introduction to international business-au

7/31/2019 Introduction to International Business-AU

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Definition: International Business

Any business transaction that involvespersons of firms of more than one countrymay be described as International Business

An international business is any business thatintentionally buys, sells or investsinternationally

International business includes all business

activities that involve business organizationsfrom two or more countries


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international businessMethods of buying and selling products

internationally

a. Exporting and Importing

b. Licensing-i.e. granting foreign firms

permission to produce your product for a feec. Franchising-licensing plus operationalcontrols


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India's exports rose 37.5% in 2010-11 to touch arecord $246 billion as traders targeted newmarkets and gained from improved sentiments inthe US and Europe

oil appeared to be the main culprit when it cameto imports, which rose 21.5% to $350.3 billionduring the last financial year

In March, exports went up by 43.9% to $29.1billion, while imports rose 17.3% to 34.7 billion,resulting in a trade deficit of $5.6 billion.
http://timesofindia.indiatimes.com/topic/search?q=exportshttp://timesofindia.indiatimes.com/topic/search?q=exports


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MNCs

Is that only MNCs who play the role in ib??


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Globalization

The term globalization describes the increased mobility ofgoods, services, labor, technology and capital throughout theworld. Although globalization is not a new development, its pacehas increased with the advent of new technologies, especially inthe area of telecommunications.

Globalization has resulted in economic restructuring

Resources have flowed out of one country into another

Jobs have been lost and new jobs are created

Some resource owners have been winners and some have been

losers Some evidence demonstrates that globalization brings great

benefits as well as costs.


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Global Institutions To manage, police, and regulate the international

business

GATT General Agreement on Tariffs and Trade

WTO World Trade Organization IMF

World Bank

UN- to preserve peace through international

cooperation


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British call centre to return home from costlyMumbai (Times of India 5/6/11

New Call Telecom, a UK company saysoutsourcing in India is no longer cheaper.

Increasing prices, salaries

"We did a cost and service analysis of returninghome and there was an absolute parity betweenwhat we are paying for a third-party call centre inIndia and here in the UK," says New Call's chiefexecutive Nigel Eastwood."In India in the past decade, as call centres havegrown, real-estate prices have gone upmassively, while salaries have also crept up."


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New Call will pay four pounds a square foot for aspace in Burnley, which Eastwood says is similar tothat in Mumbai and New Delhi."In the UK, we will pay workers the minimum wage.

Given the current economic environment, we will getgood 'sticky' employees who will also receive bonuseslinked to performance."New Call Telecom, which competes with BT and Sky

to offer home telephone services, broadband and low-cost international calls, is opening a call centre inLancashire after being attracted by low commercial

rents and cheap labour costs
http://timesofindia.indiatimes.com/topic/New-Delhihttp://timesofindia.indiatimes.com/topic/New-Delhi


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Facets of globalization Globalization of market single market

Falling barriers

Offer same product

Globalization of product sourcing of goods &services from locations around the globe to takeadvantage of cost , quality

Ex- Boeing, IBM, Sony, Microsoft.

Global rivalry


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Drivers ofGlobalization The General Agreement on Tariffs and Trade

(typically abbreviated GATT)

GATT was signed in 1947 and lasted until 1993,when it was replaced by the World TradeOrganization in 1995

WTO ensures trade among nations operatessmoothly, freely and orderly

Ministerial Conference highest leveldecisionmaking body , meets once in everytwo years


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Drivers of globalization Decline in the barriers of trade

GATT WTO (Doha round)Cutting tariffs, phasing out subsidies to

agricultural products ..

Technological change communication, transportation Restrictions in FDI removed FDI firm invest in another country in business activities Foreign Direct Investment (FDI) is one of the mostly used

ways of internationalization which plays an important roleas an engine of employment, technological development,productivity enhancement, economic intensification, and

more importantly, as an instrument of technology transferespecially from developed to developing countries. India still 2nd FDI spot Decline 2008 2010.


