Why companies engage in international business also discuss

different modes of operations in international business

Companies engage in international business in order to achieve

more growth. Finding other sources of labor is also important.
Procuring new ideas is also important.
o Expand Sales
The first and foremost reason is that western multinationals would
like to expand their sales and acquire newer markets so that they
can record impressive growth rates. Considering the fact that the
developing countries are peopled with consumers who have
aspirations to western lifestyles, it is, but natural that the western
companies would like to target this need and hence, expand into
these markets. Moreover, with declining sales in one region, the
western companies hope to recoup the losses by expanding into
other markets. Further, the attractive rates of return in the
emerging markets are another reason as well.
Acquire Resources
This is one of the most important reasons for companies to expand
internationally. Because the developing and emerging countries
have large deposits of minerals, metals and land for agricultural
production, the western multinationals eye these markets in order
to get access to the resources. This is the reason why many
international businesses operate in Africa and South Asia where the
humungous deposits of minerals and metals are attractive for the
profits that these multinationals can make. Many emerging markets
and developing countries do not have the expertise or the resources
needed to tap their reserves of these minerals and metals. Hence,
they welcome the multinationals with open arms as it gives them
royalties and other payments to grow their economies. As can be
seen from the expansion of Vedanta and the South Korean steel
company (POSCO) into India, the eagerness to tap the resources is
one of the most important reasons for expansion.
Minimize Risk

Often, businesses expand internationally to offset the risk of

stagnating
growth
in
their
home
country
as well as in other countries where they are operating. For instance,
ever since the Western countries saw their growth rates slip to
below 3% (in cases recording negative growth i.e. depression), the
Western multinationals have made a beeline to the emerging
markets that are growing in excess of 5%. Since firms exist to make
profits and grow their bottom lines, it is but natural for them to
expand internationally into countries that have better growth rates
than their home country. Further, by operating in a basket of
countries as opposed to a few, they are able to manage political,
economic, and societal risks better. We had discussed the
characteristics of these risks in earlier articles. Because they vary
from country to country, it makes sense to spread risk across
countries and diversify the portfolio rather than placing all eggs in
one basket.
Closing Thoughts
Though this article has concentrated on western companies alone, it
is the fact that many Chinese companies are aggressively expanding
into African and Asian markets. In the same way in which Japanese
companies conquered Western markets with superior quality, low
cost, and exemplary customer service, the Chinese companies hope
to target the emerging and developed markets with the same vigor
and passion that has made China the factory of the world. These
themes would be explored in detail in subsequent articles and this
article has given the bare bones reasons why businesses expand
internationally.
MODES OF OPERATIONS IN international business

Merchandise exports and imports

Service exports and imports

Tourism and Transportation

Service Performance

Asset Use

Investments

Foreign Direct Investment (FDI)

Portfolio Investment

Imports and exports are the most common mode of international business, particularly
in smaller companies even though they are less likely to export. Large companies are
more likely to engage in other modes of international business in conjunction with
importing and exporting. Companies may import and export merchandise, defined as
tangible goods brought into or out of (respectively) a country. While exports and
imports apply mainly to goods, they can also apply to services, or nonproducts.
Most service imports and exports revolve around tourism and transportation. The
revenue gained from international tourism and transportation is best seen in hotels,
airlines, travel agencies, and shipping companies. For many countries, especially in the
Caribbean and Southeast Asia, their income on foreign tourism is more important than
their income from exports. The same holds true in countries such as Norway and
Greece, who earn a considerable amount from foreign shipping.
Many companies enter into international licensing agreements, allowing other countries
around the world to use their assets (ie: trademarks, patents, copyrights, or expertise)
under contract, receiving royalty payments in return. Similarly, many companies engage
in franchising, a mode of business where the franchisor allows the franchisee to use a
trademark that is an essential part of the franchisee's business. For example, Gloria
Vanderbilt has franchised her name out to several clothing companies, forming the
Gloria Vanderbilt line. The franchisor also assists on a continuing basis in the operation
of the business-for example, by providing components, management services, and
technology.
Companies also pay fees that may be incurred on an international level for engineering
services handled through turnkey operations and management contracts. A turnkey
operation involves construction of facilities, performed under contract, which is then
transferred to the owner when the company is ready to begin operating. Management
contracts are initiated when one company supplies personnel to perform general or
specialized management functions for another company. This is most evident in
Disney's theme parks in France, Japan, and China.
Finally, international business occurs within direct and portfolio investments. By
investing in a foreign company, the investor takes ownership in a foreign property for a

financial return. A foreign direct investment (the more common of the two) gives the
investor a controlling interest in the foreign company. When two or more companies
share in an FDI, it is known as a joint venture. When a government joins a company in
an FDI, it becomes a mixed venture. Conversely, a portfolio investment is a
noncontrolling interest in a company that usually involves either taking stock in a
company or making loans to a company in the form of bonds, bills, or notes that the
investor purchases. Portfolio investments are particularly popular with multinational
enterprises as they offer a safe means towards short-term financial gain.

