INTERNATIONAL BUSINESS MANAGEMENT

Daily Journal

Prepared by:
Arun Kumar Thaticherla MBAEx 11/13
Manish Bujranpally MBAEx 29/13
Manmeet Pahuja MBAEx 30/13
Praveen Kumar MBAEx 44/13
Srinivas H MBAEx 56/13
Sagar Taneja MBAEx 60/13
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Table of Contents
Sessions 1 / 2: Understanding Globalization and its implication to international
business .............................................................................................................................. 2
Session 3: Managing International Business.................................................................... 4
Session 4: Why and How do firms go global? .................................................................. 7
Session 5: Why and How do Firms go global? ................................................................. 9
Session 6: Planning the Market entry .............................................................................. 11
Session 7: Developing a foreign market entry plan........................................................ 12
Session 9: Developing International business strategy ................................................. 14
Sessions 10/11- Responsible internationalization strategy ........................................... 17
Session 12: Subsidiary formation and being a country manager ................................. 20
Session 13: Being a Global manager............................................................................... 22
Session 14: Review, Reflection and Integration ............................................................. 23
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Sessions 1 / 2: Understanding Globalization and its

implication to international business

Always start business with reading contracts thoroughly.

Annual reports are opinion of the past.
Globalization is the closer integration of the countries and people of the world, brought about
by the enormous reduction in costs of transportation and communication and breaking down
of artificial barriers to the flows of goods, services, capital, knowledge and people across
borders.
Integration + interdependence =Globalization.

Pull Factors

Change in State Homogenization of Globalization of

Ideologies customer preferences supply of resources

Globalization of firms

Activism of Technological Globalization of

international agencies advancements competition

Push Factors
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There are some gains and some losses of globalization.

Power of logic & power of intuition > power of data
Countries of interest of International Business studies:
Today: US, China, India
Future: US, China, India, Africa (yet to be exploited)

China & India, both have huge market, cost arbitrage and resources which is a rare
phenomenon.
Key points important to the course:
1. Recognize that differences matter: the world isn’t perfectly integrated
2. View the world-differences and similarities- with a balanced perspective
3. Remember that the real challenge is not just to understand differences but to address
them.
Despite all disruptive changes, the basic concepts of management still apply to businesses.
Regulatory and cultural rules/norms create obvious differences.
In every community we must remember that we do not do business in market, we do
business in societies.
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Session 3: Managing International Business

Play it safe at home or take a risk abroad
The theme of this session is whether organizations should go take a risk and go global or play
it safe at home. Any organization should first become a local champion before planning to
expand globally. And before planning to expand to a new country it should consider the
below factors:
· How is the market condition?
· Does it understand their culture?
· Does it understand consumer behavior?
· How is the regulatory framework?
· Is the political environment favorable?
· The high cost of doing business abroad
· The competition it would face from local players
· Ability and capability to execute strategy in a different country
· And so on..

One of the frameworks that can help organizations evaluate their decision to expand globally
is the CAGE framework.

CAGE Distance Framework: The CAGE Distance Framework is a tool that can be used to
uncover important differences between various countries that companies should take into
account when deciding on their strategy. The acronym CAGE stands for Culture,
Administrative, Geographical, and Economic. The CAGE Distance Framework helps
companies because it can evaluate countries and determine the distance between them. This
does not only involve physical geographical distance, but also figurative distances between
various cultures, economies, and working methods.

Cultural differences - Culture may be defined as a collection of values, norms, rules, and
convictions that form the behavior of people.
Examples:
Different languages
Different ethnicities
Different religions
Different values & norms etc

Administrative differences -It involves the historical and current legal and political
differences between two countries. It helps the organization gauge whether these differences
are an aid or an obstacle to the expansion strategy.
Examples:
Legislation and regulations
Trade agreements
Corruption
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Geographical differences – It involves the physical aspect of the distance between two
countries and includes differences such as their size, transport and infrastructure, climatic
differences and other aspects.
Examples:
· Physical distance
· Lack or presence of borders
· Different time zones
· Differences in climate
· Geographical location
· Means of transportation

Economic differences - It involves the differences between countries with regard to

economic aspects such as income, purchasing power, distribution of wealth, and GDP. This
may be a great obstacle for companies, but it can also provide opportunities.
Examples:
Low wages
Natural resources
Infrastructure
The difference in per capita incomes

