International Business Organizations - Introduction To Business - ثاني ثانوي

3.3 International Business Organizations Link to digital lesson www.ien.edu.sa Learning Outcomes Once you have completed this lesson, you should be able to: 3.3.1 Discuss activities of multinational organizations. 3.3.2 Explain common international business entry modes. 3.3.3 Describe activities of international trade organizations and agencies. Focus on REAL LIFE "How was Italy?" Yusuf asked as he settled into a chair across from a colleague who had just returned from a six-month assignment. "I worked really hard, but I found time to enjoy some Italian culture and eat some great food. Living and working in another country was a good experience and I would do it again. However, I must admit that I'm glad to be home," responded Adil. "What did you miss the most?" Adil said, "Saudi coffee. It was easy to find other types of coffee, but they just weren't quite the same as the Saudi one." Key Terms Multinational Company (MNC) Joint Venture LO 3.3.1 MULTINATIONAL COMPANIES A multinational company (MNC) is an organization that does business in several countries. MNCs usually consist of a parent company in a home country and divisions or separate companies in one or more other countries. The different country in which the MNC conducts business activities is called the host country. What are the advantages of a multinational strategy? 100 Chapter 3 | Business in the Global Economy وزارة التعليم Ministry of Education 2024-1446 MNC Strategies Multinational corporations can use either a global or multinational strategy. A global strategy uses the same product and marketing strategy worldwide. The same, or a very similar, product is sold throughout the world. For example, some dairy companies tend to use a global strategy with slight variations. A multinational strategy treats each country market differently. Firms develop products and marketing strategies that adapt to the customs, tastes, and buying habits of a distinct national market. Many restaurant chains use a multinational strategy when they modify their menus to local tastes. GE44.PATHWAYS.G02.ITB.SB.PP1.indb 100 08/05/2024 09:13

MNC Benefits Several benefits are associated with international business. Consumers have a large amount of goods available. Often, these goods are sold at lower prices than goods made domestically. Career opportunities also expand as a company does business in a variety of countries. Global business activities may also foster understanding, communication, and respect among people of different nations. Nations that are business partners usually try to maintain friendly relations for economic reasons. Drawbacks of Multinational Companies What are some advantages of international business? CHECKPOINT An MNC can become a major economic power in a host country. The workers of the host country may depend on the MNC for jobs. Consumers become dependent upon it for goods and services. The MNC may also influence prices and consumption of goods used by multinational companies? and services in the host country. What are two strategies commonly LO 3.3.2 GLOBAL MARKET ENTRY MODES As companies expand into other countries, several methods are available for their use. Licensing Some companies want to produce items in other countries without being actively involved. They may allow a foreign company to use a procedure they own. Licensing is selling the right to use some intangible property (production process, trademark, or brand name) for a fee or royalty. Work as a TEAM International business success often increases when a company works with a local business partner in another country. Choose a company or product that could be sold in other countries. Identify the types of companies that you might consider as a partner in other countries. Then identify information sources that you might contact to make sure these potential partners would be suitable companies with which to do business. The use of sports team logos on hats, shirts, jackets, notebooks, luggage, and other items also involves a licensing agreement. Licensing has a low financial investment, so the potential financial return is often low. The risk for the company is also low. Sponsorship has some similarities to licensing as a low-risk and relatively simple method for penetrating new markets. Sponsorship of sports teams or sporting events and venues has proved an effective way to increase an organization's presence and influence abroad. NEOM, Saudi Arabia's new super city currently in development, for example, recently announced a four-year sponsorship deal with the Asian Football Confederation (AFC). Franchising Another method often used to expand into other countries is the franchise. A franchise is the right to use a company name or business process in a specific way. Organizations enter into contracts with people in other countries to set up a business that looks and runs like the parent company. The company obtaining the franchise will usually adapt a range of business elements. Marketing وزارة التعليم Ministry of Education 2024-1446 3.3 International Business Organizations |101

FYI In March 2022, Saudi Arabian Military Industries (SAMI) signed a preliminary Saudi Arabia-focused joint venture agreement with Boeing, the world's leading aerospace company. Aircraft numbers in the country are expected to double in the next ten years. This joint venture is an example of the Saudi Vision 2030 ambition to develop more products and services in Saudi Arabia, instead of outsourcing to other regions in the world. elements such as food products, packaging, and advertising messages must meet both cultural sensitivities and legal requirements. Both franchising and licensing involve a royalty payment for the right to use a process or company name. Licensing usually involves a manufacturing process. Franchising commonly involves selling a product or service. Franchise agreements are popular with fast-food companies. Some fast-food companies have used franchising to increase their presence in foreign markets. In November 2021, for example, the American sandwich restaurant chain Subway announced a new franchise partnership with Saudi Arabia's Abdulaziz Alhokair Co to expand its presence in the Kingdom. Joint Venture Business partnerships can provide benefits to all parties involved. One type of global partnership is the joint venture. A joint venture is an agreement between two or more companies to share a business project. The main benefit of a joint venture is the sharing of raw materials, shipping facilities, management activities, or production facilities. Concerns about this type of partnership include sharing of profits and not as much control because several companies are involved. This arrangement is very popular for manufacturing. An example of this can be seen in the 2009 joint venture between the Saudi Arabian Mining Company (Ma'aden) and U.S.-based Aluminum producer, Alcoa, which was updated in 2019 (source: Alcoa). Another example is the joint venture between Dussur, Saudi Aramco, and the South Korean firm Doosan for the establishment of a large-scale casting and forging facility in Saudi Arabia. LO 3.3.3 CHECKPOINT How does licensing differ from a franchise? INTERNATIONAL TRADE ORGANIZATIONS International business activities can be very complex. As a result, several organizations have been created to help companies with global trade activities. World Trade Organization The World Trade Organization (WTO) was created in 1995 to promote trade around the world. Saudi Arabia has been a member of WTO since 2005. With 160 member countries representing 95% of world trade, WTO settles trade disputes and enforces free-trade agreements between its members. Other goals of WTO include the following: ● Lowering tariffs that discourage free trade ● Eliminating import quotas Reducing barriers for banks, insurance companies, and other financial services • Assisting poor countries with economic growth P102 Chapter 3 | Business in the Global Economy Ministry of Education 2024-1446

