formal organization structure,
control systems and incentives, organizational culture, process and people.
What is appropriate depends upon the strategy of the firm, which is inter-related with the
demands of the industry environment.
Organization Structure
The organization structure means three things: the formal division of the organization into sub
units such as product divisions, national operations and functions. (Organizational charts), the
location of decision making responsibilities within that structure (e.g., centralized or
decentralized etc) and the establishment of integrating mechanisms to coordinate the activities of
sub units including cross functional terms or regional committees.
Control systems
Control systems are the metrics used to measure the performance of sub units and make
judgments about how the managers are running the sub units. Unilever measured the
performance of its subsidiary companies according to profitability. Profitability was the control
systems.
Incentives
Incentives are the devices used to reward the appropriate managerial behavior. Incentives are
very tied to performance metrics. E.g. a bonus for exceeding performance targets.
Process
Process is the manner in which the decisions are made and work is performed within an
organization. Examples are the processes for formulating strategy, for deciding how to allocate
the resources within the firm, or for evaluating the performance of managers and giving
feedback.
Organization culture
Organization culture is the norms and value systems that are shared among the employees of an
organization. Just are societies having distinct patterns of culture and sub couture. The
organizational culture can have a profound impact on how a firm performs.
People
People comprise not just the employees of the organization but also the strategy used to recruit,
compensate and retain those individuals and the types of people that they are in terms of their
skills values and orientation.
5.2. Structure
Vertical differentiation
This is principally about the centralization and decentralization of decision-making

responsibilities. It is concerned with identifying where in a hierarchy decision making power
should be concentrated.
There are four main arguments for centralization:
(1) Facilitating coordination
(2) Ensuring consistency between decisions and organizational objectives
(3) Providing top managers the means to push through major changes, and
(4) Avoiding duplication of activities.
There are five main arguments for decentralization:
(1) Overburdened and hence poor decision-making at the top of the organization,
(2) Increased motivation at lower levels
(3) Greater flexibility
(4) Better decisions on the spot by the people directly involved, and
(5) Increased accountability and control.
The choice between centralization and decentralization is not an absolute one. Frequently it
makes sense to centralize some decisions and decentralize others depending upon the type of
decision and the strategy of the firm. For firms pursuing a global strategy, there is clearly more
of a need for centralized decision making than for firms pursuing a multidomestic strategy. For
transnational, it is less clear, as some decisions should perhaps be centralized while others are
decentralized.
Horizontal Differentiation
This is concerned with how the firm decides to divide into sub-units. The decision is typically
made upon the basis of functions, business areas, or geographical areas.
ix) Functional organization: The firm is organized on the basis of various functions like
Marketing, Finance, Manufacturing and Purchasing as shown in the figure given
below.
x) Product organization: As firms diversify into multiple product lines, a product
division structure that allows autonomous responsibility in the operating units is
usually chosen as is shown in figure below. As can be seen in the figure for each
product there are separate functional department that is responsible for the marketing,
finance, manufacturing and purchasing activities.
xi) International division (functional): Historically, when many firms began to expand
abroad they typically grouped their international activities into an international
division. This tended to be the case whether the firm was organized on a functional
basis or based on product divisions. No matter whether the domestic structure of the
firm was based primarily upon functions or upon product divisions, the international
division tends to be organized on geographical lines.
xii) International division (product): This structure rarely lasts due to the inherent
potential for conflict and coordination problems between domestic and foreign
operations. Firms then switch to one of two structures -- a worldwide area structure
(undiversified firms) and a worldwide product division structure (diversified firms).
xiii) Worldwide area structure: A worldwide area structure tends to be favored by firms
that have a low degree of diversification and domestic structure based on functions.
Each area tends to have a self contained largely autonomous entity with its own set of
value creation activities.
Both formal and informal mechanisms can be used to help achieve coordination. The need for
coordination (and hence integrating mechanisms) varies systematically with the strategy of the
firm. It is lowest in multidomestic firms, higher in international firms, higher still in global firms,
and highest of all in transnational firms. Integration is inhibited by a number of impediments to
coordination, particularly different sub-unit orientations. The extent that different sub-units have
different objectives and ways of operating, integration becomes more difficult. Integration can be
achieved through formal integrating mechanisms. Formal integrating mechanisms vary in
complexity from direct contact and simple liaison roles, through teams, to a matrix structure.
However, formal integrating mechanisms can become bureaucratic. To overcome the
bureaucracy associated with formal integrating mechanisms, firms often use informal
mechanisms. These include management networks and organization culture. For a network to
function effectively it must embrace as many managers within the organization as possible.
Information systems and management development policies (including job rotation and
management education programs) can be used to establish firm wide networks. For a network to
function properly, managers in different sub-units must be committed to the same goals. One
way of achieving this is to foster the development of a common organization culture. Leadership
by example, management development programs, and human relations policies are all-important
considerations in building a common culture. Taken together, managerial networks and a
common culture can serve as valuable coordination mechanisms in international firms that can
help overcome the deficiencies of formal mechanisms.
Culture is the integrated sum total of learned behavior traits that are shared by the members of
a society- Hoeble
6.1 Influence of culture on international business
Culture is the way that we do things around here. Culture could relate to a country (national
culture), a distinct section of the community (sub-culture), or an organization (corporate culture).
You are not born with a culture, and that it is learned. So, culture includes all that we have
learned in relation to values and norms, customs and traditions, beliefs and religions and rituals.
International business needs to take into account the local culture of the country in which you
wish to market.
Main propositions about culture
- Culture is learned
- Culture is structured
- It is divided into aspects
- Culture is dynamic
- Culture derives from the biological, environmental, psychological, and historical
components of human existence
- Culture is variable
- Culture exhibits regularities that permits its scientific analysis
Cultural Framework
It uses eight categories in its analysis. The Eight categories are Language, Religion, Values and
Attitudes, Education, Social Organizations, Technology and Material Culture, Law and Politics
and Aesthetics.
iv) Language: With language one should consider whether or not the national culture is
predominantly a high context culture or a low context culture (Hall and Hall 1986).
The concept relates to the balance between the verbal and the non-verbal
communication.
In a low context culture spoken language carries the emphasis of the communication i.e. what is
said is what is meant. Examples include Australia and the Netherlands.
In a high context culture verbal communications tend not to carry a direct message i.e. what is
said may not be what is meant. So with a high context culture hidden cultural meaning needs to
be considered, as does body language. Examples of a high context cultures include Japan and
some Arabic nations.
v) Religion: The nature and complexity of the different religions an international