Relationship between corruption and economic growth of a country

THERE IS UNCERTAIN RELATIONSHIP BETWEEN CORRUPTION AND
ECNOMIC GROWTH

In the literature of development economics, corruption is usually

conceived as detrimental to economic growth. This conventional
wisdom, however, may be called into question. Many countries
witnessed growth despite corruption, e.g., commodity-dependent
and high-growth East Asian countries. The paper argues, through a
comparison of Sub-Saharan Africa and East Asia, that the
relationships between corruption and economic growth are difficult
to demonstrate. It highlights two crucial factors that explain the

lack of robustness of this relationship. Firstly, this lack of

robustness stems from the methods of measurement, which are
usually based on the building of indices, modeling and econometric
techniques. These methods are inappropriate for a concept such as
corruption, which refers to complex and heterogeneous
phenomena that are difficult to subsume in a single and stable
definition. A second set of factors underlying the weakness of the
relationship between corruption and growth is the dependence of
causal processes on specific contexts. The effects of corrupt
practices on an economy depend on its particular history, its
economic structures, its political economy and types of institutions:
for these reasons, they vary across countries and regions. Causal
links between corruption and growth may exist, but they are nonlinear and subject to threshold effects. Beyond certain thresholds,
which are built by specific contexts (i.e., the combination of many
contextual factors, political, economic, institutional), corruption
phenomena can be detrimental to growth; before reaching these
thresholds, the impact of corruption on growth may be limited.
These thresholds can be assessed only ex post: they cannot be
measured ex ante, as they precisely depend on contexts that vary
across space, countries and history. In some contexts, economic and
political factors may reinforce each other, e.g. corruption, political
instability, economic distortions and vulnerability, such as
commodity-based market structures. This results in low equilibria
that combine low growth and pervasive corruption, and thresholds,
which, once low equilibria are stabilised, it is very difficult to get out
from under (poverty traps). In other contexts, these factors may all
exist. They remain separated, however; corruption does not
combine with other economic and political factors and is contained,
which makes it possible for countries not to fall into lower
equilibria. The state is here the core entity able to prevent the
reciprocal reinforcement of corruption and other economic or
political structures - and hence the formation of poverty traps -, and
to make corruption subservient to growth objectives. This state
capacity that can confine and control corruption, which exists in
some countries but not in others, is a key factor in the differences in
impacts of corruption on growth.
IS CORRUPTION IS ALWAYS BAD?

: In many countries, corruption actually is not viewed negatively but

is seen as a positive force and reflects a value system that
prioritizes loyalty to family and clan over that to an impersonal
institution. In such places, it may be so important to maintaining
stability and reinforcing the glue that holds together a state that
eliminating itwhich would be impossible in any casewould have
dire consequences. As one writer on Pakistan commented, Western
language about corruption in Pakistan suggests that it can and
should be cut out of the political system; but in so far as the
political system runs on patronage and kinship, and corruption is
intertwined with patronage and kinship, to cut it out would mean
gutting Pakistans society like a fish. Corruption itself comes in
many formsand has a wide range of influences on economic
activityonly some of which are as evil as the whole bunch is made
out to be. In China, for instance, although corruption is deeply
rooted and widespread, it does not necessarily determine the
allocation of key resources in most cases. While it serves to reduce
efficiency, increase costs, and can produce egregious results at
times, given the low overall level of development in the country, it
does not have a large effect on growth (though this will change as
the country grows richer). On the contrary, it may actually act as a
lubricant to circumvent stifling regulations and smooth the
establishment of the trust necessary for businesspeople to have
enough confidence in officials to want to invest at times. The same
situation has existed in various forms across much of East Asia
including in Korea, Indonesia, and Thailandat similar stages in
their development. Cambodia, which ranked 154thout of 178
countries
worldwide
on
Transparency
Internationals
2010
Corruption Perceptions Index, has seen rapid growth for two
decades. Countries would be far better off without corruption (and
associated practices such as rent-seeking and neopatrimonialism) in
the long term. But they should not always be seen as the primary
barrier to progress at early stages of development. Instead, other
problemssuch as weak social cohesion or the lack of security for
investmentsare probably at work. Corruption is typically a
symptom of a deeper malaise, not the cause of that malaise. A
better understanding of the phenomenon as it exists in a specific
country is essential for that country to judge whether efforts to
tackle corruption should be high on its reform agenda. In some

places and at some times, it may not be nearly as important as

other reforms.

