International Business Management

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Student’s Last Name International Business Management Question 1


In the modern economical conditions the task of determining the work direction is significantly important for enterprises (organizations, companies). The especially urgent need arose in developing a strategy and good governance, which allows the company to develop and operate successfully in a competitive environment in the short and long term period. Strategic management is a complex system of setting and implementing the company’s strategic goals, based on the forecast of the economical and legal environment as well as the development of ways to adapt to its changes and the effect on it. The main tasks of the strategic management are to ensure the targeting of all the activities of the enterprise; to taking into account the influence of the external environment; to identify the new growth opportunities and factors of threat; to evaluate the alternative solutions related to the allocation of resources so that the investments in a strategically sound and highly effective projects could be done; to form the internal environment in order to stimulate proactive management responses to changing situations. The analysis of strategic management from the point of view of experience in international business concluded that nowadays the strategic management is a fairly large complex system of different methodological and applied knowledge aimed to help explore an international environment with the numerous international business entities and activities. The international marketing strategy helps organizations to meet the needs of the consumers and enhance their own profits. When the company transforms from a domestic entity to an international organization it should analyze the possible pros and cons of such a decision. In a domestic country, the company should consider just one national government, a single currency and accounting system, one political and legal system, and usually a similar culture. But while entering into

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the foreign market of one or more foreign countries can involve multiple governments, currencies, accounting systems, legal systems, and a large variety of languages and cultures. All these aspects can create a wide variety of entry barriers for an organization which is looking to expand internationally. In foreign countries, there can occur some difficulties connected with the local languages, which can be required everywhere; the cultural diversity, both between countries and sometimes even within countries; often volatile politics; varied economic systems; scarcity of skilled labor, which requires some additional costs for training or redesigning procedures; poorly-developed financial markets and government-controlled capital flows; problems and unproven costs in obtaining market research data; limited advertising with the variety of restrictions; possible low literacy rates, such as making mistakes in the language when advertising; currency exchange fluctuations; inadequate or limited communication; mandatory worker participation in management in some countries; legal restrictions on laying off of workers. The main steps in the process of international strategic management include the defining the scope of business and developing vision of the direction in which the organization should move i.e. instilling a sense of organization’s purpose, the establishment of long-term direction and the mission; the transformation of the mission in specific longterm and short-term performance targets; the development of the strategies in order to achieve the planned targets; the effective implementation and enforcement of the strategy; the performance assessment, critical analysis of the situation and providing adjustments to the mission, targets, strategies in accordance to the actual experience, changing conditions, new ideas or opportunities. Currently, in the most general sense, the corporate social responsibility (CSR) refers to the philosophy of behavior. The concept implies the set of activities provided by the business

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community, companies and individual business people in order to meet the expectations of stakeholders for sustainable development. The corporate social responsibility is the kind of responsibility of business entities for the compliance with the rules and regulations, implicitly defined or undefined by law (the sphere of ethics, environment, charity, benevolence, compassion, etc.) that affect the quality of life of individual social groups and society as a whole. Liability arises out of neglect or lack of attention to the needs of business entities and the needs of society and appears in the slowing down of the labor force reproduction in the resource based territories for this type of business. Corporate social responsibility (CSR) is a voluntary contribution of business to society in social, economical and environmental spheres, connected directly to the core business of the company. The social responsibility strategies are associated with competitive advantages, such as attracting valuable employees as well as enhancing the company image and reputation. The World Business Council for Sustainable Development has described CSR as the business contribution to sustainable economic development. Building on a base of compliance with legislation and regulations, CSR typically includes “beyond law” commitments and activities pertaining to corporate governance and ethics; health and safety; environmental stewardship; human rights (including core labor rights); sustainable development; conditions of work (including safety and health, hours of work, wages); industrial relations; community involvement, development and investment; involvement of and respect for diverse cultures and disadvantaged peoples; corporate philanthropy and employee volunteering; customer satisfaction and adherence to principles of fair competition; anti-bribery and anti-corruption measures; accountability, transparency and performance reporting; and supplier relations, for both domestic and international supply chains.

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Internationally, CSR is supposed to be the manner the companies integrate their values, culture, decision making, strategy and operations into the social, environmental and

economic concerns in order to establish better practices within the firm, create wealth and improve the society. These elements of CSR are very often interconnected and interdependent, so that it is possible to apply to firms wherever they operate in the world (Paul Hohnen, 2007). The following five steps imply a suggested method of developing the effective CSR strategy: to establish the support with senior management and employees; to analyze what the competitors are doing; to develop a matrix of proposed CSR actions; to provide options for proceeding so that it was possible to decide on direction, approach and focus areas. Question 2 Exports of goods and services is an approach to the organization of the international activities of the company with the access to foreign markets. It does not require major changes to the company’s product portfolio, its structure, capital costs. The companies start to export the products to a variety of reasons. Most often, these reasons are the desire to achieve the more profitable and diverse performance, instead of the developing new line on the domestic market; the product is in the maturity stage of the life cycle in the local market and in the growth stage in foreign markets; the product is in seasonal demand; the product is more competitive in foreign markets. On the basis of intensity and volume, exports can be distinguished as irregular and regular exports. The irregular export is characterized by the passive level of company’s involvement into international activities i.e. the company sells its excess production to local mediators, which represent the interests of foreign firms. Regular export aims to expand company’s export operations and activities on the