marketer could encounter is pretty diverse. The organization needs to make sure that
their products and services are not offensive, unlawful or distasteful to the local
nation. This includes marketing promotion and branding.
In China in 2007 (which was the year of the pig) all advertising which included pictures of pigs
was banned. This was to maintain harmony with the country's Muslim population of around 2%.
The ban included pictures of sausages that contained pork, and even advertising that included an
animated (cartoon) pig.
In 2005 France's Catholic Church won a court injunction to ban a clothing advertisement (by
clothing designers Marithe and Francois Girbaud) based upon Leonardo da Vinci's Christ's Last
Supper.
vi) Values and Attitudes: These vary between nations, and even vary within nations. So
if you are planning to take a product or service overseas make sure that you have a
good grasp the locality before you enter the market. This could mean altering
promotional material or subtle branding messages. There may also be an issue when
managing local employees. For example, in France workers tend to take vacations for
the whole of August, whilst in the United States employees may only take a couple of
week's vacation in an entire year.
In 2004, China banned a Nike television commercial showing U.S. basketball star LeBron James
in a battle with animated cartoon kung fu masters and two dragons, because it was argued that
the ad insults Chinese national dignity.
In 2006, Tourism Australian launched its ad campaign entitled "So where the bloody hell are
you?" in Britain. The $130 million (US) campaign was banned by the British Advertising
Standards Authority from the United Kingdom. The campaign featured all the standard icons of
Australia such as beaches, deserts, and coral reefs, as well as traditional symbols like the Opera
House and the Sydney Harbor Bridge. The commentary ran:
"We've poured you a beer and we've had the camels shampooed, we've saved you a spot on the
beach. We've even got the sharks out of the pool,". Then, from a bikini-clad blonde, come the
tag line:
"So where the bloody hell are you?"

