International

Business

Unit 01
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TYPES OF INTERNATIONAL BUSINESS

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 There are a number of companies around the world that
specialise in buying and selling products internationally. They
often establish branches in several countries around the world
and each branch operates as a separate business unit buying
from the local market and selling through its branches into other
foreign markets and visa versa. The Japanese are well-known
international traders and examples of Japanese companies
active in South Africa include Mitsui and Itochu. Another (non-
• Large international retailing organisations
such as Walmart, Sears, Sainsburys, Japanese) example is the Gerber Goldschmidt Group, but there
Carrefour and others may establish are many others. These trading companies may go beyond just
buying offices in various countries that
buying and selling and may begin to become involved in
they consider to be major sources of
supply (such as the US, China, India, etc.). operations by buying a stake in local companies or entering into
These buying offices then approach local joint ventures. Sometimes these operations may be referred to
firms to buy goods from them. For the
local supplier, it is just another local sale.
as export trading houses (ETH) or export trading companies
The buying office pays in Rands and takes (ETC), but there is a subtle difference. An ETC/ETH is a local
all the responsibility of distributing the company that buys and sells internationally for its own account,
product to their home base, wherever it
may be. Occasionally, large industrial
while an ITC is a overseas company with an office or branch in
firms may also establish buying offices in the local market, that buys and sells goods internationally.
countries that represent major suppliers
to the firm.

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Licence process

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• National and international organisational competitive
advantage

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Porter
Diamond
Model

The Porter Diamond Model suggests that countries can create advantages for themselves, such as a
strong technology industry or a skilled labor force. Another application of the Porter Diamond Model is
used in corporate strategy as a framework to analyze the relative merits of investing and operating in
national marketsT

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The Porter Diamond Model

• THIS is visually represented by a diagram that resembles the points of a

diamond and includes the interrelated determinants that Porter
theorizes as the deciding factors of national comparative economic
advantage:
• Firm strategy, structure, and rivalry
• Related supporting industries
• Demand conditions
• Factor conditions.

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Firm Strategy, Structure, and Rivalry

• Firm strategy, structure, and rivalry define that competition leads

to increased production and the development of technological
innovations. The concentration of market power, degree of
competition, and ability of rival firms to enter a nation's market are
influential

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Related Supporting Industries

• Related supporting industries consider the upstream and

downstream industries that facilitate innovation through
exchanging ideas. These can spur innovation depending on the
degree of transparency and knowledge transfer.

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Demand Conditions

• Demand conditions refer to the size and nature of the customer

base for products, which also drives innovation and product
improvement. Larger consumer markets will demand and stimulate
a need to differentiate and innovate and increase market scale for
businesses

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Factor Conditions

• According to Porter, the most important of the five points is factor

conditions. Factor conditions are those elements that Porter
believes a country’s economy can create for itself, such as a large
pool of skilled technological innovation, infrastructure, and capital.
One way for the government to accomplish that goal is to stimulate
competition between domestic companies by establishing and
enforcing anti-trust laws.

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Example

• Japan has developed a competitive global economic presence

beyond the country's inherent resources by producing a large
number of engineers that have helped drive technological
innovation in Japanese industries.

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Distinction between a global, transnational,
international and multinational company

• We tend to read the following terms and think they refer to any company
doing business in another country.
• International
• Multinational
• Global
• Transnational
• Each term is distinct and has a specific meaning which define the scope and
degree of interaction with their operations outside of their “home” country.
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International companies

• these are importers and exporters, they have no investment outside of

their home country.
• Transnational companies are much more complex organizations. Its
a commercial enterprise that operates substantial facilities,
does business in more than one country and does not consider any
particular country its national home. One of
the significant advantages of a transnational company is that they
are able to maintain a greater degree of responsiveness to the local
markets where they maintain facilities

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EXPLANATION

• International companies are importers and exporters, they have no investment outside of their home
country.
• Multinational companies has locations or facilities in multiple countries, but each location functions in
its own way, essentially as its own entity.
• Global companies also has locations in multiple countries, but they’ve figured out to create one
company culture with one set of processes that facilitate a more efficient and effective single global
organization.
• Transnational companies are much more complex organizations. Its
a commercial enterprise that operates substantial facilities, does business in more than one country and
does not consider any particular country its national home. One of the significant advantages of a
transnational company is that they are able to maintain a greater degree of responsiveness to the local
markets where they maintain facilities

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Multinational companies

• These has locations or facilities in multiple countries, but each

location functions in its own way, essentially as its own entity

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Global companies

• These also has locations in multiple countries, but they’ve figured

out to create one company culture with one set of processes that
facilitate a more efficient and effective single global organization.

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Transnational companies

• Such companies are much more complex organizations. It is a

commercial enterprise that operates substantial facilities, does
business in more than one country and does not consider any
particular country its national home. One of the significant
advantages of a transnational company is that they are able to
maintain a greater degree of responsiveness to the local
markets where they maintain facilities

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MNC Advantage and disadvantage

• A multinational company is a business that has resources both

within its own country and elsewhere. MNCs conduct international
business by setting up factories and offices in most of the world’s
countries.

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Features of MNC
• Companies registered and conducting business in many
nations are referred to as multinational corporations
(MNCs). They are sometimes known as transnational
corporations as well. A multinational firm maintains
branches, factories, and other facilities across different
countries besides its headquarters. It coordinates global
management. International companies are growing
every day. Economic development is ongoing. Thus,
foreign investment is necessary.

