intro to ib

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

one’s own country for use or resale in other

countries.

Importing is the buying of products made in

other countries for use or resale in one’s 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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