In the case ‘Play it safe at home or take a risk abroad’, the CEO of Coe’s had the following
options:
i) To focus on their current market US and look or more opportunities there
ii) Expand internationally to Mexico or Europe

The advantage of the first strategy is that they understood the local market conditioned well
and had an established brand. This was a less risky option than to go abroad. They still had
some more potential for growth by putting a store next to every Walmart and experimenting
with their product line – maybe try the rent-to-own concept for goods beyond basic
household items.
The second strategy is much riskier and can add complications, but if it works out, would
give them access to new market and tremendous potential for growth. They had already
expanded successfully in Canada, where they had about 100 stores. They also had a sour
experience when they tried to expand in Puerto Rico, where they had to suffer losses and
wrap up their business.
We are of the opinion that Coe’s should go for global expansion but start with countries like
UK, which have a very small institutional difference from US. When we apply the CAGE
framework, UK is pretty similar to US and the only unfavorable factor would be the large
geographical distance between the two countries which could lead to high transportation costs
for Coe’s.

In general, there is a large failure rate for organizations trying to expand globally. Some of
the reasons for that are:
High cost of doing business
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Lack of resources to deal with potential problems

Inexperience
Execution inactions and mistakes
Not following a strategic approach
Unfavorable/hostile political environment
Bad Luck
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Session 4: Why and How do firms go global?

Why and How do firms go global? The advantage of Internationalization: Why go “against a
sea of troubles”? How?

Potential of globalization of industries:

High Trading industry Global industry

Aerospace Automobiles
Military hardware Oil
Diamond mining Semi-conductors
Agriculture Consumer electronics

International
Trade
Domestic industry Multi-domestic industry
Railroads Restaurants
Laundries Retail banking
Hairdressing Hotels
Milk Consulting
Low
Low FDI High

Assessing global potential: Global industry analysis

Market
drivers

Forces favoring
Cost drivers
global Government
drivers
integration/local
responsiveness

Competitive
drivers
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Always understand the value creation/delivery that happens in an industry. Create a mental
map of how does a firm fit into that value chain.

Analysing global competitive advantage:

- Measure the performance of a company using different parameters in a holistic way.

Levers of value:

Economic Value = Volume + Margin + Uncertainty/Risk + Dynamics/Learning

Margin = Competitive advantage (Cost lever or Differentiation lever) + Industry

attractiveness lever
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Session 5: Why and How do Firms go global?

Case discussion: Haier

An important criterion for a company to go global, unless “born global” like a platform-based
app – ecommerce/aggregators, is that a company needs to first establish itself in its local
market.

This criterion has been clearly illustrated with the case of Haier, a white goods leader in
China with almost 30% of market share. Haier was successful in the Chinese market due to
its strengths as mentioned below:

Rapid market response: Haier was well organized to understand what customers want and
meet their needs. For instance, when the company realized that the rural Chinese were
using the washing machines for cleansing potatoes, Haier engineers modified the design to
accommodate their needs. In another instance, considering the summer lifestyles, it created
a tiny washing machine that can be used for a single change of clothes that saved water and
electricity and was an instant hit in cities like Shanghai.

Innovation: Haier’s market responsiveness lead to an innovation culture. Haier had about 96
products and 15100 specifications. Haier was able to make these innovations with minimal
cost but was able to deliver high value to its customers.

After Sales service: Haier was able to create a customer relationship management(CRM)
kind of system back in 1990 and was able to effectively and efficiently service its customers.
Stories of extraordinary services in the most unexpected scenarios resonated across the
country adding to the goodwill and brand value of the company

Efficient Distribution: Haier was a pioneer to offer Just in time(JIT) purchasing, raw materials
delivery and distribution. It reorganized its logistics unit and introduced IT that effectively
reduced the order to delivery cycle from existing 36 days to under 10 days

As the Chinese market opened up due to liberalization, many foreign firms entered the
market. Although, Haier was still able to maintain its market share, it realized that most of the
tangible strengths were temporary and can be replicated by global competitors if they
localized. Thus, Haier required to grow beyond the local boundaries and strategizes to go to
the developed markets first before venturing into the developing markets. A part of the
strategy was that establishing a brand name in developed markets will make entry into the
developing markets easier, but the larger part of the strategy was to compete with global
companies in a developed market, which would allow Haier to learn and grow its
competencies.

