International business
Introduction
International business involves global businesses setting out to find new markets in other countries other than their own as a way to have competitive advantage over other businesses and gain more revenue and prosperity. Most companies have set out for this mission in an overall goal of globalization but some business gain more advantage than others (Boyd 2005, p.123). There are some reasons that lead companies to break boarders and establish their businesses in other countries. Some of these reasons include the need for expansion, reduce costs of production where in some countries business environments are conducive such as good business policies, cheaper labour and cheaper resources that attract businesses, for example companies establish themselves within countries with lower living standards as a move to reduce overhead costs in terms of wages and salaries as they become cheaper as a result of the low living standards. Another thing that entices businesses is the expanded market that is associated with establishment elsewhere. It also reduces limitation to local markets. Other businesses seek to capture regions that have not yet been exploited with the aim of establishing dominance and creating monopoly in those regions (Boyd 2005, p.89).
Globalization is one of the important factors that has facilitated for the international business and is attributed to the development of technology in terms of transport and communication that have highly facilitated the processes in exchange of ideas, products, cultures and views. Globalization enhanced global transactions between countries and regions in what is referred to as global business diversification, whereby business seek economic resources such as natural resources, labour, human resources and also capital resources and has led to the establishment of companies that are multinational in nature (Ghauri and Powell 2008). This presentation is very important, as it will identify certain factors that propel and encourage companies to have a competitive advantage in international business. It will mainly focus on the company Toyota automobile. Some of these factors include technological advancement, licensing and franchising, joint ventures, government intervention and direct investment by a company in a foreign country. Toyota is a multinational automobile corporation that is from Japan. It is Japan’s leading automobile maker and a big competitor in the global market. This presentation will try and explain the ways this company has used the stated factors to exploit international markets and maintain dominance in it (Ghauri and Powell 2008).
Technological superiority gives the company an upper hand in developing quality, unique products and at a cheaper price. In this case, Toyota gets competitive advantage over other business and countries making it able to enjoy international market as well as local markets. Technology creates more efficient ways of production and leads to more research that results to further discoveries. Toyota automobile is characterized by its advanced technology that allow it to develop products that are very efficient mainly in terms of fuel consumption as most of the vehicles they produce are highly energy efficient compared to others in the market (Fruin, Cusumano and Gordon 1987, p. 23). This has been attributed to the high research they do that result to advanced technology in their production process resulting to unique and efficient vehicles in the market. The technological advantage also benefits them in terms of cost efficiency whereby, they have adopted the production using machines and computers in what is referred to as computer-aided design and computer aided manufacture. This adoption leads to fewer employees and hence reduces costs that would have been incurred because of paying salaries and labour (Opara 2003, p.34). This reduced cost is then transferred to their pricing mechanism where they can produce products at a cheaper price. Some of the technologies that have spearheaded Toyota’s competitive advantage include their hybrid cars that use both gasoline and electricity. This technology is very important as it is in line with environmental considerations as it emits less pollution to the environment. This system is part electric and part gasoline therefore cuts the amount of pollution by almost half and compared to other vehicles this is quite competitive as the world is now headed towards environmental consciousness through protection.
As of 2011 eleven the company claimed to have sold two million units of vehicles with the hybrid technology worldwide. However, the company is now embarking on an all-electric line of vehicle units that will have cars completely electric. Another factor that Toyota has managed to take advantage of as a result of its technological advantage is its ability, and the lengths it takes to meet customer specifications in foreign markets through high differentiation of its products through variations in designs, creating a diverse lines of vehicle that meet wide range of clients’ tastes and preferences and also facilitates for customization of their products to meet customers’ needs and preferences and at the same time have the products at a reduced cost (Fruin, Cusumano and Gordon 1987, p. 121). Technological advancement is therefore important as it results in the development of doing things in a better way therefore increasing efficiency and cost of production. This aspect is one of the factors that has propelled Toyota to a very high competitive advantage over its competitors in the global market scene and has seen it prevail even under negative circumstances such as economic turmoil caused by recession in one of its biggest foreign markets that is the united states of America (Fruin, Cusumano and Gordon 1987, p. 73).
Licensing and franchising
Licensing is another way that corporations use as a means to enter into foreign markets with minimum risks involved. It involves companies acquiring licences, copyrights, trademark rights, patents as well as knowledge about processes related to certain products for the production of certain good. These rights are got from international licensing firms (Lymbersky 2010). In a licensing agreement, the licensee gets the chance to produce the goods as well as market them at the same time pay back license fees together with royalties that are linked to the volume of sales made. It is closely related to franchising which more direct than licensing and involves one firm paying royalties and other fees in order to assume rights to produce certain product. In franchising, businesses that pay the royalties get more involvement in the process of development and the marketing of the product and are allowed to even use the other business’s systems and format (Leitmannslehner and Windsperger 2012, p. 233). As for the case of Toyota Company, these licensing and franchising agreements have been important for its success in penetrating foreign markets such as the United States. These licenses allow the company to manufacture its product in foreign countries by selling licences and patterns to local companies that produce and market the products on behalf of Toyota and in exchange, the companies get the chance to avoid import barriers and earn income through the licences. It was very difficult for Toyota to enter markets such as those in the United States, UK, France and other countries. However, it made a franchising deal with local companies in those countries. For example it made a deal with General Motors’ in US and this deal saw it penetrate into the market and prevail since it was a deal that occurred in a period of increased oil prices and people started going for Toyota cars since they are lighter and consume less fuel.
