OKBIT 22 Managing International Relations 2. International Business and Business to business markets
International business l = All business transactions that involve two or more countries, i. e. nations l Comprises a large and growing portion of the world’s total business l Almost all companies are affected by global events and competition (e. g. Maija’s father’s farm, 10 -kioski, . . . ), because most sell output to and/or secure supplies from foreign countries and/or compete against products and services that come from abroad
International business l Modes of business (to have or not to have one or more intermediaries) that differ from those it is accustomed to, on a domestic level l To operate effectively, managers must understand these different modes l International business takes place within a more diverse external environment ¡Affects the way company functions are handled
Some definitions l Global Company ¡A multinational venture centrally managed from one country, like e. g. Nokia plc. -> maybe, becoming a transnational one, in the future l. Has global strategies for product design, financing, purchasing, manufacturing, and marketing. l Transnational Company ¡A global network of productive units with a decentralized authority structure and no distinct national identity, like e. g. Ford Mo. Co l. Relies on a blend of global and local strategies
Why companies engage in International Business; trigger factors, i. e. internal (push, micro. . . ) and external (pull, macro. . . ) factors l Desire for continued growth l Also because of: l l Domestic market saturation To expand sales To acquire resources To diversify their sources of sales and supplies l To minimize competitive risk ¡ Rapid increase in and expansion of technology ¡ Liberalization of governmental policies ¡ Development of the institutions needed to support international trade ¡ Increased global competition
Internationalization process l Internationalization is the process by which ¡Firms increase their awareness of the influence of international activities on their future ¡Establish and conduct transactions with firms from other countries
How? Modes of international business l The Internationalization Process ¡Licensing l. Authorizing companies in foreign countries to produce and/or market a given product within a specified territory in return for a fee ¡Exporting l. Goods produced in one country are sold to customers in foreign countries
How? Modes of international business l The Internationalization Process (cont’d) ¡Local warehousing and selling l. Goods produced in one country are shipped to the parent company’s storage and marketing facilities located in overseas countries ¡Local assembly and packaging l. Components, rather than finished products, are shipped to company-owned foreign facilities for final assembly and sales
How? Modes of international business l The Internationalization Process (cont’d) ¡Joint ventures (also strategic alliances or partnerships) l. A company in one country pools its resources with another foreign company or companies to create and market products and jointly share profits and losses ¡Direct foreign investments l. The production and marketing of products through subsidiary in a foreign country that is wholly owned or as the result of cross-border merger
Market Entry Decisions l Foreign Market Selection l Timing & Order of Entry l Market Expansion Strategies l Mode of Entry Decisions
Decision criteria for Mode of Entry l Market Size and Growth l Risk l Government Regulations l Competitive Environment l Local Infrastructure
Case
Business to business markets l Market for goods and services bought and sold between businesses is huge l Comprises many types and sizes of organizations that interact selectively and form relationships of varying significance and duration with one another l Although companies are independent entities, they are also interdependent ¡Networks!
Business to business markets l Companies serving companies are therefore usually cooperative rather than competitive l All businesses buy and sell items in order to create their own offerings l Other businesses may then buy these products to use, to create other products or to sell as finished items to consumers
Characteristics of business markets l International aspects ¡In comparison to consumer markets international b 2 b business is easier ¡B 2 B organizations benefit from a lower diversity in product functionality and performance ¡B 2 B organizations are able to work together to help shape their trading environment
Characteristics of business markets l Relationships ¡Significance of relationships! ¡Between buying and selling companies, but also among other actors ¡Collaboration and partnership l. Development, supply and support of products ¡Active sellers and active buyers
Consumer markets l Market structure l Buyer behaviour l Decision-making l Products l Channels l Promotion l Price
Business markets l Market structure
Business markets l Buyer behaviour and decision-making
Characteristics of business markets l Buying processes ¡ Potential risk is high ¡ Decisions take much longer ¡ Involve more people ¡ Nature and form of interactions between organizations is based on an understanding of individual customer’s needs and willingness to provide and share information ¡ Group activity ¡ Decision Making Unit (DMU) or Buying Centre ¡ Consumption is also organizational activity
B 2 B Buying motivations Senior Management Reduce costs, use and be seen using latest technology Purchasing Manager Get value for money, increase own credibility and colleague satisfaction Plant Engineer Use modern equipment and provide cover for power breakdown Reduce operating costs and improve reliability Production Manager Consultants Improve plant efficiency & staff working conditions
Business markets l Products
Business markets l Channels
Business markets l Promotion
Business markets l Price
The economics of Business Market Demand l Derived demand l The impact of derived demand ¡→ Accelerator principle ¡→ Volatility of demand ¡→ Price variability in business markets l Joint demand l Cross-elasticity of demand
PESTEL
Categories of business goods l E. g. ¡Component parts ¡Systems ¡Services
Business market customers l Commercial enterprises ¡OEMs ¡End users ¡Resellers ¡Overlap of categories l Government agencies l Institutions
Case
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