INTERNATIONAL BUSINESS,

Dr.S.KRISHNA KUMAR WISH YOU A VERY HAPPY ACADEMIC YEAR.

The International Business Imperative

Need for International Business

More and more firms around the world are going global, including:
Manufacturing firms Service companies (i.e. banks, insurance, consulting firms) Art, film, and music companies

Need for International Business

International business:
causes the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level
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What is International Business?

International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

What is International Business?

International business involves any business transaction between parties from more than one country. It includes such activities as: buying and selling raw materials, taking finished products across borders, operating plants in other countries to take advantage of local resources, and borrowing money in one country to finance operations in a second country.
International business is different from domestic business in that it necessarily involves transactions that cross national borders while domestic business does not.

Definitions
International Business
is a business whose activities are carried out across national borders.

includes international trade and foreign manufacturing

also includes a growing service industry in areas such as
transportation, tourism, advertising, construction, retailing, wholesaling, and mass communication.

International Business Terminology

The United Nations
uses transnational instead of multinational to describe a firm doing business in more than one country.

Business people
define a transnational as a company formed by a merger of two firms of approximately the same size that are from two different countries
Unilever (Dutch-English) Dunlop-Pirelli (English-Italian)
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Definitions

Foreign Business
domestic operations within a foreign country

A Multidomestic Company
has multicountry affiliates, each of which formulates its own business strategy based on perceived market differences.

A Global Company
attempts to standardize and integrate operations worldwide in all functional 9 areas.

Global Company- By Whose Definition?

Have a worldwide presence in its market
Allen-Edmonds produces all shoes in Port Washington, Wisconsin ships to over 33 nations

Standardize operations worldwide in one or more functional areas

P&G has operations in more than 70 countries and sells essentially the same products in over 140 countries
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International Business Questions

How will an idea, good, or service fit into the international market? Should trade or investment be used to enter a foreign market? Should supplies be obtained domestically or abroad? What product adjustments are necessary to be responsive to local conditions? What are the threats from global competitors, and how can these threats be counteracted?
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Evolution of IB
International trade to International marketing. International marketing to International business.

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The evolution of International Business

Early origins in a snapshot
International business has origins as far back as 2000 B C 500 BC Greek purple patch & Chinese silk road Romans at the turn of AD Italy had its moments in the Middle Ages 1400s saw the Spanish in good traveling spirit British and the Dutch strong in the 1600-1900s US has dominated the latter stages with 1945-60 a golden age Marshall plan instituted post WW2 to aid Europe Since the Second World War, international business has seen continued growth.
World exports have grown from about US$53 billion in 1950 to US$5.5 trillion by 1998. Similarly, FDI has grown from US$105 billion in 1967 to over US$1.2 trillion in 1988.

The evolution of International Business

1960s Strengthening of Europe and Japan 1970s OPEC oil crisis & small car invasion from Japan
End of the 1970s, manufacturers began to copy the Japanese - Theory Z (the participative organisational practices), TQM , JIT

1980s, Australian and New Zealand introduced

economic and labour market reforms, and enhanced deregulation and privatisation (positive ecomomic benefits) 1987 stock market crash & property boom/bust

80-90s Emergence of the four Asian tigers

Nature of IB
IB houses need accurate information to make appropriate decision. Also need timely information Size of business should be large enough in order to have impact on foreign economy IB house segment business based on geographic segmentation. IB involve export & import, investments and trade
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IB involves inter country comparative study to evaluate market potential of various countries. IB houses can group countries to design offer marketing mix. International market most of the time offers more potential than domestic markets.
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Reasons for IB growth

Several reasons international business growth has occurred and will continue.
The desire to increase returns for shareholders Leads to market expansion as firms seek new markets Firms seeking materials, unavailable in their own countries must go to foreign sources.

The presence of competitive forces also prompts foreign investment as firms struggle to keep pace with their rivals. Changes in technology as discussed have also spurred the growth of international business
Firms have capitalised on computer technology and better transportation

Shift in tastes
Today's consumers are globe-savvy and aware of the products and services offered in other countries

Freer trade has been a major advantage for IB

Modern IB & Globalisation

Todays market has increasingly gone global through transport, communication and the Net
Three important geographic marketplaces dominate the world economy (possibly four with China):
The United States, the European Union, and Japan.

A key concept you must understand is Globalisation

Has been called many things by many people but for our purposes: Globalisation refers to the production and distribution of products and services of a homogeneous type and quality on a world wide basis to customers whose tastes and preferences are similar and converging.

The most stunning changes to international business during the 1990s were developments in electronic commerce.
Electronic commerce is the buying and selling of information, products and services via computer networks.

