This Document Contains Chapters 1 to 11 Chapter 1 – Importance of International Entrepreneurship Questions for Discussion 1. What are some differences between domestic and international entrepreneurship? International entrepreneurship requires the consideration of a multitude of factors that will impact the business decision making process. These factors include: • The Economics of the new market and how that market’s economy will be able to support the new product or service being introduced. • The Stage of Economic Development that that market is in and whether it is in the right stage for this business. • The Balance of Payments in a country and its impact on currency exchange rates, • Type of Economic System present in that country and how a foreign would go about entering the market. • Political-Legal Environment and how laws and regulations are created and enforced. • Cultural Environment of the country and how that country’s cultural practices differ from yours. • Technological Environment determines if that market is in fact ready for the product and has the necessary technical infrastructure for it to be useful. 2. What are the key characteristics to understand when moving a business from one country or region to another? • Economics • State in economic development • Balance of payments – balance of trade • Type of economic system • Political-legal environment • Cultural environment • Technological environment 3. What potential problems might an entrepreneur encounter when entering a new country? Success in one country or market does not automatically mean success in other countries. An entrepreneur needs to be aware of the market conditions in that country, whether there is a need for their product or service, whether there is a distribution network that can efficiently get that good to the customer, and a sales network to deliver it. Fluctuations in currency exchange rates can have a drastic impact on businesses as sales one day could be worth much less than sales the next depending on movements in rates. This makes planning and pricing difficult. Local competition can be problematic if the entrepreneur does not know the new market well as a local player could be completely dominant and the local market will not shift to a foreign entrant. Communication problems and cultural differences could lead to misunderstandings or disagreements between the entrepreneur and their customers, limiting potential business opportunities and growth. And legal problems could arise if there is no protection of trade rights, intellectual property, or contract enforcement. And in some instances foreign governments have been known to take over foreign businesses or push them out of the market with little notice. 4. What does an entrepreneur need to be aware of before entering a foreign market? The entrepreneur needs to be aware of several things before entering a foreign market: • the distribution system • the banking system • foreign exchange rates and policies • tariff rules and regulations • patent protection enforcement policies • any appropriation regulations and business practices Chapter Exercises 1. Define international entrepreneurship and describe one example of an international entrepreneur and his or her business. • International Entrepreneurship: the process of an entrepreneur conducting business activities across national boundaries and can include exporting, licensing, opening a sales office in another country, or advertising overseas. • Example of an international entrepreneur should include an instance of at least one of the items above. 2. Explain all the international entrepreneurship formula. How would missing one or two of these variables impact a global venture? • IE = C1 + PL + E + DC + C2 + C3 ○ IE = International Entrepreneurship – creating and doing business internationally ○ C1 = Culture – making sure that the business plan and activities take into account the cultural differences (including language and business practices) ○ PL = Politics and Legal Environment – identifying what differences in political and legal systems can greatly affect an entrepreneur’s ability to do business in a foreign country or region (like pricing decisions, advertising , taxation, etc.) ○ E = Economy and Economic Integration – dealing with and navigating product valuations; government regulations; and banking, venture capital, marketing, and distribution systems ○ DC = Distribution Channels – getting your product from the business to the customer and whether or not there are barriers to shipping, like poor infrastructure and communications ○ C2 = Change – remaining aware of any political or economic changes that might occur in an export or import market; preparing your company to handle these changes as they arise and not lose business or market share from an inability to handle them ○ C3 = Communication – identifying the best forms of communication between headquarters and manufacturing and sales outlets around the world. Also, having an awareness of what communication challenges exist and figuring out how to handle these challenges Lacking an understanding of how each of these elements affect a global venture can increase its vulnerability to small changes in economic, political, legal, and other situations. In addition, by identifying each of these elements within the international venture, an entrepreneur will be able adapt more quickly as changes occur. 3. What are the motivations for taking a business global? What factors influence this decision? • Increased profits are consistently a strong motivation for going global. An entrepreneur must look at all of the expansion costs entailed in becoming global, such as increases in marketing spending and shipping costs. • Other motivations include: ○ Large markets outside of the home country ○ Decline in sales or sales potential in the home market ○ Avoidance of increased regulations or societal concerns related to a product ○ Obsolete technology in the home country ○ End of product life cycle ○ Lower labor, manufacturing, and raw material costs ○ Leveraging benefits of the internationalization of operations Chapter 2 – Globalization and the International Environment Questions for Discussion 1. What are the most critical strategic factors to consider before entering a foreign market? • The allocation of responsibility between U.S. and foreign operations • The nature of the planning, reporting, and control systems to be used throughout the • international operations • The appropriate organizational structure for conducting international operations • The potential degree of standardization Each of these must be thought through and understood so that the international venture works in concert with the domestic enterprise, each supporting the other. If these factors are not considered than there is the potential for miscommunication, overlapping of duties, or errors in action that would prevent the international venture from succeeding. 2. How does the control of foreign operations change as the enterprise grows? • At its infancy, the foreign operation is generally run by a very centralized decision making process. The international entrepreneur relies on their limited circle of advisor and partners to aid in controlling operations at home for the international markets. • As the enterprise grows, it is able to build more of a local network in the foreign country. The larger size and complexity of the business makes it more difficult for all decisions to be made back in the home office. At this point the local office becomes more independent and is free to make its own business decisions. • Once this process of decentralization has expanded to several different markets, it becomes very difficult to control and manage as one office might be acting in conflict with another, and information is slow to make it back to the home office. At this point control is brought back to the headquarters and systems and controls are implemented to improve the communication structure and process. Chapter Exercises 1. Describe each of the major issues and considerations an entrepreneur must address when launching his or her product or company in a new country. • Physical vs. Psychological Closeness: identifying how similar are the cultural, political, legal, and economic systems in a firm’s home country versus its foreign outlets and then whether or not the psychological closeness actually makes a foreign market the best opportunity for the venture. An entrepreneur must consider if: ○ The physical and psychological proximity is based on reality or perception. ○ Psychological proximity can make a market easier to enter and can help the entrepreneur identify the first foreign market to enter. ○ Similarities with entrepreneurs in the foreign market exist, since there are common bonds amongst all entrepreneurs. • Strategic Issues Regarding Management and Organizational Structure: ○ The allocation of responsibility between the U.S. and foreign operations. ○ The nature of the planning, reporting, and control systems to be used throughout the international operations. ○ The appropriate organizational structure for conducting international operations. ○ The potential degree of standardization. • Environmental Analysis: ○ Characteristics of the market in each country and whether or not countries can be grouped together to form a larger market. • Strategic Planning: ○ Whether a company’s current products meet the demands in the new market(s) and deciding if a new product should be developed or introduced. ○ Purchasing power in the new market(s) and how affordable are the company’s products. ○ Banking and payment structures within the new market(s) and what method(s) will be used to extract profits from the country. • Operational Program: ○ Selecting the right products, distribution channels, pricing etc. • Marketing ○ Establishing measures to judge if the marketing program is successful. 