Licensing and franchising are important ways of companies penetration and dominance in foreign markets with minimum risks involved where companies sell licenses and patent rights to other companies as move to manufacture products in foreign markets and reduce costs involved with transportation (Leitmannslehner and Windsperger 2012, p. 243). These strategies are what helped Toyota penetrate some of its largest markets. Currently it is trying to penetrate the Chinese market because it is among the biggest market in the automobile industry. The company could consider licensing and franchising as a tool for such penetration since it has minimum risks. Licensing is a very important option and is clear according to history with instances such as the one during the world war two where, Japan’s economy was highly affected, however, they imported most of their technologies from the US. During the Korean War, the Americans went and liaised with Japan in the production jeeps through licensing agreements. These historical events show how licensing has been valuable to corporations and countries in the manufacture of products.
Joint ventures
Joint ventures are business agreements that involve two corporations coming together, joining some of their assets and most of the time leads to the development of a new entity. It is almost like licensing but with the agreement corporations get more control over the management and productions process through and also the process of sharing profits and losses (Child 2002, p.781). When the joint venture formed is only for one purpose or project only, the joint venture is called consortium and involves the sharing of management contracts, technological and technical expertise, franchise use agreements etc. However, in this joint venture the agreement dissolves when the purpose has been met and goals have been achieved. In joint ventures, the parties involved invest equally in the project and share equally the profits and losses (Mohr and Puck 2010, p.127). Major multinational corporations use this as a way to diversify their markets and increase their profits from a now larger market. It is also beneficial to small corporations that are starting out as the joint venture assists in terms of capital, technology and technical knowhow. Joint ventures are crucial because they involve sharing important aspects of the business. It is therefore important for the firms to be focused in management both for long-term benefits of the partnership and the short term returns through emphasis on integrity and good communication that is full of honesty. Multinational corporations use joint ventures to penetrate foreign markets without the hustle of starting from scratch. This move also reduces competition as the corporations now share a common market (Mohr and Puck 2010, p.234). Toyota Company has been one of the major beneficiaries of joint venture agreements that have seen it prevail in foreign markets worldwide. It used these agreements to set up shop in foreign countries to create a mutualistic relationship that saw it emerge as a global multinational company that dominated major markets despite competition from other corporations (Child 2002, p.783).
One of the biggest examples of Toyota Company’s involvement a joint venture agreement was Toyota wanted to exploit the American market. At the time, it was very hard for it to establish itself in the country because of fear that the government would limit amounts of imports. At that time, it wanted to capture the market with its small, light and low consumption vehicle. Due to the high oil prices, the American demand for Toyota cars increased. As a measure to counter importation barriers, Toyota came together with General Motors Corporation and formed a joint venture with it in an equal contribution that saw the development of New United Motor Manufacturing Corporation, which was also based in UK and France. Toyota formed another joint similar joint venture with Peugeot in Czech Republic for the same purpose. These joint ventures were very beneficial as they made Toyota become the largest car manufacturer in the world having production facilities in many countries in the world.
It is clear that joint ventures are important aspects in international business and form a vital way of entering and prevailing foreign markets. In the case of Toyota, its joint ventures across the world with various companies saw it highly develop in terms of prosperity into the largest car manufacturer in the world. Its move was a measure to prevent importation barriers that would hinder it into capturing the American market for small cars. Joint ventures prevent instances of developing from scratch and they save on costs on a great deal. Parties in joint ventures also get to learn from one another through sharing of knowledge and expertise in the process of helping each other attain success in business (Child 2002, p.785).
Government intervention
Governments also affect international business through their interventions that create a political economic state in the international business. One of the ways of intervention done by governments is the creation of free trade policies where there is no restrictions by the government on what people can buy from other countries, however, the governments gets involved when trying to protect certain groups considered specials from the foreign exploitations. Other methods the governments get involved include use of tariffs, which it uses to control, and intervene in markets.
Tariffs are taxes that the government imposes on the imports that come into a particular country. The aims of these tariffs are usually to increase the prices of the exports in order to reduce competition with local products in the local markets. The government uses these tariffs mainly because they protect local products form cheap foreign products; they are also good sources of revenue for the government and limit certain imports by raising their prices. Another way the government intervenes in the production of goods and services is through subsidies where the government pays part of the production process and this has an effect of making local products compete with foreign products because of reduced price. They also facilitate export as cost of production has become lower than in the export market making the market more competitive. The government also uses quotas to restrict amount of imports that can be imported. Sometimes the government restrict all imports and this is referred to as zero quota or embargo (Bhanot Kadapakkam 2006, p.980). Some of the reasons that governments intervene is for the protection of jobs, protection of business from unfair competition, protecting citizens’ from harmful and dangerous commodities. Toyota Company’s prevalence and prosperity has also been attributed to governments’ involvement in various aspects. These aspects include development of free trade by countries that attract foreign investments. These countries reduce import barriers that would slow or impede growth and penetration in their markets. Some governments create conducive environments for foreign investors that Toyota takes advantage of. These conducive environments include business policies that support foreign investments, political stability and government incentives.
