INTERNATIONAL BUSINESS

MODULE – III

ORGANIZATIONAL STRUCTURES

Every international business firm has to face various issues related to organizational
policies. These organizational issues are to be addressed carefully in order to keep the
business healthy and profitable. Although there are numerous issues, both small and big,
we will primarily concentrate only on the major issues that need to be addressed.

Centralization vs. Decentralization

Centralization is the systematic and consistent reservation of authority at central points
in the organization. In centralization, the decision-making capability lies with a few
selected employees. The implications of centralization are

 Decision making power is reserved at the top level.

 Operating authority lies with the mid-level managers.
 Operation at lower level is directed by the top level.
Almost every important decision and operational activities at the lower level are taken by
the top management.
Decentralization is a systematic distribution of authority at all levels of management. In
a decentralized entity, major decisions are taken by the top management to build the
policies concerning the entire organization. Remaining authority is delegated to the mid-
and lower-level managers.

Use of Subsidiary Board of Directors

International firms, especially the fully-owned ones, usually have a board of directors to
oversee and direct the top-level management. The major responsibilities of board-
members are to −

 Advice, Approve and Appraise local management.

 Help the management unit in providing response to local conditions.
 Assist the top management in strategic planning.
 Supervise the firm’s ethical issues.

The four different kinds of organizational structure are as mentioned below:

1. Administrative Structures

Administrative structures include a specific level of regularization. They are preferably

suitable for greater scale or larger multifaceted organizations, most compelling on an
extraordinary structure. The stress between non- administrative and administrative
structures is resounded difference between gradual and automatic structures.
2. Functional Structure

Functional Structure organizational is a structure which includes undertakings like

supervision, direction, management, and allocation of responsibilities. The organizational
structure selects how the processes and presentations of the organization can carry. The
communication organization structure narrates to how the associate in a company are
gathered and to whom can they report. One unoriginal means of establishing individual is
done function. Few collective activities in a company contain marketing, HR, manufacture,
and bookkeeping. The benefits and importance of functional structure include quick
decision making as the members of the group are able to interconnect effortlessly with
each other. Also, since the members already own same sets of skill and interests’
individuals in this type of structures can easily learn from each other.

3. Divisional Structure

The divisional structure which is also called as product structure is an arrangement of a

business that breakdowns the organization into separation which is self-concerned with. A
division is self-oriented and includes groups of functionalities that execute to make a
product. It plans to operate and enter like a distinct revenue or business center.

4. Matrix Structure

The roles and duties incline to be considerably more complex defined in the matrix
structure. The matrix structure bonds employees by both function as well as the product.
A matrix company over and over again exploits and develops groups of staffs to
accomplish the task, so as to take advantage of the power and in order to hide the
weaknesses, of reorganized and practical forms.

CONTROL MECHANISMS
Control mechanisms play an important role in any business organization, without which
the roles of managers get constrained. Control is required for achieving the goals in a
predefined manner because it provides the instruments which influence the performance
and decision-making process of an organization. Control is in fact concerned with the
regulations applied to the activities within an organization to attain expected results in
establishing policies, plans, and practices.
Control mechanisms can be set according to functions, product attributes, geographical
attributes, and the overall strategic and financial objectives.

Objectives of Control
There are three major objectives for having a control mechanism in an international firm.
They are −
 To get data and clues for the top management for monitoring, evaluating, and
adjusting their decisions and operational objectives.
  To get clues based on which common objectives can be set to get optimum
coordination among units.
 To evaluate the performance metrics of managers at each level.

Types of Control Mechanisms

There are various modes of control. The most influential ones are the following −

Personal Controls
Personal controls are achieved via personal contact with the subordinates. It is the most
widely used type of control mechanism in small firms for providing direct supervision of
operational and employee management. Personal control is used to construct
relationship processes between managers at different levels of employees in
multinational companies. CEOs of international firms may use a set of personal control
policies to influence the behavior of the subordinates.

Bureaucratic Controls
These are associated with the inherent bureaucracy in an international firm. This control
mechanism is composed of some system of rules and procedure to direct and influence
the actions of sub-units.
The most common example of bureaucratic control is found in case of capital spending
rules that require top management’s approval when it exceeds a certain limit.