2. Choose a country besides your home country and create a comparative table that describes the key environmental factors (economic, political, etc.) in that country versus your home country. What major differences exist and what is one major attribute that you must consider when doing business in the foreign country? SAMPLE CHART SET-UP: Home Country Foreign Country Major Difference Major Attribute Economic Political Legal Cultural 3. Suppose you are the CEO of a small firm that is taking its business into a new country. You are fortunate to have two gifted managers who have volunteered to handle the operational issues for this project, but you must choose just one to send to the new country. One of the managers has extensive work experience in all the operational aspects of running a business, and the other manager is from the new country and previously ran a business there. Which manager will you send and why? • Benefits of choosing the experienced operations manager: Will know exactly what the company needs to accomplish to consider the venture a success in the new company. However, might lose time and money in trying to understand the new culture, economy, politics, and laws. • Benefits of the native manager: Will know how business is done in the new country and might already have important connections established. However, might not understand how the company defines and measures success and therefore will fall short of the company’s expectations. • Alternative: Have the two managers work together to make the entry into the new country as easy, efficient, and profitable as possible. Chapter 3 – Cultures and International Entrepreneurship Questions for Discussion 1. Why does an entrepreneur need to be aware of the culture of the country that they are entering into? • Differences in culture between an entrepreneur’s home and the foreign market they are entering can be large. This means that a product in one market may not be suitable in another market with differing cultural norms and behaviors. Or perhaps the packaging and the marketing will have to be altered in order for it to be accepted. • The manner in which business itself is done might be very different based on the culture of a country. Decisions might be made more collectively, potentially extending the time it takes to complete a deal. Or communication barriers may lead to confusion and frustration, in addition to added costs for translation services or multiple contracts. The manner in which people work might be different, so an entrepreneur that is expanding manufacturing facilities overseas might find that it takes either a longer or shorter time to complete the same amount of production that they achieve in their home market. • Some of the cultural distinctions that U.S. firms most often face include differences in business styles, attitudes toward development of business relationships, attitudes toward punctuality, negotiating styles, gift-giving customs, greetings, significance of gestures, meanings of colors and numbers, and customs regarding titles. For example, consider the following: ○ The head is considered sacred in Thailand so never touch the head of a Thai or pass an object over it. ○ The number 7 is considered bad luck in Kenya and good luck in the Czech Republic, and it has magical connotations in Benin. The number 10 is bad luck in Korea, and 4 means death in Japan. ○ In Bulgaria a nod means no, and shaking the head from side to side means yes. ○ The "okay" sign commonly used in the United States (thumb and index finger forming a circle and the other fingers raised) means zero in France, is a symbol for money in Japan, and carries a vulgar connotation in Brazil. ○ The use of a palm-up hand and moving index finger signals "come here" in the United States and in some other countries, but it is considered vulgar in others. • American firms must pay close attention to different styles of doing business and the degree of importance placed on developing business relationships. In some countries, businesspeople have a very direct style, while in others they are much more subtle in style and value the personal relationship more than most Americans do in business. For example, in the Middle East, engaging in small talk before engaging in business is standard practice. • Attitudes toward punctuality vary greatly from one culture to another and, if misunderstood, can cause confusion and misunderstanding. Romanians, Japanese, and Germans are very punctual, whereas people in many of the Latin countries have a more relaxed attitude toward time. The Japanese consider it rude to be late for a business meeting, but acceptable, even fashionable, to be late for a social occasion. In Guatemala, on the other hand, one might arrive any time from ten minutes early to 45 minutes late for a luncheon appointment. • People around the world use body movements and gestures to convey specific messages. A misunderstanding over gestures is a common occurrence in intercultural communication, and misinterpretation along these lines can lead to business complications and social embarrassment. • Proper use of names and titles is often a source of confusion in international business relations. In many countries (including the United Kingdom, France, and Denmark) it is appropriate to use titles until use of first names is suggested. First names are seldom used when doing business in Germany. Visiting business people should use the surname preceded by the title. Titles such as "Herr Direktor" are sometimes used to indicate prestige, status, and rank. Thais, on the other hand, address one other by first names and reserve last names for very formal occasions and written communications. In Belgium it is important to address French-speaking business contacts as "Monsieur" or "Madame," while Flemish-speaking contacts should be addressed as "Mr." or "Mrs." To confuse the two is a great insult. • It is also important to understand the customs concerning gift giving. In some cultures, gifts are expected and failure to present them is considered an insult, whereas in other countries offering a gift is considered offensive. Business executives also need to know when to present gifts - on the initial visit or afterwards; where to present gifts - in public or private; what type of gift to present; what color it should be; and how many to present. • Gift giving is an important part of doing business in Japan, where gifts are usually exchanged at the first meeting. In sharp contrast, gifts are rarely exchanged in Germany and are usually not appropriate. Gift giving is not a normal custom in Belgium or the United Kingdom either, although in both countries, flowers are a suitable gift when invited to someone's home. • Customs concerning the exchange of business cards also vary. Although this point seems of minor importance, observing a country's customs for card giving is a key part of business protocol. In Japan, for example, the Western practice of accepting a business card and pocketing it immediately is considered rude. The proper approach is to carefully look at the card after accepting it, observe the title and organization, acknowledge with a nod that the information has been digested, and perhaps make a relevant comment or ask a polite question. (www.unzco.com/basicguide/c14.html) Cultural differences can add to the complexity of expanding into foreign countries. By understanding them ahead of time the entrepreneur can prepare themselves and their organization to prevent any problems or disruptions to their business and ensure that they achieve the benefits that their expansion offers. 2. How should an entrepreneur act in a country with high power distance? In a high power distance culture organizations are set up very hierarchical with clear delineations of duties and process. Decision making is made at the top of the organization and filtered down to those at the bottom. All interactions between bosses and subordinates are very formal communication can be limited between layers of the organization. For an entrepreneur starting a business in such an environment, they should be aware that their employees will not openly question their decisions, that there is a sense of inequality between the different layers of the organization, and that trying to implement a flat and open organizational structure will take work and training and should not be expected right away. 3. Why do you need to be culturally aware when you give or receive gifts in different countries? Gift giving is seen as different things in different countries. Some countries will expect you to bring them a gift and will be insulted if you do not. Other countries will not accept a gift at all for fear that it might look like a bribe. Businesspeople need to be aware of the practice in the country they are entering so that they can be prepared and act accordingly. Chapter Exercises 1. With a partner, discuss an instance of cultural misunderstanding that has personally happened to you. Could this misunderstanding have been avoided? If so, how? • Discussion prompts: ○ Where did the situation occur? • When traveling • Conducting business (ordering or shipping something overseas) • At work • In a restaurant • While shopping ○ What happened and what did you assume was the cause? ○ What could have been the cause? ○ How did you handle the situation? ○ What could you have done differently? 