international business and finance
rishabbiyani
WEEK10LECTURESLIDE.pptWeek 10
The Future of International Business
Introduction: Trend-spotting as an MNE function
- Session I (lecture period) Ecology and International Business
- Session II (seminar period) The changing geography of IB
a. Emerging operational locations
b. Emerging consumer markets
c. New rivals and new paradigms
Module conclusion:
Final thoughts on your IB career
Sample of major international trends
(derived from regular McKinsey trends)
- Changing geography of international business
- Ecological imperative (= last week)
- Technological innovation
Also
- Globalization of labour (=INB 720)
- Ethical business (=week 2)
- Capital markets (=week 8)
- Knowledge management (=week 6)
- Socioeconomic and demographic changes (READ THE NEWS!!)
Session II.
Changing Geography of International Business
- Development as a three-stage process
- Will paradigms change too?
a. Emerging operational locations
- Rising share of IB transacted in emerging economies (with June 2017 FX reserves near $3.057 tn, China world’s most cash-rich country)
- BRICS: term invented by economist J. O’Neil in 2003 referring to main emerging countries (Brazil, Russia, India, China)
- Next 11: O’Neil’s updated vision in 2011 referring to next wave
Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan,
Philippines, South Korea, Turkey and Vietnam
GLOBAL SOUTH GROWTH SLOWING DOWN BUT STILL MUCH FASTER THAN GLOBAL NORTH
Stages of emergence
- Exogenous drivers: Exports to foreign markets and/or greater manufacturing for foreign MNEs (outsourcing revolution)
- Endogenous drivers: Rising household income / tax revenues led to more domestic consumption/infrastructure investment
- Other factors
Depletion of natural resources = investment in LDC raw materials. RESOURCE CURSE?
Much lower wage levels
Rising productivity, ability to compete in high value added sectors
(c.f. Ho 2008: “Leapfrogging technology”)
Political environments have become more IB-friendly
Operating conditions
often remain difficult
- Government restrictions, powerful ‘oligarchs’: expropriations?
- Widespread corruption, social instability
- Volatility: unstable financial markets, immature tax systems
- Institutional voids – arbitrary regulations, etc.
YET THESE DISADVANTAGES ARE ALSO OPPORTUNITIES
For MNEs capable of surviving such circumstances
For MNEs who earn themselves favourable treatment (CSR?)
b. Emerging consumer markets
- As income rises, people spend in areas (consumer durables, transportation and leisure) that were once beyond their means. Great opportunity for MNEs in these sectors
- c.f. O’Neil, nr. of middle class consumers in BRICs to increase by factor of eight by 2025
- Many OECD countries saturated (‘product renewal’ phase) vs. emerging markets in ‘first equipment’ phase – huge volumes
- Emerging markets already set tone globally in certain markets (construction & infrastructure, ICT, luxury, cars)
Emerging consumers w/other requirements
- Dominate products in Global North may not appeal in South. $3,000 threshold to enter middle class remains very low
- Catering to ‘bottom-of-the-pyramid’ customers is a speciality: rise of ‘frugal innovation’, i.e. ‘good-enough’ affordable products enhancing new customers’ ability to consume
- Problem for Global North MNEs: frugal production/marketing (‘China price’) very different from usual high-tech innovation business models targeting top-of-the-pyramid customers
BUT GLOBAL SOUTH MNES ARE USED TO FRUGALITY
c. New competitors in IB
- Many emerging consumers attracted to foreign products associated with lifestyle that few could access until recently
- Yet Global South consumers can be just as ethnocentric as Global North counterparts (i.e. preference for local labels)
- Advantage for Global South MNEs accustomed to dealing with the ‘non-market’ problems that often rise in emerging world
- Also, more and more innovative products starting in South: proximity to raw materials; frugal technological innovation; but also service activities. NEW GLOBAL NAMES
c.f. Professor Karl Sauvant, Columbia University
Emergence trajectories
- South/South: Materials for factories at home (China/Africa)
- South/North: Technology-seeking FDI, or else expand portfolio
- Emerging market MNEs seem to go abroad when they are smaller than their Global North predecessors were at a similar stage; take greater risks; and implement less formalized policies (Alvarez 2010).
- Regional patterns?
LatAm ‘pumas’ – Paternalistic? Ease in other Spanish-speaking countries
Russian ‘reds’ – Rapid internationalisation in primary sector. Capital flight?
Asian ‘yangs’ – started with outsourcing, then joint venture, then outwards FDI
Indian way of doing business – “Springboard” from difficult home market to offset latecomer status. Frugal/bottom-of-the-pyramid approach. Social focus
OPPORTUNITIES FOR YOU?
Section III.
Final thoughts on your Int Bus career
In general
- Keep your eyes open: IB people have a wide general culture. Be a news addict and have a view of the world.
- Know what you have to offer:
A specific geographic competency
A specific product competency
A customer list
Knowledge that others will pay to have
Step 1: Getting that first job
WHERE?
In an international career you must see people face to face. This either entails:
- Lots of airmiles (how’s the family life?)
- Expatriate stints? (c.f. Adler)
- good money but too far from centre?
- honeymoon period followed by culture shock
Always seek ‘insiderization’ status (c.f. Ohmae)
A good question for your job interview
- If the Company says that its HQ runs the show (it’s centralised/push-oriented/ethnocentric, etc.), then that’s where you will want to work
- If it says that power is divested to the subs,
then maybe the best career is at the country level
Step 2. Offer to learn and to help others to learn
There is always a recognition of (global) intellectual capital – people like “smart” prophets of info/technology
- Be the driver behind the knowledge transfer procedures (newsletters, meetings, staff exchanges): KNOWLEDGE IS POWER
You could me remunerated for this knowledge transfer (for contributing to group’s other entities)
You appear manager material
Fitting into the MNE’s corporate culture
- Industrial Models
Craft production vs. Fordism (or Toyotaism)
Post-industrial service economy vs. Luddites
SMEs vs. large firms
- Pay Systems
Preference for fixed or variable (risk/reward)
Arbitrage ambition/security
Team player or individualist
Industrial model-
Craft production - Rural society
Fordism - Fritz Lang Metropolis/Taylorist specialisation/ Chain/Hierarchy
Toyotism - Business as cooperation
Volvoism - Self-Development / Autogestion (Tito)
Postindustrial service economy - notions of tangibility/ subservience
Virtual economy - interest in delivery process
Pay systems (sometimes linked to industrial model)
Base salary - uncertainty avoidance
Split salary/bonus - rewards sharing
Commission or per piece
Respect people
- Learn to say hello and thank you in everybody’s language
- Be self-aware re: body language:respect/(dis)agreement/silence
- Foreigner you’re speaking with doesn’t recognise your (national or corporate) superiority- people live in their own environments and are loyal to their own people
- The customer is (usually) right – you’re the one asking for a favour!
- Respect your rivals – you may to work for them one day
Being ethical is the only good business
- If you blow your customers up, short-term you might be able to make money but long-term and by definition they’ll be gone!
- Xenophobia in this world is such that people are always too happy to find a pretext to blame the foreigner businessperson. Don’t give them that pretext
- In the end we have to sleep with ourselves at night
Conclusion
International business is not some natural science, replete with universal and immutable laws. It is intrinsically linked with an extremely diversified environment, and should always be seen in context.
Business is people, not science….
