BA 5301 - International Business Environment UNIT : 1

UNIT-1

All Business depends on “ Environmental Dynamics”

Business: A person or group of persons engaged in a trade, service, commercial or Industrial

understanding for Profit is called ‘Business’.
Environment: Environment means surroundings.
International Business: It means the factors that affect or influence the business.
Definitions: “It is a Multinational process of planning, distribution of ideas, pricing, promotion, goals and
services to create exchanges that satisfies the individual and organizational objectives”
“The wide range of global activities in conducting business transaction across the national
boundaries can be called as international business”
Meaning of doing International Business:
Macro aspects of International Business:
1. Global company has to formulate strategies based on its missions, objectives and goals.
2. The fundamental basis for strategy formulation is the environment analysis.
3. Environment provides an opportunities to the business to produce and sell a particular product.
4. Environment sometimes possess threats and challenges to the business.
Example: China dumped steel at cheap prices in Indian Market (Threat to the Indian Steel Industry
particularly to SAIL and TISCO)
India provides opportunities for production and selling for Automobile MNC’s
The world of International Business:

INDIA ………… TRANSACTION……………..UNITED STATES

Rs. (Money) $

Why go International?
Two factors are there,
1. Push Factor 2. Pull Factor

-Pull the business in to foreign markets. -Internationalize the business.

-Companies are motivated to internationalize their business -Over Production
in the foreign market -Improve the business to all over the nations
- Attractiveness all over the Nations -Excess capacity of production(products)
-Saturated domestic market.

Profit Advantages in International Business:

1. International Business profit should be Greater than the Domestic Business
2. Unique Products.
3. Technological Advantages.
Example: US MNC’s----- (100% profit outside the country)
Stages to Improve Business:
Stage1: Purely Domestic Company
Stage2: Domestic company with Foreign Business
Stage3: International company with foreign Business
Stage4. Multinational Company
Stage5: Global/Transnational Company
Growth Opportunities in International Business:
1. Large number of buyers and sellers

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2. Free mobility of factor of production

3. Freedom of entry
4. Perfect Market
5. Unique Product

STAGES IN INTERNATIONAL BUSINESS:

Stage 1: Purely Domestic Company

Most of the International companies have their Origin as Domestic Companies. The orientation
of a domestic company is essentially Ethnocentric. A purely domestic company Operates Domestically
because it never considers the alternative of going international.
When a company reaches growth limits it diversifies new markets, products and technologies
instead of focus on penetrating international markets. The Domestic company may extend its products to
foreign markets by exporting, licensing and franchising. ( at the beginning, export is indirect)
The company may develop a more serious attitude towards foreign business and move to the next
stage development, i.e. International Company.
Exemple: Sharp, Texmo, CRI pumps etc.

Stage 2: International Company

An International company is normally the second stage in the development of a company towards
the transnational corporation. The orientation of the company is basically Ethnocentric and the marketing
strategy is Extension. i.e., marketing mix developed for the home market is extended into the foreign
markets.
Exemple: Unilever, P&G etc.

Stage 3: Multinational Company

When the orientation shifts form ethnocentric to Polycentric the international company becomes
Multinational. When a company decides to respond to market differences, it evolves into a stage-3
Multinational that pursues a Multidomestic Strategy.
Multidomestic Strategy means ……. The Company formulates a unique strategy for each country
in which it conducts business. In each Multinational companies, each foreign subsidiary is managed as if it
were an independent city state. The subsidiaries are part of an area structure in which each country is part
of a regional organization that reports to world reports to world Headquarters.
Example: TOYOTO, FORD, HYUNDAI, VOLKS WEGAN, BMW set up their Plant in India.

Stage 4: Global / Transnational Company

The global company will have either global marketing strategy or a global sourcing strategy but
not both.
It will either focus on global markets and source form the home or single country to supply products, or it
will focus on the domestic market and source form the world to supply its domestic channel.
The Transnational corporation is much more than a company with sales, investment, and
operation in many countries. The orientation is Geocentric.
Example : IBM, Intel etc. Area of Strategies: 1. Product Development
2. Production (Including Sourcing)
3. Marketing.

Structure of International Market, Changing Patterns and Present Status:

Types of Business Structure Diversification
Domestic Business Export within the Marketing Minimum
Department
Export Business Export Department as a separate entity Low

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International Business International Division Low

Multinational Business World wide product Medium
Transnational Business Matrix/ Grid type structure High

International Business Size and Growth:

International Business depends on two Business Areas,
1. Domestic Business
2. International Business

Both the Business consists of consumer, producer, goods and services. Which includes…..