2. Choose one of the cultural scenarios in the chapter. How would you have avoided the same cultural problems that the company faced? • From Table 3-2 ○ Hire a local marketing firm to identify the best way to translate your company’s slogan or to simply market the product (i.e. find ways to resonate with the local population). ○ Use a focus group or native speakers to check the meaning of the translation of the slogan. 3. Pick a foreign country where you would like to do business. Write a brief report explaining the cultural differences between your country and that country, and describe how you will handle them. • Report should cover the following topics: ○ Language ○ Social Structure ○ Religion ○ Education ○ Political Philosophy ○ Economics and Economic Philosophy ○ Manners & Customs 4. Find an article about a company that attributes its failure in a foreign country to misunderstanding the local culture. What could the company have done to prevent this failure? One example is Vodafone’s failure in Japan. As the article, “Vodafone licks its wounds after 5 years of failure in Japan,” notes, the company did not identify well the right messaging, customer service levels, and product standards that Japanese consumers have. Vodafone should have better identified and understood the mobile phone market in Japan and the Japanese affinity for high tech gadgets before entering that market. (article: http://business.timesonline.co.uk/tol/business/markets/japan/article737262.ece) Chapter 4 – Developing the Global Business Plan Questions for Discussion 1. What role does a business plan play for a global entrepreneur? A business plan is used primarily to obtain financial resources for an entrepreneurial venture from a variety of potential investors. It outlines the opportunities available in the market and how that business will take advantage of them. It also details the steps and plans that the business will undertake in order to guide entrepreneurs and managers in their business decisions. Overall it will help to show that an entrepreneur has fully thought through, researched, and examined a potential market and has then developed a strategy to make a financially viable operation succeed over a given period of time. 2. What are the key sections of the plan? The main parts of the business plan are as follows: • Executive Summary which outlines the business and contains important summary information. This is often the most important section of the plan. • Introduction goes into further detail of the opportunities available in the market. It discusses the proposed market and any potential barriers to entry. • Economic, Political, and Legal Aspects provides information about these aspects in the market and how they might impact the business venture. If there are problems identified then solutions to them should be included here. • Cultural Analysis examines the customs and traditions in the market and any advantages or disadvantages that the entrepreneur’s business will face. • Organizational Plan describes the form of ownership of the venture, how will management be structured, the structure of board of directors (if needed), roles and responsibilities of management team, and salary and payment information for them. • Product or Service Description is where full detail is given for the good that will be introduced. If it is a product, full specifications and patent information should be given, for a service the unique skills and qualities of that service should be explained. • Market Entry Strategy explains how the venture will enter the market and claim a competitive position. • ¬Operations Plan describes the flow of goods and services from production to the customer. It will detail how the customer will order and receive the goods, how it is manufactured and delivered, and how it is serviced after delivery, and the responsible parties for each of these aspects. • Marketing Plan describes how the goods will be distributed, priced, and promoted. This will include any market research the entrepreneur has completed, an analysis of the potential customers, and forecasts for that goods or services. • Financial Plan is the final section of the business plan and details the financial information needed to determine the viability of the venture. It includes up to three years of sales forecasts, along with forecast on costs of goods sold, and expenses. A projected cash flow statement should be included to show how much money will be coming in and going out a given time for the venture. The last part of the financials is projected balance sheets for the first three years showing the projected assets and liabilities of the venture. 3. What additional information is needed for a global plan than would be for a strictly domestic business? Analyses of the international market, including an economic, political, and legal analysis of the foreign country, are needed in global business plans. The impact of trade areas and cultural differences should also be included. Chapter Exercises 1. Create a table containing each section of the business plan, its primary audience, and its primary function and importance. SECTION AUDIENCE PRIMARY FUNCTION/Importance Executive Summary Venture capitalists, investors Obtaining financing, briefly and strongly making the case for investment Introduction Venture capitalists, investors Details about new global initiative, the product/service to be offered, and the country to be entered; size and scope of opportunity Economic, Political, and Legal Aspects Company board of directors; investors; management Providing a deeper understanding of the economic system, laws, political system, and culture of the country being entered Organizational Plan Venture capitalists, investors The venture’s form of ownership – that is, proprietorship, partnership, or corporation – defining what type and where appropriate the division of ownership among partners, shareholders etc.; organizational structure Product/Service Venture capitalists, investors Description of product/service to be sold or produced Market-Entry Strategy Venture capitalists, investors; board of directors Defines plans for manufacturing, distribution, inventory within the political, economic, legal, and cultural setting of the new country Operations Plan Management Explains the flow of goods and services from production to the customer; process by which a transaction is completed; customer service plans; defines quality Marketing Plan Management; board of directors Strategic plan for distribution, pricing, and promotion of products/services in the new market; includes a budget based on forecasted sales Financials Venture capitalists, investors Determines the potential investment commitment needed for the new venture and indicates whether the business plan is economically feasible 2. Explain the role of the financial section of the business plan, including where the information comes from, who the primary audience is, and what internal planning function this section serves. • Role: Determines the potential investment commitment needed for the new venture and indicates whether the business plan is economically feasible. Includes: ○ Forecasted sales, cost of goods sold, general and administrative expenses and estimated income taxes for 3 years. ○ Cash flow estimates for 3 years provided monthly taking into account sales patterns and bill payments. ○ Projected balance sheet including current financial condition of company – assets, liabilities, retained earnings (cumulative losses). • Audience: potential investors • Internal Planning Function: shows the necessary financial commitment needed as well as the monetary expectations of the firm when launching this new part of the venture. Helps set sales goals and definitions of success. 3. Suppose you are an American donut company that has decided to launch a donut bakery and café in Shanghai, China. The company grosses US$25 million per year from donut and café sales, US$5 million of which is attributed to its bakery-cafés in Australia and New Zealand. Create an executive summary to convince a Chinese venture capitalist to invest in this project. A sample executive summary could read: “Doughy Donuts” is destined to be a success in not only Shanghai but all major metropolitan areas of China. Our recent expansion and success in Australia and New Zealand makes entering the Chinese market much easier, since we already have our Asian distribution network established. Shanghai is a bustling international city with a large American population, which will be our primary target consumers at first. In addition, through affordable pricing and opening bakery-cafés in the financial district, we can attract Chinese customers as well as businesspeople of all nationalities that need a quick breakfast. The cafés will also include wireless Internet access as another convenience and benefit for our customers. Our product line will include all of the traditional glazed donut varieties and our bakers have developed a special rice flour donut that will appeal to Chinese consumers, since it is similar to a Chinese fried dough snack. While we expect to only break even in the first year of investment, the ROI should hold steady around 20% for the 3 years following. In addition, our marketing strategy will utilize the already popular “Doughy Donutman,” which has an almost cult-like following because of our viral marketing techniques. Through viral marketing tests already conducted in partnership with major Chinese Internet sites, we have begun to build the brand’s presence in China. As a sweet, delicious breakfast or snack item, we are positive that “Doughy Donuts” will be a success in Shanghai. The rest of this report details projected sales and costs, the marketing program, a detailed analysis of not only the Shanghai market for donuts but the Chinese market as well, and projections for ROI for investors. 