U U N IT

5
International Business Operations

Unit Overview

From the previous Units, we examined various principles and tools which will ensure
organizational success in an international market. We examined varying issues as it
relates to culture, modes of internationalization and we even discussed the various
strategies which can be utilized to ensure organizations are able to effectively
distribute their goods and services successfully in the global market. Logistics have
become increasingly important for firms in an international market and this could be
very costly for firms. In this Unit, we continue to examine the issues that characterize
international business, with particular focus on the various tools of operations in an
international market.

We begin by understanding how firms go about globalizing operations. We then

explore logistics and outsourcing. Finally, we try to understand the role of international
business managers in globalizing operations, by examining leadership and the skills
and knowledge they should possess, to successfully lead an organization in an
international environment.

Unit 5 Learning Objectives

By the end of this Unit, you will be able to:

1. Critically analyze international business strategies;

2. Describe the critical aspects of the international environment that must be

modified when expanding from a domestic to an international market;

3. Identify strategies related to the manufacture of goods and service;

4. Analyze the suitability of specific strategies for the changing environment. .

5. Apply concepts to strategic activities undertaken by multi-national corporations

and its impact on changing strategies.

© 2016 University of the West Indies Open Campus  37

 This Unit is divided into three (3) sessions:

Session 5.1: Globalizing Operations

Session 5.2: Global Production, Outsourcing and Logistics

Session 5.3: The Role of International Business Managers

Readings and Resources

Required Reading:
Carpenter, M. A. & Dunung, S. P. (2011). International business, opportunities and
challenges in a flattening world. Retrieved from
http://www.saylor.org/site/textbooks/International%20Business.pdf

38  MGMT2013 Introduction to International Business – UNIT 5

SSession 5.1

Globalizing Operations

Introduction
In Unit 4 we introduced the strategies utilized in the international market specifically
global, multi domestic and transnational. Now you will learn about globalizing
operations which incorporate how companies decide which products to market
internationally, how to source and distribute those products, and how to manage
operations for smooth operation throughout the company’s supply chain.

Learning Objectives
On completion of this session you will be able to:

1. Examine global marketing tools and procedures;

2. Analyze global operations and procedures in the environment.

The Four Ps and International Business

In this Session, learners will understand reaching new consumers is often the main
reason for international expansion. The rising standards of living in the developing
world, especially BRIC countries (i.e., Brazil, Russia, India, and China) mean billions of
new consumers. In fact, 80 percent of the world’s population lives in emerging-market
countries (Carpenter & Dunung, 2011). Companies based in the mature economies of
the West, are attracted by the potential for double-digit growth in emerging markets.
What is the best way to reach those international customers?

You begin with the core of marketing knowledge—the four Ps—product, price,
promotion, and place (Carpenter & Dunung, 2011). While you likely learned about
this framework in your marketing class, it’s important to recognize how this essential
tool will help you think about marketing in the context of international business. Sans
globalization, the answers to questions about the four Ps, are all the same; however,
because globalization exists, country differences will have important implications for
how product, price, promotion, and place, play out when an organization takes its
offerings across borders.

MGMT2013 Introduction to International Business – UNIT 5  39

 The Marketing Mix
The four Ps together form the marketing mix. Because the four Ps affect each other,
marketers look at the mix of product, price, promotion, and place.

A company’s marketing mix will often be different for different countries based on:

• A country’s culture and local preferences,

• A country’s economic level,

• What a country’s consumers can afford,

• A country’s distribution channels and media.

Market Segmentation
As you read about marketing mix, it’s important to remember that marketing is
important and varies on the international market.

Market segmentation is the process of dividing a larger market into smaller markets
that share a common characteristic. The characteristics might be demographics, such as
segments divided by age groups (e.g., eighteen to twenty-four year-olds), genders, or
household incomes. Segmentation can also be done on the basis of geographic location
or by lifestyle (e.g., new moms of different ages might have more in common with
each other than they have with identically aged non-mothers) (Carpenter & Dunung,
2011).

For example, geographic segmentation is important for language differences.

Sometimes, the segmentation must be done even more granularly than at the country
level. Some parts of Mexico, for instance, don’t use Spanish as the primary language.
Because of this, Walmart Mexico’s stores in Juchitán conduct business in the local
Zapotec tongue. Its female employees wear traditional skirts, and the morning
company cheer is in ‘Zapotec’.

Global Branding
A global brand is the brand name of a product that has worldwide recognition.

