International Business

Globalization: The shift toward a more integrated and interdependent world economy. Two Drivers: (1) Decline in international trade and investment barriers, (2) Technological innovations (internet, telecommunications, containerization).

Concept: A business enterprise that owns, controls, or manages production or service facilities in one or more countries outside its home country (e.g. Unilever, Coca-Cola).

Theory: A country should specialize in producing and exporting those goods that it can produce relatively most efficiently (lowest opportunity cost), and import goods that other countries produce more efficiently.

Porter’s Diamond:

1. Factor Endowments (skilled labor, infrastructure).
2. Demand Conditions (nature of home demand).
3. Related and Supporting Industries (presence of competitive suppliers).
4. Firm Strategy, Structure, and Rivalry (domestic competition conditions).

Concept: The extent to which less powerful members of organizations in a society expect and accept that power is distributed unequally. High power distance reflects hierarchical tolerance.

Distinction:

• Licensing: Granting a foreign firm the right to manufacture a patented product or use trademark in exchange for royalty fees (common in manufacturing).
• Franchising: A specialized form of licensing where the franchisor provides an entire ongoing business operational format, brand, and operating manual (common in service/fast food).

Concept: An international subsidiary in which the parent MNC owns 100% of the common stock/equity, either by establishing a new greenfield venture or acquiring an existing foreign firm.

Concept: Direct investment by a firm into production facilities in a foreign country to establish long-term managerial control (minimum 10% voting equity stake).

Concept: A range of barter-like reciprocal trade agreements where goods and services are traded directly for other goods and services rather than settled purely in hard currency (e.g. barter, counterpurchase).

Objective: To ensure smooth, predictable, non-discriminatory, and free global trade flows by administering trade agreements and resolving trade disputes between sovereign nations.

1. Exporting (Direct & Indirect): Lowest risk and investment; manufacturing at home and shipping abroad, but faces tariff barriers and transport costs. 2. Licensing & Franchising: Low capital commitment and rapid expansion; risk of losing trade secrets and quality control. 3. Joint Ventures: Shared equity and risk with a local foreign partner; gains local market knowledge, but risk of conflict over control. 4. Wholly-Owned Subsidiary (Greenfield or Acquisition): 100% control over operations and technology; highest capital cost and political risk.

1. Power Distance: Attitude towards social inequality and hierarchy. 2. Individualism vs. Collectivism: Focus on personal achievement vs. group harmony and loyalty. 3. Masculinity vs. Femininity: Value on competition/assertiveness vs. quality of life, relationships, and caring. 4. Uncertainty Avoidance: Tolerance for ambiguity and unstructured situations; high avoidance relies on rigid rules. 5. Long-Term vs. Short-Term Orientation: Focus on future thrift and perseverance vs. immediate gratification and tradition.

1. Political Risks: Expropriation, nationalization, currency inconvertibility, civil unrest, sudden regulatory changes. 2. Legal Risks: Breach of contract, intellectual property infringement, strict product liability laws. 3. Risk Management Techniques: Forming joint ventures with influential local partners, buying political risk insurance (MIGA, OPIC), local content hiring, international arbitration clauses.

Bartlett & Ghoshal Strategy Matrix:

• Global Standardization: High cost-reduction pressure, low local-responsiveness pressure; sells uniform product globally (Intel, Apple).
• Localization (Multidomestic): High local-responsiveness, low cost pressure; customizes products heavily for each country market (Unilever food).
• Transnational: High cost pressure AND high local responsiveness pressure; simultaneously achieves cost efficiency and global learning.
• International Strategy: Low cost pressure, low local responsiveness; exports core domestic products with minimal adaptation.

Global Supply Chain: Managing procurement of raw materials, parts, and assembly across international borders. Make-or-Buy Decision: Making in-house preserves proprietary technology and ensures quality; outsourcing (global sourcing) lowers fixed costs and leverages global specialized supplier efficiencies.

Foreign Investment and Technology Transfer Act (FITTA) 2075 Provisions:

• Automatic route for foreign investments up to specified thresholds.
• Repatriation guarantees for foreign dividends, capital gains, and royalties.
• Negative list: FDI prohibited in primary agriculture, cottage industries, retail, arms/ammunition.
• One-Stop Service Center (OSSC) at Department of Industry for business registration and visas.

1. Absolute Advantage (Adam Smith, 1776): A nation should specialize in and export products that it can produce with fewer labor hours than any other nation, importing goods where it is less efficient.

2. Comparative Advantage (David Ricardo, 1817): Even if a nation holds an absolute advantage in all goods, trade is mutually beneficial if each nation specializes in the product where it has the lowest opportunity cost.

3. Heckscher-Ohlin Theory (Factor Proportions): Countries export goods that intensively utilize their relatively abundant and cheap factors of production (e.g. labor-abundant countries export textiles/handicrafts; capital-abundant countries export airplanes/semiconductors), and import goods utilizing scarce factors.

4. Critical Evaluation: Assumes zero transport costs and perfect resource mobility, but forms the bedrock of modern international trade architecture.

1. Staffing Approaches:

2. Expatriate Failure: High cost when expatriate managers return home early due to inability of manager or spouse to adjust to foreign culture.

1. Opportunities: Access to large foreign consumer markets (India, China, USA), foreign capital inflow (FDI), technological transfer, expansion of tourism and digital IT freelancing/BPO services.

2. Threats: High import surge threatening domestic infant industries, brain drain of educated youth, cultural erosion, severe vulnerability to global economic shocks.

3. Strategies for Nepalese Competitiveness:

• Focus on unique niche products with geographical indications (Himalayan organic tea, pashmina, large cardamom, ayurvedic herbs).
• Develop competitive digital IT and software export sector which bypasses physical transit bottlenecks.
• Upgrading trade logistics, cross-border dry ports (ICD Birgunj/Chobhar), and automated customs clearance.