4. Consider your own business or business idea and outline a business plan for it. Identify which areas of the business plan will need more research, brainstorming, and calculations and what steps are needed to address these areas. Answers will vary based on the student’s plans. Business Idea: Eco-friendly packaging company providing sustainable alternatives to plastic. Key Areas for Research: 1. Market Demand & Pricing: Analyze competitor pricing and customer demand. 2. Manufacturing & Supply Chain: Research eco-friendly suppliers and production costs. 3. Financial Projections: Calculate revenue, costs, and break-even points. 4. Customer Acquisition: Test marketing strategies and measure costs. Next Steps: 1. Survey potential clients. 2. Research suppliers and build partnerships. 3. Create detailed financial forecasts. 4. Run test marketing campaigns. Chapter 5 – Selecting International Business Opportunities Questions for Discussion 1. What types of information should entrepreneurs seek out before deciding on which foreign market to enter? Just as with entering a domestic market, they need to research the demographics of the market they are trying to enter. How many potential customers are there? What are their income levels? Is the infrastructure available to support their business? Are there existing competitors? They also need to look at the political stability of the region, the financial strength, and the legal structure of the nation. Will they be able to take their profits out of the country? 2. What are the different types and sources of information that are available? The two different types of data are primary and secondary. Primary data is original information collected for the particular requirement. This could take the form of surveys, interviews, or observations. Secondary data is pre-existing published information. This data can come from both public and private sources, government research, and industry trade groups. Often it is macro-level data that the entrepreneur can use to focus their data gathering at the primary level. Once the entrepreneur has identified the SIC or NAICS code, they can find a lot of industry level data, such as market size, growth trends, and competitive position. In some instances this secondary data can be relatively easy to find and aggregate, while in others the entrepreneur will need to be creative in research depending on the given market and the availability of data. 3. What are some potential problems with data collected in another country? Depending on the level of development and transparency in a country, there are several potential problems an entrepreneur might face when collecting data: • Comparability – The data for one country may not be the same as in another country, either in time scale, magnitude, or research factor. • Availability – Some countries have more data available than others. For those that have less data it can be difficult to make accurate predictions of the market or to fully analyze all the necessary factors. • Accuracy – Sometimes the data collected has been done so using vigorous standards, or else its collection or representation may have been influenced by a heavy hand such as a powerful local businessman or government. This is most often the case in less developed markets. • Cost – While all government collected data is available for free in the United States, the cost of obtaining data in other countries can be quite high, either through the government or through private data collection sources. 4. Jean-Marie is considering expanding her bakery business from France into Croatia. What information would help her determine a good location to start her business there? She should first look for cities with a large number of potential customers, people with disposable income that would be open to a quality French bakery. She should then look at the state of existing competition in the market and if the market is already saturated or if there is room for a new entrant. If she is able to find a neighborhood with a high percentage of French citizens, this could be a good location for her. Chapter Exercises 1. Pick a business and create the key indicators that you will use to analyze the new market. • Analysis should describe and include each of the following indicators: ○ Overall Market Indicators ○ Market Growth Indicators ○ Product Indicators ○ Other/More • Students should explain why they are including a particular indicator. 2. Using the same business you chose for Exercise 1, outline the information that you will need to collect about the new market. • Answers will be specific to the market ○ Overall Market Indicators • Population • Per capita income • Demand for product • Profits (profitability) of similar products in that market • MORE (students should look beyond the text to define) ○ Market Growth Indicators • Country GDP growth (or decline) • Growth of market for particular products ○ Product Indicators • Export figures • Number of sales leads 3. For the same business you used in the previous exercises, create a list of competitors in the new market and identify primary sources to interview about these competitors. • Competitors can be found amongst: ○ Suppliers ○ Buyers ○ In-industry rivals ○ In-country (local) to the new market ○ Home country with same export/expansion strategy • Students should then identify potential primary sources to gather data from on each type of competitor – answers can range from a particular individual to the position held. Chapter 6 – International Legal Concerns Questions for Discussion 1. How can an entrepreneur mitigate potential political and legal risks prior to them happening? The first manner of prevention is knowledge of the situation. An entrepreneur needs to fully research and understand the market that they are entering and the political and economic conditions taking place there. If it looks like there might be a high level of risk, they should avoid the market from the outset. If they determine that the potential benefits outweigh the potential risks, they can help to mitigate their risks by taking out insurance to guard them against any problems. Though no insurance will ever be able to fully protect them from all situations, it can help when the worst takes place. In the United States, firms can take insurance from the Overseas Private Investment Corporation (OPIC) to protect them from currency inconvertibility, expropriation of their business by the local government, or political violence that brings damage to their facilities or employees. Many private insurers also write insurance for political risk, though often at a higher cost. 2. What are the four different types of legal systems, and which countries follow each of these systems? • Common Law – Australia, New Zealand, United Kingdom, United States • Civil Law – Brazil, Chile, France, Italy • Islamic Law – Middle Eastern countries • Socialist Law – China, Cuba, Vietnam 3. How should a contract be structured differently in a country with common law compared to one with civil law? Countries with common law allow for a much greater sense of interpretation by judges and courts as to the meaning of laws. In civil law systems, the courts follow law much more strictly to their words. This means that contracts in civil law systems are often much more detailed and lengthy, trying to spell out every contingency and possibility. In a country with common law, there might be more ambiguity inherent in contracts because they are open to a greater level of individual interpretation. Chapter Exercises 1. Pick one of the BRICs countries (Brazil, Russia, India, China) and analyze its political structure (collective vs. individual and democratic vs. totalitarian) compared with your home country. What is the greatest difference that exists? What is your assessment of the political risk to a business entering that country? Basic political structure of each country (Students can also argue about which structure most accurately describes the BRICs country chosen and how a general movement toward more openness and trade is changing the hard definition of each political structure.): • Brazil: Federal Republic, Collective and Democratic • Russia: Federation, Collective and Democratic • India: Federal Republic, Collective and Democratic • China: Communist, Collective (signs of individual) and Totalitarian 2. Research and explain the difference between outright bribery and corruption versus a “facilitating payment.” An answer could read as follows: • Bribery and corruption entails paying a government official to either establish business or obtain licenses and permits. A facilitating payment, however, focuses just on expediting the process of obtaining licenses and permits. The U.S. Foreign Corrupt Practices Act allows facilitating payments to occur, but outright bribery to establish a business in a foreign country is not allowed. Other countries view bribery and facilitating payments as wholly illegal and will prosecute companies engaging in such acts. 3. Find an article describing a legal dispute that a multinational corporation has had outside its home country. What is the legal tradition of the foreign company? What is the major legal issue of the