Some of the most-recognized brands in the world include Coca-Cola, IBM, Microsoft,
GE, Nokia, McDonald’s, Google, Toyota, Intel, and Disney. Companies invest a lot in
building their brand recognition and reputation, because a brand name signals trust
(Carpenter & Dunung, 2011).

The advantages of creating a global brand are economies of scale in production and
packaging, which lower marketing costs, while leveraging power and scope. The
disadvantages, however, are that consumer needs differ across countries, as do legal
and competitive environments. So while global branding, and consumer acceptance
of such, is a flattener, significant country differences remain, even when a firm has a

40  MGMT2013 Introduction to International Business – UNIT 5

strong global brand. Companies may decide to follow a global-brand strategy, but also
make adjustments to their communications strategy and marketing mix locally, based
on local needs.

Fig 1. Global Brands Worldwide

Global Brand Web Strategy

Companies that are promoting their global brands successfully on the web include
Google, Philips, Skype, Ericsson, Hewlett-Packard, and Cisco Systems (Carpenter &
Dunung, 2011). These companies are mindful of the cultural and language differences
across countries. They have created websites in local languages and are using images
and content specific to each country. At the same time, however, each country’s website
has the same look and feel, of the main corporate website to preserve the overall brand.

Session 5.1 Summary

In this Session, we examined globalizing operations. This is an essential component

which ensures the goods or services are well positioned in the global environment to
ensure firms are successful. We learnt that the marketing mix which consists of the 4
Ps tend to be a bit different when discussing international organizations. Firms will
want to develop a global strategy in the international market to ensure they are able
to build trust, which ensures they develop a strong brand, able to withstand the forces
in the external environment.

MGMT2013 Introduction to International Business – UNIT 5  41

 SSession 5.2

Global Production, Outsourcing and

Logistics

Introduction
In the previous Session, we learnt that there are different ways in which a firm
can globalize their operations, based on marketing used in international business.
Marketing of an international firm, is dependent on the firms’ production, outsourcing
and logistics. Choice of logistics is sometimes very costly and can lead to issues for
a firm, ensuring their intended products and services reach their customers. As such,
assessing the global production, outsourcing and logistics will be now be examined.

Learning Objectives
1. Describe strategies related to the manufacture of goods and service;

2. Evaluate strategies to determine their suitability for the changing environmental

factors.

Global Sources
Global sourcing is essential to the production of goods and services. Input is acquired
for production from various sources globally based on the organizational need.

Global sourcing refers to buying the raw materials or components that go into a
company’s products from around the world, not just from the headquarters’ country
(Carpenter & Dunung, 2011). For example, Starbucks buys its coffee from locations
like Colombia and Guatemala. The advantages of global sourcing are quality and
lower cost.

When making global-sourcing decisions, firms face a choice of whether to sole-source

(i.e., use one supplier exclusively) or to multisource (i.e., use multiple suppliers). The
advantage of sole-sourcing is that the company will often get a lower price by giving
all of its volume to one supplier. If the company gives the supplier a lot of business,
the company may have more influence over the supplier for preferential treatment.
For example, during a time of shortage or strained capacity, the supplier may give
higher quantities to that company, rather than to a competitor as a way of rewarding
the company’s loyalty.

42  MGMT2013 Introduction to International Business – UNIT 5

On the other hand, using multiple suppliers gives a company more flexibility. For
instance, if there’s a natural disaster or other disruption at one of their suppliers,
the company can turn to its other suppliers to meet its needs. For example, when
Hurricane Mitch hit Honduras with 180-mile-per-hour winds, 70 to 80 percent of
Honduras’s infrastructure was damaged and 80 percent of its banana crop was lost.
Both Dole Food Company and Chiquita bought bananas from Honduras, but Dole
relied more heavily on bananas from Honduras than from other countries. As a result,
Dole lost 25 percent of its global banana supply, but Chiquita lost only 15 percent
(Carpenter & Dunung, 2011).

Sole-Sourcing Advantages
• Price discounts based on higher volume

• Rewards for loyalty during tough times

• Exclusivity brings differentiation

• Greater influence with a supplier

Sole-Sourcing Disadvantages
• Higher risk of disruption

• Supplier has more negotiating power on price

Multi-sourcing Advantages
• More flexibility in times of disruption

• Negotiating lower rates by pitting one supplier against another

Multi-sourcing Disadvantages
• Quality across suppliers may be less uniform

• Less influence with each supplier

• Higher coordination and management costs

Whichever sourcing strategy a company chooses, it can reduce risk by visiting its
suppliers regularly to ensure the quality of products and processes, the financial health
of each supplier, and the supplier’s adherence to laws, safety regulations, and ethics.