Output Controls
Output Controls are used to set goals for the subsidiaries to achieve the targeted outputs
in various departments. Output control is an important part of international business
management because a company’s efficiency is relative to bureaucratic control.
The major criteria for judging output controls include productivity, profitability, growth,
market share, and quality of products.

Cultural Controls
Corporate culture is a key for deriving maximum output and profitability and hence
cultural control is a very important attribute to measure the overall efficiency of a firm. It
takes form when employees of the firm try to adopt the norms and values preached by
the firm.

Approaches to Control Mechanisms

There are seven major approaches for controlling a business organization. These are
discussed below −

Market Approach
The market approach says that the external market forces shape the control mechanism
and the behavior of the management within the organizational units of an MNC. Market
approach is applied in any organization having a decentralized culture.
In such organizations transfer prices are negotiated openly and freely. The decision-
making process in this approach is largely directed and governed by the market forces.

Rules Approach
The rules approach applies to a rules-oriented organization where a greater part of
decision-making is applied to strongly impose the organizational rules and procedures. It
requires highly developed plan and budget systems with extensive formal reporting.
Rules approach of control utilizes both the input and output controls in an organized and
exclusively formalized manner.

Corporate Culture Approach

In organizations that follow the corporate culture approach, the employees internalize the
goals by building a strong set of values. This value-syndication influences the operational
mechanism of the organization. It has been observed that even when some
organizations have strong norms of behavioral controls, they are informal and less
explicit. Corporate culture approach requires more time to bring the aimed changes or
adjustments in an organization.

Reporting Culture
Reporting culture is a powerful control mechanism. It is used while allocating resources
or while the top management wants to monitor the performance of the firm and the
employees. Rewarding the personnel is a common practice in such approaches of
control. However, to get the maximum out of reporting approach, the reports must be
frequent, correct, and useful.

Visits to Subsidiaries
Visiting the subsidiaries is a common control approach. The disadvantage is that all the
information cannot be exchanged via visits. Corporate staffs usually and frequently visit
subsidiaries to confer and socialize with the local management. Visits can enable the
visitors to collect information about the firm which allows them to offer advice and
directives.

Management Performance Evaluation

Management performance Evaluation is used to evaluate the subsidiary managers for
the subsidiary’s performance. However, as decision-making authority is different from the
operational managers, some aspects of control cannot be managed via this approach.
Slow growth rates of firms and risky economical and political environment requires this
kind of approach.

Cost and Accounting Comparisons

Cost and Accounting Comparisons is a financial approach. It arises due to the difference
in expenditure among various units of the subsidiaries. A meaningful comparison of the
operating performances of the units is necessary to get the full output from this approach.
Cost accounting comparisons use a set of rules that are applicable to the home country
principles to meet local reporting requirements.
 PERFORMANCE ISSUES
It is an important part of every business organization to measure the performance of both
employees and the firm as a whole. We will, however, restrict our focus on organizational
performance measurement. The standard process of measuring the performance of a
global business is as shown in the following diagram −

The prominent features of each stage are discussed below.

Establish Standard of Performance

Standard of performance is applicable to cost, quality, and customer service. More than
one standard may be necessary because they reflect expected levels of various units of
the manufacturing performance. This includes process yields, product quality, overhead
spending levels, etc.

Measure Actual Performance

To measure actual performance, the use of automated data collection systems is
suggested to gather information. A standard cost measurement system includes man-
hours, machine-hours, and material usage.

Analyze the Performance and Compare it with standards

There must be some set standards to compare the actual performance. The standards
should be realistic and achievable. The results of the comparison can be used to apply
further rules, targets, and reporting.
Construct and Implement an Action Plan
Constructing and implementing an action plan is the key to success. Variance analysis
can be used to detect potential problem areas. Finding the source of the problem and
improving the situation may be useful. Its effectiveness depends on the management’s
adaptability to the information obtained.

Review and Revise Standards

Review and revise is an important step, as modern organizations are in a constant state
of change. If the variances are significant, the performance standards can be adjusted.
Effective Performance Measurement must be integrated with the overall strategy. This
step requires various financial and non-financial indicators.

Effective Performance Measurement System

For getting an effective performance measurement system −
 The measurement objectives must be owned and supported throughout the
organization.
 The process must be applied top-down for maximum benefits. The measures
applied must be fair and achievable.
 The measurement system and the reporting structure must be simple, clear, and
recognizable.
 The firms need to prioritize and focus to address only the key performance
indicators.

