INTERNATIONAL BUSINESS MANAGEMENT

Navdeep Dhull
05214901717

ASSIGNMENT 1

Q. Assignment on Global product division structure, matrix and network

structure.

Global Product division structure contains the functions necessary to the specific goods
or services a product/service division produces. The parental organization has headquarters
divisions for different major product categories with respective resources, human and
others. Overseas subsidiaries producing a particular product or class of product have to
report to headquarters division responsible for that product or class of products. Global
Product Division Structure locates manufacturing and value creation activities in
appropriate global locations to increase responsiveness to competitive opportunities,
efficiency, quality, or innovation. Global product divisions are responsible for Global
Product Design and operate in divisional, cluster, or holding company formats. Global
Product divisions have little in common. They are highly independent of each other.
Following figure gives a simple model of Global Product Division Structure.
 Ford adopts this structure, abandoning its Global Geographic Structure. Today most of
the multinational enterprises with their diverse acquisitions world-wide have diverse
product portfolios. They mostly adopt product structure as that offers certain great
synergies.

ADVANTAGES
1. The company can effectively manage multiple or diverse products.
2. Coordination between functional areas is effective as all the functions are contained
within each product division.
3. Most of the decisions can be made at the divisional level because each decision is semi-
autonomous.
4. Decisions can be taken faster so as to compete in rapidly changing environment.
5. Responsibility for market share and profitability is clearly fixed on divisional heads.
6. The firm can meet the specific needs of customers in different markets effectively
through free flow of product knowledge and technology between product divisions and
subsidiaries.
7. Production costs can be reduced by locating and coordinating production facilities
appropriately.
DISADVANTAGES
1. There is unnecessary duplication of facilities and personnel. This results in higher
operating costs.
2. Divisional managers may concentrate on geographical areas with immediate return
neglecting areas with potential in future.
3. Communication and sharing of knowledge across divisions is limited as each product is
self-contained.
4. A division may focus on domestic business with which it is familiar, thereby neglecting
foreign subsidiaries
5. Conflicts between divisions may arise on sharing of common resources and allocation of
common expenses.

Suitability of Global Product Structure

Multinational Enterprises with vastly diversified product/service portfolio go for
product organization structures. Westinghouse with more than 8,000 different products in diverse
areas adopts this structure. The product division structure is well-suited for a global strategy
because both the foreign and domestic operations for a given product report to the same manager
which helps in achieving synergies by sharing information on the successes and failures of each,
sharing resources — human or otherwise, and sharing core competencies. American
Multinational Enterprises use this structure well more than the European Multinational
Enterprises.

GLOBAL MATRIX STRUCTURE

A matrix organization structure involves horizontal, vertical and diagonal flows of

responsibilities. Mathematically arrangement of anything by rows and columns is called matrix
structure. In a matrix organization the products or projects may be the column element, while
the horizontal or row elements might be the functional lines of production, marketing, etc. Third
dimensionally, the geographic responsibilities might run. Matrix structure is a combination of
two or more different structures. Thus, in a global matrix organization structure a foreign
subsidiary reports to more than one group, namely product/project, functional or geographic.

e
Large multinational corporations that use a matrix structure most commonly combine product
groups with geographic units. Product managers have global responsibility for the development,
manufacturing, and distribution of their own product or service line, while managers of
geographic regions have responsibility for the success of the business in their regions. Each
group shares responsibility over foreign operations. Among the groups more interdependence
leading to exchange of information and exchange of resources with each other takes place. In
that context, product-group managers compete among themselves to ensure that R&D personnel
responsible to a functional group, such as production, also develop technologies for product
groups. These product-group managers also must compete to ensure that geographic-group
managers emphasize their lines sufficiently. Not only do product groups compete; functional and
geographic groups also must compete among themselves to obtain resources held by others in the
matrix.
The Global Matrix Structure contains simultaneous, intersecting differentiation bases, with
employees reporting to functional and product managers simultaneously. The organization’s top
management must take particular care to establish proper procedures for the development of
projects and to keep communication channels clear so that potential conflicts do not arise and
hinder organizational functioning.
PepsiCo is organized by product lines-soft drinks and snacks-which would seem to imply that
each product line is integrated globally. However, each line has its own global division, which
separates it from domestic operations. Thus, a global matrix structure is followed.
ADVANTAGES
1. The firm can respond simultaneously to all the environmental variables that are critical to
its success.
2. Communication, movement of information and knowledge creation can be more
effective.
3. Planning and implementation become better due to improved flow of information.
4. Flexibility of operations is higher.
5. Costs of operations can be reduced due to sharing of personnel between functions and
projects
6. Each project manager gains experience in general management functions,
7. Motivation and job satisfaction of lower level functional employees can be improved
through their involvement in decision making.