The Japanese government also has had its chance in the company’s success through government subsidies that help the company make profits while competing with other international companies (Bhanot Kadapakkam 2006, p.975). Toyota’s history involves the encouragement by the Japanese government to develop vehicles for the use by the government during the war in China. Government intervention in business is therefore a crucial aspect that can either promote or hinder business activities. In terms of promotion, the government can help by creating the necessity for certain products for example the Japanese government encouraging and supporting Toyota Company to increase productions during its war with China. The governments may hinder business through certain mechanism such as tariffs, certain policies against importations and quotas. Such import barriers hinder penetration of businesses into new markets, for example, Toyota’s quest to penetrate the American market was met by import barriers that limited its access. It had to take other measures such as licensing, franchising and joint ventures in order to get access. Governments put in place such barriers to protect its local business from unfair competition and prevent exportation of certain products into the country by raising their prices through tax or limiting their number through quotas (Bhanot Kadapakkam 2006, p.965).
Direct investments
Direct foreign investment is a method by companies to enter foreign markets and involves the investment into businesses in a new country either by establishing businesses in that country or by buying existing businesses. It involves activities such as building new facilities in the foreign country, investing in the country using profits, mergers as well as acquisition of existing corporations in the foreign market. This aspect is defined when a business owns ten or more percent of the capital of a foreign company and transactions of the company are considered as additional investment. With this percentage or more companies get to exercise control of the foreign business, which may be risky, therefore the governments always keep close eyes on what companies have invested in the country. It is an advantageous move as it gives foreign businesses competitive advantage through increased capital, technologies and human resource that fuels them to more prosperity. It allows money to move freely and help the most prospective business regardless of any negative factor and because of this; it is referred to as colour-blind. It benefits the investors as they get to find larger markets for their products and this facilitates for expansion and more profits. The foreign industries get benefits through managerial assistance, legal assistance, technology and innovation. These factors increase their benefits through better pay for employees leading to better living standards. The government on the other hand gets more revenue though.
However, direct foreign investment has disadvantages such as overexploitation of a country’s resources without actually benefiting it. It can also kill local market because of the high competitive advantage they possess compared to local industries. Toyota Company is also a beneficiary of direct financial investment. It is the world leading car manufacturer with production plants in more than one hundred and forty countries in the world where it has invested directly and prevailed in those foreign markets. Asides from this it has acquired other brands such as Lexus and Scion that were independent companies but now have been acquired by Toyota Company. Most of the competitive advantage that Toyota has that encourages countries to allow it to invest direct is because of its technological advancement for which it is able to compete anywhere in the world. Its small car products, less fuel consuming car as well as the hybrid technology has spearheaded the company to great prosperity in the automobile business worldwide. Moreover Toyota was coupled with great managerial techniques and quality products as compared to the US and European companies. With lots of importation barriers in place, importation of products becomes very expensive and this forces corporation to establish production plants in foreign countries through direct foreign investment by establishing from scratch, new facilities and business and acquisition of other businesses in the foreign markets. It is clear that direct investment is yet another important way corporations can enter foreign markets. It is a move that is beneficial to both the foreign company and the host company. For the hosts, the investments bring in new opportunities such as new products, better jobs that raise people’s living standard and revenue for the government. As for the foreign company, it benefits from new and expanded market with opportunities of more resources, larger markets, cheaper labour and better political environment.
Conclusion
International business is therefore a trend that is in motion and has been attributed to globalisation. Globalisation is because of the advancement in technologies in terms of transport and communication that link people from all over the world. Globalisation allows companies to go out and search for new markets anywhere in the world that seem prospective and this lead to the development of Multinational Corporation that are found all over the world. There are various factors that facilitate for the penetration of new foreign markets by the multinational companies and along them are; government intervention, licensing and franchising, direct foreign investment, joint ventures and technological advancements. These factors spear head companies and propel them to enter new markets. In the case of this presentation Toyota, automobile company is the multinational company that has been emphasized. It is the leading car manufacturer in the world originating from Japan and has production plants in more than one hundred and forty countries in the world. It is a company that has adopted these factors as means of penetrating new markets worldwide. The company’s technological advancement has made it have competitive advantage due to its production of less fuel consuming cars, light cars and the hybrid technology. It has adopted licensing and franchising in foreign countries as a move to increase sales in the foreign market. It has entered several joint ventures worldwide, for example its joint venture with general motors’ corporation in the United States, united kingdom and France. It has also been influenced by governmental interventions that have tried to impede its endeavours through import barriers in many countries of the world and lastly it has embarked in direct foreign investment that has seen it establish plants in foreign countries through investments. Toyota is good example of international business and clearly explained how the factors come into place in a highly competitive international market.
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