PRINCIPLES OF  INTERNATIONAL BUSINESS & MARKETING SCM 950

As Taught by Prof. Tim Richardson School of Marketing and e-Business, Faculty of Business, Seneca College, Toronto, Canada

    For the section(s) taught by Tim Richardson

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Class  9

Country Evaluation and Selection . .    Case Study  Blockbuster Video is entirely appropriate since it represents the fact that an increasing amount of international business development is not in traditional consumer product manufacturing but rather in consumer and industrial services From Blockbuster's website  http://www.blockbuster.com/co/trivia.jhtml "BLOCKBUSTER operates more than 2,000 international video stores in 25 foreign countries throughout Europe, Asia, the Pacific Rim, and North and  South America. The first international BLOCKBUSTER store opened in London in 1989 [textbook said 1990]. The country outside the US with the most BLOCKBUSTER stores is the United Kingdom. It has more than 700 BLOCKBUSTER stores."

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Class 9                   Class 9

Choosing Marketing and Production Sites . Important Questions  Where to Market (which comes first) Where to Produce (which is not necessarily the same place as where it is sold) of course, not mentioned by the text, but presumed in the beginning is  What to Market services industrial services travel services, shipping, website design legal advice, accounting services, security, HR consumer services banking, insurance, real estate, travel etc. restaurants, movie theatres etc. goods industrial goods component parts materials, supplies consumer goods clothing, automobiles, consumer electronics etc. . Flexibility "country conditions change"  examples   Yugoslavia Australia Quebec Peru Chile Mexico China Sierra Leone Congo (Zaire) Afghanistan South Korea Thailand Indonesia Philippines Viet Nam all of these regions noted because in the past few years there have been significant events, positive and negative, which would effect the interest of a foreign business to be successful setting up operations in the region

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Class 9                   Class 9

Choosing and Weighing Variables . First  select the variables that you will use to make your decision Second rank the variables depending on what is most important the ranking will depend on the type of business example: a company making small products will consider proximity to market a low priority since shipping will be inexpensive - they  might consider quality of labour higher of the product requires a skilled workforce ie. Rolex. "Opportunities are determined by revenues less costs" Variables market size = potential to make money selling the product operational effectiveness, how easy is it to do what you need to do on site costs costs of labour force costs of materials and components costs of infrastructure (electricity, water, waste disposal) resources educated labourers and employees + research employees professional services (HR, legal, financial, security etc.) regulations and procedures (text says red tape) jurisdictional regulations cultural and social regulations and considerations risks (Some of the items in the above list are from the text, some are not)

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Class 9                   Class 9

Choosing and Weighing Variables - Risks financial risks (funding, bank loans, currency exchange rates, ROI) liquidity preference liquidity is important especially in high risk areas examples include stockpiled materials, capital equipment that could be sold, real estate, vehicles, IT systems etc. economic risks (inflation, wage rates) competitive risks vulnerable in the "time to market" stage weakness - competitor intelligence  political risks varies from country to country varies within a country depending on location of borders of other countries eg. Ecuador - border w Colombia is more risky than border with Peru safety risks personnel safety property security handling risks decrease the risk by using resources to "deal with it" eg. K&R training eg. contingency plans for environmental extremes accept the risk and change other variables to factor in the "expense" of the risk accept risk can include using insurance, or calculating costs differently accept the risk cause the results will not be that bad (eg. a middle eastern country using U.S. printing machines to make counterfeit money) (Some of the items in the above list are from the text, some are not)

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Sources of information on countries

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One of the things many students get frustrated about is finding good quality information on a country or region in order to do a "project". You can imagine this is even more critical when you are "out in the real world" and have to source information on an area in order to make a serious busines decision. Therefore, in order to provide a resource to students, and to highlight where an international business person might go to begin a search for investigating information for Country Evaluation and Selection, we have noted the following: There are several categories of information. government associations corporate Government information can be divided into two basic categories. information supplied by your home government about the target region examples Canadian Embassy in Peru Country Market Report on South Korea CIDA information on Philippines information supplied by the government of the target region examples Danish Consulate in Toronto  www.tradecomm.com/danish/ JETRO report on high tech investment in Japan information supplied by governments other than your's, and the target example the CIA website which has basic country profiles  www.odci.gov/cia/publications/factbook/indexgeo.html the Japanese government information in English  www.mofa.go.jp British government information on Europe Associations are various types NGO's Non-Governmental Organizations  examples World Bank, IMF, OECD Bilateral associations examples Canada-Japan Trade Council Hong Kong - Canada Business Association Canada-Finland Chamber of Commerce Multilateral associations examples Asia Pacific Foundation Pacific Basin Economic Council Canada Arab Business Council Industry Associations examples CBEF, Canada Beef Export Federation CAJAD, Cdn Assoc. of Japanese Automobile Dealers Corporate information (that is information on individual companies) can be obtained from a variety of a sources. association membership lists can be obtained from industry associations since many list their member companies on their web sites. webpages of the individual companies from using a search engine links from membership lists advertising - many companies list their URL with commercials directories example: Financial Post directory of directors, Canadian Business Magazine listing of the top 1000 companies online directories example: Yahoo categories  http://dir.yahoo.com/Regional/Countries/Canada/Government/ Embassies_and_Consulates/Foreign_Embassies_and_Consulates/ stock market listings (for public companies) WTGR