Performance Evaluation System

A performance evaluation system must contain periodic review of operations so that the
objectives of the firm are accomplished. It is important to have the accounting information
to evaluate domestic and foreign operations’ costs and profitability.
It is not all that simple to measure the performance of an individual, a division, a
subsidiary, or even a company as a whole. It is a lengthy and hectic process. The
objectives of performance evaluation are to –

 Find the economic performance of the firm

 Analyze each unit’s management performance
 Monitor the progress of objectives, including the strategic goals
 Assist in appropriate allocation of resources

Financial and Non-Financial Measures of Evaluation

ROI (Return on Investment) − ROI is the most common method to evaluate the
performance of an international firm. It shows the relationship between profit to invested
capital and encompasses almost all important factors related to performance. An
improved ROI can act as a logical motivator of the managers.
Budget as Success Indicator − Budget is an accepted tool for measuring and
controlling the operations. It is also used to forecast future operations. A budget is a
clearly expressed set of objectives that guide the managers to set their individual
performance standards. A good local or regional budget helps the company to facilitate
its strategic planning process smoothly.
Non-Financial Measures − the major non-financial measures that can be used to
evaluate performance are − Market Share, Exchange Variations, Quality Control,
Productivity Improvement, and Percentage of Sales.

Types of Performance Evaluation Systems

Performance evaluation systems can be of the following types −
 Budget Programming − Budget programming is prepared for operational
planning and financial control. It is an easy-to-calculate system to evaluate the
variance. It is used to measure the current performance in relation to some
comparable performance metric from the past.
 Management Audit − It is an extended form of financial audit system which
monitors the quality of management decisions in financial operations. It is used for
appraisal and performing audit for management.
 Programme Evaluation Review Technique (PERT) − Based on CPM, PERT
delineates a given project or program into network of activities or sub-activities.
The goal is to optimize the time spent by the managers. In this process,
performance is measured by comparing the scheduled time and the cost allocated
with the actual time and the cost.
 Management Information System (MIS) − MIS is an ongoing system designed to
plan, monitor, control, appraise, and redirect the management towards pre-defined
targets and goals. It is a universally acceptable practice which encompasses the
financial, budgeting, audit and control systems of the PERT.

PRODUCTION ISSUES
Production is the core of any business organization having its operations on an
international scale. International business firms must look closely at production factors for
profitability and sustainability. Production refers to manufacturing, acquiring, and
developing products for the business market.

Factors that Affect Production

There are three major areas an international organization must focus on in order to
increase its production efficiency. They are −

 Facility Location
 Scale of Operation
 Cost of Production
We will look into each of them in the following sections.

Facility Location
Facility Location refers to the appropriate location for the manufacturing facility; it should
have optimum access to customers, workers, transportation, etc.
The main goal of an organization is to satisfy and delight customers with its product and
services. The manufacturing unit plays a major role in this direction. One of the most
important factors for determining the success of a manufacturing unit is its location.
To get commercial success and retain its competitive advantage, any international
business firm would pay attention to the following critical factors while choosing its
business location −
 Customer Proximity − Customer proximity is important to reduce transportation
cost and time.
 Business Area − having other manufacturing units of similar products around the
business area is conducive for facility establishment.
 Availability of Skilled labor − There should be skilled labor available in and around
the facility location.
 Free Trade Zone − Free-trade zones usually promote and augment the
establishment of manufacturing facility by offering incentives in custom duties and
applicable levies.
 Suppliers − Continuous availability and quality supply of the raw materials
influences in determining the location of production facility.
 Environmental Policy − as pollution control is very important, understanding of
environmental policy for the facility location is critical.

Scale of Operations
Scale is the synonym for size in business. Business organizations can leverage on their
size by making dealings, favorable terms, and volume-discounts with other firms.
Operating the businesses at large scale means allocating and optimizing the
resources to obtain the greatest results and volumes in the entire market segment. It is
linked with optimization, not duplication, of efforts. Keeping costs under control while
increasing the sales offers the opportunity for reducing costs and acquiring new
customers, and more market share, without lowering the average margin (economies of
scale).
Small-Scale Business − Also termed a small business, a small-scale business employs
a small number of workers and does not have a high volume of sales. The U.S. Small
Business Administration states that small-scale businesses have fewer than 500
employees. Financially, a non-manufacturing small-scale business is one that earns
below or equal to $7 million a year.
Large-Scale Business − Based on the home country and the industry, a small-scale
company usually employs between 250 and 1,500 people. Anything above that is a
large-scale company.
Economies of Scale − It refers to the cost advantages that a business obtains due to its
size, output, or scale of operation. Usually, cost per unit generally decreases with the
increasing scale, as fixed costs are spread out over more products.