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Example of MNC

• For instance, in the United States and other emerging countries,

Ford, Apple, Coca-Cola, Microsoft, and Google all run concurrent
operations. Their size and revenue can exceed the GDP of several
poor nations put together.

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MNCs generally come in three
different kinds:

• Regional: In this case, the business establishes a

headquarters in its nation but constructs many offices in
other nations. They are under the jurisdiction of the
head office to monitor subsidiaries and affiliates

• Centralised: MNCs of this sort have their headquarters in

their nation and locate their plants there. It lowers the
company’s production costs.

• Multinational: In a multinational, offices that are under

the headquarters watch subsidiaries and affiliates.

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Advantages

• 1. Employment
• Both locally and worldwide, multinational firms help
to create work opportunities. MNC inward
investments generate foreign money, which is
essential for developing and rising countries.
Additionally, they help raise the bar for what is
possible in less developed nations and offer
employment opportunities.
• 2. Decreased Labour Costs
• MNCs set up offices in low-cost countries to produce
goods and services more affordable. Offering low-
cost, top-notch goods and services, it obtains a cost
advantage. Locally based smaller businesses are
ineligible for this.

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 Advantages
• 3. Arrival Of Capital
• The majority of multinational corporations have their corporate
headquarters in industrialized nations. They rely on the resources of
developed markets to maintain their stable revenue streams. To enjoy
investments in the developing world, these companies must move
there. To increase their production capacity abroad, multinational
firms build factories. They invest in training centers, and give financial
support to educational institutions. These businesses are an important
source of foreign investment in developing nations.
• 4. They Assist Other Businesses
• By permitting well-managed companies to get managed enterprises
through mergers and acquisitions. Multinational corporations can
assist other commercial organizations in achieving economies of scale
in marketing and distribution.
• 5. Consumer Accessibility
• Access to clients is one of the key advantages MNCs have over
companies with operations limited to a smaller region. The MNCs’
have higher accessibility to more significant geographic regions. It may
enable them to reach a larger pool of potential customers and grow
more than other businesses.

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 1. Threat To Domestic Industries

MNCs pose a threat to local industries that are still growing due
to their tremendous economic power. MNCs are too powerful for
domestic industries to compete with. Threats from MNCs have
forced the closure of some local businesses. MNCs impede the
Disadvantages host countries’ economic progress as a result.

2. Loss Of Natural Resources

MNCs rely on their home countries’ natural resources to make

great profits. Yet doing so depletes those resources, which hurts
the economy by limiting the number of natural resources
available.

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 MNCs only make products for
the wealthy because the poor
3. No Benefit To The Poor cannot afford them. As a result,
MNCs often do not aid the
impoverished in host countries.

Technology transfer by
multinational firms might not
be appropriate for the host

Disadvantages
nation. It might not be current.
4. Insufficient Technology It might be too sophisticated.
They can also fail to impart new
technology skills to the people.
As a result, unemployment
rises.

Multinational firms cut back on

or shut down their
manufacturing facilities during
5. Uncertainty unstable economic times.
Because they hire and fire
people, MNC employees
experience job loss.

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A Turnkey
Contract/project
It is a contract where an independent agent provides all materials and labour and does all the work
necessary to complete a project for a fixed price.

Turnkey contracts are simply agreements between a builder and a business where the builder agrees
to complete a project that is then readily available for the company.

If we go a bit deeper into this, the term “Turnkey” originated in U.S. oil and gas industries and has
gradually spread to other countries.
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 For example,
Thus, 3 types of
enterprises take part in
a turnkey contract would be used to construct airports, office
turnkey business buildings, malls, skyscrapers, etc.
activities:
1. Manufacturers of engineering equipment;
2. Construction companies; and
3. Consulting firms.

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 Advantages of turnkey projects

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• Wholly owned subsidiary Special modes
A wholly owned subsidiary (WOS) is somewhat similar to
foreign direct investment in that money goes into a
foreign company but instead of money being invested
into another company, with a WOS the foreign business is
bought outright. It is then up to the owners whether it
continues to run as before or they take more control of
the WOS.

Piggybacking

Piggybacking involves two non-competing companies

working together to cross-sell the other’s products or
services in their home country. Although it is a low-risk
method involving little capital, some companies may not
be comfortable with this method as it involves a high
degree of trust as well as allowing the partner company
to take a large degree of control over how your product is
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marketed abroad. Presentation Title 63
 projects in development worldwide as of May 2022,
by selected countries

Additional
information

• Global Turnkey Projects Market by Type

• Manufacturers of Engineering Equipment
• Construction Companies
• Consulting Firms
• Global Turnkey Projects Market by
Application
• Health
• Finance
• Internet

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Emerging market economy

• https://www.investopedia.com/terms/e/emergingmarketec
onomy.asp

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For example,

• The International Monetary Fund (IMF) classifies 20 countries as emerging markets

while Morgan Stanley Capital International (MSCI) classifies 24 countries as
emerging markets.
• Standard and Poor's (S&P), FTSE Russell, and Dow Jones also vary slightly in their
classification of countries as emerging markets.

• At any of these institutions' discretion, a country can be removed from the list by
either upgrading it to developed nation status or downgrading it to a frontier nation.
Likewise, developed nations may be downgraded to an emerging market, as was
the case with Greece. Frontier markets may be upgraded to an emerging market, as
was the case for Qatar and Argentina.

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Design and structure of MNCs

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 Team organizational structure

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The way to get
started is to quit
talking and begin
doing.

THANK YOU

Walt Disney

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