Distribution Management
Selling internationally means considering how your company will distribute its
goods in the market. Developed countries have good infrastructure—passable roads

MGMT2013 Introduction to International Business – UNIT 5  43

 that can accommodate trucks, retailers who display and sell products, and reliable
communications infrastructure and media choices.

Rural logistics are especially problematic. Narrow dirt roads, weight-limited bridges
and mud during the rainy season, hamper the movement of goods.

Distribution-Management Choices: Partner, Acquire, or Build from

Scratch
There are typically three distribution strategies for entering a new market. First,
companies can do a joint venture or partnership with a local company. This is the
strategy Walmart used when entering Mexico (Carpenter & Dunung, 2011). A second
strategy is to acquire a local company to have immediate access to large-scale
distribution. The Home Depot pursued this strategy in China when it acquired a
partner with whom it had been working for quite some time. Third, a company can to
build its own distribution from scratch.

Outsourcing
The advantages of outsourcing include the following:

• Efficient processes (the outsourcer typically specializes in a particular process or

set of processes, giving them high levels of expertise with that process)

• Access to specialized equipment that may be too expensive for a company to invest
in unless that process is their chief business

India has long been a favorite location for outsourcing services, such as call centers
and software testing, because of its English-speaking, highly educated workforce.

The labour-rate ratio has been five to one, meaning that a company based in the
United Kingdom, for example, could hire five Indian college graduates for the price
of hiring one UK college graduate. Given the high demand for their labour, however,
Indian employees’ wages have begun to rise. Offshoring companies are now faced
with a new challenge. The firms hire and train Indian employees, only to see them
leave in a year for a higher salary elsewhere. This wage inflation and high turnover
in India, has led some companies, like ABN AMRO Bank, to consider whether they
should move offshoring operations to China, where wages are still low. The downside
is that, graduates in China aren’t as knowledgeable about the financial industry, and
language problems may be greater.

Supply-Chain Management
Supply-chain management encompasses the planning and management of all
activities involved in sourcing and procurement, conversion, and logistics (Carpenter
& Dunung, 2011).

44  MGMT2013 Introduction to International Business – UNIT 5

In essence, supply-chain management integrates supply-and-demand management
within and across companies. Activities in the supply chain include:

• demand management (e.g., forecasting, pricing, and customer segmentation),

• procurement (e.g., purchasing, supplier selection, and supplier-base rationalization),

• inventory management (e.g., raw materials and finished goods),

• warehousing and material handling,

• production planning and control (e.g., aggregate planning, workforce scheduling,

and factory operations),

• packaging (i.e., industrial and consumer),

• transportation management,

• order management,

• distribution network design (e.g., facility location and distribution strategy), and
product-return management.

Fig 2. Global Sourcing Strategy

MGMT2013 Introduction to International Business – UNIT 5  45

 Session 5.2 Summary

In this Session, we looked briefly at the how firms decide to source goods for production
in the international market. This is a very important decision which managers have to
make in order to achieve success in the international market. We saw that flexibility
is important, as such a firm may choose multiple sources in order for it to negate
against unforeseen changes in the environment. We also briefly looked at supply
chain management which is an amalgam of all the tools necessary to get the product
or service to the customer, which is important to the overall international business
process.

46  MGMT2013 Introduction to International Business – UNIT 5

SSession 5.3

The Role of International Business

Managers

Introduction
From the preceding Sessions, it should be clear that international managers have to
make several complex decisions with respect to choices in the international market.
These decisions are crucial for the overall success of these companies in the global
market. Their role is increasingly important to ensure the functions of management
are fulfilled, especially in an international setting.
In this Session, we briefly examine the factors and role of international managers in an
international market. We would have discovered that the POLC (planning, leading,
organizing, controlling) which are functions of management, are essential to ensure
international managers are equipped with the tools to effectively lead an organization
in an international market. We will look at the leadership skills of managers and the
requisite skills and knowledge managers should possess, which are necessary to be
successful in a global environment.

Learning Objectives
On completion of this session you will be able to:

1. Describe how international managers are able to operate firms in the international
market;

2. Assess the knowledge, skills and traits international managers should possess;

3. Examine the role of international managers in an international market.

Leadership
As discussed in the Unit 4 on strategy, managers are responsible for P-O-L-C. A major
component of this for international managers, is leadership. Recall, leading involves
influencing and inspiring others to take action. Managers who lead well, inspire their
employees to be enthusiastic about working to achieve organizational goals and
objectives.

