INTERNATIONAL BUSINESS
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International Business
Refers to business activities that involve the transfer of
resources, goods, services, knowledge, skills or
information across national boundaries
Involves all commercial transactions between two or more
countries
Any firm engaged in international business is defined as
INTERNATIONAL FIRM or Multinational Company (MNC)
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Why International Business?
EXPAND SALES
- companies may increase the potential market for their sales by
pursuing international customers
ACQUIRE RESOURCES
- foreign-sourced goods, services, components, capital, technology
and information can make a firm more competitive
MINIMISE RISK
- firms may pursue foreign markets in order to minimize cyclical effects
on sales and profits.
- to counter the potential advantages that competitors might gain by
participating in foreign market opportunities.
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Reason for Recent International Growth
EXPANSION OF TECHNOLOGY
- vast improvements in transportation and communication technology have
significantly increased the efficiency of international business operations.
LIBERALISATION OF CROSS-BORDER MOVEMENTS
- the reduction of trade barriers (i.e; AFTA) has provided increased access to
many foreign market.
DEVELOPMENT OF SUPPORTING SERVICES
- services provided by govts, banks etc, greatly facilitate the conduct and
reduce the risks of doing business internationally.
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Reason for Recent International Growth
CONSUMER PRESSURES
- because of innovations in transportation and communications technology,
consumers are better informed and thus demand higher quality, more cost-
competitive products
INCREASE IN GLOBAL COMPETITION
- companies may choose to operate internationally in order to gain access to
foreign opportunities and improve their overall operational flexibility and
competitiveness
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International Business vs. Domestic Business
International business can differ from domestic business
for a number of reasons, including the following:
The countries involved may use different currencies, forcing at least one
party to convert its currency into another. (financial issues)
The legal systems of the countries may differ, forcing one or more parties to
adjust their practices to comply with local law. (legal issues).
The cultures of the countries may differ, forcing each party to adjust its
behavior to meet the expectations of the other. (cross cultural
management)
The availability of resources differs by country; the way products are
produced and the types of products that are produced vary among
countries. (operations & resources management)
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International Business Activities
Importing and exporting
International investments
Foreign direct investments (FDI)
Portfolio investments
Licensing
Franchising
Management contracts
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Importing & Exporting
Exporting is the selling of products made in
ones own country for use or resale in other
countries.
Importing is the buying of products made in
other countries for use or resale in ones own
country.
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International Investments
Foreign direct investments (FDI) are investments
made for the purpose of actively controlling property,
assets, or companies located in host countries.
Portfolio investments are purchases of foreign
financial assets (stocks, bonds, and certificates of
deposit) for a purpose other than control.
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Licensing
Licensing is a legal arrangement whereby a
firm in one country licenses the use of its
intellectual property (patents, trademarks,
brand names, copyrights, or trade secrets) to
a firm in a second country in return for a
royalty payment.
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Franchising
Franchising, a specialized form of licensing,
occurs when a firm in one country (the
franchisor) authorizes a firm in a second
country (the franchisee) to utilize its operating
systems as well as its brand names,
trademarks, and logos, in return for a royalty
payment.
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Management Contracts
A management contract is an arrangement
wherein a firm in one country agrees to
operate facilities or provide other
management services to a firm in another
country for an agreed-upon fee.
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Risks in IB
Business risks : strategy, business cycle
Economic risks : FOREX, inflation
Political & Legal risks : tariffs, quotas, policies
Cultural risks : ethics, corporate cultures
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Globalization
We are moving away from a world in which national economies
were relatively self contained entities, isolated from each other
by barriers to cross border trade and investment; by distance,
time zones & language; and by national differences in government
regulation, culture and business system
We are moving toward a world in which barriers to cross border
trade and investment been slowly eliminated due to :
a) perceived distance is shrinking due to advances in
transportation & telecommunications technology
b) material culture is starting to look similar the world over
c) national economies are merging into an interdependent global
economic system which lead to GLOBALIZATION
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What is GLOBALIZATION?
refers to the shift toward a more integrated and
interdependent world economy.
globalization of markets and the globalization of
production
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What Does Globalization Mean for You?
For us, globalization means greater choices of
product with lower prices without jeopardizing
the quality
availability of product and services with less
national identity
Customer support services becoming a critical
decision making factor
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Who Benefits from Globalization?
For the developed countries (i.e.; US, UK, Japan),
globalization provides a cheaper manufacturing
platform.
For the developing countries (i.e.; Vietnam, Laos,
Malaysia), globalization provides :
a) greater inflows of foreign investment
b) greater job opportunities for the people
c) better quality of life through infrastructure
enhancement
d) dilution of national identity
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Globalization & the Monopoly Power of Large
Corporations
Small companies will be eliminated by big
companies due to their greater economic power
Economic structure of developing countries will
be greatly influenced by the westerners. Thus, it
will diminish national identity and values.
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Globalization and the Environment
Forest and water reserves need to be sacrificed
in opening up new area for new investment and
other economic developments.
Without proper control from the relevant
authorities, water and air pollution definitely will
increase
Changes in eco-system
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Motives of Globalization
Several basic motives have compelled firms to
become more global in both their orientation and
actions:
To leverage core competencies
To acquire resources and supplies
To seek new markets
To better compete with rivals
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