4P’s 4R’s 4C’s 4M’s

Product Risk Customer Man
Price Return Cost Machine
Place Result Communication Material
Promotion Resources Convenience Money
Business Environmental Factors:
Business environmental factors are broadly divided into International Environment Factors and External
Environment Factors which influence/affect the business.

Internal Environment
-Organizational Structure
-Production
-Finance
-Marketing
-Human Resource
-R & D

External Environment
Micro Environment Macro Environment
Share holders Social and Cultural factors
Creditors Technological Factors
Bankers and Financial Institutions Economic Factors
Competitors Political Factors
Suppliers of Raw Materials and other inputs International Factors
Market Intermediaries Natural Factors. (STEP – IN)
Customers

ECONOMIC ENVIRONMENT
International Business is directly influenced by the economic environment of various countries.
International economic environment and global business interact with each other.

The major Changes in Economic Environment::

1. Product flow across the globe.
2. Establishment of production facilities in various countries.
3. Size of production and level of employment

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4. Primary products are delinked from the Industrial economies.

5. The contest between ‘Capitalism’ and ‘Communism’ is over. Capitalism succeeded over
communism/socialism as a model for the organization of economic activity.

Economic Systems:
Economic system is an organization of institutions establishment to satisfy human needs / wants.
There are three types of economic systems:
1. Capitalistic economic system
2. Communistic economic system
3. Mixed / Social economic system.

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Capitalistic economic Communistic economic Mixed / Social economic

system system system.

-Under this system, customers -Communism is also called -Under this system, major
allocate resources. Marxism factors of production and
-Customer’s choice for -Lenin set up a communist state in distribution are owned,
product/services decides what will Russia after the Great October managed and controlled by the
be produced by whom? Revolution of 1917. Later, the state.
-This system emphasizes on the ideology spread to Czechoslovakia, -The purpose is to provide the
philosophy of individualism China, benefits to the public more.
believing in private ownership of Rumania, Yugoslavia, Poland and -The mixed economic system
production and distribution Sweden. Most of the East5 are development of strong
facilities. European countries follow the public sector reforms control
-Examples: US ,Japan and UK Marxist ideologies. over private wealth and
-Most of the other Countries like -The resource allocation decisions regulation of private
India, France, Italy and Malaysia are made by the government investment.
have started shifting their planners in this system. -It provides full employment ,
economic system towards this -The number of automobiles, shoes, suitable reward for the workers
economic system. shirts, television sets – their size, effort. This is also called
color, quality, features etc., motor Fabian Socialism.
cycles,scooters are determined by -All capitalist systems have a
Government Planners. command sector and
-Under this system consumers are communistic systems have a
Limitations: free to spend their income on what market sector.
-This system made the is available.
Government to introduce the Limitations:
welfare state concepts which -It reduces individual freedom.
influences: -Total commitment of people to Command Sector
1. Workmen’s Compensation Law work for countries welfare. 32% in United States
2. Provision for Social Security -It failed to achieve significant 40% in India
3. Labour legislation for state economic growth. 64% in Sweden
4. Agriculture -It could not achieve equality Market Sector
5. Food, Transport and Security -There is no executor to follow or -After 1990 All countries in the
6. Communication and water implement. Globe today move towards
7. Power supply etc. Example: Cuba is the last Privatization
remaining predominantly (superior)
communistic country. Example: UK, France, Holland
-Communism collapsed in Russia. and India Move towards market
Similarly, communism collapsed in allocation.
most of the African Countries. This
is mostly due to the changes
towards Globalization and
Privatization.

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World Economy
-More than three-fourth of the world are developing countries. The World Development report says that 54
countries were high income and all the remaining were developing countries.
-The developing countries fall in to three categories
i. Low income countries
ii. Middle Income countries
iii. High income countries
-The developed countries are high income countries. Most of the high income countries economy are Industrial
economies.
Example: Kuwait and Saudi Arabia

I.LOW INCOME ECONOMIES : INDICATOR - Very low GNP per capita.