Cost of Production
It is a cost incurred by a company in manufacturing a product or delivering a service.
Production costs depend on raw material and labor. To determine the cost of production
per unit, the cost of production is divided by the total number of units produced. It is
important to know the cost of production to better price an item or a service and to decide
its total cost to the company.
Cost of production includes both Fixed and Variable Costs.
 Fixed costs do not change with the level of output. They usually include rents,
insurance, depreciation, and set-up costs. Fixed costs are also known as
overhead cost.
 Variable costs refer to those costs which vary with the level of output, and are also
known as direct costs or avoidable costs. Examples include fuel, raw materials,
and labor costs.

Make-or-Buy Decisions
Make-or-buy decisions are taken to arrive at a strategic choice between manufacturing
an item internally (in-house) or buying it externally (from an external supplier). The buy
side of the decision is also known as outsourcing. Make-or-buy decisions of a firm is
important when it has developed a product or part – or significantly modified a product or
part – but is having problems with the current suppliers, or has decreasing capacity or
changing demand.
The major reasons for manufacturing an item in house include the following −

 Cost attributes (less expensive to make)

 Intentions to integrate the operations
 Productive use of excess plant capacity (using present idle capacity)
 For direct control over production / quality
 When design secrecy is applicable to protect proprietary technology
 Unreliable / incompetent suppliers
 Very small quantity of production
 Controlling lead time, transportation, warehousing costs
 Political, social, or environmental pressure
Buy decisions are applicable under the following conditions −

 Insufficient local expertise

 Cost considerations (less expensive)
 Small-volume requirements
  Limited production or insufficient capacity
 Intentions to maintain a multiple-source policy
 Indirect managerial control factors
 Procurement and inventory factors
 Brand preference

SUPPLY CHAIN ISSUES

Globalization is changing the way the international firms used to deal with their supply
chain networks. This is happening because companies are actively seeking to compete
and gain market share. Global companies nowadays manage multiple supply chains, not
only to deliver goods on time, but to meet diverse customer and supplier wants related
with pricing and packaging. Personalizing the offerings for various customer clusters is
necessary to address these issues.
Volatility of markets, economic contractions and mediocre recovery cycles influence
distribution, manufacturing, invoicing and sourcing. Reaching out to encompass new
markets brings complex taxation, invoicing and localization burdens. Moreover,
dispersed segments of markets ask for different pricing models and services. Hence,
optimizing the supply chain is necessary to stay competitive.

Globalization and its Effect on Supply Chain

Many businesses tend to apply outdated processes and technologies to global supply
chain operations. Many times, available systems are not compatible with the modern
demands. Lack of understanding of current situations and contemporary supply chain
can be disastrous. It can result in a rise in costs and decreased efficiency. With the
expansion of logistics, the ability to quickly estimate the cost and service implications
must increase.
An optimized global supply chain can help a company in the following areas −
 Reduced Costs − Companies accessing information relating to suppliers make
better procurement decisions. Online supplier and buyer community management
can reduce supplier sourcing and procurement costs.
 Increased Transparency − Being a single point of access for supplier information
as well as buyer-supplier communities is important. International supply chain
operators can locate reliable suppliers regardless of location preferences with a
global approach and transparent policy.
 Lower Risk − An optimized supply chain lets the supplier meet financial, legal,
safety, quality, and environmental regulations. As the regulations differ widely,
flexibility becomes the key to risk management.
 Support Legacy & New Products − Contemporary global supply chains require a
billing partner and a supplier settlement platform. The platform needs to take care
 of taxation, invoicing and other crucial functions. It must encompass multiple fluid
business-models to let the company reach international markets.
 Solutions to Global Supply Chain Challenges − While looking for growth and
quick expansion, companies must consider deeply about what their current supply
chains are capable of. They must assess whether their capabilities are enough to
meet global competition. In order to support the existing and future business
objectives, companies must reconsider the management processes and
implement best practices which are more flexible.

