International Business Environment_ Lecture 3

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International Business Environment_ Lecture 3 Powered By Docstoc
					Lecture 3
Spring 2009

 AC218 International Business
First Assignment due 16th
February: Unmoderated version
(subject to change):

“Using theories of international trade, assess the
impact of „Export Processing Zones‟ on the
following three stakeholder groups: employees,
consumers and shareholders.”
    Learning points of this lecture
   To provide an overview of the functional
    dimensions which shape the organization within
    the international business environment
   To address the specific aspects of the different
    areas of management in the international context
   To develop an awareness of the impacts of the
    way in which organizations respond to challenges
    within each functional area upon a variety of
Functional dimensions
   Operations and supply chain management
   Marketing
   Human resource management (HRM)
   Accounting and finance
   Innovation / Research and Development
Operations and supply chain management (1)
   Organizations aim to configure the supply chain in such a
    way that it enables them to reduce the costs of production
    and to improve efficiency
   Outsourcing some of the value-adding activities is seen as
    allowing greater flexibility and the ability to concentrate key
    resources on what the firm considers as its core
   Companies are able to switch suppliers and obtain the most
    advantageous cost structures for materials and components
   Reduction in the cost of resources such as labour, raw
    materials, energy (e.g. oil) and finance (e.g. global credit)
    can all be achieved. This does mean that the operations
    function becomes increasingly dependent on global factors
    (e.g. in the market for credit, or in rising oil prices).
Operations and supply chain management (2)
   Advances in transportation in the last half century,
    e.g. containerization, bulk sea transportation and
    the growth of mass air transportation, have had a
    great impact upon the international business
   Information Communication Technologies (ICTs)
    help to facilitate the flow of materials, services and
   In the contemporary world, networks of suppliers of
    materials, components and knowledge providing
    input to products and services are geographically
   E.g. Big Mac as a global product
Operations and supply chain management (3)
   Relationships within supply chains are not
    necessarily formed by equally independent
    economic agents
   E.g. MNEs vs. local suppliers
   The freedom to choose the most economically
    efficient way of configuring the supply chain at a
    global level enables companies to transfer value-
    adding activities rapidly from one country to another
   Companies do not need to take into account the
    economic and social consequences their strategic
    moves have on the affected countries
   E.g. „sweat shop labour‟, „race to the bottom‟, and
    ethical issues concerning EPZs
     Marketing (1)
   „A social and managerial process by which individuals and
    groups obtain what they need and want through creating and
    exchanging products and value with others‟ (Kotler et al.,
    2002: 5)
   International marketing research is aimed at finding out about
    consumer attitudes that are shaped by the language, religion,
    values and the norms of social behaviour of different cultures.
    These attitudes can also reflect underlying economic
   Marketing also constrained by the legal and political
    environment. Regulation can be found either at the national
    level or through international agreement.
   These factors affect decisions regarding the extent to which
    the elements of the marketing mix (product, price, promotion
    and distribution) will be standardized across markets or
    adapted to suit local conditions
    Marketing (2)
   Critiques of the marketing concept
   Characteristics of age, gender, race and income
    can become „issues‟ to be addressed in the
    marketing design – either as problems to be
    overcome or as opportunities to be exploited
   Problems with the assumption that through
    addressing people‟s needs and wants, marketing is
    doing „good‟ for them and that it has, therefore,
    some ethical basis. Western corporations accused
    of „cultural imperialism‟.
   E.g. cigarettes, fast food (e.g. the „McLibel‟ case)
   „Societal marketing‟ as a response to critiques of
    mainstream marketing
    Human resource management (1)
   Employment legislation differs between countries,
    but typically spells out the duties of business with
    respect to: health & safety at work, working hours,
    paid holidays, maternity/paternity leave,
    discrimination on grounds of race, sex, religion, etc.
   Need to consider government restrictions on access
    by and employment of non-nationals
   A country with comparatively weak regulation may
    attract investment, e.g. „sweatshops‟ and EPZs.
    However, consumers may react negatively to
    employment practices perceived as exploitative, by
    boycotting products.
    Human resource management (2)
   The global impact of the new labour market
   „Flexible employment‟. HRM has come to represent a move
    away from bureaucratic structures to more „flexible‟ structures.
   This means that companies are less inclined to guarantee
    permanent & secure employment contracts, or pay employer
    contributions to pension funds and health care insurance of
    the workers.
   This arrangement can be criticised for not enabling
    employees to develop secure and sustainable livelihoods.
   It is said: “In choosing whom to appoint, profit and other
    benefits to the firm are prioritised over whatever advantages
    and disadvantages might accrue to the individual and to the
    society in which the company operates” (see Cairns and
    Sliwa, International Business)
   E.g. „brain drain‟
    Accounting and finance (1)
   Firms within the international business environment
    must comply with the accounting and financial
    reporting practices of the various countries within
    which they operate. This is defined by the legal
   Trend towards harmonisation of accounting and
    financial reporting, auditing and stock exchange
    standards. Especially the case following the „global‟
    credit crunch.
   Critique of harmonisation: it is based upon the
    spread of standards originating within Anglo-Saxon
    accounting practices, which might not be appropriate
    for organizations operating within substantially
    different environments.
    Accounting and finance (2)

   Companies can take advantage of the international
    environment to minimise their financial costs. This is
    particularly true in the area of taxation.
   E.g. „tax havens‟ and „transfer pricing‟ as means of avoiding
    higher rates of tax.
   Example: ‘The UK subsidiary of a multinational company
    constructs a bulldozer at a cost of £27,000 but sells it for
    £300 to another subsidiary in the same group of
    companies based, say, in Venezuela, which then sells it
    on for its market price of £60,000. For tax purposes, the
    UK subsidiary could claim a loss of £26,700 and pay no
    corporation tax, even though the group made a global
    profit of £33,000. That profit is generated by using British
    infrastructure, but is recorded in another country with a
    more favourable fiscal regime’ (Sikka, 2003)
   Innovation brings together the functions already
    discussed and provides a strategic focus.
   Marketing for information on consumers is vital if
    new products are to be successful.
   Innovative operations required if new products
    require new machinery & new processes. This in
    turn may require innovative HRM for changing work
    methods. Commitment of financial resources also
   R&D represents a high cost and therefore
    companies prefer to direct R&D spending towards
    low-risk and high-return developments – not
    necessarily beneficial for all stakeholders
   E.g. health care
    Lecture summary
   We have discussed the different aspects of the
    functional dimensions of management in the context
    of the international business environment
   We have focussed on issues related to:
      Operations and supply chain management
      Marketing
      Human resource management (HRM)
      Accounting and finance
      Research and development / Innovation
   We have highlighted a range of issues from the point
    of view of a variety of stakeholders within the
    international business environment