v) Education: The level and nature of education in each international market
will vary. This may impact the type of message or even the medium that you
employ. For example, in countries with low literacy levels, advertisers would
avoid communications which depended upon written copy, and would favor
radio advertising with an audio message or visual media such as billboards.
The labeling of products may also be an issue.
vi) Social Organizations: This aspect of cultural framework relates to how a
national society is organized. For example, what is the role of women in a
society? How is the country governed - centralized or devolved? The level
influence of class or casts upon a society needs to be considered. For example,
India has an established caste system - and many Western countries still have
an embedded class system. So social mobility could be restricted where caste
and class systems are in place. Whether or not there are strong trade unions
will impact upon management decisions if you employ local workers.
xiv) Technology and Material Culture: Technology is a term that includes many other
elements. It includes questions such as Is there energy to power our products? Is
there a transport infrastructure to distribute our goods to consumers? Does the local
port have large enough cranes to offload containers from ships? How quickly does
innovation diffuse? Also of key importance, do consumers actually buy material
goods i.e. are they materialistic?
xv) Law and Politics: The underpinning social culture will drive the political and legal
landscape. The political ideology on which the society is based will impact upon your
decision to market there. For example, the United Kingdom has a largely market-
driven, democratic society with laws based upon precedent and legislation, whilst
Iran has a political and legal system based upon the teachings and principles Islam
and a Sharia tradition.
xvi) Aesthetics: These relate to your senses, and the appreciation of the artistic nature of
something, including its smell, taste or ambience. For example, is something
beautiful? Does it have a fashionable design? Was an advert delivered in good taste?
Do you find the color, music or architecture relating to an experience pleasing? Is
everything relating to branding aesthetically pleasing?
Individuals and firms must develop cross-cultural literacy. International businesses that are ill
informed about the practices of another culture are unlikely to succeed in that culture. One
way to develop cross-cultural literacy is to regularly rotate and transfer people
internationally.
Dressing habits, living styles, eating habits and other consumption patterns, priority of needs
are dictated/influenced by culture. Some Thai and Chinese and most of the Indians do not
consume beef. Thailand Chinese believe that consumption of beef is improper and Indians
(particularly Hindus) believe that eating beef is a sin as they believe cow is sacred. The
eating habits vary widely. Chinese cat fish stomachs, and birds nest soup, Japanese eat
uncooked sea food, Iraqis eat dried, salted locusts and snakes while drinking. The French eat
snails, Americans and Europeans eat mostly nonvegetarian food. Indians eat mostly
vegetarian food. It was surprising to the rest of the world to know that there were pure
vegetarians
in India. Similarly, dressing habits also vary from country to country based on their culture.
We observe different dress styles of West, Middle East, India, and Pacific etc. Wearing
saree by Indian women is a peculiar dressing habit, which is influenced by the culture.
Similarly, wearing burka/ parcia by the women of Middle East is another example for the
influence of culture on the dressing.
6.2. Economic Environment and its implications on international business
There are four broad types of economic systems: market, command, mixed, and state-directed
.In reality almost all are mixed to some extent, for even the most market oriented systems have
some governmental controls on business and even the most command based systems either
explicitly allow some free markets to exist or have black markets for some goods and services.
Yet, all countries can be considered to be at some point on a continuum between pure market and
pure command.
Market economy
In a pure market economy, the goods and services that a country produces, as well as the
quantity in which they are produced, is not planned by anyone. Rather price and quantity are
determined by supply and demand.
Command economy
In a pure command economy, the government plans what goods and services a country produces,
the quantity in which they are produced, and the price at which they are sold.
Mixed economy
A mixed economy includes some elements of each. In Canada, for example, while most business
is privately owned and operated under market principles, health care, electrical power, and liquor
distribution are run by state owned enterprises in most provinces.
State-directed economy
In a state-directed economy, the government plays a significant role in directing the investment
activities of private enterprises through industrial policy. Both Japan and South Korea are
often cited as examples of state-directed economies.
Political system refers to the system of Government in a nation. The economic and legal systems
of the country are often shaped by its political system. There are two separate polarities to
consider when discussing political systems: collectivism vs. individualism and democracy vs.
totalitarianism.
Democratic or totalitarian
These two dimensions are interrelated, systems that emphasize collectivism tend to be
totalitarian while, systems, that pace a high value on individualism tend to be democratic.
Collectivism vs. individualism
Collectivism
This is a political system that stresses the primacy of collective goals over individual goals.
The system, which advocates Collectivism, is called socialism and these activists are called
socialists.
Socialism
Socialism roots from the intellectual lessons from Karl Marx (1818-1883). Marxs basic
argument is that in a capitalist society where individual freedom is not restricted, the few benefit
at the expense of many. Marx advocated state ownership of the basic means of production,
distribution and exchange (business). His point is that if the state owned the means of
production, the states could ensure that the workers were fully compensated for their labor.
Individualism
This is the opposite of collectivism.
Individualism refers to a philosophy that an individual should have the freedom in his or her
economic and political pursuits.
Individualism focuses on (1) guaranteeing individual freedom and self-expression, and (2) letting
people pursue their own economic self-interest in order to achieve the best overall good for
society.
Democracy Vs. totalitarianism
Democracy
Democracy refers to apolitical system in which the government is by the people, exercised either
directly or through elected representatives.
Totalitarianism
Totalitarianism is a form of Government in which one person or political party exercises absolute
control over all spheres of human life, and opposing political parties are prohibited.
There are four major forms of totalitarianism: communist, theocratic, tribal, right wing (often
military).
Bibliography
Bhalla V. K. & Ramu Shiva S. (2005). International Business, Environment and Management.
Anmol Publications Pvt. Ltd.
Hill Charles W L & Jain Arun K. (2005). International Business, Tata McGrawHill Publishing
Company Ltd.
Robert D. Hirsich (2014). International Entrepreneurship - Starting, Developing, and Managing a