GLOBAL MARKETING MIX

Global Marketing combines the promotion and selling of goods and services with an
increasingly interdependent and integrated global economy. It makes the companies
stateless and without walls.
The 4P's of Marketing − product, price, place, and promotion − pose many challenges
when applied to global marketing. We take each one of the P’s individually and try to find
out the issues related with them.

Global Marketing Mix: Consumer Products

The product and service mix is one of the most important ingredients for the global
marketer today. The diverse demand for products and services in the era of globalization
is mind-blowing. Presence of industrialized and emerging markets, increasing purchasing
power, and the growth of Internet has made the customers aware, smart, and more
demanding. The result is a greater competition between firms.
Here are the important factors to consider when going global with a product or service.

The global consumer makes purchasing decisions to get the best quality products at the
most affordable price. They have information available in abundance, thanks to the
Internet. Therefore, innovation takes center-stage to gain adequate attention from
potential consumers.
A global marketer must be flexible enough to modify the attributes of its products in
order to adapt to the legal, economic, political, technological or climatic needs of a local
market. Overall, global marketing requires the firms to have available and specific
processes for product adaptation for success in new markets.
Culture can differentiate a standardized product from an adapted one. Making cultural
changes in product attributes is like introducing a new product in your home country. The
product should meet the needs, tastes, and patterns that are permitted by the market
culture.
Lastly, it is essential to understand that a product or service is not just one "thing." It
should be seen as a part of the whole marketing mix so that a great synergy can be built
among different strategies and actions.

Global Marketing Mix: Price

Pricing is a crucial part of the marketing mix for international firms. Pricing techniques
play a critical role when a company wants to penetrate into a market and expand its
operations.

Drivers in Foreign Market Pricing

The most important factors that decide the prices are labeled the 4 C’s −

 Company (costs, company goals)

 Customers (price sensitivity, segments, consumer preferences)
 Competition (market structure and intensity of competition)
 Channels (of distribution)
International Pricing Challenges
Global firms face the following challenges while pricing their products and services to suit
the requirements of international market −
 Export Price Escalation − Exporting includes more steps and higher risks than
domestic sale. To make up for shipping, insurance and tariffs, and foreign retail
prices, the export price may be much higher than domestic country. It is important
to know whether external customers are willing to pay an additional price for the
products/services and whether the pricing will be competitive in that market. If
both answers are negative, then there are two approaches. One is to find a way to
decrease the export price, and the second is to position the product as an
exclusive or premium brand.
 Inflation − Intense and uncontrolled inflation can be a huge obstacle for MNCs. If
inflation rates are rampant, setting prices and controlling costs require full
dedication of marketing and financial divisions. Some alternatives to counter
inflation include changing the components of products or their packaging,
procuring raw materials from low-cost suppliers and shortening credit terms, etc.
 Currency Movements − Exchange rates being unstable, setting a price strategy
that can get rid of fluctuations gets difficult. Key considerations include what
 proportion of exchange rate gain or loss should be transferred to customers (the
pass-through issue), and finding which currency price quotes are given in.
 Transfer Pricing − Transfer prices are the charges for transactions that involve
trade of raw materials, components, finished products, or services. Transfer
pricing include stakeholders, such as the company, local managers, host
governments, domestic governments, and joint-venture partners. Tax regimes,
local conditions, imperfections, joint venture partners and the morale of managers
affect transfer pricing.
 Anti-dumping Regulations − Dumping occurs when imports are sold at an unfair
and very low price. Recently countries have adopted anti-dumping laws to protect
their local industries. Anti-dumping laws should be considered when deciding
global prices.
 Price Coordination − Price coordination is the relationship between prices
charged in different countries. It is an important consideration while deciding the
global pricing model. Price coordination includes the following factors − Nature of
customers, Product differentiation amount, Nature of distribution channels,
Competition type, Market Integration, Internal organizational characteristics, and
Government regulations.
 Countertrade − Countertrades are unconventional trade-financing transactions
including non-cash compensation. A monetary valuation can however be used in
countertrade for accounting purposes. In dealings between sovereign states, the
term bilateral trade is generally used. Examples include clearing arrangements,
buybacks, counter purchases, switch trading, and offsets.

