Country Risk Analysis is the evaluation of possible risks and rewards from business experiences in a country. It is used to survey countries where the firm is engaged in international business, and avoids countries with excessive risk. With globalization, country risk analysis has become essential for the international creditors and investors. Country risk analysis identifies imbalances that increase the risks in a cross-border investments. Country risk analysis represents the potentially adverse impact of a country’s environment on the multinational corporation’s cash flows and is the probability of loss due to exposure to the political, economic, and social upheavals in a foreign country. All business dealings involve risks. An increasing number of companies involving in external trade indicate huge business opportunities and promising markets. When business transactions occur across international borders, they bring additional risks compared to those in domestic transactions. These additional risks are called country risks which include risks Continue reading
International Business Basics
Emergence of New Structural Designs of MNE’s
As companies grow in size, product lines, and dependence on foreign operations, complications of communication, responsibility and control become more complex. So, new structures continue to evolve to deal with this complexity. Proctor & Gamble (P&G) restructured its operations in 1999. P&G formed a unique concept of ‘Global business Product Units’ (GBUs) and 5 such units were established. With the 5 GBUs P&G wants to build its global brand equity as part of its ‘global strategic thinking’. At the same time 7 Market Development Organizations along the lines of major regions of the world were made to facilitate flexibility in the sphere of local actions. Thus it ‘thinks global, acts local’. There are numerous cases like this. But few general forms are alone dealt here. Network Organizations Network-based organization models have been characterized as reflecting an integrated worldwide strategy through globally distributed but interdependent resources and activities. The world is Continue reading
Understanding the Importance of International Business Strategy
The survival and progression of businesses in the 21st century is highly dependent on the ability of firms to expand beyond their national borders, taking into account the cost effectiveness of expansion and the complexity and risks associated with the company’s chosen international business strategy. The resources and objectives of a firm, as well as the demand for their product outside their national borders are important in taking the decision to globalize a company’s products and/or services. Although three strategies are more common, namely multi domestic, global and transnational approaches, the fourth strategy available to firms is the international approach to global expansion. This article will analyze the two approaches that differ in local responsiveness and cost pressure for the business, with the international approach as the least responsive and expensive for the company and the transnational approach as the most costly and locally focused from the four options available Continue reading
What is a Multinational Corporation (MNC)?
A multinational corporation may be defined company that operates in more than one country. According to the United Commission, Multinational Corporations or Global Corporation is a corporation, which operates in addition to the addition in which; it is incorporated, in one or more other, countries. Such a corporation owns and controls, business in two or more countries. In the words of W H Moreland, “Multinational Corporations or Companies are those enterprises whose management, ownership and controls are spread in more than one foreign country”. In common usage, multinational corporations are also called global corporations and international corporations. While in general these terms may be used interchangeably, there are actually subtle differences between them. Global corporation and multinational corporation represent two extremes whereas International corporation falls somewhere between these two. In a global corporation production facilities are generally centralized. These are located in oneor two countries to get the advantage of Continue reading
Benefits and Costs of Foreign Direct Investment (FDI) to Host Country
Foreign Direct Investment plays an important part in global entrepreneurs and businesses. The FDI can easily provide a firm with new business environments and markets, cheaper production facilities, usage chances of newest technologies, cheaper financing and skills. There is an significant difference between FDI and foreign portfolio investment (FPI). Foreign portfolio investment means investing of individuals, companies, or policy makers of a nation in foreign fiscal tools (for example government bonds, foreign stocks) making an important wealth piece in a foreign entrepreneurship is not involved. There are two strategic kinds of FDI: Horizontal foreign direct investment : If FDI is made in way which in same sector as a company have activity in at home. Vertical foreign direct investment: If a company or multi national establishment (MNE) supplies production resources for a company’s local transactions, or this kind of foreign direct investment can take place with selling the final product Continue reading
Growth Strategies Followed by MNC’s
Growth is a way of life. Almost all organizations plan to expand. This strategy is followed when an organization aims at higher growth by broadening its one or more of its business in terms of their respective customer groups, customers functions, and alternative technologies singly or jointly — in order to improve its overall performance. There are four types of expansion (Growth) strategies Expansion through concentration Expansion through integration Expansion through diversification Expansion through cooperation 1. Expansion through concentration It involves converging resources in one or more of firms businesses in terms of their respective customer needs, customer functions, or alternative technologies either singly or jointly, in such a manner that it results in expansions. A firm that is familiar with an industry would naturally like to invest more in known business rather than unknown business. Concentration can be done through Market Penetration: It involves selling more products to the Continue reading