With in the group of the low income economies the United Nations has identified a special category,
Namely –LDC
Least Developed Countries.
Characteristics of these countries are:
-High birth rates
-Limited Industrialization and excessive dependency of population on agriculture.
-Heavy reliance on Foreign aid.
-Political Instability.
-Excessive unemployment and underemployment
-Technological backwardness
-Underutilization of Natural Resources.
-Excessive dependency on imports.
-More Poverty.
Example: Arround 132 Countries are low-income economies
Zambia, Sudan, Somalia, Egypt, Israel, Nepal, Bhutan, Myanmar etc.,

II. MIDDLE INCOME ECONOMIES : INDIACTOR - GNP per capita is more than very low
range.
The Middle income economies are further divided into two categories.
1. Low-middle-income countries – INDICATOR – GNP per capita between low and middle
2. Upper-middle-income countries- INDICATOR – GNP per capita between middle and high.

Low-middle-income countries Upper-middle-income countries

Characteristics: Characteristics:
-Early stages of Industrialization -Less dependency on Agriculture.
-Expansion of consumer market. -Occupational mobility of the people form
-Availability of cheap and motivated Human Resources agriculture to Industry.
-Domestic markets are dominated with the products like, -People migrate form rural to urban areas
clothing, batteries, tires, building materials, packaged foods which results in increased urbanization.
etc. -Increase in literacy
-Location for production of standardized/mature products -Formal education and increased wage
like clothing for exports. rates.
-Cheaper Labour . -High export
-Cheap Labour.

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III. HIGH INCOME ECONOMIES : INDICATOR – GNP per capita is more.

Characteristics;
-Oil-rich countries are exclude form this category.
-Service sector countries more than 50% to the GNP.
-Development of Information sector.
-Development of Intellectual Technology over machine technology.
-Domination of Scientists and Professionals over engineers and semi-skilled workers.
-Emphasis on the future plans.
-The countries face the problems like population, excessive urbanization, economic depression, increased
aged population etc.,
-More product innovations,
Example: UK , Japan, US and European Union.

POLITICAL ENVIRONMENT
-The influence of the political system of a country influences the business form multi-angles, viz.,
Deciding, promoting, fostering, encouraging, sheltering, directing and controlling the business activities.
-The success and growth of international business depends upon the stable, dynamic, honest, people participative,
secured political system in a country.
Political Stability:
-Countries with Stable Political system enjoyed the successful Business operations.
-United States is the Best example for Political stability and dynamism. Hence, Business people prefer to locate
their business operation in US.
According to John Kenneth Galbraith,
A Country with a stable and honest Government have a reasonably satisfactory state of economic
progress.
Example: -Tanzania had a stable Government during 1965-1985 with Mr.Nyerere as the Head of the Government.
( He resigned in the year 1985 )
- Zaire had similar experience with Mr. Mobutu
- Zambia with Mr. Kenneth Kaunda.
- In addition to stable and dynamic Governments, the political environment includes the policies and
characteristics of political parties, the nature of the constitution and Government system.
The Political characteristics of bureaucratic and Communistic countries include:
-Rule of the trade is state trading and counter trading.
-Many restrictions on imports.
-Control over private enterprises.
-Restrictions on International/Multinational corporation.
It does not mean that communist countries do not follow multinational corporations.
Example: - Former USSR allowed the PEPSI – When India did not allow it to enter.
- Non-Communistic countries - - - encouraged public sector companies.
- India reserved 9 – Strategic Industries exclusively for Public Sector.
- The trend has changed even in communistic countries like China.
- The have been progressively shifting to Liberalization, Privatization and Globalization.(LPG)
- In 80 countries …. 8,500 public sector enterprises were brought under the umbrella of private sector
.(up to 1991)
- Now China …..In the Direction form MARX to MARKET

European countries are very small and the firms cannot enjoy Large scale economies. Therefore, European firms
divide the market themselves either in terms of products, geographical areas or customers in order to have large
scale economies.

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Political Relations:
Political relations result in the growth of Bilateral or Multilateral Trade.
Example: Diplomatic relations between India and Russia – Nuclear Power station
Diplomatic relations between Pakistan and United States – To maintain Peace.
Diplomatic relations between India and Afghanistan – Gas Pipe Lines (Manmohan shigh and Hameed
Karsai)

TYPES OF POLITICAL SYSTMES

1. Two-party system:
Two Major parties take turn of controlling the government under two party system.
Example: US and UK Party I Party II
Democratic Party Republic Party
(represents the business interest) (represent the Labour interest)
2. Multiparty system:
There would be many parties and no party is strong to gain the control of the Government in multiparty
system.
Example: Germany, France, Israel, India ( During 1996-2005) and Poland.
3. Single-party system:
Only one dominant party almost gets the opportunity to control the Government, through several parties
exist.
Example: Egypt, India (Congress party ruled the country until -1997)
4. One-party Dominated System:
In this system, there are more than one party, the dominant part rules the government and it does not
allow any “Opposition” party to come up.
Example: Cuba, Libya and Russia.