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You may find some assistance by using federal and provincial government sources as indicated below.
Also, you may find that industry associations, through their member companies are a great source of information - particularly bilateral associations -
eg. so if you need information on Brazil,  you can check the  Brazil-Canada Chamber of Commerce
 

www.infoexport.gc.ca/bilateral/tableofContent-e.asp

The federal government web page that lists many country specific associations

Canadian Embassies and Consulates overseas are also a great source of info.
Many have direct email contacts and web pages explaining information about the particular region.

 
 

- a screen capture of this link is shown below

information for Country Evaluation and Selection In the category of "information supplied by governments other than your's, and the target" - we can find the CIA site. Not too long ago, this information was closely guarded and password protected; no it is free for everyone.

In the late 1990's the U.S. government made some of the material publically available for the common use of Americans as it was hoped it would lead to better international understanding among its citizens. From the CIA website they say "The Factbook is in the public domain. Accordingly, it may be copied freely without permission of the Central Intelligence Agency"

The CIA alphabetically ordered list of countries in their "World Factbook"

Online sources include directories within Yahoo

 
 

Class 9                   Class 9

Collect and Analyze Data Why do you collect and analyze data on country and region targets? Obviously - to minimize financial risk to estimate ROI and use that to compare candidate countries reduce uncertainties by formulating contingency plans You cannot obtain all the information you require to be 100% sure, so you need to create a list of the important Variables and put the information against the list. In reality, you end up with "go / no go" conclusion based on how much information addresses the Variables needed to know.   Problems information inaccuracies based on relying on government information ? how did the government collect it was the government in a position to get accurate information sample size falsely reported analysis incorrect due to inability to do good analysis government motives for inaccuracy (eg. Moscow maps, West German road signs) NGO sources, WTO, IMP, OECD most reports done by individual consultants hired on a contract basis difficult to verify their credentials and primary sources comparability problems differences in collection methods for stats on eg. household income, literacy rate, etc. currency conversions often not accurate % of foreign ownership effects various factors calculated external sources of information reports of consulting companies specialized studies service companies (accounting firms, financial firms) government agencies international NGO's trade associations information service companies the internet (not a source, it is a form of the source) (this list of 8 points above comes from a text - Prof. Richardson's list is broken down into three components) click here to go back up to the list government associations corporate

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Class 9                           Class 9

Collaborative Strategies We are going to look at the reasons why companies get involved with other companies (in collaborative stratgies) and what different ways those relationships take place. Case Study    Grupo Industrial Alfa S.A. (A.K.A. Alfa) One of Latin America's largest companies steel manufacturer brewing beer banking and finance electronic consumer products (TV sets) mining and oil exploration automotive parts motorcycles (JV with Yamaha) synthetic fibers ( JV with Dupont) agricultural machinery (bought out Massey-Ferguson) A good example of a company very diversified into many lines of business through collaborative strategies. "The Alfa case shows that companies can use several types of collaborative strategies to exploit int'l opportunities. Alfa  (from text page 483) established joint ventures with foreign companies which were actively sought out by Alfa and which were responded to by Alfa  engaged in acquiring process and product technology engaged in selling process and product technology used licensing agreements utlized turnkey contracts bought trademarks for making branded products

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Case Study at the beginning of the chapter
(this is a screen capture from their website - which is all in Spanish)
 www.alfa.com.mx/ALFA5_esp.html

 
 
 

Shaw, an American company, is the world's largest carpet maker Terza (a Shaw, Alfa JV) is the largest producer of carpets and rugs in Mexico and Latin America.