MGMT2013 Introduction to International Business – UNIT 5  47

 What is a Global Leader?

Fig 3. Global Leadership

A global leader encapsulates four styles of leaders. A global leader is often a business
leader, country leader, functional leader and corporate leader. All of these styles
should be combined and would be necessary at times, to ensure managers are able to
perform effectively and make good decisions. These will be discussed further below
(Lessard, 2008).

The Business Leader

• Capture the full benefits of integrated worldwide operations

• Strategist

• Architect of its worldwide asset and resource configuration

• Coordinator of transactions across national borders

The Country Leader

• To be sensitive and responsive to the local market

• Sensor and Interpreter of local opportunities and threats

• Builder of local resources, capabilities, and relationships

• Contributor to, and active participant in, global strategy

48  MGMT2013 Introduction to International Business – UNIT 5

The Functional Leader
• To develop worldwide processes and enhance worldwide learning

• Scan for useful innovations in process, valuable information worldwide

• Cross-pollinate, leading-edge knowledge and best practice

• Champion innovations that may offer transnational opportunities and applications

The Corporate Leader

• No single model for the global manager

• The Corporate Manager not only leads in the broadest sense; also identifies and
develops talented business, country, and functional managers – and balances the
negotiations among the three

Knowledge and skills of the International Manager

An international manager should possess some or all of the under mentioned skills in
order to be successful, based on decisions that will have to be made to operate a global
company (Lessard, 2008).

• Location-specific skills and knowledge, networks. For instance:

– Knowledge of business culture of a specific industry in a specific country

(Intelligence)

– Networking skills within country (Interpersonal)

• Border-crossing skills and knowledge. For instance:

– Knowledge of how to learn quickly in new contexts (Intelligence)

– Knowledge of how capabilities are/should be distributed across locations,

networks across those locations (Intelligence, Leadership)

– Knowledge/skills in linking complementary capabilities (Innovating,

Interpersonal)

– Common sense re which must be standard, which can vary (Intelligence,

innovating)

– Knowledge of how to “translate” company vision/strategy into compelling

local vision (Leadership)

MGMT2013 Introduction to International Business – UNIT 5  49

 Developing Global Managers
Organizations must support their managers. It is imperative that managers are
equipped with the necessary tools to ensure they can be successful in their roles
and lead the organization to success. In order for international managers to operate
effectively, it is important that the under mentioned exists in order to support and
fulfil their roles at organizations (Lessard, 2008).

• Recruitment – positive discrimination for international experience, interests;

• Cross-border experience (short-term visits, short-term transfers, long-term

postings);

• Training (training programs rotated around locations, including participants from

multiple locations and roles);

• Cross-training: Rotation across positions, recognizing and building on personal

networks (e.g. the engineer who understands a particular foreign customer and has
networks into customer’s organization gets formal responsibility for relationship);

• Money/income is important and this should be regardless of national origin.

ACTIVITY 5.1
Video and Comprehension:

From the discussion on the roles of international managers, consider

what other skills and knowledge an international manager should
possess based on your understanding of the Session. Use this video to
aid in your understanding of global leadership.
https://www.youtube.com/watch?v=_pMGJ9KJvBU

Session 5.3 Summary

In this Session, we examined the role of the international manager. It is important for
the international manager to have leadership skills which are essential to management.
We also learnt that skills such as intelligence, innovation and even interpersonal skills,
are essential for managers to make informed and effective decisions. This combination
of skills and tools, ensures the firm is guided in the right direction to be successful in
the international market.

50  MGMT2013 Introduction to International Business – UNIT 5

References
Carpenter, M. A. & Dunung, S. P. (2011). International business, opportunities and
challenges in a flattening world. Retrieved from
http://www.saylor.org/site/textbooks/International%20Business.pdf

Robinson, C. (2009). Successful Logistics Outsource: Uncover the strategy. Retrieved

from http://tinyurl.com/j77d4md

Hesse, M.& Rodrique, M. Global Production Networks and the role of logistics and
transportation. Growth and Change, Vol. 37, No.4 (December 2006), pp. 499-509.
Retrieved from http://tinyurl.com/gllbjhc

Lessard Donald, 2008, Global strategy and Organization, MIT Sloan School of
Management Retrieved from http://tinyurl.com/glqannu

Heidrick & Struggles, 2015, What makes a Global Leader? Retrieved from
https://www.youtube.com/watch?v=_pMGJ9KJvBU

MGMT2013 Introduction to International Business – UNIT 5  51