ECONOMIC DEVELOPMENT AND POLITICAL STABILITY : EXAMPLE

Country Name Task
-South Africa -Economically developed country facing internal and
External problem.
-Italy -Economically developed country facing Labour
-Vietnam problem.
-India -Politically stable and economically developed country.
-Politically unstable and developing country.(This is
due to varied regional, ethnic, language and religious
problems)
Indicators of Political Stability:
Indicators Task
Social Unrest It is caused ;by clashes between or among community
groups religious groups and ethnic groups.
Example: Christian – Muslim conflict in Lebanon
Hindu – Muslim conflict in India
White – Black conflict in United States
Civil War between Serbs and Croats in
Yugoslavia
Ethnic conflict between Christian in America
and Muslims in Azerbaijan.

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Attitudes of the Nationals Negative attitude towards foreign business and

foreigners is a greater risk.

Policies of the Governments It affects the International Business firms directly or

indirectly
Example: Janatha Government in India asked coca-cola
to leave the country in 1977 due to the policy of
discouraging the multinationals.
- The dispute between Chile and Argentina
made Argentina to restrict export to Chile.
- Enron Corporation – in India – In 1992 –
Former Late . Prime minister Narisima rao
– MOU with that US Energy Department-
Failed due to Opposition of BJP- in
Maharashtra state.
( It is a Power Project)

CULTURAL ENVIRONMENT
Meaning: Culture is a patterned way of thinking, feeling and reacting.

Characteristics of culture:
1. Culture is Learned.
2. Culture is socially shared. (Social integration)
3. Culture facilitates communication. (Habits and feeling)
4. Culture is subjective.(There is no right or wrong when a person answer)
5. Culture is cumulative. (Based on past experience)
6. Culture is Dynamic. (Change- Example: Style, Fashion etc.)
7. Culture is relatively stable.

Cross-Cultural Communication:
1. Communication between two different country people.
2. Socio-economic culture depends upon the Management practice in all countries.
3. We cannot transport Home countries ‘Work Culture’ to other countries.
Example: Boss-Subordinates relationship --- Decision making process, technologies etc.,

Cross – Culture Communication process:

CULTURE

GOALS

INTERNATIONAL RELATIONSHIP NEGOTIATION TASK RELATIONSHIP

LEVEL OF PERCEPTION

CULTURE

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JAPANESE CULTURE / US CULTURE:

Japanese culture
- Japanese culture is based on the word ‘ Shu-jo-hu-on’ (ie. Gratitude to nature and other human
beings for one’s success)
- This is not so in western culture which is based on individualism leading to the goal of self
actualization and fulfillment for individual rather than group as a hole.
- Japanese Decision making is more time consuming than Americans.
- The decision making starts at any levels, like middle horizontal or vertical. ( It is very risk)
- But more accuracy in this type of Decision Making.
- Japanese spend considerable time in informal interactions. (Like going round the town, eating and
drinking to break the formal barriers in this type of decision making)
- They talk in general simply know each other well, build a trusting relationship before doing
business.
(Because Frustration and failure do not occur later)

American culture
- At the first meeting it self they talking about the ‘Business’.
- American view is based on ‘Straight forward Business’.
- They spend less time in relationship building.

Negotiation Process:
1.Relationship building
Interpersonal relationship
between two countries.
Japanese: For relationship
building they spend
considerable time.
American: They spend
Less time.
2.Exchange of Task 3.Persuasion 4.Agreement
Question and answer During this stage In this stage analyse the
session will be there, to bargaining starts. strength and weakness of
understand their matters. It is an important stage for the negotiation.
To understand the views a International Manager, Out come :
from others: American try to avoid dirty tricks Bargaining power of two
will take bit of time to during the negotiation parties will decide the
understand period. final Agreement.
Japanese will take fair American: Persuasion
time to understand takes place quickly with
some appeals.
Japanese: Persuasion
takes place after mutual
trust.