In addition to the textbook information on Alfa, checks with some search engines turns up several other descriptions of collaborative strategies that Alfa has Alfa also has a relationship with a U.S. rug mfg. from Shaw's website  http://www.shawinc.com/International/terza.htm  "In addition to its U.S. operations, Shaw Industries maintains a  manufacturing presence in Mexico.  In June 1994, in conjunction with Grupo Industrial Alfa, S.A.de C.V., Shaw Industries established a joint  venture for the manufacture and marketing of carpets, rugs, and related products in Mexico, known as Tenedora Terza, S.A.de  C.V." So, sometimes Alfa makes an alliance for its strategic purposes, and sometimes, as in the case of Shaw, it ends up in an alliance because it is sought out by a company looking for a strong local partner. The relationship not only benefited Alfa, but also turned Shaw into the largest carpet maker in the world. WTGR

 

Class 10                   Class 10

Motives for Collaborative Arrangements or, subtitled  "reasons why companies get involved in complicated ways with other companies" WTGR .  Reasons for collaboration spread costs to other companies allows you to achieve greater economy of scale and save money eg.  two allied companies buying materials from the same supplier can result in discount pricing from the supplier specialize in competencies AKA "focusing on what you do best" eg. licensing your logo to a clothing company instead of buying the company avoid competition co-operating with a competitor to fight against another competitor secure vertical and horizontal links vertical links would be a furniture mfg.company developing a relationship with the forest products company, or the fabric manufacturing company horizontal links are developed to spread into all aspects of the market and achieve dominance horizontal links are also developed for projects that are too large for one company, such as giant sized civil engineering projects such as railways, airports, hydro dams etc. gain market knowledge gain location specific assets overcome legal constraints sometimes int'l business situations have regulations regarding local ownership and management, which can be satisfied if the large MNE develops a JV with a local enterprise diversify geographically minimize risk defensive approach avoid use of local managers, borrow money non-locally, locate strategic components outside the risk region integrative approach use local managers extensively, borrow money locally, "hearts & minds" approach

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Different Entry Modes to do International Business In this class, (July 13th) students were given photocopies of pages from the text, from page 286 - 309

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Class 10                   Class 10

Ways to get involved in International Business or Different Modes of Entry Indirect Exporting  Co-op or Piggyback Exporting  Direct Exporting  Licensing Franchising Contract Manufacturing Turnkey Operations Joint Venture Equity Alliances Acquisitions Greenfield Consortiums Some of these ways involve collaboration, some do not this is a list of the modes of entry that involve collaborative arrangements Licensing Franchising Contract Manufacturing Turnkey Operations Joint Venture Equity Alliances Acquisitions Greenfield Consortiums These three Modes are all related to a legal agreement between the brand owner and the company it is partnering with Licensing Franchising Contract Manufacturing

 

Class 10                   Class 10

Types of Collaborative Arrangements or, subtitled  "ways companies get involved in complicated ways with other companies" WTGR .  Types of collaborative relationships Licensing common for branded clothing products risks include production overuns by the licensee which would be sold on the black market which would erode the value of your brand Franchising common in the convenience food and beverage products industry a good way to spread your brand without taking the risk of buying real estate and setting up foreign operations Contract Manufacturing common in the clothing, telecom, computer and auto parts industries a good way to keep your investment in capital and labour to a minimum allows for flexibility when you need to temporarily increase output there are risks when the contract manufacturer does not produce to a quality level which meets the customer expectations, or when their are flaws in the production which could cause danger to users of the final assembled product Management Contracts based on the premise that success in business is due to successful people often used for highly specialized skills such as managing an oil refinery, or a computer hardware manufacturing facility Turnkey Operations contracts for construction of another company's facilities called "turnkey" because all the person has to do is arrive, and turn the key in the door and everything is ready to go sometimes the contract is just for real estate, erecting the building, and installing the machinery - other times it also includes hiring the local personnel as well Joint Ventures the difference between consortiums and joint ventures is that in a joint venture, the partners will create a legal corporate entity to carry out the activity - with an agreement that the parent companies have controlling interests Alliances Strategic Alliances - a relationship not involving ownership Equity Alliances - a relationship when the partners take joint ownership of a subsidiary a relationship in which one or more of the partners takes an ownership position in the other company this was very common among Japanese companies in the 1980's in order to secure strong motive for making the relationship succeed Consortiums  some texts describe consortiums as simply a term for 3 or more in a joint venture. This is definition is slightly incorrect. A consortium is usually an arrangement where companies come together for a project without taking ownership or sharing ownership in any subsidiary created entity consortiums are sometimes done by competitor companies for  research on a very expensive situation ; eg. the DVD consortium construction of a large scale engineering project . the difference between alliances and consortiums is that consortiums are usually created for a specific short term project, whereas alliances can take place over many years