dispute and is there a different understanding of that issue in the home country versus the foreign country? Students should be able to find more than one substantial case (like Microsoft’s anti-trust case in the EU courts or the U.S. Justice Department’s inquiries into bribery allegations against Siemens) to review and discuss. Chapter 7 – Alternative Entry Strategies Questions for Discussion 1. What are the different ways to enter a foreign market? What are the advantages and disadvantages of each? There are several ways to enter into a foreign market depending on the goals of the enterprise and its current strengths. The methods of entry are: • Exporting – Good initial entry mode to learn more about a market with limited risks. High transportation costs and potential trade barriers could make this more difficult though. • Turn-key contracts – Allows the entrepreneur to earn returns in countries where FDI is restricted, however it could be creating a long term competitor as the skills and knowledge of the enterprise are transferred to a local agent. • Licensing – This option entails lower development costs and risks, however the entrepreneur has limited control over his product or technology. • Franchising – Similar to licensing but franchising agreement could also limit the potential upside to the entrepreneur if the venture is successful. • Joint ventures – Gives access to a local partner’s knowledge of the market and network of existing relationships. This can be very beneficial in some markets where relationships are a very strong part of local business. However this also limits the control available over the operations because the partner can exert stronger power. This also reduces the ability to coordinate among foreign offices. • Wholly-owned subsidiaries – This often takes place after a business has established itself in a market and has developed a client base. It allows complete control of the business by the entrepreneur, lets them build the local knowledge, and capture all of the profits from the market. It also allows for the coordination of activities among different locations and markets. The disadvantage of this is the high cost and risks that are assumed by opening a wholly-owned subsidiary. This is a capital investment that requires a longer term perspective and prevents a venture from quickly exiting the market if the conditions do not favor it. 2. What factors should an entrepreneur consider when deciding on an entry strategy? They must be aware of their own strengths and weaknesses as businesspeople in order to judge which option is best for the venture. They must decide how much control they want to have over the international operations and how much risk they are willing to undertake in their operation. It is also dependent on the level and experience of other international operations they have so as to determine how much coordination between them is required and how previous expansions have proceeded. 3. Anastasia is considering introducing her new line of high-end food products into Mexico. She has heard through a friend that one of her competitors is planning to do the same. Give the arguments as to why it can be better to be the first mover into the market and why it might be better to be the second. It can be good to be the first mover because she is able to define the market she is entering. Anastasia can set prices as she sees fit without having to worry about existing competitors. She can build her brand much easier as the first mover as the focus is on her. Being first will allow her to build brand loyalty and volume and let her quickly learn about the market. Yet it might be good to be the second mover into the market as well. By being able to let the first mover incur all of the costs to build a market she can piggyback her brand off of them. Anastasia also lets the first mover educate the market about the product and build up demand for it. Also, by moving in later she can see how best to navigate the market as a foreign entrant and how trade regulations and barriers need to be navigated. As shown, there are advantages to either strategy. Ultimately it is dependent on Anastasia and how confident she is in her knowledge of the local market, her product, and her entry strategy to determine if she is better off moving first or waiting for someone else to. Chapter Exercises 1. Using your own company or business idea, choose a new market for your product or service. Define the external environment, your own and your company’s strengths and weaknesses, and a basic strategy to enter that market. • Answers will vary depending on the students’ choices Business Idea: A subscription-based healthy meal delivery service offering organic, locally sourced meals tailored to specific dietary needs. New Market: International expansion into Europe, specifically focusing on Germany. External Environment: • Political/Legal: Favorable regulatory environment for health-related products, strong food safety regulations in Germany. • Economic: Germany has a growing demand for organic, healthy foods due to increasing health awareness. • Social: Rising consumer interest in health, wellness, and sustainability. • Technological: Increasing e-commerce adoption, mobile apps, and online ordering platforms. • Competitive Landscape: Competition from local organic food delivery services, but limited offerings tailored to specific dietary needs. Strengths: • Established brand with a loyal customer base in the current market. • Strong sourcing relationships with local, organic farms. • Customizable meal plans for various dietary preferences. Weaknesses: • Lack of familiarity with local German market preferences and regulations. • Limited infrastructure and logistical challenges in international shipping. Strategy to Enter the Market: • Partner with local distributors and chefs to adapt the menu to German tastes while maintaining the brand's health focus. • Use targeted digital marketing to emphasize the company's organic, sustainable values. • Set up a local warehouse or distribution hub to manage deliveries efficiently and reduce costs. • Offer a free trial or discounted first month to attract new customers. 2. What are the advantages of a first mover strategy? What are the best market conditions in which to use this strategy? • The advantages of a first mover strategy include: ○ preempting competitive firms and capturing sales by establishing a strong brand name ○ creating switching costs tying customers to your company’s products or services ○ building sales volume that provides an experience curve and cost advantages over later market entrants • It is best to use the first mover strategy when there are little or no domestic competitors for the products and when the pioneering costs are relatively low. 3. Imagine that you are the inventor of unique, robotic dolls that have been very successful and popular in your home country. You see a great opportunity in bringing this product to Germany. Conduct a basic analysis of the German market and suggest the best entry mode (exporting, nonequity, or direct foreign investment) for your product. The student’s analysis and recommendation could look as follows: • External Environment Analysis: ○ Markets for the products/services: According to a 2006 Euromonitor International Report, the number of children in Germany is declining as a percentage of the population and there is a trend toward smaller families and less spending. Toy giants Playmobil and Lego are both struggling, especially since German consumers are very price conscious. ○ Per capita income of the population: Approximately US$34,200 in 2007 ○ Labor and raw material availability: All of the resources needed to manufacture the dolls should be easily available since Germany is part of the EU and has numerous trade pacts with countries outside of Europe that supply raw materials. ○ Exchange rates, exchange controls, and tariffs: .73€ = US$1.00 in 2007 ○ Inflation rate: 2.1% in 2007 ○ Competitive products/services available: There are numerous doll manufacturers in Germany including well-known brands like Engel-Puppen Gmbh and Steffi Love as well as major international brands like Mattel. ○ Positioning and political risk: Little or no political risk. Data from: Consumer Lifestyles – Germany (2006 report by Euromonitor International); CIA World Factbook – Germany • Entry Modes: ○ Exporting: Best option if the inventor has a relatively well-established manufacturing base set up already; Internet sales could be advantageous since German shoppers are looking for bargains online. ○ Non-Equity: Since German toys are known for their high quality, a licensing agreement could be a great option for the inventor. It also reduces the risk of entering the market, especially when toy sales are on the decline. ○ Direct Investment: A joint venture could be the best route for the inventor, if he can convince one of the well-established doll makers to help him launch his robotic doll. The robotic doll strays from the traditional wood and porcelain dolls in Germany and has good potential of attracting new buyers to the doll market. Chapter 8 – The Global Monetary System Questions for Discussion 1. What are the potential effects of a change in the € / NZ$ exchange rate for an Italian entrepreneur who frequently does business in New Zealand? As the exchange rate between the euro and the kiwi changes, the value of an entrepreneur’s accounts receivable and accounts payable will fluctuate. This makes long term planning, pricing, and overall market strategy decisions very difficult. A real value of a contract agreed to today with payment due in one month could change dramatically by the time that payment is received, either making it more or less beneficial to the entrepreneur. 