CULTURAL ATTITUDES IN INTERNATIONAL BUSINESS:

MULTINATIONAL
COMPANIES

HOME
HOST COUNTRY
COUNTRY

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Four types of approaches in International Business:

1. Ethnocentric approach ……. Home-oriented approach
2. Polycentric approach ……….Host-nation oriented
3. Regiocentric approach………Regional- Areas
4. Geocentric approach ……….International oriented.

1. Ethnocentric approach: Ethnocentric approach is used in the home country for selecting senior-
positions for the organization and rewarding them more noble-minded over the host country nationals.
If they appointed in the host country nationals preferred for local positions, they may feel ‘Second
class citizen’ status and second class treatment will be given to them. Some difficulties may be created in
that country. ((f they have any transfer)
2. Polycentric approach: In this approach the host country national persons are preferred for local
positions. The local units get greater degree of freedom in recruiting personnel for managerial and other
positions. The local managers, can only complete the communication process in local area. (The
knowledge of the local language is not possible for the new comer)
3. Regiocentric approach: This approach is for regional basis.
Example: An American MNC operating in Europe may prefer to have an European manager at Regional
Head quarters in Europe.
IBM has two international HQ in ‘New York’ and other in ‘PARIS’. This approach helps in reducing the
cost of recruitment, maintenance and training to solve the regional problems more effectively.
4. Geocentric approach: This approach is based on the global out-look. The MNC’s need best brains
available form any where. The top positions in HQ may go to Host or in third country nationals also. But
very few MNC’s only follow this approach.
Example: Ranbaxy CEO …Dr. Brain Tempest.

Trade and Investment Patterns in International Business:

- FDI increases international Trade.
- Many developing countries prefer foreign Investment.
- Many foreign companies setting up their manufacturing and assembly facilities in the other
countries.

Foreign Investment brings 4 E’s:

1. Efficiency
2. Equity
3. Experience
4. Expertise …………….. If any firm is going to implement these E’s in the organization they can
over come the Bottle Necks.

Top 10 – Friendly countries – 2009

1. Bahrain
2. Canada
3. Australia
4. Thailand
5. Malaysia
6. South Africa
7. Hong Kong
8. Singapore
9. Spain
10. United States

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Foreign
Investment

Foreign Direct Portfolio

Investment Investment
1. Integrated Production Facility / 1. Investment by FII’s (Foreign Institutional Investors)
Wholly owned Subsidiary 2. Investment in GDR’s and FCCB’s
2. Joint Venture (Foreign currency convertible bonds, Global
depositary receipts)
3. Mergers and Acquisition

Example: Institutions and Investments : According to World trade report – 2004

Commercial Services – 20.7%
Agricultural Products - 8.6%
Mining Products - 7.9%
Manufactured products – 62.8%

- There are two types of foreign investments, namely FDI and Portfolio Investment.
- FDI refers to investment in a foreign country where the investors retains control over the
investment.
- FDI is used to starting a subsidiary and to start a Joint Venture in the Foreign country.
- In the case of portfolio investment, the investor uses his capitals in order to get a return on it, but has
not much control over the use of capital.
- We can invest the capital in buying equities, bonds or other securities board, it is referred to a
portfolio investment.
- FDI are governed by long-term considerations because these investments cannot be easily
liquidated.
- Factors affecting FDI : 1. Political Stability
2. Government Policy
3. Industrial & Economic prospects.
There are mainly two routes of portfolio Investments:

1. FII (Foreign Institutional Investors) – Example: Mutual Funds

2. GDR’s and FCCB’s – Mobilizing the foreign capital by facilitating portfolio investment.

FDI – Advantages:
- Economic growth
- Higher GDP- growth
- Low risk for foreign investors.
- The share of FDI in the Gross Fixed Capital Formation(GFCG) of developing countries are more.
- FDI generated employment.
Example: Manufacturing employment in Singapore and Malaysia.

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Factors affecting International Investment:

1. Rate of Interest: One of the most important stimuli to international capital movements in the difference in
the rate of interest prevailing at different places. Capital has a tendency to move form a country which a
low rate of interest to a country where it is higher, other things being equal.
RATE OF
INTEREST

OTHER
CAPITAL
COUNTRY
INVESTMENT
INVESTMENT
.

(HQ Interest …………LOW ROI) (Home country interest ………..HIGH ROI)

2. Speculation: Sort term capital movements may also the influence by speculation pertaining to anticipated
changes in
the interest rates or foreign exchange rates.