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Types of FDI Horizontal FDI refers to when firms invest in the

same industry in which theywork in theirhomeland

For example, the automobile company Ford builds

an automobile manufacturing facility in Mexico

Vertical FDI, on the other hand, is divided into two

different types:

Backward Vertical FDI - when the abroad sales

of a company serve as inputs for the downstream

operations of domestic companies


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Forward Vertical FDI - when there is investmentinto a foreign industry that sells the output of acompany's domestic production processes

EX: if Ford builds an engine production facility inMexico which ships engines to its manufacturingunit in U.S.A., this would be backward vertical FDI

Ford buys ten dealers in Mexico to distribute carsmade in the U.S.A., this would be forward verticalFDI


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The third type of FDI, conglomerate FDI

involves companies operating in differentbusinesses


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IB Environments Cultural Environment Culture is concerned with beliefs and values on the

basis of which people interpret experiences andbehave, individually and in groups.

"culture" refers to a group or community with which

you share common experiences that shape the wayyou understand the world

Culture is the "lens" through which you view theworld. It is central to what you see, how you makesense of what you see, and how you express yourself


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cultural difference

Different communication styles Americans

Europeans

do not like loud people Want more quality products

Punctuality important


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Culture Shock

Failure to identify cultural issues and take action canlead to a culture shock. In order of priority, the mostoften found symptoms of culture shock are:

feeling isolated

anxiety and worry reduction in job performance

high nervous energy

helplessness.

Not coping with culture shock symptoms when theyappear can lead to a very negative situation


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Geert Hofstedes model Study of How culture relates to value in the

workplace (conducted at IBM)

power distance high in India

Individualism vs collectivism US

Uncertainty avoidance France high

Masculinity vs femininity

the Swedish culture is one of the societies that

have the lowest score on masculinity. The role ofthe women in society is almost equal to the roleof men.


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Mexico has the highest score on the masculinedimension, this means that the society of thiscountry is more assertive, aggressive anddecisive


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High context culture ex china, France High-context means that most of the information is either in the

physical context or initialized in the person, while very little is inthe coded, explicit, transmitted part of the message.

Words are not so important as context, which might include thespeakers tone of voice, facial expression, gestures, posture

and even the persons family history and status. A Japanese manager explained his cultures communication

style to an American: We are a homogeneous people and donthave to speak as much as you do here. When we say one word,we understand ten, but here you have to say ten to understandone.

High-context communication tends to be more indirect and moreformal


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Low context culture US, Germany low-context communication - the mass of information

is vested in the explicit code

Solving a problem means lining up the facts and

evaluating one after another. Decisions are based onfact rather than intuition.

Discussions end with actions. And communicatorsare expected to be straightforward, concise, and

efficient in telling what action is expected. To beabsolutely clear, they strive to use precise words andintend them to be taken literally


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Political , Technological &

Economic Environments

When FDI is made in a host country, the politicalsituation is explained from two perspectives, from oneangle there are the socio-political risks such aspolitical instability

'political risk' refers to the possibility that politicaldecisions or events in a country will affect thebusiness climate in such a way that investors will losemoney or not make as much money as they expectedwhen the investment was made. The political risk of the host country is one of the most

important determinants in investment decision making


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Factors that determine political risk

Nationalization-the process of shifting the ownership of private

property from private individuals to the government

Confiscation

- the process of nationalization of a propertywithout compensation

Expropriation

- the process of nationalization of a property with

compensation


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Hostilities between countries affect IB country trade policies such as tariffs and rigid

quotas have to be studied before a companyenters a foreign market


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Technological Environment

Technology is a systematic application of scientificor other organized knowledge to particular tasks

Changes at a fast rate

Brings change in the society, economy and politics

One of the significant factorwhich determines thelevel of economic development of a country

Difference between a country is reflected by the levelof the technology


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Economic Environment

Economic SystemsEconomic system is an organization of institutions

established to satisfy human needs

Three types of Economic systems :

1) market economy all production privately owned Production is determined by the interaction of supply & demand

Consumer is the king

Monopoly of single producer is restricted

Government encourages free and faircompetition in order to avoid the monopoly

Ex- USA


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2) command economy government owns /controls production (communism)

Businesses are state owned


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Mixed Economy major factors of production anddistribution are owned and controlled by the state

- benefits equally divided

- believes in full employment and rewards forthe employees

India , Brazil, Italy..

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