international business

1. International Business: Strategy, Management, and the New Realities
Chapter 3
Participants in
International Business

2. International Business: Strategy, Management, and the New Realities
Three Types of Participants in IB
1. The focal firm – initiator of IB transaction,
including MNEs and SMEs
2. Distribution channel intermediary –
specialist firm providing logistics and
marketing services in the international supply
chain
3. Facilitator – a firm providing special
expertise in legal advice, banking, customs
clearance, market research, and similar
areas

6. International Business: Strategy, Management, and the New Realities
The MNE as a Focal Firm
• A Multinational Enterprise (MNE) is a large
organization with a network of production plants,
regional headquarters, and country subsidiaries
in numerous countries.
• Examples include: Nestlé, Sony, Unilever,
Nokia, Ford, Citibank, ABB, and Shell Oil.
• MNEs include those in retailing ( e.g., Carrefour
and Gap) and services ( e.g., Citibank,
Amazon).
• Some MNEs in countries like China and Russia
may be state owned.

7. International Business: Strategy, Management, and the New Realities
The SME as a Focal Firm
• A Small and Medium-Sized Enterprise (SME) is
a relatively small player in its respective industry
(in the U.S., those with less than 500
employees).
• SMEs can be more flexible and quicker to
respond to international opportunities.
• Though their limited resources prevent them
from engaging in FDI, SMEs can excel in
exporting, licensing, and franchising.

8. International Business: Strategy, Management, and the New Realities
The Born Global as a Focal Firm
• A Born Global (BG) firm represents a relatively
new breed of the SME that undertakes early and
substantial internationalization.
• Primarily a niche player, born globals display
high degree of entrepreneurial orientation,
proactiveness, and customer service.
• In the contemporary era, born globals make up
the fastest growing segment of exporters in
most countries.

9. International Business: Strategy, Management, and the New Realities
Evolution of a Born Global Exporter
and Challenges It Overcomes
Some will exceed
$100 million
Niche
limits
Manage
transition
issues early
Create
international
position
Begin exporting
early (2 years)
Small
domestic
sales only
Product or
process
development
Time
Size
Credibility
Finance
Export
Finance
Foreign representation
Export know-how & skills
Market information
Innovation…
the next
product

10. International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms
 Experience early, rapid, and substantial
internationalization
 Fewer financial and other resources than
traditional exporters
 Formed by technically inclined, market-oriented
business people with entrepreneurial drive
 Often enjoy internationally recognized technical
eminence and universal appeal in given product
category

11. International Business: Strategy, Management, and the New Realities
Common Characteristics of Born Global Firms (2)
 Emergence often associated with significant
product/process breakthrough or innovation
 Products often involve advanced technology,
substantial added value, superior quality, and
differentiated design
 Internationalization typically via exporting and
facilitated through network relationships
 Heavy user of advanced IT and communications
technologies

12. International Business: Strategy, Management, and the New Realities
 Typically a specialist, niche player
 Distinctive product/offering
 High degree of product/service quality
 Personal attention to building customer
relationships
 Constant effort to upgrade foreign
distributor effectiveness
Distinctive Features of Born Global
Marketing Strategy

13. Globalization and Entrepreneurship
International Business: Strategy, Management, and the New Realities
The Stanford Technology Ventures Program
Link: http://ecorner.stanford.edu/

14. International Business: Strategy, Management, and the New Realities
Foreign Market Entry Strategies of Focal Firms
Cross-border business transactions can be
grouped into three categories:
1. Trade: buying and selling of products
2. Contractual exchange of services or
intangibles: buying and selling of services
3. Equity ownership in foreign operations:
establishing foreign presence through direct
investment

16. International Business: Strategy, Management, and the New Realities
The Nature of Cross-Border Transactions
• Trade (export and import) implies a home-
based operation where independent partners in
the foreign market are engaged to provide local
services.
• Contractual exchanges include licensing,
franchising, service contracting, turnkey
operations, and project-based partnerships.
• Equity ownership is accomplished through FDI
which can be implemented through acquisition
or greenfield investment.