3. Profitability: Private foreign capital movement is influenced by the portfolio motive. Hence, other things
being equal,
Private capital will be attracted to countries where the return on investment is comparatively high.
(ROI is High)
4. Cost of Production: There are two types of cost reduction.
I. obtain raw materials from abroad ---- Such raw materials may be available at Home Country or
obtainable only at
Extremely high cost.
II. Labour force form other countries.
5. Economic conditions: Economic conditions, particularly the market potential and infrastructural facilities,
influence
private foreign investment. The size of the population and the income level of a country have an important
bearing on the market opportunities.

6. Government Policies: Government Policies particularly towards foreign investments, foreign collaboration,
profits, taxation, foreign exchange control, tariffs, and other incentives are important factors that may influence
foreign investments in a country.

7. Political Factors:
i. Political stability and freedom form external aggression.
ii. Security of life and property.
iii. Reasonable opportunities for earning profits.
iv. Freedom form double taxation.
v. Friendliness towards foreign investors.
vi. Facilities for immigration and employment of foreign technical and administrative personnel.

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WORLD TRADE:
- Hundreds of manufacturers have set up factories overseas in “South-East Asia and China”
- Four Asian Tigers are
11. Korea
12. Taiwan
13. Singapore
14. Hong Kong
- These tigers are investing their money in low-tech companies. (Local Companies) and also making
large investment in North America and Europe.
- Labour Investment of the nations in Malaysia, Thailand, Philippines, Indonesia and China.
- Malaysia is now the world’s Largest Exporter of Semi Conductor.

Top five countries on Growth: ( According to World Trade Report – 2004)

Country Name Percentage

INDIA 82%

SWEDEN 57%

DENMARK 56%

AUSTRALIA 39%

SOUTH AFRICA 39%

TOP COUNTRIES ON INVESTMENT – (2004)

1. US
2. UK
3. FRANCE
4. ITALY
5. JAPAN
12. INDIA
19. CHINA

WORLD RECOGNIZED
CURRENCIES

DOLLAR – UNITED STATES

EURO - EUROPEAN
COUNTRIES
YEN - JAPAN
POUND – UNITED KINGDOMS

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Joint Venture(JV): Joining with foreign companies to produce products or series. A Large number
of the recent investment in most countries is associated with JV with entrepreneurs.

JOINT
VENTURE

DIOMESTIC FOREIGN
COMPANY COMPANY
There are two categories in joint venture:
a. Contract : Contractual agreement between two or more companies.
b. Equity: Equity joint venture is a capital sharing agreement between an MNC and a
local company or another MNC.
Each partner holds shares in the subsidiary and shares the profit in relation to its
ownership share.

Example:
1. P&G JV with Godrej
2. DCM JV with Hyundai – Container Manufacturing
3. Blue Star’s JV with Motorola
4. Birla JV with YAMAHA
5. Maruti JV with Suzuki jointly owned by Government of India. (Gear Box for Maruti Imported form
JAPAN).

Four Types of Joint Venture:

1. JV by adaptation: Acquisition of a part of equity in a small entrepreneurial company
2. JV by rebirth: The Foreign partner transfers technology to an ailing domestic business and takes an
equity stake in the received business.
3. JV by procreation: A new venture is born out a marriage between the technical partners.
4. JV by Family ties: Supplier join together with equal others or when a manufacturer takes an equity
position in a supplier business.

Top 10 Global Brands – 2004

1. Coca – Cola United States
2. Microsoft United States
3. IBM United States
4. GE United States
5. Intel United States
6. Disney United States
7. Mc Donald’s United States
8. Nokia Finland
9. Toyota Japan
10. Marlboro United States

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Top Indian Projects in United Kingdoms: ( reference : Business Economy – September – 2005)
IT / Internet & E-Commerce - 120
Software - 119
Pharmaceutical - 82
Electronics - 69
Management - 56
Finance - 54
Automotive - 53
Others - 513

Mergers and Acquisition:

Definition:
Merger: In the Merger the corporations come together to combine and share their resources to achieve common
objectives. The shareholders of the combining firms often remain as joint owners of the combined entity i.e. a
new entity may be formed subsuming the merging firms.
Acquisition: An Acquisition resembles more of an arm’s length deal, with one firm purchasing the assets or
shares of another and with the acquired firm’s shareholders ceasing to be owners of that firm i.e. the acquired
firm becomes the subsidiary of the acquirer.
“Mergers and acquisitions by which two companies are combined to achieve certain strategic business
objectives are transactions of great significance not only to companies themselves but also to many other
constituents such as workers, managers, competitors, communities and the economy. Their success or failure has
enormous consequences for shareholders and lenders as well.