Global Marketing Mix: Promotion

Promotion comes into picture when a global company wants to communicate its offering
to potential customers. How an organization chooses to promote its products and
services can have a direct and substantial impact on its sales.
Advertising and Culture
Advertising can create a popular culture and a culture may influence the ad as well.
Culture’s impact in advertising is prevalent, especially in culturally-sensitive issues like
religion and politics.

Setting a Budget
A global marketer can consider budgeting rules such as percentage of sales (creating
budget as a percentage of sales revenues), competitive parity (taking competitor’s ad
spending as a benchmark), or objective-and-task (treating promotional efforts to achieve
stated objectives). Global markets use three approaches to reach allocation decisions −
 In bottom-up budgeting, the units independently determine the market budget
and request resources from headquarters.
 In top-down budgeting, the headquarters set a total budget and split up the
resources.
 Decisions may also be made at a regional level and submitted to the
headquarters for their approval.

Promotional Strategy
When global marketers choose a standardized approach, the same global campaign is
applied throughout all countries.
 Advantages − Achieving economies of scale in ad campaigns to reduce cost,
maintaining a consistent brand image.
 Barriers − Cultural differences resulting in negative or ineffective consumer
response, advertising laws and regulations, variations in degree of marketing
development.

Assessing Global Media Decisions

Global media decisions are a big concern for global firms. The media buying patterns
vary across countries. A global marketer must find the best media channels in a market.

Ad Regulations
Foreign regulations on advertisements may be present in a specific country. Research of
the laws in the country of operation is necessary before developing a campaign, to avoid
legal implications and waste of time and money.

Choosing an Agency
Choosing an ad agency may prove more effective due to their understanding of the
country and market they are doing business in.

Other Communication Options

Sales events, direct marketing, sponsorships, mobile marketing, product placement, viral
marketing, and public relations and publicity are also applicable.
Globally Integrated Marketing Communications (GIMC)
A GIMC is a system of promotional management that coordinates global communications
- horizontally (from country to country) and vertically (promotion tools). GIMC is meant to
harmonize the promotional and communication disciplines in every way. All
communication vehicles may be integrated so that they convey the single idea to all
concerned in a unified voice.

Global Marketing Mix: Distribution

In order to be successful in a global market, a marketer must make its products and
accessible to customers at all costs. Distribution channels make up the "place" in the 4
P’s of the marketing mix (along with Product, Price, and Promotion).

Distribution Processes and Structures

The distribution process deals with product handling and distribution, the passage of
ownership (title), and the buy and sell negotiations.
Negotiations take place between the producers and the middlemen and then between
the middlemen and the customers.
Traditionally, import-oriented distribution structures relied on a system where
importers controlled a fixed supply of goods. The marketing was based on the idea of
limited suppliers, high prices, and smaller number of customers. Today, the import-
oriented model is hardly used. Channel structures have become more advanced with
overall development.

Distribution Patterns
To understand a foreign distribution system, marketers should never believe that it is the
same as the domestic one. Many distribution patterns exist in retailing and wholesaling.
Size, patterns, direct marketing, and the resistance to change affect the composure of
distribution channels.
 Retail size and pattern − Company’s may either sell to large, dominant retailers
directly or distribute to smaller retailers.
 Direct marketing − the challenge in underdeveloped nations is handled through
direct marketing. Direct marketing occurs when consumers are targeted through
mail, telephone, email, or door-to-door selling. This process also doesn’t take
retailer and wholesaler types into consideration.

Choosing Your Middleman

The channel process starts with manufacturing and ends with the final sale to the
customer. It is most likely to counter many different middlemen in the process. There are
three types of middlemen in distribution channels −
 Home-Country Middlemen − they provide marketing and distribution services
from a domestic base in the home country. The parties usually relegate the
foreign-market distribution to others; including manufacturer or global retailers,
export management companies, or trading companies.
  Foreign-Country Middlemen − for a greater control, foreign-country middlemen
are hired who can create a shorter channel and have more market expertise.
 Government-Affiliated Middlemen − Government-affiliated middlemen are often
responsible in distribution for the government’s use.

Factors Affecting Choice of Channels

Channel of distribution or middlemen selection must precede the understanding of the
characteristics of the foreign market and the established common system there. The
major factors to consider while choosing a particular channel are −

 The specific target market within and across countries.