CULTURE
SOME DEFINITIONS

Culture refers to the cumulative deposit of knowledge,

experience, beliefs, values, attitudes, meanings, hierarchies,
religion, notions of time, roles, spatial relations, concepts of
the universe, and material objects and possessions acquired
by a group of people in the course of generations through
individual and group striving.

Culture is the systems of knowledge shared by a relatively

large group of people.

Culture is communication, communication is culture.

Culture in its broadest sense is cultivated behavior; that is the

totality of a person's learned, accumulated experience which is
socially transmitted, or more briefly, behavior through social
learning.

A culture is a way of life of a group of people--the behaviors,

beliefs, values, and symbols that they accept, generally
without thinking about them, and that are passed along by
communication and imitation from one generation to the next.

Culture is symbolic communication. Some of its symbols

include a group's skills, knowledge, attitudes, values, and
motives. The meanings of the symbols are learned and
deliberately perpetuated in a society through its institutions.

Culture consists of patterns, explicit and implicit, of and for

behavior acquired and transmitted by symbols, constituting
the distinctive achievement of human groups, including their
embodiments in artifacts; the essentialcore of culture consists
of traditional ideas and especially their attached values;

culture systems may, on the one hand, be considered as

products of action, on the other hand, as conditioning
influences upon further action.

Culture is the sum of total of the learned behavior of a group

of people that are generally considered to be the tradition of
that people and are transmitted from generation to
generation.

Culture is a collective programming of the mind that

distinguishes the members of one group or category of people
from another.

SUPPLY CHAIN MANAGEMENT

Supply chain management (SCM) is the management of the flow of goods. It includes
the movement and storage ofraw materials, work-in-process inventory, and finished
goods from point of origin to point of consumption. Interconnected or interlinked
networks, channels and node businesses are involved in the provision
of products and services required by end customers in a supply chain.[2] Supply chain
management has been defined as the "design, planning, execution, control, and
monitoring of supply chain activities with the objective of creating net value, building a
competitive infrastructure, leveraging worldwide logistics, synchronizing supply with
demand and measuring performance globally." [3]
SCM draws heavily from the areas of operations management, logistics, procurement,
and information technology, and strives for an integrated approach.[4]

What is the Importance of Supply Chain Management?

Supply Chain Management (SCM) is an essential element to operational
efficiency. SCM can be applied to customer satisfaction and company
success, as well as within societal settings, including medical missions;
disaster relief operations and other kinds of emergencies; cultural evolution;
and it can help improve quality of life. Because of the vital role SCM plays
within organizations, employers seek employees with an abundance of SCM
skills and knowledge. Supply chain management is critical to business
operations and success for the following reasons:
SCM is Globally Necessary
Basically, the world is one big supply chain. Supply chain management
touches major issues, including the rapid growth of multinational
corporations and strategic partnerships; global expansion and sourcing;
fluctuating gas prices and environmental concerns, each of these issues
dramatically affects corporate strategy and bottom line. Because of these
emerging trends, supply chain management is the most critical business
discipline in the world today.

The Objective of a Supply Chain

The objective of every supply chain is to maximize the overall value

generated.
The value a supply chain generates is the difference between what
the final product is
worth to the customer and the effort the supply chain expends in
filling the customers
request. For most commercial supply chains, value will be strongly
correlated with
supply chain profitability, the difference between the revenue
generated from the
customer and the overall cost across the supply chain. For example,
a customer
purchasing a computer from Dell pays $2,000, which represents the
revenue the supply
chain receives. Dell and other stages of the supply chain incur costs
to convey
information, produce components, store them, transport them,
transfer funds, and so on.
The difference between the $2,000 that the customer paid and the
sum of all costs
incurred by the supply chain to produce and distribute the computer
represents the supply
chain profitability. Supply chain profitability is the total profit to be
shared across all
supply chain stages. The higher the supply chain profitability, the
more successful the
supply chain. Supply chain success should be measured in terms of
supply chain
profitability and not in terms of the profits at an individual stage.

Having defined the success of a supply chain in terms of supply

chain
profitability, the next logical step is to look for sources of revenue
and cost. For any
supply chain, there is only one source of revenue: the customer. At
Wal-Mart, a
customer purchasing detergent is the only one providing positive
cash flow for the supply
chain. All other cash flows are simply fund exchanges that occur
within the supply chain
given that different stages have different owners. When Wal-Mart
pays its supplier, it is
taking a portion of the funds the customer provides and passing
that money on to the
supplier. All flows of information, product, or funds generate costs
within the supply
chain. Thus, the appropriate management of these flows is a key to
supply chain success.
Supply chain management involves the management of flows
between and among stage
sin a supply chain to maximize total supply chain profitability.