Why go international?
To achieve higher rate of profits. Expanding production capacity beyond the need of domestic demand. Severe competition in home country. Limited/Lack of growth of domestic market. Political stability/ political instability.
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Availability of technology & man power. High cost of transportation. Nearest to raw materials. Quality manpower at less cost. Liberalization and globalization. To increase market share. To avoid tariff and market quotas .
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Types of International Business

Export-import trade Foreign direct investment

Licensing

Franchising Management contracts

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Five key forms of IB activity International Business Activity

Most common form of IB activity is:
1.

Exporting & Importing

Exporting involves the selling of goods or services made in one's own country for use in other countries. Importing is the buying of goods or services made in other countries for use in one's own country. Goods refers to trade in goods (visible trade) while services refers to trade in intangible products (invisible trade). Why export or import?
the risk involved is minimal opportunity often knocks particularly in the third industrial revolution (knowledge economy)

IB Activity (cont)
2. International investments -residents of one country
supply capital to those of a second country Foreign direct investments (FDI) investments in property, assets, or companies located in foreign host countries Portfolio investments

3. 4. 5.

purchases of foreign financial assets such as shares & bonds (not for a takeover) Licensing agreements - allows a firm in one country to use all
or some of the intellectual property of a firm in a second country

Franchising - use the brand names, logos, and operating

techniques of a firm in a second country

Management contracts - an agreement in which a firm in

one country agrees to operate a business for a fee in another

Stages of internationalization
Stage Stage Stage Stage Stage One: Domestic company two: International company three: Multinational company four: Global company Five : Trans national Company

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The extent of internationalization

There are several ways to describe the extent of a firm's international orientation
The international business is the broadest
an organization involved in commercial transactions with individuals, private firms, or public sector organisations across borders.

The multinational corporation (MNC)

engages in foreign direct investment and owns or controls value-adding activities in more than one country buys resources, create goods and/or services, and then sell those goods and services in a variety of countries most often coordinates from headquarters with subsidiaries making adjustments as necessary

The extent of internationalization

Three main types of MNC:
1. Multidomestic corporation A corporation with a collection of relatively independent operating subsidiaries, each of which is focused on a specific domestic market. 2. Global corporation A corporation that views the world as a single marketplace and striving to create standardised goods and services 3. Transnational corporation A corporation that seeks to combine the benefits of globalscale efficiencies with the benefits of local responsiveness. 4. A new corporation? The World company transcends national boundaries and Nationless (Ohmae eg Nestle) Be careful as some texts vary in their interpretation of the above

Characteristics of T N C
Geocentric orientation Vision & aspirations Information acquisition Geographic scope Operating style Purchasing/ sourcing Adaptation, Extension HR management
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International Business Approaches.

Etho centric Approaches : Polycentric Approaches: Regio centric Approaches: Geocentric Approaches :

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The Four Risks of International Business

The Four Types of Risks in IB

Cross-cultural risk: a situation or event where a cultural miscommunication puts some human value at stake Country risk: potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country Currency risk: risk of adverse unexpected fluctuations in exchange rates Commercial risk: firms potential loss or failure from poorly developed or executed business strategies, tactics, or procedures
International Business: Strategy, Management, and the New Realities

United States: A Global Leader

The United States has developed a world leadership position due to:
its use of market-based transactions in the Western world a broad flow of ideas, goods, and services across national borders an encouragement of international communication and transportation Pax Americana, an American sponsored and enforced peace
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The Smoot-Hawley Act

The the 1930s, the U.S. passed the SmootHawley Act, which raised import duties to reduce the volume of goods coming into the U.S.
The act was passed in the hope that it would restore domestic employment.

The result was a worldwide depression and the collapse of the world financial system.
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Expansion of International Trade

In the past 30 years, the volume of international trade has expanded from $200 billion to over $7.5 trillion. The sales of foreign affiliates of multinational corporations are now twice as high as global exports.

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Global Links Today

International business has created a network of global links that bind countries, institutions, and individuals with trade, financial markets, technology, and living standards.
For example, a reduction in coffee production in Brazil would affect individuals and economies worldwide.

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Recent Changes in International Business

Total world trade declined dramatically after 2000, but is again on the rise.

The rate of globalization is accelerating.

Regionalization is taking place, resulting in trading blocs. The participation of countries in world trade is shifting.
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The Composition of Trade

Between the 1960s and the 1990s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased. More recently, there has been a shift of manufacturing to countries with emerging economies. There has been an increase in the area of services trade in recent years.
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The Impact of International Business on the United States

U.S. international business outflows are important on the macroeconomic level in terms of balancing the trade account. On the microeconomic level, participation in international business can help firms achieve economies of scale that cannot be achieved in domestic markets.
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Globalization
Because of globalization, for the first time in history, the availability of international products and services can be accessed by individuals in many countries, from diverse economic backgrounds.

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Theories of International Business

Comparative cost theory-David Ricardo The opportunity cost theory-Gottfried Haberler.in1959 Modern theory of factor endowmentHeckscher- Ohlin thesis Adamsmith theory of absolute differences in cost
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Productivity theory The Vent for surplus theory The Mills theory of reciprocal demand

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