17. International Business: Strategy, Management, and the New Realities
Examples of Focal Firms that are Involved in
Contractual Exchanges
Turnkey Contractor: Provide engineering, design, and
architectural services in the construction of airports,
hospitals, oil refineries, and other types of
infrastructure.
• These projects are typically awarded on the basis of
open bidding by the sponsor.
• Examples- European Channel Tunnel, the Three
Gorges Dam in China, Delhi Metro Rail Ltd. and the
Hong Kong Airport.
• Build-own-transfer venture- an increasingly popular
type of turnkey contract in the developing economies
where contractors acquire an ownership in the facility
for a period of time until it is turned over to the client.

18. International Business: Strategy, Management, and the New Realities
International Collaborative Venture
• In an international collaborative venture (ICV),
partners pool their resources and share the
cost and risks of the new venture.
• Through an ICV, a focal firm can exploit
partner’s complementary technologies and
expertise, avoid trade barriers, connect with
customers abroad, and configure value chains
more effectively.
• ICV represents the middle ground between
FDI and exporting; the firm externalizes value
adding activities such as R&D or
manufacturing.

19. International Business: Strategy, Management, and the New Realities
Two Types of International Collaborative Ventures
• Joint Venture: the focal firm creates and
jointly owns a new legal entity together with
foreign partners
• Project-Based Collaborative Venture: Focal
firm collaborates with foreign partners on a
project with a relatively narrow scope and a
well-defined timetable, without creating a new
legal entity.
• Firms often form project-based ventures to
share the cost and risks involved in
knowledge-intensive R&D projects.

20. International Business: Strategy, Management, and the New Realities
An Example of Joint Venture
• Advantages: share costs and risks, gain access
to needed resources, gain economies of scale,
and pursue long-term strategic goals.
• Hitachi formed a joint venture with MasterCard
to promote a smart card system (Multos) for
banking and other applications.
• BP partnered with the state-controlled Hindustan
Petroleum Corporation in India. The new venture
built a $3 billion refinery in Punjab and
established a joint marketing business, including
a network of retail service stations around India.

21. International Business: Strategy, Management, and the New Realities
An Example of Project-Based Collaboration
Cisco Systems has expanded much of its operations
through strategic alliances with key foreign players.
• With Japan’s Fujitsu to jointly develop routers and
switches that enable clients to build Internet protocol
networks for advanced telecommunications.
• In Italy, Cisco teamed with the telecommunications
company Italtel to jointly develop network solutions
for the convergence of voice, data, and video to
meet growing global demands.
• In China, Cisco formed an alliance with
telecommunications company ZTE to tap the China
and Asian markets.

22. International Business: Strategy, Management, and the New Realities
Distribution Channel Intermediary
• Agents, distributors, manufacturers’ reps
• Specialize in physical distribution and marketing service;
connect the focal firm with the end user in the foreign
market.
• Assist the focal firm by providing logistics services such
as warehousing and customer support.
• Especially critical to exporters who do not establish
foreign presence themselves.
• Are based either in the home country or the host
country.

23. International Business: Strategy, Management, and the New Realities
Export Management Company (EMC)
• A more common intermediary in the U.S.
is the Export Management Company
which acts as an export agent on behalf
of the focal firm.
• An EMC finds export customers,
negotiates terms of sale, and arranges
for international shipping, typically for
smaller exporters.
• Most EMCs specialize in specific
industries and geographic areas.

24. International Business: Strategy, Management, and the New Realities
Online Intermediaries
• Disintermediation – bypassing traditional
intermediaries – is made possible due to
widespread use of the Internet to reach customers
globally.
• Examples include Amazon, Dell, eBay, and Alibaba
– English-language portal based in China that
specializes in business-to-business exchanges.
• Traditional retailers such as Sony and Tesco have
also established online presence.
• One negative outcome of online retailing has been
the ease with which unscrupulous marketers reach
on suspecting him customers with fake products
(e.g., fake pharmaceuticals).

25. International Business: Strategy, Management, and the New Realities
Facilitators in IB
• Facilitators assist the focal firm with
specialized services required in cross-
border transactions.
• Facilitators include: Banks,
international trade lawyers, freight
forwarders, customs brokers,
consultants, ad agencies, and market
researchers.