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Hotakainen, M. Johanson, J. Karagozoglu, N. Knight, G. Koskimies, N. Laanti, R. Loane, S. Luostarinen, R. Doctorate dissertation, Helsinki School of Economics, Finland. Madsen, T.

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Mort, G. Miles, M. Mudambi, R. Oviatt, B. M and McDougall, P. Penrose, E. Reuber, A. Rialp, A. Rinkinen, L.

Bibliographic Information

Romanelli, E. Saunders, M. Shrader, R. Silverman, D. Singh, N. Stake, R. A firm's value creation is the difference between V the value of the product being sold and C the cost of production per each product sold. Value creation can be categorized as: primary activities research and development , production, marketing and sales, customer service and as support activities information systems, logistics, human resources.

However, the success of firms that extend internationally depends on the goods or services sold and on the firm's core competencies Skills within the firm that competitors cannot easily match or imitate. For a firm to be successful, the firm's strategy must be consistent with the environment in which the firm operates. Therefore, the firm needs to change its organizational structure to reflect changes in the setting in which they are operating and the strategy they are pursuing.

International Business Challenges in a Globalised World

Once a firm decides to enter a foreign market, it must decide on a mode of entry. There are six different modes to enter a foreign market, and each mode has pros and cons that are associated with it. The firm must decide which mode is most appropriately aligned with the company's goals and objectives. The six different modes of entry are exporting, [5] turnkey projects , licensing , franchising , establishing joint ventures with a host-country firm, or setting up a new wholly owned subsidiary in the host country. The first entry mode is exporting. Exporting is the sale of a product in a different national market than a centralized hub of manufacturing.

In this way, a firm may realize a substantial scale of economies from its global sales revenue. As an example, many Japanese automakers made inroads into the U. There are two primary advantages to exporting: avoiding high costs of establishing manufacturing in a host country when these are higher and gaining an experience curve.

Some possible disadvantages to exporting are high transport costs and high tariff barriers. The second entry mode is a turnkey project. In a turnkey project, an independent contractor is hired by the company to oversee all of the preparation for entering a foreign market. Once the preparation is complete and the end of the contract is reached, the plant is turned over to the company fully ready for operation.

Licensing and franchising are two additional entry modes that are similar in operation. Licensing allows a licensor to grant the rights to an intangible property to the licensee for a specified period of time for a royalty fee. Franchising, on the other hand, is a specialized form of licensing in which the "franchisor" sells the intangible property to the franchisee, and also requires the franchisee operate as dictated by the franchisor.

Lastly, a joint venture and wholly owned subsidiary are two more entry modes in international business.

International business

A joint venture is when a firm created is jointly owned by two or more companies Most joint venture are partnerships. This is in contrast with a wholly owned subsidiary, when a firm owns percent of the stock of a company in a foreign country because it has either set up a new operation or acquires an established firm in that country. Exports and import. Strategic variables affect the choice of entry mode for multinational corporation expansion beyond their domestic markets. These variables are global concentration, global synergies, and global strategic motivations of MNC.

To achieve success in penetrating a foreign market and remaining profitable, efforts must be directed towards the planning and execution of Phase I. The use of conventional SWOT analysis , market research , and cultural research, will give a firm appropriate tools to reduce risk of failure abroad. Risks that arise from poor planning include: large expenses in marketing, administration and product development with no sales ; disadvantages derived from local or federal laws of a foreign country, lack of popularity because of a saturated market , vandalism of physical property due to instability of country; etc.

There are also cultural risks when entering a foreign market. Lack of research and understanding of local customs can lead to alienation of locals and brand dissociation. As such, they are key matters for the board and impinge on the whole business, rather than just an isolated unit. A company has to be conscious about the production costs to not waste time and money.

If the expenditures and costs are controlled, it will create an efficient production and help the internationalization. How a government governs a country governance can affect the operations of a firm. The government might be corrupt , hostile, or totalitarian ; and may have a negative image around the globe. A firm's reputation can change if it operates in a country controlled by that type of government.

Elections or any unexpected political event can change a country's situation and put a firm in an awkward position. Political risk tends to be greater in countries experiencing social unrest. When political risk is high, there is a high probability that a change will occur in the country's political environment that will endanger foreign firms there.

Corrupt foreign governments may also take over the company without warning , as seen in Venezuela. Technological improvements bring many benefits, but some disadvantages as well. Some of these risks include "lack of security in electronic transactions , the cost of developing new technology Companies that establish a subsidiary or factory abroad need to be conscious about the externalizations they will produce, as some may have negative effects such as noise or pollution.

This may cause aggravation to the people living there, which in turn can lead to a conflict. People want to live in a clean and quiet environment, without pollution or unnecessary noise. If a conflict arises, this may lead to a negative change in customer's perception of the company. Actual or potential threat of adverse effects on living organisms and environment by effluents, emissions, wastes, resource depletion, etc.

The Challenges Of International Management

As new business leaders come to fruition in their careers, it will be increasingly important to curb business activities and externalizations that may hurt the environment. These are the economic risks explained by Professor Okolo: "This comes from the inability of a country to meet its financial obligations. The effect of exchange-rate and interest rate make it difficult to conduct international business. In practice, the biggest problem arising from economic mismanagement has been inflation.

Historically many governments have expanded their domestic money supplying misguided attempts to stimulate economic activity. According to Professor Okolo: "This area is affected by the currency exchange rate, government flexibility in allowing the firms to repatriate profits or funds outside the country.

The devaluation and inflation will also affect the firm's ability to operate at an efficient capacity and still be stable.


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It might be higher or lower in the host countries. Indicative Further Reading: Adler, N. International Dimensions of Organizational Behavior. Kent Publishing. Becker, K. Culture and International Business. International Business Press.


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New York. Black, J. Cross cultural training effectiveness: a review and a theoretical framework for future research. Academy of Management. Dodd, C. Hampden-Turner Charles M.

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