 The goals in terms of volume, market share, and profit margin.
 The financial and organizational commitments.
 Control of the length and characteristics of the channels.

Application of 4 P’s

The following illustration depicts the global marketing mix of McDonald’s. It shows how
McDonald’s varies its marketing strategy according to the requirements of different local
markets.
 FINANCIAL ASPECTS
Foreign Investment by International Companies
The proliferation of MNCs began 200 years back, but then, foreign investments were
quite limited. Investments were made through portfolio and long-term Greenfield or joint
venture investments were low. Globalization, however, has led MNCs to become more
dominant players in the global economy.
The end of the cold war that brought the idea of liberalization of the developing markets
and opening of their economies has played a major role in international investments.
With the vanishing of foreign investment barriers, privatization of the state economic
organizations and development of FDI policies, MNCs have started investing
aggressively.
FDI has become by far the single largest component of the net capital inflows. It also has
effects on the human capital of the economies. Countries benefit substantially from the
investment. Investments in developing countries have integrated the developing
economies with other countries of the world. This is often referred to as economic
openness.
Note − Seventy percent of world trade is controlled by just 500 of the largest industrial
corporations. In 2002, the combined sales volume of the top 200 companies was
equivalent to 28% of the overall GDP of the world.

International Investment Outcomes

International corporations have shaped the global economy in the 20th century. Now,
any of the world’s Top 100 or global companies exceeds the GDP of many nations. The
MNCs are also creating most of the output and employment opportunities in the world.
The MNCs have started building local relationships and establishing a strong local
presence through FDI’s to benefit from different advantages, where the countries
focusing on getting more FDI investment have become busy with giving MNCs more
freedom and assistance in seeking economic cooperation with them.
As the importance MNCs in the global economy increases, companies have been both
criticized and appreciated. The growing shares of MNCs in developing economies and
the impact of their decisions in overall economic conditions of the host countries have
been under review.
 Cons − MNCs are mainly criticized for disappearance of domestic players due to
their global brand, use of latest technology, marketing and management skills, and
economies of scale which domestic firms cannot compete with. MNCs have also
been criticized for controlling the domestic economic policies and taking actions
against the developing country’s national interests.
 Pros − The investments have brought technological and managerial assets to
developing countries. Employment with a better-trained labor force, a higher
national income, more innovations, and enhanced competitiveness are some of
the positive contributions of MNCs to developing countries.
Sources of Funds
 Export-Import Banks − These banks provide two types of loans − Direct loans to
foreign buyers of exports, and Intermediary loans to responsible parties, such as
foreign government-lending agencies which then re-lend to foreign buyers of
capital goods and related services.
 With-in company loans − New companies raise funds through external sources,
such as shares, debentures, loans, public deposits, etc., while an existing firm can
generate funds through retained earnings.
 Eurobonds − International bonds are denominated in a currency of non-native
country where it is issued. This is good in providing capital to MNCs and foreign
governments. London is the center of the Eurobond market, but Eurobonds may
be traded throughout the world.
 International equity markets − International businesses can issue new shares in
a foreign market. Shares are the most common tool for raising long-term funds
from the market. All companies, except those that are limited by a guarantee,
have a statutory right to issue shares.
 International Finance Corporation − Loans from specialized financial institutions
and development banks or from commercial banks are also tools for generating
funds.

Foreign Exchange Risks

There are three types of risks associated with foreign exchange −
 Transaction risk − This is the risk of an exchange rate change on transaction
date and the subsequent settlement date, i.e., it is the gain or loss arising on
conversion.
 Economic risk − Transactions depend on relatively short-term cash flow effects.
However, economic exposure encompasses the longer-term effects on the market
value of a company. Simply put, it is a change in the present value of the future
after-tax cash-flows for exchange rate changes.
 Translation risk − The financial statements are usually translated into the home
currency to consolidate into the group's financial statements. It can pose a
challenge when exchange rates change.