NOTE: The terms Merger, Acquisition, Takeover – all are part of the MERGERS.
Example:
Country Name Mergers and Acquisition ( Area)
1. United States and Europe High tech consumer electronics and Heavy Industry -
Automobile
2. Hong Kong and Taiwan Property and Hotels.
3. Korean Companies Technology related products.
4. Singapore companies Food base products.
5. Malaysian companies Resource based.

Stages in Acquisition Process:

Stage 1. Preparation
- Development of acquisition strategy, value creation logic, and acquisition criteria.
- Target search, screening and identification
- Strategic evaluation of target and acquisition justification.
Stage 2. Negotiation
- Development of bidding strategy
- Financial evaluation and pricing of target.
- Negotiating, financing and closing the deal.
Stage3. Integration
- Evaluation of organizational and cultural fit between the acquirer and the acquired.
- Development of integration approach.
- Matching the strategy, organization and culture of the two firms
- Results

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Types of Mergers:
1. Horizontal Mergers:
Where firms selling the same products merge its is defined as a pure Horizontal Merger.
Example: Merger of two Pharmaceutical companies selling the same drugs.
2. Related Mergers:
The firms may not be selling identical products in terms of end-use but nevertheless share certain
commonalities such as technology, markets, marketing channels, branding etc and merge, such mergers are
called Related Mergers.
Example: Merger of two pharmaceutical firms selling different drugs but through the same distribution
channels or sharing R&D is a Related Merger.
3. Horizontally Related Mergers:
In recent years several firms in wide ranging sectors such as electricity, pharmaceuticals, banking,
insurance, oil and gas, food and drinks, automobiles, steel and health care have merged with one another.
Such mergers are called
Horizontally Related Mergers.
Example: Mobile Telephones, Automobiles etc.
4. Vertical Mergers:
Firms that produces goods or services that represent that output of successive stages represent a vertical
chain.
Vertical integration is the combination of successive activities in a vertical chain under common
coordination and
chain under common coordination and control of a single firm.
The vertical mergers replaces two or more independent firms with a single firm and it internalizes the
coordination of
Successive activities rather than rely on market based transactions or contractual dealings.
Example: American Online purchase of Netscape for $4.21 billion in 1998 was a vertical merger.

Cross-Border Acquisition: (CBA)

In recent years the number of acquisitions made by companies in foreign countries has increased
substantially. There are several economic forces which have resulted in the tide of CBA’s. These are identifies as
the single European
Market which began in 1992. Introduction of a single euro currency by the EU in 1999, globalization of products
and services, consumer needs, tastes, preferences, increased global competition.
Where a firm sees profitable opportunities in serving an overseas market with its own products, it has the
following options.
-Exporting form home.
-Licensing an overseas company to produce the goods.ss
-Greenfield investment in production facilities overseas.
-Acquisition or Merger
-Joint venture or other Strategic Alliance.

Barriers in CBA:
1. Structural barriers: Statutory and regulatory laws, insufficient infrastructure facilities
2. Technical barriers: Management related issues of power and control.
3. Information barriers: Accounting shareholders structure.
4. Culture and Tradition: Differences in value system and attitude.

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Economic Growth in CBA:

- The economic integration the European Union
- Global coverage of consumer needs, preference and tastes
- Global nature of competition
- Privatization of state enterprises.

Some Cross-Border Acquisition by Indian Companies Since - 2003

Indian company Foreign Company Based in Acquired in Month Details
Name
VedantaResources Konkola Copper Mills Zambia Aug. 2004 51% Stake
Hikal Marsing & Company Denmark Sept2004 50% Stake
Gail India National Gas Egypt Aug.2004 15% Stake
Company
Tata Steel Nat Steel Singapore Aug.2004 9 Steel Businesses
Tata Motors Daewoo Comm. Korea March. 2004 Entire Stake
Vehicle
Bharat Forge Caral Dan Germany Nov.2003 Entire Stake
Paddinghaus
Sundaram Fasteners Dana Spicer Europe Nov.2003 To buy the precision
Forge unit Uk.
Ranbaxy RPG Aventis France Nov.2003 Entire Stake
Laboratories
Releance Industries Flag Telecom Bermuda Oct.2003 100% Equity
Hinduja TMT C3 Manila Oct.2003 Management control
Infosys Technology Expert Information Australia May.2003 100% Equity
Sys.
Wockhardt CP Pharmaceuticals UK Jul.2003 100% Equity
Zydus Cadila Al pharma _NA_ Jul.2003 _NA_
Wipro Nerve wire United States Apr.2003 100% Equity
i-flex solutions Super solutions United States May.2003 100% Equity