A company can analyze its capabilities that can be moved from the home to foreign country
using the Relevant, Appropriate and Transferable(RAT) test and similarly the capabilities
that the company can carry from foreign to home can be analyzed using the
Complementary, Appropriate and Transferable(CAT) test

Haier focused on niche segments first, by catering to the needs of students or offices and
gained a market share with higher margins. The innovation culture helped Haier to quickly
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develop the competitive compact refrigerators for the needs of students and offices quickly
and any other innovations that would satisfy a customer need. It later expanded its offerings
to major retail chains and then ventured into the mainstream market after a considerable
brand reputation was built. A factor that helped Haier to be easily accepted by the developed
market without an ill-conceived notion of a Chinese company is its name, it closely
resonated with German name than a Chinese name. Deliberately or not, the naming helped
mitigate the country of origin effect to an extent. It also extensively used the local resources
to best understand the market and build up the operations locally.

However, the thought of establishing itself in developed market would help gain market in
the developing market proved wrong. For instance, in India, an emerging market, needed
much more emphasis on the locals for the know-hows and was not able to leverage its
global presence easily.

In continuance to the strategy to learn and develop a competitive edge over its competitors
through innovation, Haier looks to develop smart appliances with the use of Information
technology and capture the global market and work towards its long time vision of ‘one-third
domestic sales, one-third exports, and one-third produced and sold abroad’.
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Session 6: Planning the Market entry

● Question of discussion, why do the firms go Global, even though they know that it
can be risky. What is the primary motivation?

● Learned about the four fundamental motives:

Seeking Markets
Seeking Resources
Seeking Efficiency
Seeking Knowledge

● ‘Seeking Knowledge’ is more of a Strategic Asset.

● There are some motives for going global as articulated by the managers.
Such as Growth, Profit, Efficiency, Spreading risk, Better Valuation etc.

● Better Valuation usually comes for organizations with an increase in the country
markets.

● Bandwagon Effect: Everyone else is doing it, so I am doing it.

● A 5-dimensional framework is followed as a usual pattern of Internationalization.

● Managers usually work on incremental improvements, managers are risk-averse.

● OLI Framework, based on Transactional Cost Analysis.

● Transactional Cost Analysis:

Ownership Advantages
Location Advantages
Internalization Advantages

● Country Specific Advantages (CSAs)

Are the absolute and comparative advantages

● Good Read: National Competitive Advantage by Porter

● Double Diamond concept:

Eg. How did India succeed in the IT Service industry? The US diamond became
double part for Indian Diamond.

● CEMEX also emerged as global player using the Double Diamond concept.

● Learned about the Global Competitive Advantage.

National; National Plus; Metanational

● Framework for the Market Entry Strategy is a reiterative process.

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Session 7: Developing a foreign market entry plan

Target markets and Modes of Entry, Fundamentals of Global Strategy

Selecting global markets to enter, entry modes are crucial in evaluating how much of a
company’s basic value proposition can be adapted. Not all markets can be entered owing to
paucity of resources and oversight. Picking the best mode of entry and timing it right are very
important guiding principles. There are four key factors in selecting global markets or
estimating market attractiveness; market size and growth, country’s institutional context,
competitive environment and market’s cultural, administrative, geographic and economic
distance from the company’s other markets. Timing the entry correctly and avoiding the
“grass is greener” and “first-mover advantage trap” are very crucial in determining the
success of foreign market entry.

Country Analysis Framework

The framework lays out guidelines to evaluate the national business environment to
complement analyses of industry dynamics and international environment. The
framework helps in building a holistic picture that integrates a country’s strategy
(implicit and explicit goals and policies), context (resources at disposal for a nation,
players involved and rules of the game) and performance (country’s economic,
political and social indicators).

Economic, Social and political goals and policies of a company and how they fit with
the resources at the country’s disposal are fundamental to laying out the context.
The players involved and the rules of the game (both formal and informal) help better
flesh out the international dimension of the country. Finally, a thorough and careful
evaluation of all policies of a country and the potential impact of the range of
change/shift in policies can have on various economic, social and political indicators
of performance is warranted.

