IBT 2

Distributors

• are export intermediaries who represent the company in foreign market

• acts as the face of the companies

Contractual mode

involves the use of a contract rather than investment mode

Licensing

Franchising

Investment

Joint Venture

4 MAIN CONTRACTUAL MODES

Licensing

is defined as the granting of permission by the licenser to the licensee to use intellectual property rights, such as trademarks, patents, brand names or technology under the defined conditions.

Franchising   

is a joint venture between a franchisor and a franchisee

Investment

is an asset or item accrued with the goal of generating income or recognition.

Joint Venture

is a combination of two or more parties that seek the development of a single enterprise or project for profit, sharing the risks associated with its development.

1.     Finding the right partners

2.     Local partners may gain the know-how to produce its own competitive products to rival the multinational firm.

Risk of Joint Ventures

Wholly Owned Subsidiaries

• operate as a separate and distinct corporation from its parent company.

• This benefits the company for the purposes of taxation, regulation, and liability.

1.     Location

2.    Long Term Strategic Role

3.    Outsourcing

4.    Supply Chain

5.    Locally managed or outsourced

Global Production, Outsourcing and Logistics

Supply Chain

is an interconnected system that turns raw materials into finished products ready for consumers consumption.

-       Availability of skilled labor and supporting industries

-       Formal and informal trade barriers

-       Future exchange rate changes

-       Transportation Cost

-       Regulations affecting the business

-       Technological factors

Country Factors

1.     Level of fixed cost (VARIABLE COST IF APPLICABLE)

2.    Minimum efficient scale

3.    Flexibility of the technology

Three Characteristics of a manufacturing technology

• Fixed costs are substantial

• Production in multiple locations

Flexibility of the technology

1.    Concentrating them in the optimal location that can serve the world market.

2.    Price

Locating Production Facilities

1.     Pressure to lower costs or respond to the local market

2.    Strategic Role of Foreign Factories

3.    The essence of Make-or-Buy Decisions

Strategic Role of Foreign Factories

-       It lower cost

-       Make protect technology

-       Cost structure

-       Strategic Alliances

-       Just in Time Inventory

Advantages of Making Decision

1.     Optimal Use of natural resources

2.    Availability of all types of goods

3.    Specialization

4.    Advantages of large-scale production

5.    Stability in prices

6.    Exchange of technical know-how and establishment of new industries

7.    Increase in efficiency

8.    Development of the means of transport and communication

9.    International co-operation and understanding

10. Ability to face natural calamities

Advantages of International Trade

1.     Impediment of Home Industries

2.    Economic Dependence

3.    Political Dependence

4.    Mis-utilization of Natural Resource

5.    Import of Harmful Goods

6.    Storage of Goods

7.    Danger

8.    World Wars

Disadvantages of International Trade

Trade

is the concept of exchanging goods and services between two people or entities.  International

Competitive advantage

refers to factors that allow a company to produce goods or services better or more cheaper than its rivals.

Comparative advantage

is the advantage over others in producing a particular good.

1.    Local Market Resources and capabilities

2.    Local market demand conditions

3.    Local suppliers and complementary industries

4.    Local firm characteristics

 Porter’s National Competitive Advantage Theory Determinants

Michael Eugene Porter

is an American academic known for his theories on economics, business strategy, and social causes

Competitive Rivalry

Supplier Power

Buyer Power

Threat of Substitution

Threat of New Entry

Porter's Five Forces

to help businesses understand the competitive dynamics of their industry and make more informed strategic decisions.

The purpose of Porter's Five Forces analysis

Porter's Five Forces Framework 

is a method of analysing the competitive environment of a business.

Competitive rivalry

is a measure of the extent of competition among existing firms.

Suppliers

have the power to influence price, as well as the availability of resources/inputs.

Buyer Power or bargaining power

refers to the pressure consumers can exert on businesses to get them to provide higher quality products, better customer service, and lower prices.

Threat of substitutes 

is the availability of a product that the consumer can purchase instead of the industry's product.

substitute product

is a product from another industry that offers similar benefits to the consumer as the product produced by the firms within the industry.

Treat of New Entry

is the risk a new competitor creates for current companies within an industry.

• Ancient Bartering (2500 BC)

• Mercantilism (17-18 cen.)

• Industrial Revolution

• Modern/Digitized Global System

International Trade Evolution

Silk Road

a massive, interconnected network of ancient land and maritime trade routes