IMPORTANCE OF SUUPLY CHAIN MODERN BUSINESS

Supply Chain Management (SCM) as defined by Tom McGuffog is
"Maximising added value and reducing total cost across the entire
trading process through focusing on speed and certainty of
response to the market." Due to globalization and ICT, SCM has
become a tool for companies to compete effectively either at a local
level or at a global scale. SCM has become a necessity especially for
manufacturing industry when it comes to deliver products at a
competitive cost and at a higher quality than their competitors.

Here are some of the reason SCM has become important to today's
manufacturing
industry:Competitive
Edge
through Core
Competencies
Today's business climate has rapidly changed and has become more
competitive as ever in nature. Businesses now not only need to
operate at a lower cost to compete, it must also develop its own
core competencies to distinguish itself from competitors and stand
out in the market. In creating the competitive edge, companies need
to divert its resources to focus on what they do best and outsource
the process and task that is not important to the overall objective of
the company. SCM has allowed company to rethink their entire
operation and restructure it so that they can focus on its core
competencies and outsource processes that are not within the core
competencies of the company. Due to the current competitive
market, it is the only way for a company to survive. The strategy on
applying SCM will not only impact their market positioning but also
strategic decision on choosing the right partners, resources and
manpower. By focusing on core competencies also will allow the
company to create niches and specialization of core areas.

QUESTION : 7

Negotiation:
Bargaining (give and take) process between two or more parties (each with
its own aims, needs, and viewpoints) seeking to discover a common ground
and reach an agreement to settle a matter of mutual concern or resolve a
conflict. The process of negotiation includes the following stages:
Preparation
Discussion
Clarification of goals
Negotiate towards a Win-Win outcome
Agreement
Implementation of a course of action
example: Often, the employer's first compensation offer is not a company's
best offer, and the employee can negotiate for higher pay, more vacation
time, better retirement benefits and so on. Negotiating a job offer is
particularly important because all future increases in compensation will be
based on the initial offer.
When you wish to buy an item from a seller and you suggest one price, the
seller suggests another and you go back and forth on the issue several
times, this is an example of a negotiation.
WTO'
An international organization dealing with the global rules of trade between
nations. Its main function is to ensure that trade flows as smoothly,
predictably, and freely as possible. WTO have also occurred in Italy, Spain,
Canada and Switzerland. The WTO was born out of the General Agreement
on Tariffs and Trade (GATT), which was established in 1947. If a trade dispute
occurs, the WTO works to resolve it. If, for example, a country erects a trade
barrier in the form of a customs duty against a particular country or a
particular good, the WTO may issue trade sanctions against the violating
country. The WTO will also work to resolve the conflict through negotiations.
'Foreign Direct Investment - FDI'
An investment made by a company or entity based in one country, into a
company or entity based in another country. The investing company may

make its overseas investment in a number of ways - either by setting up a

subsidiary or associate company in the foreign country, by acquiring shares
of an overseas company, or through a merger or joint venture.
An example of foreign direct investment would be an American company
taking a majority stake in a company in China. Another example would be a
Canadian company setting up a joint venture to develop a mineral deposit in
Chile.
a Chinese company building a factory and a supply chain in the US in order
to tap into the American market would be an example of Chinese foreign
direct investment into America.

'Protectionism'
Government actions and policies that restrict or restrain international trade,
often done with the intent of protecting local businesses and jobs from
foreign competition. Typical methods of protectionism are import tariffs,
quotas, subsidies or tax cuts to local businesses and direct state
intervention.
A good example of this is, once again, in the U.S. agricultural industry. The
Agricultural Adjustment Act of 1933 allowed the government to pay farmers
to not grow crops or livestock, thus restricting supply and raising prices. This
subsidy helped farmers who had been devastated by the Dust Bowl.
What should
investment?

government

do

to

encourage

foreign

direct

Generally, Pakistan has reasonably good policies in almost all sectors of the
economy and governance. Its not the policy thats the issue but
implementation of the policies has been an issue. Once a decision is taken,
we must not backtrack on that. The SRO culture granting undue exemptions
should also end now. Backtracking on bold decisions sends a negative signal
abroad. We can now proudly claim to have democracy in the country and
democracy requires discipline. We are happy that the government has asked
us to give them credible names for nominations on the boards of different
state-owned enterprises and self-regulated organisations. Appointment of
competent and good people at key posts will be a big service to this country.

All we want is a level-playing field for every single act of profitmaking. All
businesses whether foreign investment or local, should be treated equally
and all the sectors of the economy should be taxed without any
discrimination. We keep on sharing tax proposals with the governments and
let me tell you that the current government listens to us.

Not all of our proposals have yet been accepted but we keep on proposing
not for the sake of favouring OICCI members only but to offer a level-playing
field to all investors, including foreigners. We also regularly highlight the
need to improve the enforcement of the laws on intellectual property rights
in the country. This issue is also a hurdle in the way of foreign investment.