2. How would a weak Swiss franc benefit a Swiss entrepreneur who exports much of his product? A weak Swiss franc would allow the entrepreneur to price his goods below local competitors yet still make a profit because, when the revenues are converted back to francs, their value will be equal to or greater than when the franc was worth more. For example, Bruno sells fine Swiss chocolate around the world. If the current market price for chocolate in the United States is $4.00 per bar and the exchange rate is SFr 1.30/$, Bruno would be get SFr 3.07. If the franc were to weaken and the rate fell to SFr 1.20/$, Bruno could cut his retail price to $3.90 in the United States, potentially gaining market share, and in fact get SFr 3.25 when he brings that money back to Switzerland. 3. Explain the different roles of the International Monetary Fund and the World Bank. Both the International Monetary Fund (IMF) and the World Bank were created after World War II to try to assist in the rebuilding of the damaged countries and economies following the war. They have since evolved into large organizations that play essential roles in international business, both at the macro and micro levels. The IMF is an international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. The World Bank is a development agency that provides financial and technical assistance to developing nations in projects and activities that will allow them to advance economically. They are attempting to reduce poverty and improve the living conditions worldwide. 4. Mike just signed a US$1 million contract to sell small engines to a Slovenian manufacturer. Delivery will take place in 1 month, but he does not expect to receive his payment in euros for 3 months. What are the potential risks? What are some of the ways to mitigate these risks? Mike has exposed himself to fluctuations in the value of the accounts receivable. The contract that he signed may or may not deliver US$1 million upon completion in 3 months’ time depending on the value of the US dollar compared to the euro. If the dollar weakens he will receive less than he had planned for, if it strengthens he will receive more. This could disrupt his profit margin projections and impact whether he makes money on the deal or not. Mike has several options to protect himself from these risks. He could work with his bank to create a forward contract at the time he signs his deal with the Slovenian manufacturer guaranteeing him US$1 million, no matter what the exchange rate is in 3 months. Though this locks in his exchange rate, he could miss out on potential gains if the dollar strengthens against the euro. If he feels this is the case he could purchase a call option on the euro, which will set a floor for the minimum exchange rate while allowing him the chance to profit if the currency moves in his favor. Chapter Exercises 1. Choose a foreign currency and visit the Web site www.Xe.com to familiarize yourself with how the exchange rate between your home currency and that foreign currency functions. • Students should not only look at the exchange rate on a particular day, but how the exchange rate can fluctuate over a week, month, or year. 2. Pick a country that has recently dealt with severe currency devaluation and research how that devaluation has affected foreign investment and holdings in that country. • Countries that a student could analyze include: ○ Argentina ○ Brazil ○ Mexico ○ Russia ○ South Korea ○ Thailand ○ Venezuela ○ Zimbabwe 3. Select a country besides your own and see how the balance of payments works between your country and that foreign country. • The object of this exercise is to have students examine the export/import or seller/buyer relationship between two countries. Most likely the students will only focus on trade between the two countries. One excellent resource is the World Economic Outlook database from the IMF (www.imf.org/external/pubs/ft/weo/2008/01/weodata/index.aspx), where you can find Current Account data for every country in the world. • Balance of Payments = Current Account + Capital and Financial Account = ZERO 4. Go to the International Monetary Fund and World Bank Web sites, www.imf.org andwww.worldbank.org, to familiarize yourself with their roles in the global economic system. How do these roles differ? • IMF’s primary responsibilities and goals: ○ promote international monetary cooperation ○ facilitate expansion and balanced growth of international trade ○ promote exchange stability ○ assist establishment of multilateral system of payments ○ make its resources available to members experiencing balance of payments difficulties • World Bank’s primary responsibilities and goals: ○ reduce global poverty and the improve living standards ○ focus on building/improving all aspects the economies of emerging countries ○ provide low-interest loans, interest-free credit and grants to developing countries for education, health, infrastructure, communications and many other purposes • The World Bank focuses primarily on the internal development of a country while the IMF focuses on a country’s interaction through trade and other financial activities with other countries. Chapter 9 – Global Marketing and R&D Questions for Discussion 1. What are the three types of innovation? Give an example of each. The three types of innovation are breakthrough, technological, and ordinary. Breakthrough innovation is the most unique and brings the most dramatic changes to the market. The polio vaccine, the computer, and the airplane are examples of breakthrough innovation. Technological innovations occur more often but can be equally important. Cellular telephones, GPS navigation devices, and hybrid engines are all technologically innovative. The final type, ordinary innovation, is the most frequent. It often brings minor adjustments to known products to improve their features and usability. The video iPod, longer lasting gum flavors, and stain repellent shirts are some examples of this form. 2. What is the purpose of creating an opportunity analysis plan? How does it differ from a business plan? The opportunity analysis plan is a detailed investigation of the idea and the market that an entrepreneur is considering. It outlines the details of the product or service that will be offered and then identifies and examines the market that has been identified for entry. It looks at potential competitors in the market, examines the demographics and potential customer segments that could be targeted, and the methods by which to do so. It also includes a section on the skills and background of the management team. It concludes with a section on the necessary next steps in order to transform this into a suitable business venture. The opportunity analysis plan differs from the business plan in that its focus is on the market, not the venture itself. It does not go into the financial depth the business plan does not include projected financial statements. It is also generally much shorter in length than the business plan. Of 100 opportunity analysis plans that are created, generally three are actually good enough to be turned into business plans. 3. What factors should be considered when an entrepreneur sets his or her price for a product or service in a foreign market? Although it may appear easier initially, an entrepreneur should be hesitant to institute a policy of flat-rate pricing across all of their foreign markets. In setting a price for a foreign market they should consider the cost of doing business there, the prices that competitors have set, the price sensitivity of the consumer, the structure of the market, and the overall conditions in that country. The entrepreneur does not want to price themselves out of a market, yet they should not price so low that they are not able to qualify their investment in the long run. With the globalization taking place, it is much easier for consumers to compare prices among different markets, so a business needs to be careful not to price their good at one level in one market and at a greatly different level in another that would allow for cross-border pricing arbitrage. A final point that must be considered is the effect of foreign exchange on prices. Fluctuations in exchange rates can have a very dramatic impact on pricing and profitability and must be considered. Depending on the venture’s place in the market, the entrepreneur may be able to pass through some of these currency fluctuations in the price, but in a more competitive market they probably will not. This means that they might have to absorb smaller margins or potential losses if the rate moves against them. This is when it can be useful to use foreign exchange hedges (futures and options) to protect from such fluctuations. Chapter Exercises 1. Pick a foreign market and a product. Research the alterations that are necessary for the product to be allowed in that market (e.g., package design, labeling). Answers will vary depending on market and product Foreign Market: Japan Product: Organic Snack Bars Alterations Necessary for Market Entry: 1. Packaging Design: • Must comply with Japan’s regulations on packaging, which require clear labeling in Japanese. • The packaging should feature simple, visually appealing designs to align with local aesthetics, often incorporating minimalistic and elegant features. • Include Japanese characters for ingredients, expiry date, and product details. 