DISADVANTAGES
1. There may be conflicts and confusion due to dual authority relations. Unity of command
is lacking in this structure.
2. There is a lack of accountability due to over-lapping responsibilities.
3. In order to coordinate functional areas with project employees spend much of their time
in meetings and exchange of information.
4. Conflicts often arise between functional heads and project heads on sharing of personnel
and facilities.
5. There may be duplication of activities between functions and projects.

SUITABILITY
1. Managerial attention need to be focused simultaneously on two or more key issues
efficiency, consumer needs, technological issues, etc.
2. There is a need to process large amounts of diverse information.
3. Economies of scale require the sharing of human resource expertise. Sharing of resources
is needed due to constraints.
4. There is complexity in problem solving due to environmental uncertainty,
interdependence between organizational units or complex technology.
GLOBAL NETWORK STRUCTURE
Global network structure combines elements of functional, product and area structures. At the
center of the network structure there is a nodal unit. It is responsible for coordinating information
relating to functions, products and areas. Different product line units adopt different structures
depending on what is best for their operations. The units differ is their functioning. Some of them
specialize in manufacturing, others in marketing and so on. These units are independent
organizations. But they are inter linked electronically to achieve the required synergy for global
success.

ADVANTAGES
1. This structure allows the firm to achieve global competitiveness. It offers economies
of scale and at the same time response to local customer demands.
2. Flexibility and motivation of workforce are high.
3. The headquarters team can pursue distinctive competence in virtually any market
situation.
4. Administrative overhead costs can be minimized.
5. Balance of matrix structure along with market responsiveness of divisional structure
can be achieved.

DISADVANTAGES
1. Outstanding negotiation and managerial skills are essential on the part of the
headquarters team.
2. There is a lack of hands on control by the headquarters team.
3. Employees have little loyalty to the network.
4. Any part of the network may be lost at any time.
There is no single structure ideal for all the global firms. The structure should meet the twin
requirements of a global firm:
i) A certain degree of centralization and coordination needed to leverage the firm’s
competitive advantage across borders
ii) A certain degree of decentralization and local autonomy to adapt to local conditions.
 ASSIGNMENT 2

Q. Sources of global competitive advantage and scope in

international business.

1. Strong research and development capabilities

A business can gain a strong competitive advantage in its industry if it has strong research
and development capabilities. Strong research and development reflects in the company’s
product development processes. Companies with strong research capabilities often lead the
market with innovation.

2. Access to intellectual properties

The next source of sustainable competitive advantage a business can exploit is the holding
of an intellectual right; which can exist in the form of trademarks, trade names, copyrights
and patents.

3. Exclusive re-selling or distribution rights

Holding exclusive distribution right is another source of sustainable competitive advantage.
When a company holds exclusive rights to a product within a given territory; that product
can only be sourced from the distributor or holder of such rights.

4. Ownership of capital equipment

This source of competitive advantage is mainly exploited by companies operating in
industries where heavy machinery is needed. Example of such industries where ownership
of capital equipment is a competitive advantage includes publishing, manufacturing, oil
exploration, construction and mining.

5. Superior product or customer support

Any company that has the capacity to quickly respond to customers need and provide
subsequent support will have a competitive advantage over competitors.

6. Low cost or high volume production

If your business has the capacity to produce in high volume; then it can gain a sustainable
competitive advantage by reducing its profit margin and recoup it through high volume
sales and turnover.

7. Economic factors
The seventh source of sustainable competitive advantage is the economic factor of a region
within a speculated time frame. A manufacturing company operating from China or India
will have competitive advantage over a company manufacturing in the United States
because the economic system in China is more favorable with respect to start up overhead
and labor cost.
A firm can achieve a cost advantage through centralized production if there are economies
of scale in production if there are economies of scale in production that extend beyond the
size of major national markets. In some cases vertical integration is the key to achieving
global production economies.
The global firm can secure economies of scale in purchasing through its bargaining poer
and longer production runs for its suppliers.