Ethiopia: An Emerging Market Opportunity?

The Federal Democratic Republic of Ethiopia, with a state-led development model has a
burgeoning population and quickly growing GDP. The country however had limited
infrastructure, limited competition which meant very low brand awareness, fragmented
distribution channels, paucity of talented human resources, high levels of corruption and a
poor IP protection regime. CareCo, ShoeCo and Medco are three companies with different
businesses and varying strategic objectives that were evaluating the Ethiopian market
potentiality and considering possible modes of entry for the same.
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CareCo’s personal care products enjoy great brand awareness in Ethiopia. Low market
potential and poor enforcement of IP laws (licensing unfriendly) mean that CareCo should
stick to local agent or importer route to enter the market with a $3 million upfront investment.
It is prudent for them to test the market out before venturing further in. ShoeCo’s ambition to
locally manufacture and export outside Ethiopia by leveraging lower labour costs and tax
incentives might not pan out. The huge investment involved is discouraging considering
market potentiality and risk s associated in the VUCA conditions prevalent in the Ethiopian
market. ShoeCo is better off going for a licensing agreement and testing the waters. MedCo,
even though in the business of manufacturing generic drugs must not discount the fact that
the poor IP regime ma not give them process based IP protection. Heavy corruption in the
Ministry of Health, who will be their major customer and fragmented nature of the retail
pharmacy channel outweigh the benefits of 5 year tax exemption, operational efficiencies
and cost advantages associated with a wholly owned subsidiary option. We believe that
ShoeCo’s interests are better served with a importing option for the time being till the market
develops further.
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Session 9: Developing International business

strategy
Global Market Entry Strategies

Criteria for assessing the Modes of Entry:

Market Size & Growth, Risk, Government Regulations, Competitive Environment, Cultural
Distance, Local Infrastructure, Company objectives, Need for Control, Internal Resources,
Assets & Capabilities, Flexibility, Transaction Cost Economics (TCE), and Resource-based
View (RBV) are various criteria that need to be rigorously assessed in order to zero in on the
optimal mode of entry which can point to firm-specific path of maximum value realization.

Modes of Entry

Exporting: Firms can choose to indirectly export by using independent intermediaries or

have slightly more control by opting for cooperative exporting (piggyback exporting) based
on the size and quality of the distribution network that they can tap into. The farther end of
the make or buy decision spectrum of exporting is the direct exporting choice where firms set
up their own exporting department and sell products via middlemen located in the foreign
market. Apart from giving the greatest control, direct exporting also allows the firms to build
their own network and get better market feedback.

Licensing: Offering proprietary assets such as trademarks, technology know-how,

production processes and patents as part of a licensing agreement allows firms to
strategically lower their exposure to political and economic instabilities and ensures steady
income flows (royalty payments) with a minimal commitment of resources towards that end.
However revenue potential may be subdued for large companies compared to other modes
of entry.

Franchising: Just as licensing, franchising also has minimal risk and investment. At the
same time, since the franchisees’ profits are linked with efforts, franchisees are highly
motivated workforce. Master-franchising, where a local entrepreneur is awarded blanket
franchise for a particular territory (country or a group of countries) with agreements to
establish a certain number of outlets over a given time horizon is another option. Cultural
and physical proximity play a huge role in reaping full benefits of franchising option.

Outsourcing: Cost-saving, lower exposure to political and economic factors are key drivers
to choose outsourcing or contract manufacturing. It however offers less flexibility to respond
to sudden market demand changes. Choosing subcontractors with solid financial footing,
flexible and JIT oriented mindsets and with ability to meet quality standards can ensure
effective benefits realization.

Joint Ventures: JV’s have a high return potential compared to above options. Cooperative
or equity JVs are choices based on mutual trust and compatibility. As with above options,
there is a fear of “nurturing our future competitor” threat in this option. Firms should
cautiously choose partner with mutual synergies without diluting competitive advantage.
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Bridging cultural gaps, establishing clear objectives and mutual top management
commitment and respect are the foundational steps for a successful JV.

Wholly owned Subsidiaries: Acquisitions or green-field operations are the available

options for maximizing the benefits of full control on the path of complete ownership through
wholly owned subsidiaries. Economic or cultural hostility from target country and full burden
of potential losses are all risks to be weighed in for this mode of entry.