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specific foreign markets. It is regarded as the active involvement into international activities. While exporting goods and services, the company itself can enter the foreign market, or indirectly through the external agents, which can be in the country or abroad. On this basis export is distinguished as direct and indirect export. The direct export involves direct sales through its own sales force. It is used when it is easy to install consumers or they have the direct assess to the seller. The organization of direct exports can be achieved by: 1) Export department, which solves all the issues to promote goods on foreign markets; 2) a paid sales representative, who is usually sent abroad and works on the company. He/she knows the product and protects it in the market; 3) the Bureau of representation - this is a team of competent employees whose main goal is to make deals as well as to encourage and monitor the work of national distributors; 4) abroad technical assistance, which involves assistance in drafting, commissioning of equipment, training, transferring of knowledge in the organization and management field. The indirect export has a variety of forms. Delegation of authority in export implies the sales through the system of marketing channels in one or more countries. Such a system is used by the exporter in case its own potential is weak in order to act alone in the foreign markets. Careful choice of export partners is extremely important as each side may be in risk. A small exporting company has a risk of being treated like a slave or the mediator company will have a desire to absorb it. Export franchise is also a widespread exporting tool throughout the world. The common mistakes often made by the exporters include a lack of a coherent international marketing plan; reliance on inadequate partnerships; demonstration of low commitment to exporting; neglecting of export customers in favor of domestic customers;

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failing to modify products and methods in order to accommodate foreign regulations and preferences (Gaebler Ventures). Question 3 While having made the decision to enter an international market, the firm should develop an optimal strategy of penetration including one of the following: indirect exports; ¾ direct exports; licensing; joint ventures; direct investment. Each subsequent strategy of the abovementioned implies the increase of responsibility, risk, control and profit potential. Let us look closer at the modes of internationalization other than exporting. Franchising is a way of doing business, in which a well-known firm provides its advanced technology and the ability to work under its brand name to other organizations, i.e. franchising is the practice of using another firm's successful business model. The economical benefit of franchising is in the combination of the efficiency and mobility of a small private company with the technological advances and guarantees of a promoted brand. The franchising means a good opportunity to start and grow international business, providing high quality guaranteed services for customers. The advantages of franchising include the following: The franchisee buys a business that has an established name, brand i.e. all

attributes of success. The franchisee has access to use the franchisor’s patents, trademarks,

copyrights, operational methodologies and any trade secrets. The franchisee owns the business but is able to draw upon continuing

assistance from the franchisor an dhte franchisor’s field operations staff. The franchisor may negotiate better rates of finance or more favorable

conditions for franchisees with financial institutions.

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The franchisor trains the franchisee and in many cases, the franchisee’s staff as

The franchisee has the benefit of the franchisor’s continuous research and

development programs, which are designed to improve the business and keep it up-to-date and competitive. The franchisor provides a knowledge base developed from its own experience, as well as that of all the franchisees in the system, which would otherwise be impossible for a non-franchised business to access. The support and benefits provided by a franchise system greatly reduce a

franchisee’s business risk (John Di Natale, 2011). The disadvantages of franchising include the following: When going overseas, a franchisee is essentially walking into a new culture

they may know nothing about. Customers may have different wants and needs that the company is used too which can be very frustrating. When there are too many franchises, decisions made by the franchiser can be

biased. Getting a firm deal from the franchiser becomes a rarity because of this. Sometimes apart from the initial fee, the franchise will have to give a part of

the revenue that they make every month. At times the franchise will be forced to get goods from the franchiser and not necessarily at the best price. This can affect the business profit of the franchise (Jaclyn Muddiman, 2011). Licensing is a manner, under which the manufacturer enters into an agreement with a licensee in the abroad country and this gives him the right and opportunity to use the manufacturing process, a patent design or a trademark, technical information or some facility in return for some fee or royalty. It is often the fastest way of entering into foreign markets – sometimes it is even the only possible method as in centrally planned economies. It is clearly the way that involves little expense, and avoids all distribution costs.