8. Superior database management and data processing capabilities

This source of competitive advantage is quite clear and understandable. A company that
demonstrates the capacity to process data speedily will have a competitive advantage over
other firms with lower processing capacity. This source of competitive advantage usually
plays itself out in the banking industry, telecommunication industry and the service
industry in general.

9. Strong marketing strategy

In the market place, the company with the best marketing strategy wins. No doubts about it.
The competition to gain a stronger competitive advantage in the marketplace is the reason
why giant corporations spend millions of dollars on marketing research and advertising
annually.

10. Access to working capital

Access to working capital is one of the strongest sustainable competitive advantages a
business can have over its competitors. Access to working capital is the difference between
a billion dollar company and a million dollar company or a small business and a big
business.

11. Excellent management team and operations

Show me a business that is a market leader in its industry and I will show you a business
backed by a strong management team. Exploiting other sources of competitive advantage
without a strong business team on ground will only be a futile attempt. A business
management team is essential to harnessing opportunities that create the needed
competitive advantage.

12. Barriers to entry or monopoly

Some businesses have gained competitive advantage because the entry in their industry has
been limited by surrounding circumstances. A good example of industry where barriers to
entry creates competitive advantage is the oil exploration and mining sector (industries
where licenses are needed to gain entry because there is government restriction on entry).
Monopoly is also a sustainable competitive advantage and can be gained by having strong
ties with the government.
 13. Global Experience
A global competitor can have a cost advantage by selling similar varieties of the product in
several national markets. For ex. Toyota has gained a commanding position in the
manufacturing of light duty tracks. Global competition can allow faster learning.

SCOPE

1. Merchandise exports and imports

Merchandise means goods that are tangible, i.e., those that can be seen and touched. When
viewed from this perceptive, it is clear that while merchandise exports mean sending
tangible goods abroad, merchandise imports means bringing tangible goods from a foreign
country to one’s own country.

2. Service exports and imports

Service exports and imports involve trade in intangibles. It is because of the intangible
aspect of services that trade in services is also known as invisible trade.

3. Licensing and franchising

Permitting another party in a foreign country to produce and sell goods under your
trademarks, patents or copyrights in lieu of some fee is another way of entering into
international business. It is under the licensing system that Pepsi and CocaCola are
produced and sold all over the world by local bottlers in foreign countries.

4. Foreign investments
Foreign investment is another important form of international business. Foreign investment
involves investments of funds abroad in exchange for financial return. Foreign investment
can be of two types: direct and portfolio investments.

5. Monopoly Power
It might arrive from patent rights, technological advantages, product segregation etc.
Another reason for internationalization is limited market information.

6. Benefiting from currency exchange

Those who add an international business to their assortment may also advantage from
currency fluctuations. For example, when the U.S. dollar is down, you might be able to
export more as foreign customers benefit from the favorable currency exchange rate.

7. Limitations of Domestic Market

Some demographic trends such as a contraction in birth rate decline in domestic demand,
fully tapped market potential have adverse effects on some businesses. When the domestic
market is small, international business is the option for growth. Depression in the home
market drives companies to explore foreign markets.

8. Increased revenues
One of the top advantages of international business is that you may be capable to enlarge
your number of probable clients. Each country you add to your list can open up a new path
to business growth and increased revenues.

9. Growth opportunities
Foreign markets both developed country and developing country provide considerable
expansion opportunities for the firms from a developing country. MNCs are interested in
no. of developing countries due to initially increasing in their income and population of the
predictable 1 billion increases in world population during 2000 to 2015; only about 3% will
be in the high-income countries, foreign markets, both developed and developing countries
after ample opportunities for developing country firms also.

10. Expand and diversify

International business can enlarge and expand its activities. This is because it earns very
high profits. It also gets financial help from the government.