WORLD CURRENCIES:
CURRENCY NAME COUNTRY NAME
Dollar United States, Singapore, New Zealand, Liberia, Jamaica, Hong Kong, Fiji,
Cayman Island, Solomon Island, Canada, Brunei, Australia, Tuvalu, Kiribati,
Guyana, Marshall Island, Namibia, Palau, Taiwan.
Franc Belgium, Togo, Switzerland, Senegal, Rwanda, Monaco, Mali, Luxemburg,
Madagascar,
Liechtenstein, Ivory Cost, France, Comoros, Congo, Central Africa, Benin,
Cameron.
Dinar Algeria, Bahrain, Iraq, Jordan, Kuwait, Libya, Tunisia, Macedonia, Yugoslavia.
Peso Chile, Colombia, Cuba, Dominican Republic, Guinea-Bissau, Mexico,
Philippines, Uruguay.
Pound Egypt, Cyprus, Ireland, Lebanon, United Kingdoms, Syria.
Lira Italy, Turkey, Vatican city, St.Vincent and The San Marino.
Rupee India, Pakistan, Seychelles Island, Sri Lanka, Mauritius, Nepal.
Shilling Tanzania, Somalia, Uganda, Kenya
Reyal Iran, Oman, Qatar, Saudi Arabia, Yeman.
Euro Austria, Finland, France, Germany, Ireland, Italy, Luxembourg, The

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Netherlands, Portugal, Spain, United Kingdoms.

Real Brazil, Cambodia
Afghani Afghanistan
Dram Armenia
Manat Azerbaijan
Taka Bangladesh
Ngultrum Bhutan
Pula Botswana
Yuan China
Koruna Czech Republic
Krona Iceland, Sweden
Krone Denmark
Drachma Greece
Rupiah Indonesia
Shekel Israel
Yen Japan
The Tinge Kazakhstan
Won Korea
Ringgit Malaysia
Rufiyaa Maldives
Tugrik Mongolia
Dirham Morocco, United Arab Emirates
Balboa Panama
Guarani Paraguay
Sol Peru
Zloty Poland
Ruble Russia, Tajikistan
Lea Romania
Rand South Africa
Baht Thailand
Lira Turkey
Sam Uzbekistan
Kwacha Zambia
Dong Vietnam
Zaire Zaire
Mark Germany
Birr Ethiopia
Sucre Ecuador
Naira Nigeria
Peseta Spain
Bolivar Venezuela

Challenges of the Changing World:

We are in the midst of political, economic, social and technological revolutions that are sweeping our
globe. Market economics are developing everywhere and there is no local niche within an organization can
safely hide, content and secure. Several managerial challenges are:
1. Workforce challenges
2. Organizational Challenges

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3. Global Challenges

1. Workforce Challenges: One of the major challenges facing managers in the 21st century will be
coordinating work efforts of diverse organizational members in accomplishing organizational goals. Today’s
organizations are characterized by work force diversity which includes heterogeneous in terms of gender, ethics,
age and other characteristics that reflect differences.
Reasons for increasing diversity:
- Changing work force demographics
- Competitive pressure
- Legislations and Lawsuits
- Recognition
- Rapid increase in international Business

2. Organizational Challenges:
- The job-for-life contract is a new deal called employability. Employees perform a variety of
work activities rather than hold specific jobs and they are expected to continuously learn skills
that will keep them employees.
- Organizations small to large, all types of global and domestic and in all industries are becoming
e-business. e-business
- is a comprehensive term describing the way an organization does its work by using electronic
linkages with its key constituencies-employees, managers, customers, suppliers and partners.
- The Managers responsibility is to foster an environment conductive to learning from lowest level
to highest level and in all areas.
- The most precious capability that any organization in today’s economy must have Innovation.
- Another demand facing today’s managers and organizations is the need for flexibility.

3. Global Challenges: The world competition comes from all around the globe. Organizations are being re-
engineered for greater speed, efficiency and flexibility. Now Ego-centered leaders are being replaced by
customer-centered leaders.
Social responsibility are expected to enhance infrastructure facilities like power, water, roads etc.

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