HRM ASPECTS
Recruitment and Selection
Recruitment is a process of attracting a pool of qualified applicants. Selection is
choosing applicants from this pool whose qualifications match the job requirements most
closely. Traditionally, there are three types of employees −
 Parent Country National − the employee’s citizenship is same with the organization.
 Host Country National − the employee is local for the subsidiary.
 Third Country National − the employee is from a different country, i.e., not where the
organization is registered / based and also where the subsidiary of the organization is
not located.
Staffing and managing approaches strongly affect the type of employee the company
looks for. In Ethnocentric approach, the parent country nationals are chosen for
headquarters and subsidiaries. In polycentric approach, host country nationals work in
the subsidiaries, while parent country nationals are chosen for headquarters. An
organization with a geocentric approach chooses employees purely based on talent,
regardless of their origin type.
A balance between internal organizational consistency and local labor practices policy is
a goal during recruitment. People in achievement-oriented nations consider skills,
knowledge, and talents while hiring a new employee.

Development & Training

The overall aim of the development function is to provide adequately trained personnel in
a company as well as to contribute to better performance and growth with their work. At
the international level, human resource development function manages −

 Training and development for global employees

 Special training to prepare expatriates for international jobs
 Development of globally efficient managers
Creation and transfer of international human resource development programs may be
carried out in two ways −
 In centralized approach, headquarters develop trainings and trainers travel to
subsidiaries, often adapting to local situations. This fits mostly with the
ethnocentric model. A geocentric approach is also centralized, but the training
inputs come from both headquarters and subsidiaries staff.
 In decentralized approach, training is carried out on a local basis, which follows a
polycentric model. In decentralized training, the cultural backgrounds of
employees and corporate trainers are same. Training material and techniques are
usually local and for use in their own area.

Performance Evaluation
In companies, performance evaluation is most frequently carried out for administration or
development purpose.
For administration purposes, performance evaluation is done when the decisions on work
conditions of employees, promotions, rewards and/or layoffs are in question.
Development intention is oriented to the betterment of work performance of employees,
as well as to the enhancement of their abilities. It is also a way for advising employees
regarding corporate behavior.
Performance evaluation can be quite challenging, especially when it carried out at an
international level. The international organization must evaluate the employees from
different countries. Consistency across subsidiaries for performance comparisons with
contrasting cultural background makes the evaluation meaningful. As with other
functions, the approach to performance evaluation depends on the organization’s overall
human resource management strategy.

Management of Expatriates
Expatriates management is one of the most important issues in international business.
The most important issues related to Management of Expatriates are the following −

The Reasons for Expatriate Failure

In international companies, the high failure rate of expatriates can be contributed to six
factors − career blockage, culture shock, lack of cross-cultural training, an overemphasis
on technical qualifications, using international assignments to get rid of problematic
employees, and family problems.

Cross-Cultural Adjustment
Expatriates and their families need time to become familiar with their new environment.
The culture shock occurs when after some time, the expatriates find new job conditions
unattractive. It usually takes three to six months after arrival, to get out of the culture
shock.

Expatriate Re-Entry
After the expatriate completes his assignment and returns home, the work, people, and
general environment becomes unfamiliar. The expatriate is generally unprepared to deal
with reverse culture shock.

Selection of Expatriates
The choice of employee for an international assignment is a critical decision. To choose
the best employee for the job, the management should −

 Make cultural sensitivity a selection criterion

 Have expatriates in selection board
 Look for international experience
 Hire foreign-born employees as “expatriates” in future
 Screen spouses and families too

Expatriate Training
Expatriates when trained to prepare for work abroad are more successful. Lack of
training can lead to expatriate failure. Cross-cultural training (CCT) is very important. It
prepares to live and work in a different culture because coping with a brand new
environment can be challenging.
Expatriate Evaluation and Remuneration
There are three common aspects that determine the remuneration of expatriates. In
a home-based policy, employees’ remuneration is according to their home countries.
The host-based policy sets salaries according to the norms of the host country. Finally,
region also effects in determining the remunerations.
Remuneration for foreign employees depends on their relocation − whether it is within
their home region or in another region. With this approach, closer to home (within the
region) jobs fetch lower remuneration than the away (outside the region) jobs.

REFERENCES:

1. International Business by Francis Cherunilam ( PHI)

2. International Marketing by Francis Cherunilam (Himalaya Publishing House)
3. International Business by Bimal Jaiswal (Himalaya Publishing House)
4. https://www.tutorialspoint.com/index.htm
5. https://www.investopedia.com/
6. https://www.scribd.com