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How would you define the nature and purpose of international management?
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What advantages do multinational corporations have? What challenges must they meet? Give examples.
MNC can raise money for its operations through the world.
MNC benefit by being able to establish production facilities in countries where its products can be produced most effectively and efficiently.
MNC can have access to natural resources and materials that may not be available to domestic firms.
Large MNC’s can recruit managers and other personnel from a worldwide labor pool.
1. Multinational Companies are able to sell far more than other type of company.
2. Multinational companies can avoid transport costs.
3. Multinationals can take advantage of different wage levels in different countries (as in some countries only women and children work, so the wages can be low)
4. Multinationals can achieve great economies of scale.
5. Multinationals have less chance of going bankrupt than small companies.
6. Multinationals can carry out a lot of research and development.
Challenges: Increasing a nationalism in many countries
Ex: Risk Averse Means Written Documentation
Germans do not like to take risks. That’s why Germans carefully document business details exhaustively before coming to a decision.
Any foreign multinational wishing to do business in Germany must prepare thorough documentation that explains their products and services in painful detail. And because 95% of Germans speak their native language in business, that typically requires formal translation of documents from the home country's language into German.
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Do you think the managerial practices applied in one country can be transferred to other? Explain by referring to the example in rectangle Ukraine – USA – Germany – Japan.
No, because of Differences in the legal—political, economic, and cultural environment.
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How do business functions and managerial functions interact? How do the international environment factors may influence business functions and managerial functions? Provide examples.
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Why do firms exist? Why do multinational firms exist?
Companies exist to exploit the benefits of being big. They exist, in other words, to maximize efficiency at scale. The experience curve nicely represents this relationship: The bigger a company gets, the more experience it accumulates, and the more its performance--particularly cost performance--improves.
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Why do firms go international?
Companies engage in international business in order to:
• Minimize competitive risk
• Acquire resources
• Expand sales
• Diversify sources of sales and supplies.
Minimize Competitive Risk. Many companies enter into international business for defensive reasons. They want to protect themselves against domestic companies that might gain advantages in foreign markets, and then use that advantage in the domestic market. Company X may fear that Company Y will generate large profits from a foreign market if left alone to serve that market. Company Y then might use those profits to improve its competitive position domestically. Thus, companies, being afraid of such activities, may enter a foreign market primarily to prevent a competitor from gaining advantages.
Acquire Resources. Manufacturers and distributors seek out products, services, and components produced in foreign countries. They also look for foreign capital, technologies, and information they can use at home. Sometimes they do this to reduce their costs. For example, Nike relies on cheap manufacturing operations in Southeast Asian countries to make its products. Acquiring resources may enable a company to improve its product quality and differentiate itself from competitors, potentially increasing market share and profits. Although a company may initially use domestic resources to expand abroad, once the foreign operations are in place, the foreign earnings may then serve as resources for domestic operations; for example, McDonald’s used the strong financial performance of its foreign operations to invest in more resources for domestic growth.3
Expand Sales. By reaching international markets, companies increase their sales faster than when they focus on a single market, that being the domestic one. These sales depend on the consumers’ interest in the product and their ability to purchase the product. Ordinarily, higher sales mean higher profits and that in itself is a motive for companies to go international. Many of the world’s largest companies derive over half their sales from outside their home country, such as BASF of Germany, Electrolux of Sweden, Gillette and Coca-Cola of the United States, Michelin of France, Philips of the Netherlands, Sony of Japan, Nestle of Switzerland.
Diversify Sources of Sales and Supplies. In order to minimize fluctuations in sales and profits, many companies may look for foreign markets to take advantage of the business cycle differences among countries. Sales increase in a country that is expanding economically and decrease in another that is in recession. Consequently, companies may be able to avoid the full impact of price fluctuations or shortages in any one country, by obtaining supplies of the same product or component from different countries. In addition to the aforementioned reasons for international business, there are some additional factors that have contributed to the increased international business activities in more recent years. These factors, which are sometimes interrelated, are (1) increase in global competition; (2) the development and expansion of technology; (3) the liberalization of crossborder movements; and (4) the development of supporting services.
Increase in Global Competition. Many companies, of any size, decide to compete internationally because new products quickly become known globally; companies can produce in different countries; and the suppliers, competitors, and customers of domestic companies have become international as well.
Development and Expansion of Technology. Even in 1970, there was no nternet as it is known today, no commercial transatlantic supersonic travel, no faxing or e-mailing, no teleconferencing or overseas direct-dial telephone service, and no sales over the Internet (electronic commerce; e-commerce sales). All these technological advancements have enabled more and more companies to be exposed to an increased number of international business activities. Transportation and communication costs are more conducive for international business operations.
Liberalization of Cross-Border Movements. Lower governmental barriers to the movement of goods, services, and resources (financial, human, informational, physical) enable companies to take better advantage of international opportunities. The European Union, the NAFTA, and other regional economic blocs throughout the world provide fewer restrictions on cross-border movements than they did a decade or two ago.
Development of Supporting Services. Companies and governments of various countries, alike, have developed services that ease international business. Mail, which is a government monopoly, could be transferred by an airline other than that of the country of origin, with a stamp of the country of origin, and could go through many different countries before it could reach its final destination. Also, banking institutions have developed efficient and effective means for companies to receive payment for their foreign sales. The banks can assist in the payment of any currency through various international business transactions, upon the receipt of goods and/or services.