2. Labeling Requirements: • Ingredient list must be in Japanese, with allergen information (e.g., nuts, gluten) clearly indicated in accordance with Japan’s Food Sanitation Law. • Organic certification must be displayed with the appropriate Japanese organic certification mark (JAS certification) if applicable. • Nutritional information must follow Japan's food labeling guidelines, including specific serving sizes and energy content in kilocalories. 3. Health Claims: • Any health-related claims (e.g., "low sugar," "high protein") must be backed by scientific evidence and approved by Japan’s Consumer Affairs Agency. 4. Import and Certification: • The product must undergo safety checks and be registered with Japan’s Ministry of Health, Labour and Welfare. • Certain certifications, such as JAS (Japanese Agricultural Standards) for organic products, may be required for organic labeling. By making these alterations, the organic snack bars can meet Japanese regulatory standards and appeal to local consumer preferences. 2. Using that same product, find research that indicates the product will be successful in the country that you are choosing to enter. Answer will vary depending on market and product It seems like I can’t do more browsing right now. Please try again later. However, I can provide general insights based on available knowledge. In Japan, the market for organic and health-conscious products, including snacks, has been growing steadily. Japanese consumers are increasingly aware of healthy eating and organic food trends, driven by factors like rising health consciousness, aging populations, and interest in sustainability. Organic products are especially gaining traction in urban areas like Tokyo, where people are more open to new food trends. According to various reports, Japan's organic food market has experienced a steady rise, and demand for health snacks, particularly those catering to clean eating and dietary preferences, is also expanding. This suggests that organic snack bars could see success in Japan, particularly if marketed as healthy, sustainable, and tailored to local tastes. 3. Take one of your product ideas and outline how that product will be carried through from the idea stage to commercialization. • Idea Stage: Evaluating each idea focusing on the most promising; identifying the need for the new product idea and its potential value to the company. • Concept Stage: Refined idea tested to determine acceptance by potential customers and members of distribution channel. • Product Development Stage: Through consumer panels, the virtues and deficiencies of the product are identified; determines consumer preference through multiple brand comparisons, risk analysis, level of repeat purchases, or intensity of preference analysis. • Test Marketing Stage: Market test helps project actual sales and acceptance of the new product. • Commercialization: Defining the marketing mix (product, price, distribution, and promotion) and executing. 4. You are a paper clip holder manufacturer launching your product in a new market. Identify how you will have to alter your product, pricing, distribution, and communication. What is the best distribution channel for this product? How will you develop the channel distribution? • What students might consider altering in the marketing mix: ○ Product: Most likely the product will go unaltered; however if you choose to manufacture the paper clip holders in the new market, you will have to identify if your current inputs are available and at what cost. ○ Pricing: Depending on both manufacturing costs and the ability of individuals and companies to afford the paper clip holders, you might have to alter the price. ○ Distribution: Identify the following factors in the new market that impact distribution; country legislation for distribution; type of product and price point; product positioning; competitors and the distribution channels they use; finding the right distribution channels to reach customers. • Channel Distribution: since paper clip holders are not particularly expensive or perishable, a long channel works well. Of utmost importance is understanding the customer in the new market and how they perceive your product. Once the channel distribution has been developed after identifying all of the factors listed above, ○ Communication/Promotion: In all forms of communication, from packaging to print and broadcast ads, the culture, language, economic development, and lifestyles of the new market must be considered when creating the message. You need to make sure that you test your messaging with individuals from the new market to guarantee that it is not inaccurate or offensive. Chapter 10 – Global Human Resource Management Questions for Discussion 1. Why would an expatriate manager be better in one situation but a host-country manager better in another? Expatriates often have greater knowledge of the product or very specific skills relating to it that locals may not. When a business is first locating abroad it might be beneficial to use expatriate workers who already have the needed skills to get that business up and running quickly. They probably have experience in similar circumstances in other foreign countries so they are adept at what is required to start a foreign operation. A host-country manager might be better in an established operation where they have learned the products and process of the company. They are also generally good mid- and low-level managers as they are growing in the company. Host-country managers are often less expensive than expatriates so there is a clear cost advantage to use them. 2. What traits in a manager make him or her a good candidate for a foreign assignment? Specific skills are usually required for a manager to be sent on a foreign assignment. Whether it is a technical skill or the ability to set up a new office, there needs to be a gap that the manager fills in order to warrant the costs a foreign assignment brings. Additionally they should want such an assignment and be open to different cultures and be curious about them. This social aspect will aid the manager in the inevitable difficulties brought by distance and culture that come about from living in another country. Having a strong global mindset will allow them to work with their local customers and suppliers and aid in all of their local business interactions, while at the same time allowing them to transfer local knowledge back to headquarters so they can best manage the operation. In some situations, language skills will be critical in determining which managers will be good for which foreign assignments. Although a lot of business is now done in English, in many markets only the local dialogue will suffice and it is necessary that the manager can communicate with both their customers and employees. 3. What components, besides salary, are important parts of a compensation package for an expatriate assignment? • Relocation assistance • Housing assistance and allowance • Automobile allowance • Travel expenses to return to host country for employee and their family • Living expenses • Possibly school assistance for children • Tax equalization plan so employees are not double taxed 4. How can you train and prepare a manager for a role in a different country? If possible, it is good to have the manager work with the employees in the foreign office prior to moving to that country. This allows them to build knowledge of the local market while at the same time build mutual trust and awareness of each other and to create lines of communication. A mentoring structure would also help by letting the manager talk with others that have made similar moves so they can prepare themselves for what lays ahead. If the manager is moving with his or her family, it is important to prepare them as well. Having the support of the family is crucial to the success of an expatriate manager so it is critical that they are prepared for their experience. An important, yet sometimes overlooked, aspect is preparing the expatriate for their return to the home country after their overseas experience. They need to be worked backed into the home office and given a chance to utilize the new skills and knowledge that they learned while overseas. It is best to start them on a project with the home office before they leave their foreign post so they can work back into that environment. If this step is not handled well, the manager might not feel needed at the home office and will start to look for new opportunities. Chapter Exercises 1. Imagine that you are leading a small company and need to find someone to handle your operations in the new market that you are entering. What characteristics are the most desirable for this employee to have? Why? • Answers should highlight some of the following characteristics: ○ technical knowledge/competence ○ experience ○ knowledge of the area and language ○ interest in and appreciation of overseas work and the specific culture ○ adaptability of the family ○ demographics such as age, education, sex, and health 2. What are the advantages and disadvantages of relying on an expatriate, a third country national, an inpatriate, or a home-country national to oversee you operations in a new market? Human Capital – Managers Advantage Disadvantage Third Country National • Likely to have technical expertise • From a similar culture to the host country • Brings a broader perspective • Likely to achieve objectives more quickly and effectively • Could be easily lured away by competitors in the same host country market Expatriate (home-country national) • Knows the products and culture of the venture • Relates