International business Policy

INTERNATIONAL BUSINESS POLICY

Question:

Porters note that “firms, not individual nation , compete in international market”. How does this statement help to explain some of the major challenges facing MNEs? How do the determinants of national competitive advantage help explain how companies can maintain their economic competitiveness?

Answer:

International business is a exchanging goods and services , conducted between individuals and businesses in multiple countries. Historically, international business activity first took the form of exporting and importing. Exporting is the selling of product ,goods or services supplied from one’s own country for use in other countries . Importing is the buying of products ,goods or services made in other countries for use in one’s own country.

Exporting and importing activities are often divided into two groups. first, trade in goods ,that is, tangible product such as clothing, computers , and raw materials. Second, Trade in services, that is ,intangible products such as banking , travel and accounting activities

http://www.businessdictionary.com/definition/international-business.html

International business activity can also take others forms .

* Licensing

* Franchising

* Management contract

* International business

Licensing is a contractual arrangement In which a firm in one country licenses the use of its intellectual property for e.g. patents, trademark, brand name , copyrights or trade secrets to a firm in a second country in return for a royalty payment

Franchising , a specialized form of licensing ,occurs when a firm in one country authorized a firm in a second country to utilize its operating system s as well as its brand name ,trademarks , and logos in return for a royalty payment. For example , McDonald’s corporation franchise it’s fast food restaurant world wide .

A Management contract is an arrangement wherein a firm is one country agrees to operate facilities or provide other management services to a firm in another countries for agreed upon fees. For example hotel industries.

International business as any organization that engages in a cross-border commercial transaction with individuals ,private firms or public sector organization

A firm is a commercial partnership of two or more person , especially, when unincorporated. Also the name or designation under which a company transacts business. Any business , sole proprietorship, partnership or a corporation

The term multinational entrepreneurs is used to identify firms that have extensive involvement in international business. An another definition of multinational corporation is a firm that “engaged in foreign direct investment an owns and controls value-adding activities in more than one country” MNEs generally coordinate their activities from a central headquarters but may also allow their affiliates or subsidiaries in foreign markets considerable latitude in adjusting their operation to local circumstances. Some MNEs , such as accounting partnership and Lloyd’s of London, are not true corporation, Some writers distinguish between multinational corporations and multinational enterprises . Further , not for profit organization ,such as the IOC and the International red cross , are not true enterprises ,so the term multinational organization can be used when one wants to refer to both for not for profit-seeking organization. Because of the common use of multinational corporation in the business press, however ,

Multinational enterprises facing a major challenges , Some of them are as under:

• Economics and Currency conversion

• Legal systems or Types of system

• Culture

• Availability of resources

• Market withdrawal – Government policy

• Political – legal environment and Government Power

In a domestic business strategy, a single country at a specified level of Economic development in a focus of the firms entrepreneurial efforts. The entire country is almost always organized as a single economic system and has the same currency. Creating a business for a multicounty are means dealing with differences in level of economic development, currency valuation government regulation and banking, venture capital and marketing system. One of the biggest problems entrepreneurs have is raising capital. The amount of private equity capital investment varies greatly by the area of the world, and the amount available is significantly less elsewhere than the united state. In addition, the countries may use different currencies, forcing at least one party to convert its currency for another. So MNEs face currency exchange problem. The legal systems may vary or even be in compatible. In different countries used there own system of business. Like many such barter system or third party arrangement have been used to increase the amount of business activity of the former U.S.S.R. and Eastern and central European countries, as well as other countries in various stages of development and transition .The cultures may differ and the resources may vary. Culture is encompasses a wide variety of elements ,including a language, social situation, religions ,political philosophy, economic philosophy education, and manners and customs. The availability of resources ,For example, one country may be rich in natural resources, but poor in skilled labor. Also e.g. U K, U S A , AND CANADA are well developed in technologically than developing countries like Africa , India, Pakistan Still, the basic skills and knowledge needed to be successful are generally similar whether one is doing business domestically or internationally.

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Tax competition – countries and sometimes sub national regions must compete against each other for the establishment of MNEs facilitates, and the subsequent Tax revenue- a tax is a financial charge upon an individual or legal entity by a state such that failure to pay is punishable by law, employment ,and economic activity. To compete, countries and regional political districts sometimes offer Incentives is a any financial or non-financial factor that motivate a particular course of work to MNEs such as tax breaks, pledges of government assistance or glowed infrastructure and labor standards enforcement. Foreign direct Investment – Foreign direct investment made for the purpose of actively controlling property ,assets or companies located in host countries, such as factories, building, machinery, land and mines, grow up of foreign direct investment can be used as one of improvement of economic globalization. Map below show net inflow of foreign direct investment as a percentage of gross domestic product. The big flows of foreign direct investment occurs between the industrialized countries like, western Europe and Japan, North America. But flow to non-industrialized countries are grows up sharply.

Market withdrawal-government policy- Multinational enterprises having a significant impact on government policy because of it’s size, basically through the threat of market withdrawal, for example , in order to reduce healthcare costs, some countries have tried to force pharmaceutical companies to license their patented drugs to local competitors for a very low fee, so automatically lowering the price ,when faced with the threats multinational pharmaceutical firm have simply withdrawn from the market. Political-legal environment- the multiplicity of political and legal environments in the international market creates vastly different business problem, opening some market opportunities for entrepreneurs and eliminating others. for example , U S environmental standards have eliminated the possibility of entrepreneur establishing ventures to imports several models of Europeans cars. It also involves the price fluctuations and significant increases in oil and other energy products in the last few years.

http://en.wikipedia.org/wiki/Multinational_corporation

Determinants of nation competitive advantages

Michael Porter tried to explain why a nation achieves international success in a particular industry and identified four attributes that promote or impede the creation of competitive advantage:

Factor endowments

Demand conditions

Relating and supporting industries

Firm strategy, structure, and rivalry

Factor endowments refer to a nation’s position in factors of production necessary to compete in a given industry. A nation’s position in factors of production can lead to competitive advantage. These factors can be either basic (natural resources, climate, location) or advanced .(skilled labor, infrastructure, technological know-how)

Demand conditions refer to the nature of home demand for the industry’s product or service. The nature of home demand for the industry’s product or service influences the development of capabilities. Sophisticated and demanding customers pressure firms to be competitive.

Relating and supporting industries refer to the presence or absence of supplier industries and related industries that are internationally competitive. The presence supplier industries and related industries that are internationally competitive can spill over and contribute to other industries. Successful industries tend to be grouped in clusters in countries – having world class manufacturers of semi-conductor processing equipment can lead to (and be a result of having) a competitive semi-conductor industry

Firm strategy, structure, and rivalry refers to the conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry impacts firm competitiveness. Different management ideologies affect the development of national competitive advantage

Vigorous domestic rivalry creates pressures to innovate, to improve quality, to reduce costs, and to invest in upgrading advanced features

Government policy can: affect demand through product standards influence rivalry through regulation and antitrust laws impact the availability of highly educated workers and advanced transportation infrastructure. The four attributes, government policy, and chance work as a reinforcing system, complementing each other and in combination creating the conditions appropriate for competitive advantage