Exit Strategies: Even after best foot forward, firms might face certain situations where exit
might be the most prudent choice. Sustained losses, difficulty in cracking the market,
volatility of the economic and political factors, premature entry, ethical reasons, resource
reallocation or intense competition can all contribute to a firm’s exiting of a market. There are
however costs associated (fixed costs, corporate image damage, disposition of assets etc)
with such a choice. Following an incremental exit approach along with careful contemplation
and assessment of all options to salvage the foreign business and migrating as many
customers as possible will all ensure in strategically exiting the market.

Winning in Africa’s Consumer Market

The African continent is a huge market that cannot be ignored. It has a growing working-age
population that is increasingly getting urbanized and is connected. Their willingness to spend
is increasing in tandem with rising per capita incomes. Urbanization and rising mobile
connections are onboarding consumers for various segments at a rapid pace. Consumer
Companies looking to enter the market must develop a granular view of growth factors such
as economic indicators, local market trends, and statistical growth models. African
consumers greatly reward trust-worthy brands and the time is ripe to begin to win them over.

Challenges that need to be sliced and diced based on individual market and segments
comprise:

· Political Instability & Conflict

· Poor Infrastructure

· Linguistic Diversity

· Differences in Consumer behavior

· Fragmented nature of Retail Market

· Low Data Availability & Quality

Winning in the African Consumer market is a nuanced game. Understanding local needs and
preferences and combining those insights with local buying behaviors can yield dividends.
Learning from and partnering with local businesses can help better tailor their offerings to the
African consumers. Investing in trading partners to establish a robust “route-to-market”
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distribution model that is custom made to each geography and channel takes great
significance. Finally, building a large and well-equipped sales force is paramount considering
the fragmented nature of the market. Investing in technologies to train sales force to collect
data, which is scarce will help build lasting competitive advantage.

Wendy’s: A Plan for International Expansion

Rising working class population, increasing participation of women in the working force,
burgeoning young population and increasing disposable incomes (a function of rising per
capita incomes) are all healthy indicators for zeroing in on potential markets for expansion
for the value proposition of Wendy’s in these foreign markets. Based on all market data and
individual political, economic, regulatory, ethical and cultural outlooks of various countries
Wendy’s has to narrow down upon potential targets for expansion. If we were to advise
Wendy’s to open 1,000 restaurants in the next 3 years in all possible markets discussed in
the case, our team believes that the following combination will yield the optimal resource
allocation and value maximization:

· India: 300 outlets

· South Africa: 250

· Kenya: 200

· Ghana: 150

· Vietnam: 50

· Colombia: 50

Wiith a population of 48.5 Million, $1,380 GNI per capita and 6.12% growth rate and
assuming 20% saving rate and 5/7th of spending on food, Kenya represents a $38 Billion
market. Similarly, Ghana roughly sums up to about $6 Billion market. Aiming for a
conservative 10% market penetration gives a potential revenue stream $4.5 Billion. A target
of 350 outlets in these two countries adequately justifies the market potential.
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Sessions 10/11- Responsible internationalization

strategy

Sustainability issues:
a. Exponential ecological degradation over the last century
b. Widening social gap between rich and poor

We may need 3 planets if everyone in this world aspires for American or European
lifestyle..!!!

Unsustainable development – Role of business/corporate:

- Out of top 100 economic entities of the world, there are 49 countries and 51 are
corporations.
- Sales of top 200 corporates is greater than GDP of all countries but top 10.
- Unbridled growth and manner of growth
- Rampant exploitation of resources
- Driving a frenzy of consumerism supported by
o Spending beyond means – Debt culture
o Unhealthy, unsustainable life styles packaged as desirable aspirations

Why is there onus on business?

- It is best placed to tackle it
- It can address source of the problem
- It has superior access to resources

Core sustainability concepts:

- Intergenerational responsibility
- Systems thinking
- Socio-economic justice
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The emerging paradigm is – Shareholder value maximization to Sustainable

development.

Humanistic

Economic
Sustainable Environmental
development

Social
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Paradigm shift:
The picture can't be display ed.