easily and efficiently to corporate headquarters • Has the particular technical or business skills needed • Puts the venture ahead of the country • Is less likely to take the venture’s knowledge and set up a competing business • Reintegration and retention problems with headquarters • High cost of relocation, housing, education, overseas living allowance, • Potential for returning before completion of the assignment • Longer startup and wind down times and a shortsighted focus • Difficulty in finding good managers willing to move overseas Inpatriate • Manages across borders • Truly global focus • Helps develop the global core competency of the venture • Attracting host or third-country nationals to home country of venture • Training costs Host-country National • Good source for lower to middle-level managers • Take over from home-country nationals once initial phase is completed • Fulfills requirement of host country government, which wants to increase the skills and training of its workforce • Knowledge of local economy, politics, and culture • Lack of skills and training • Costs associated with providing the training • Less control over management 3. Choose one of the management styles and analyze how that style works well for a multicounty operation. • Management/Leadership Styles: ○ Authoritarian leader – focuses on work-centered behavior to ensure task accomplishment ○ Paternalistic leader – uses work-centered behavior along with a protective employee-centered concern ○ Participative leader – uses both a work (task)-centered and a people-centered approach ○ Transformational/Visionary leader – motivates employees to accept vision, new goals, and new ways of doing things through his/her charisma and ability to inspire confidence, loyalty, and pride • Answers may vary based on the industry, regions, and countries where the venture does business. Chapter 11 – Implementing and Managing a Global Entrepreneurial Strategy Questions for Discussion 1. In what situations is a cost leadership strategy better suited? When might a differentiation strategy be better? Cost Leadership Strategy is better suited when: • The market is highly price-sensitive, and consumers prioritize affordability. • There is intense competition based on price. • The company has economies of scale, cost efficiencies, and a strong ability to manage production and distribution costs. • Products are standardized and do not require significant customization. Differentiation Strategy is better suited when: • Consumers value unique features, quality, or brand image over price. • The market is less price-sensitive, and customers are willing to pay more for perceived value. • The company can innovate and offer something distinct (e.g., in product design, technology, or customer service). • There is potential to create strong brand loyalty and recognition. 2. Describe the different organizational structures and at what stage in the venture they might be best for an entrepreneurial enterprise? • Global area structure – Focuses each segment on an area of the world. Each area has support services and manages itself fairly autonomously. This works best for ventures with narrow product lines and similar end users. • Global customer structure – Focuses each segment on a customer or industry, often called verticals. This form is used when customer groups are dramatically different. • Global product structure – Focuses on the product and allows for the flexibility to adapt each product to the market that it is in. Coordination is critical between product groups to avoid duplication of effort or miscommunication with customers. This form is most often used with consumer product companies. • Mixed global structure – Combines the above structures to focuses on multiple aspects of the transaction. • Global matrix structure – Most often used in large entrepreneurial companies that allows for better communication and management among widely dispersed entities and product lines. Managers often have both a geographic and a product focus. Difficulty develops when there are two or more sometimes competing lines of responsibility and reporting structure. Decisions are more likely to be made in committees and group sessions, requiring additional time and management. 3. How does organizational control change as a venture achieves more success in a foreign market? As an enterprise initially achieves more success it will begin to decentralize its control over its foreign operations. The local offices will be given more control and allowed to localize their good or service as best suits the market. As further success is grown and the enterprise continues to expand into new markets, the home headquarters will need to exert a bit more control in order to maintain standards of quality and performance consistency throughout markets. This more centralized control is also needed to handle administrative functions such as accounting and finance, as well as developing firm wide strategy going forward. Chapter Exercises 1. Find articles about a company that attributes its success to meeting the goals set forth in its strategic plan. What is the company’s core strategy? Identify its indicators of success beyond profitability. • With the articles and perhaps also a copy of the company’s annual report, the student should be able to identify the core strategy and indicators of success that the company has defined. • Other indicators of success can include: ○ Sales (% increase in actual number of orders) ○ ROI (return on investment) ○ Production capacity ○ Quality level (maintaining high standards) ○ Employee retention 2. Suppose you are the owner of a successful electric-powered, environment-friendly scooter company and plan to launch your product in India. Pick either the cost leadership or differentiation strategy and explain how you bring the scooter to India. Will you have to alter the design at all? What difficulties could the Indian market pose, and how will your strategic plan deal with them? • Some arguments for cost leadership: ○ While India is a growing economy, cars, motorcycles, and scooters are still a luxury for many. ○ Cost leadership should be defined as offering the best mileage, comfort, and speed at a price that middle class Indians can afford. • Some arguments for differentiation: ○ Environmentally friendly aspect of the scooter. ○ Speed and agility in moving through city traffic. ○ Battery charge able to last for multiple days or a long distance (400 km). • One challenge that the company has to analyze is the unreliability of electricity in India, where brownouts are typical in the major cities like New Delhi or Mumbai. Another challenge is identifying the right price and target customer groups to make sure that the company doesn’t exhaust its new market. 3. Create a table listing the common organizational structures for a global firm and find examples of multinational companies that use each type of structure. ORGANIZATIONAL STRUCTURE COMPANY EXAMPLE Area Structure: based on geographical areas Asia-Pacific, Europe, North America, and South America McDonald’s has group presidents for: • Canada and Latin America • U.S. – East • U.S. – Central • U.S. – West • Asia, Middle East, and Africa • Europe http://mcdonalds.com/corp/about/bios.html Customer Structure: based on highly diverse customer groups, or verticals, with different buying processes Gap Inc.’s Gap brand tailors its stores and products to the following customer groups: • Teens, College Students and Young Professionals: Gap and gap body • Children and Pre-teens: Gap Kids • Parents and their Babies: baby Gap • Expecting Mothers: Gap Maternity Product Structure: based on assigning responsibility for global activities on each product Kimberly-Clark’s operations consist of four global product units: • Personal Care • Consumer Tissue • K-C Professional and Other • Health Care www.kimberly-clark.com/pdfs/2008%20FACT%20SHEET.pdf Mixed Structure: combines three structures listed above and often used after a merger or acquisition ING breaks its banking, insurance, and mortgage businesses across these main lines: • Insurance Europe • Insurance Americas • Insurance Asia/Pacific • Wholesale Banking (and ING Real Estate) • Retail Banking • ING Direct www.ing.com/group/showdoc.jsp?docid=092825_EN&menopt=abo|fct Matrix Structure: based on the needs of large entrepreneurial outfits to plan and control multiple business units Unilever builds its matrix structure around these three groups: • Regions – Europe, Americas, and Asia Africa (e.g., emerging markets including Central and Eastern Europe) • Categories – Foods and Home and Personal Care • Functions – Finance, Human Resources, and Information Technology, Communications, and Legal www.unilever.com/Images/ir_ar07-annual-report-full_tcm13-122592.pdf?linkid=dropdown 4. Discuss with a partner the best way to lead a global firm. Which method is better – formalized or cultural leadership? Why? • Formalized Leadership (control): relies on rules and regulations that indicate the needed level of output; includes a standardized budget and reporting system and policy manuals and applying these tools and standards to local country units. • Cultural Leadership (control): relies on shared beliefs and expectations of personnel in the venture; contains extensive informal personal interaction and training on the corporate culture and the way things are done. Solution Manual for International Entrepreneurship: Starting, Developing, and Managing a Global Venture Robert D. (Dale) Hisrich 9781452217390, 9781483344393
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