International Monetary Fund The International Monetary Fund (IMF), with more than 180 member nations, helps to promote economic cooperation. It maintains an orderly system of world trade and exchange rates. The IMF was established in 1946 when the economic interdependence among nations was growing at a greater pace than ever before in history. Saudi Arabia has been a member since 1957. Before the International Monetary Fund was instituted, a country could change the value of its currency to attract more foreign customers. As other countries lose business, they may impose trade restrictions or lower the value of their currency. As one nation tries to outdo another, a trade war may result. Today, cooperation among IMF nations makes trade wars less likely. World Bank The International Bank for Reconstruction and Development is commonly called the World Bank. It was created in 1944 to provide loans for rebuilding after World War II. Today, the bank's key function is to give economic aid to less-developed countries. These funds build communications systems, transportation networks, and energy plants. The World Bank, with nearly 190 member countries, has two main divisions: the International Development Association and the International Finance Corporation. The International Development Association (IDA) makes loans to help developing countries. Saudi Arabia supports the World Bank in its initiatives to end poverty and improve prosperity around the world. The International Finance Corporation (IFC) provides capital and technical help to private businesses in nations with limited resources. The IFC promotes joint ventures between foreign companies and local companies to further capital investment in developing nations. NET KNOWLEDGE Q The Saudi Export Development Authority provides extensive help to companies involved in exporting. Locate the Saudi Export Development Authority's website online. Describe how the information available could be useful to companies that are starting or expanding their exporting activities. وزارة التعليم Ministry of Education 2024-1446 CHECKPOINT How does the International Monetary Fund assist countries? 3.3 International Business Organizations 103

3.3 ASSESSMENT Key Concepts Determine the best answer. 1. A company is planning to sell the rights to its brand name for use in other countries. This is an example of a a. joint venture b. trade agreement c. franchise d. licensing agreement 2. The international organization that settles trade disagreements and enforces free-trade agreements is the a. WTO b. United Nations C. IMF d. World Bank Make Academic Connections 3. Economics Visit a store or online business that sells toys, sporting goods, or other merchandise printed with logos or images belonging to other companies. List the information given that indicates a licensing agreement. 4. Communication Create a visual presentation (using software, photos, or a poster) that communicates the purpose of the International Monetary Fund or the World Bank. 5. Read Find a news article that relates to a topic addressed in this lesson. Read the article and write a one-sentence summary of the main idea. Include a properly formatted citation for your source. P104 Chapter 3 | Business in the Global Economy Ministry of Education 2024-1446

BUSINESS IMPROVING SOCIETY THE SAFE WATER TEAM Access to safe and readily available water on tap is something that many people around the world take for granted. Yet a considerable infrastructure is needed to make this supply a reality. Owing to its natural dry desert environment, Saudi Arabia has a relative scarcity of fresh water. This challenge is met by a range of measures, including the world's largest desalination system-a process of removing salt from seawater to make it safe to drink. Saudi Vision 2030 is putting additional measures in place to safeguard the country's water supply for the future, including targets to reduce consumption and utilize renewable water. Unfortunately, some countries suffer severely from lack of access to safe drinking water. Here comes the role of the Safe Water Team (SWT) who is making unremitting efforts to take the necessary measures to confront CA What actions can people take to help provide clean water in local and global settings? the cause behind the number of deaths in Africa and other regions. SWT provides simple and sustainable water filtration units, using natural materials to filter out impurities in the water. The simplicity of this system makes maintenance and repairs unnecessary. The Safe Water Team uses a corporate social responsibility (CSR) approach to partner with various groups for its work. SWT has created a sustainable safe water delivery system that costs pennies per day. SWT first selects a community that lacks access to safe drinking water and appoints a village leader as project manager. This person recruits a community member to educate others about the filter operating system. To qualify to receive a filter, a member of the household must be educated on filter use and hygiene. This ensures local involvement and a community commitment to continually provide clean water to families. The Safe Water Team places an emphasis on entrepreneurship among the people they serve. As water-related illnesses are reduced, healthy people are able to pursue economic opportunities. Entrepreneurial activity empowers people to start businesses and to better provide for the educational, health, and household needs of their families and community. Think Critically 1. Locate another website that promotes awareness and attempts to solve a social issue or concern. Write a brief description of the website, the issue, and the goals of the organization. Discuss your opinion about the likelihood of success. 2. Identify a social issue or economic concern of interest to you and plan a website that might raise awareness of the situation. وزارة التعليم Ministry of Education 2024-1446 3.3 International Business Organizations | 105