Goals:

• Discuss activites of multinational organizations
• Explain common international business entry modes
• Describe activitties of international trade organizations and agencies

Key Terms:

• Multinational Company (MNC)
• Joint venture

Lesson 3-3    International Business Organizations                             

• Multinational Companies (MNC) – an organization that does business in several companies.
• Usually consist of a parent company in a home country and divisions  or separate companies in one or more host countries
• The country in which the MNC places business activities is called the host country
• MNC Strategies
• Global Strategy – uses the same product and marketing strategy worldwide.
  • The same product is sold in essentially the same manner throughout the world
  • Example:  Coca Cola
• Multinational Strategy – treats each country differently.
  • Develop marketing strategies that adapt to customs, tastes, and buying habits of a distinct national market.
  • Restaurant chains may modify their menus to local tastes
• MNC Benefits
  • Consumers have large amount of goods available, often at a lower price than goods made domestically
  • Career opportunities expand as a company does business in a variety of countries
  • Global business activities may also foster understanding, communication, and respect among people of different nations
  • Nations that are business partners usually try to maintain friendly relations for economic reasons
• Drawbacks of Multinational Companies
  • An MNC can become a major economic power in a host country
  • Workers of the host company become dependent on the MNC for jobs
  • Consumers become dependent upon it for goods and services
  • The MNC may actually influence or control the political power of a country
• Global Market Entry Modes – as companies expand into other countries, several methods are available for their use
• Licensing – selling the right to use some tangible property (production process, trademark or brand name) for a fee or royalty.
  • Some companies want to produce items in other countries without being actively involved. They may allow a foreign company to use a procedure they own.
  • The Gerber Company started selling baby food in Japan by means of licensing.
  • The use of television characters or spports team emblems on hats, shirts, jackets, notebooks, luggage and other items also involves a licensing agreement
  • Licensing has low financial investment and usually low return.
  • The risk for the company is also low.
• Franchising – the right to use a company name or business process in a specific way.
  • Another method to expand into other countries
  • Organizations enter into contracts with people in other countries to set up a business that looks and runs like the parent company
  • Franchisee usually adapts a range of business elements
    • Marketing elements such as food products, packaging and advertising messages must meet both cultural sensitivities and legal requirements
  • Both franchising and licensing involve royalty payments for the right to use a process or company name
  • Licensing usually involves a manufacturing process
  • Franchising usually involves selling a product or a service
  • Franchise agreements are popular with fast-food companies
  • McDonald’s
  • Burger King
  • Wendy’s
  • KFC
  • Increases their presence in foreign markets
• Joint Venture – an agreement between two or more companies to share a business project
  • Main benefit is the sharing of raw materials, shipping facilities, management activities, or production facilities
  • Concerns about this type of partnership include sharing of profits and not as much control
  • Very popular in manufacturing
  • Joint ventures between Japanese and American automobile manufacturers have been common
    • Ford and Mazda
• International Trade Organizations – international business can be very complex. As a result, several organizations have been set up to help companies with global trade
• World Trade Organization (WTO)
  • Created in 1995
  • More than 150 member countries
  • Settles trade disputes and enforces free trade agreements between its members
  • Other WTO goals include:
  • Lowering tariffs that discourage free trade
  • Eliminating import quotas
  • Reducing barriers for banks, insurance companies, and other financial services
  • Assisting poor countries with economic growth
• International Monetary Fund (IMF)
  • Created in 1946 – economic interdependency was growing at an unprecedented rate
  • More than 150 member nations
  • Helps promote economic cooperation
  • Maintains an orderly system of world trade and exchange rates
  • Before the IMF, a country could often change the value of its legal tender to attract more foreign customers
  • As countries lose business, they may impose trade restrictions or lower the value of their currency
  • As one nation tries to outdo the other, a trade war may result.
  • Today, cooperation among IMF nations makes trade wars less likely
• World Bank – The International Bank for Reconstruction and Development
  • Created in 1944 to provide for loans for rebuilding after World War II
  • More than 180 member countries
  • Its key function today is to give economic aid to less developed  countries
  • To build communications systems, transportation networks and energy plants
  • Two main divisions
  • International Development Association (IDA)
    • Makes loans to developing countries
  • International Finance Corporation (IFC)
    • Provides capital and technical help to private businesses in nations with limited resources
    • Promotes joint ventures between foreign countries to further capital investment in developing countries