Global
Porter M. E. (1990) The competitive advantage of nations. Harvard: Free Press
Thakur Manab, Burton Gene E. & Srivastava B. N. (2002), International Management Concepts
& Cases, Tata McGraw Hills Publishing Co. Ltd.

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UNIVERSITY OF TOURISM, TECHNOLOGY AND BUSINESS STUDIES (UTB)

MODULE TITLE: GLOBAL ENTREPRENEURSHIP IN EMERGING MARKETS

MODULE CODE: ENT 3314

By Lecturer: KABERA CALLIXTE, PhD

What you'll learn:

An awareness of the opportunities and barriers for entrepreneurship in fast-growing

Students will explore entrepreneurship in a global setting. Topics to be explored, include

Having successfully completed the module; students should be able to demonstrate:

i. Systematic understanding of the importance of entrepreneurship in a global setting.

Cognitive/Intellectual skills/Application of Knowledge

Having successfully completed the module, students should be able to:

Having successfully completed the module, students should be able to:

General transferable skills

Having successfully completed the module, student should be able to:

1.1.Understanding international entrepreneurship

CHAPTER II. GLOBALISATION AND TRENDS IN MANAGEMENT SYSTEM

2.1. What is globalization?

CHAPTER 3. INTERNATIONAL TRADE THEORY

CHAPTER 4. STRATEGIES FOR GOING GLOBAL

6.3. Political systems and international business

4. Schedule of teaching and assessment patterns

Delivery: 42 hours (In 2 consecutive weeks)

1.1.Understanding international entrepreneurship

To gain a better understanding of what international entrepreneurship is about it is important to

There is no universally accepted definition of entrepreneurship. There seems to be agreement

International: across national borders

Internationalization is difficult to define since it encompasses various aspects. First,

International entrepreneurship is an interdisciplinary field that draws upon the theoretical

1.2.Competencies global entrepreneurs need

Articulating a global purpose

1.3.Challenges facing global entrepreneurs

Research shows that global entrepreneurs face three distinct challenges.

1.4.Benefits of going global

Examples of strategic benefits are:

enhancing domestic competitiveness;

Examples of financial benefits include:

finding new customers;

Production-related benefits include:

guaranteeing supply of raw materials;

2.1. What is globalization?

Globalization is a process of interdependence and integration of world economies, driven by

2.2. Components of globalization

The trend is referred as

2.3. Drivers of globalization

Increased competition in the domestic market

Increasing consumer needs

Strategic vision of the organization

Emergence of global institutions

ii) World Trade Organization

iii) World Bank and International Monetary Fund

iv) United Nations

2.4. Globalization: good or bad for global economy

2.5. Managing in global marketplace

Proper understanding of business environment in different countries and also have a

3.2 Theory of Absolute Advantage

Table 1: Theory of Absolute advantage

A. Resources required to produce one ton of coffee beans

Coffee Beans Rice

Coffee Beans Rice

Brazil 10.0 5.0

South Korea 2.5 10.0

Total 12.5 15.0

Coffee Beans Rice

Brazil 20.0 0.0