11. Opportunity to specialize

International markets can open up avenues for a new line of service or products. It can also
give you an opportunity to specialize in a different area to serve that market.
 ASSIGNMENT 3
Q. Assignment on trends, reasons and impact of cross border mergers and
acquisitions.
Trends
More and more companies want to go global as they offer great opportunities which are
comparatively cheaper option for companies to build itself internally. Looking at the M&A
sentiments around the world it shows that the businesses acquisition emphasis is changing from
domestic to cross border transactions because of the various benefits it offers.
According to the International Business Report (IBR) two out of five businesses that are
preparing to grow through acquisitions over the next three years are contemplating cross border
opportunities. Last year this equation was one in three and before the financial crisis it was one
in four. It’s no surprise with the things pacifying in the euro zone to see almost 44% of Europe
and 38% of North America who seek business opportunities abroad.
Talking about the BRIC countries who are also looking at cross border merger and acquisitions
in order to gain entry to new markets.  In this China is leading the way and are getting involved
in M&A transactions in a big way and are ardent to show themselves as a striking option for
investors globally.
Despite the fact that domestic acquisitions have been the prime focus for inorganic growth in
companies which is almost 84%, the yearning for cross border merger and acquisitions is
becoming extremely protruding.

During the sixties, mergers and acquisitions could be described as a period of conglomeration
due to acquisition of unrelated business. In nineties the trend continued but the deals became
larger in size. One of the largest to cross border mergers happened in 1988 when Kohlberg,
Krasis and Robert’ (KKR’s) acquired RJR Nabisco at $25 billion. In 2006 there were 7000 such
transactions involving a sum of $800 billion. It is spread over all regions and sectors of the
world.
China, India and Russia are increasingly emerging as big acquires of foreign firms. Mittal Steel
Group has become one of the leading acquirers in the world. It accounts for a significant share of
FDI flow. However, some of the cross border mergers and acquisitions did not involve any
monetary payment.
Globalisation of markets and competition led to several megamergers’ in oil, gas,
telecommunications, pharmaceuticals and banking industries. The success of cross border
mergers and acquisitions depends mainly upon:
i) Quality of the pre-acquisition decisions (Eg. Valuation and
negotiations of the deal)
ii) Quality of the post-acquisition decisions (Eg. Integration and
management of merging entities)

Reasons

1. Technology Seeking M&A

One of the main reasons why a company decides on a cross border M&A could be that it wants
to develop its technology and it feels that the target company has the desired technology which
will benefit the production scheme if the acquiring firm.

2. Market Seeking M&A

Another reason why a company could decide on a cross border M&A is to expand its market to
international level. In such cases, the company would look out for a company which is already
established in the market where the acquirer firm expects to increase its market share.
 3. Entry into International Business
Domestic firms purchase foreign firms to enter international business as they get access to
worldwide manufacturing facilities and marketing network.
For ex. Coca Cola gained instant entry into the Indian market by acquiring Parle and its bottling
plants. The acquiring company may also gain access to new technology or patent right.

4. Investment Banking
Traditionally investment bankers advise their clients and help in raising funds through issue of
securities. With rapid increase in their funds, investment began to buy equity in acquisitions. In
this way they became owners of some of the biggest firms in the world.

5. Growth in size
In a global economy, size is a great competitive advantage. Mergers and acquisitions facilitate
expansion abroad. Size creates financial and operational synergies and reduces the firm’s
vulnerability to recession and other economic crises in a region or country. Size also offers
economies of scale particularly in industries that face declining markets and idle capacity.
International firms engage in mergers and acquisitions also to rationalize their business
operations and to focus on core competence.

Impact
In a cross-border merger and acquisition, both the ownership and the nationality of the acquired
firm change. Ownership of the assets is transferred from the acquiree’s country to the acquirer’s
country. After acquisition the benefits from the acquired firm’s operations accrue to the country
of the acquirer.
The developing countries prefer foreign direct investment over mergers and acquisitions because
they make no addition to the production capacity or capital to the host country. However, cross
border capital transfer can add to the investible funds available to the host country.
Acquisition of the sick PSU is a great way to save assets and jobs in the host country. Ex-
Hindustan Unilever acquired “Modern foods” – A loss making PSU.
On the negative side, the mergers and acquisitions may lead to loss of jobs for a short period. A
slow decline in the competition is also a possibility. The company might experience a sudden
burst in the productivity and profitability after the acquisition due to effective integration and
management, but this might be short lived.
Ex. Comcast acquired Zee Entertainment Pvt ltd and has been failing after the initial burst. The
share price which was once Rs. 500+ is dwindling around Rs. 140.