Exploration -
Exploitation

Preservation -
Restoration -
Rejuvenation

Restricting - Controlling -
Maximizing

Sharing - Balancing -
Optimizing
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Session 12: Subsidiary formation and being a

country manager
One of the common issues facing organizations today is that the CEO is evaluated on wrong
parameters. In other words, he should not be evaluated on a short-term basis. Thus, the
parameters such as Quarterly revenue growth, Quarterly profit etc. should not be the basis to
judge the performance of a CEO.
If an organization is only focused on the daily performance of its share price on the stock
market, the CEO would not be able to focus on more important long-term strategies. This
could be one of reasons why some companies have gone private during the recent time. With
the decreasing average shareholding duration, there’s an increasing need for stability in the
leadership.
The below figure summarizes what the position of CEO in an organization should be:

The CEO should be away from the day to day operational issues and should spent more time
formulating the future strategy of the organization.
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Google’s 70-20-10 Model

When Eric Schmidt was CEO at Google, he instituted the 70-20-10 ratio for innovation. It
works as:
70% of time should be dedicated to core business tasks.
20% of time should be dedicated to projects related to the core business.
10% of time should be dedicated to projects unrelated to the core business.
Innovation needs exploration and, if you don’t make a conscious effort to innovate, it will
limit your ability to compete in the long term. You need to constantly feed your pipeline with
new ideas or you will inevitably begin to decline.
Case Analysis: If we look at the situation of Mr. Silvio Napoli in the Schindler India case, he
can either ask for advice from the Vice Chairman Luc Bonnard or keep on handling things
independently.
The issues faced by Schindler India were:
 Non-standard orders
 Cost pressure – Custom duty went up, Transfer pricing went up
 Lack of new orders

In our view, he should continue to work independently on the India operations as he would
not want to be seen as a weak leader, who is unable to cope up with the challenges faced in
India. He had done the hard work of analyzing the Indian market and built a competitive
management team which takes time and effort.

Best should not be the enemy of good. Perfection should not kill improvement. Social
solutions are never binary in nature. Binary solutions will lead to failure. Pragmatism leads to
more balanced solutions.
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Session 13: Being a Global manager

Continuation of Schindler case

Analyzed the strategy of Silvio for Schindler India

● Standardised elevators
● Outsourcing manufacturing to local players
● Emphasis on Service

Tried to identify the reasons for the deviation from strategy as identified from the case
regarding the orders received, where 8 months into operations, they were nowhere close to
their target of 50 elevators in one year
Partially attributed to culture and behavior of the team recruited
Especially the nature of work carried out by TAK Matthews, as he was working for
Otis (a competitor) who were in the business of providing customized products and targeted
high rises with little emphasis on service contracts, Matthews took orders for customized
products which was against the strategy.
Also, the design engineers in Europe were reluctant to share their designs to the indian
subsidiary, which in turn delayed the production outsourcing. The design engineers might
have perceived Ronnie Dante, the engineering manager to be under qualified and hence not
worthy of their time.

Test of strategy and models

● Strategy and Business model should be internally consistent with capabilities
● Strategy and Business model should be externally consistent with market
● Strategy and Business model should be consistent with global Headquarters strategy

Silvio was able to overcome these issues by shaping the culture of the subsidiary, orient it
more towards service by hiring younger professionals and grooming them, getting the
eurpoean designers to work with the subsidiary engineer so they understand each other’s
capabilities and build a mutual respect, and took small corrective actions as they progressed
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Session 14: Review, Reflection and Integration

● In the later half after discussing Schindler’s case class discussed and learned about
concept of Authority vs Power.

● Authority is given officially in an organization whereas power develops beyond

authority.

● Case discussion for ‘From Regional Star to Global Leader’, in which the class was
involved in understanding the problems of attributes and thinking.

● As of now, the organization did business only in french. All process with as per the
french culture, and recently a new member was added. Leadership thinking was
significantly french.

● The local attitude was not aligned with the global aspirations of the company.

● The issue present in Deronde International if continues would be a huge loss in terms
of a potential head and potential best market.

● Course completed with a final note from the professor about 5C’s followed by loud
applause by the class.

● Take care of 5C’s:

Physical Capacity
Mental Capacity
Social Capacity
Emotional Capacity
Spiritual Capacity