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The pros (strong sides) of the licensing include the low risk on the research and development operations as well as the low financial risk as well as low risk of product failure. The disadvantages of licensing imply that both parties have the responsibilities to maintain the product quality and promoting the product. Therefore one party can effect the other through the improper acts. Licensing agreements reduce the market opportunities for both licensor and licensee (Jaclyn Muddiman, 2011). A joint venture is a form of participation in the international division of labor through the creation of the enterprise (entity) based on simultaneous application of ownership by participants from different countries as well as joint management, joint distribution of profits and risks. It is a common form of ownership in the field of international economic relations. The main difference a joint venture from a partnership is that the members of a joint venture cooperate together for a particular purpose or project, while the members of a partnership join together in order to run "a business in common". Each member of the joint venture possesses ownership of his/her property. It means that each member of the joint venture shares only the expenses of the particular project or venture (Susan Ward). Question 4 In international business companies always have to take care about rapidly changing markets and customer needs. In order to deal with these issues the proper organizational framework is significantly important. While entering the international markets, the gradual transformation of enterprises from national corporations to multinational ones requires some changes in the organizational structure, i.e. corporate divisional structures convert to international divisional, and then - to the global. In this case, the company ceases to make a bet on the activities within the country and reforms its structure in such a way that the international operations become more

Student’s Last Name important than the operations on the national market. The most common types of international divisional structures include:


Worldwide Product Structure is an organizational structure based on a divisional structure with units of product lines, each of which is independently powered by the whole world market. Such a structure can be used by the companies with highly diversified products, or the companies, which products vary considerably in production technology, methods of marketing, sales channels, etc. Such kind of structure can be represented by Unilever Worldwide Regional Structure is based on divisional structure, but with the use of the geographical principle. The national market is often seen as one of the regional offices. The most appropriate use of this type of structure is for the companies, for which regional differences are more important than differences in the products. Such kind of structure can be represented by Mars Inc. Mixed Structure is an organizational structure, in which along with a focus on a particular product (geographic area, function), some structural, territorial and functional relations are embedded. This kind of structures arose from the fact that each of the abovementioned structures have some strengths and weaknesses so that there is no single organizational structure, which can be considered ideal. The most advanced forms of divisional management structures include strategic business units They are applied by the companies in case they have a large number of independent offices with a similar business profile. In order to coordinate their work, a special interim management bodies located between branches and the supreme leader are usually created. The strategic business units are organizational units of the company responsible for the development of the company’s strategic position in one or more areas of the business performance.

Student’s Last Name 10 A company's structure establishes lines of authority and decision making while describing where employees from different functional groups are located within the company. Organizational structure takes on an added level of complexity in international businesses, as employees from vastly different cultures, performing completely different tasks, are all part of the same organization (David Ingram). Question 5 One of the key requisites to successfully manage the risks associated with running a business is to have a sound and effective control framework. The existence of such a framework in an organization encourages a sound control environment in which the business operates. When a business operates in international markets, the control function becomes more complex. Managers should not only set standards, measure performance and take corrective action for their business inside the country, but also carry out similar operations for international activities. The Complications can occur due to the geographical distance, language or cultural barriers. There are two main kinds of control: the external and internal control. The external monitoring is performed by the administration (for example, senior management - president, vice president, etc.) or specialized external agencies or staff supervisors (eg, governments, tax inspectors, bank, technical inspections, health and environmental organizations, etc. based on existing laws and regulations of the relevant authorities). The organization's internal control is usually provided by its own internal authorities, who monitor the work and its results, make adjustments if they are necessary. The multinational enterprises should, as well as companies operating in the country, should also use financial and non-financial control methods. Non-financial methods imply the monitoring of the performance, the enterprise’s share in the market, the productivity,

Student’s Last Name 11 company’s image at home and in society, the moral ethic of the staff, the relationship with the trade unions and the relationships with the host government etc. Planning and budgeting are the main formal control methods. The budget spells out the objectives and necessary expenditures to achieve these objectives. Control consists of measuring actual sales against expenditures. If there is tolerable variance then no action is usually taken. Performance is evaluated by measuring actual against planned performance. The problem is setting a performance standard. Usually it is based on historical performance with some kind of industry average. Problems of international comparison inevitably occur like how does one plan in an environment where exchange rates fluctuate quite often during the budget period (Leo Lingham, 2009).

Student’s Last Name 12 References Paul Hohnen, Jason Potts (2007). Corporate Social Responsibility: an Implementation Guide for Business. International Institute for Sustainable Development

<> Industry Canada. Corporate Social Responsibility <> Gaebler Ventures. Common Mistakes Made By Exporters. Resources for

Entrepreneurs. <> John Di Natale (2011). Franchising: Advantages AND Disadvantages. Careful Cash. <!> Jaclyn Muddiman (2011). Global Franchising: Advantages and Disadvantages. ArticlesBase. <> Susan Ward. Joint Ventures: Diamonds on the Beach. The Advantages of Joint Ventures. <> David Ingram. Variables to Consider When Designing an Organizational Structure for an International Organization. The Houston Chronicle. <> Leo Lingham (2009). Careers: Business/Need for control in International Business operations. AllExperts. <


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