What is International Business (Slides)

5/24/2018 What is International Business (Slides)

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International Business: The New Realities

by

Cavusgil, Knight and Riesenberger

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall


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Learning Objectives

1. What is international business?2. What are the key concepts in international trade

and investment?

3. How does international business differ fromdomestic business?

4. Who participates in international business?

5. Why do firms internationalize?

6. Why study international business?

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 1-2


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A Day in the Global Economy: Julie Valentine

In the Opening Vignette, while visiting a

shopping mall, Julie Valentine:

Ate food from Argentina, Brazil,

Costa Rica, France, Italy, and Spain.

Used or shopped for various items,including cars, clothing, and electronics,

from China, Finland, France, Indonesia,

Germany, Hungary, Japan, Malaysia,

Mexico, the Netherlands, South Africa, South Korea,Taiwan, and several other countries.

Like you, Julies life is touched every day, in various

ways, by international business.



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The Nature of International Business

All value-adding activitiesincluding sourcing,manufacturing, and marketingcan be

performed in international locations.

International trade can involve products,services, capital, technology, know-how, and

labor.

Firms internationalize through various entry

strategies, such as exporting and foreign direct

investment.



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Key Concepts in International Business

International business: Performance oftrade and investment activities by firms across

national borders.

Globalization of markets: Ongoing economicintegration and growing interdependency of

countries worldwide.

International trade: Exchange of products

and services across national borders, typically

through exporting and importing.



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Key Concepts (cont.)

Exporting: Sale of products or services from abase in the home country or a third country to

customers located abroad. Boeing and Airbus

export billions of dollars in commercial aircraft

products every year.

Importing or Global Sourcing: Procurement of

products or services from suppliers located

abroad for consumption in the home country ora third country. Toyota imports many parts from

China when it manufactures cars in Japan.



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Key Concepts (cont.)

International investment: Transferof assets to another country or the

acquisition of assets in that country.

Also known as foreign direct

Investment (FDI). We will focus onthis type of investment.

International portfolio

investment: Passive owner-

ship of foreign securities,such as stocks and bonds, in

order to generate financial

returns.



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The Flows of International Business



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World Trade Is Growing Faster than GDP



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Leading Countries in International

Merchandise Trade, by Total Annual Value



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Merchandise Trade, Total Value as a % of GDP



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Foreign Direct Investment (FDI) Inflows into World

Regions (in Billions of U.S. Dollars per Year)



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Service Industries that

are Rapidly Internationalizing



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Services Trade, by Total Annual Value



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Services Trade, Total Value as a % of GDP


I t ti l d


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International and

Domestic Business: How They Differ

1. International business:

is conducted across national borders;

uses distinctive business methods;

is in contact with countries that differ in terms ofculture, language, political system, legal

system, economic situation, infrastructure,

and other factors.

2. When they venture abroad, firms encounter four

major types of risk.



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The Four Risks of International Business



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Cross-Cultural Risk

Cultural differences: Risks arise from differencesin language, lifestyle, attitudes, customs, and

religion, where a cultural miscommunication

jeopardizes a culturally valued mindset or behavior.

Negotiation patterns: Negotiations are required inmany types of business transactions; e.g.,

Mexicans are friendly and

emphasize social relations,

whereas Americans are

assertive and get down to

business quickly.

1-24Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 1-24


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Cross-Cultural Risk (cont.)

Decision-making styles: Managers constantlymake decisions about the operations and future

direction of the firm. For example, Japanese take

considerable time to make important decisions,

whereas Canadians tend to be decisive and shootfrom the hip.

Ethical practices: Standards of right and wrong

vary considerably around the world. For example,bribery is relatively acceptable in some countries in

Africa, but is generally unacceptable in Sweden.



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Country Risk (Political Risk)

Government intervention, protectionism, and barriers to

trade and investment

Bureaucracy, red tape, administrative delays, corruption

Lack of legal safeguards for intellectual property rights

Legislation unfavorableto foreign firms

Economic failures

and mismanagement

Social and politicalunrest and instability

Examples

- The U.S. imposes high tariffs on imports

of sugar and other agricultural products.

- Doing business in Russia often requires

paying bribes to government officials.

- Venezuelas government has interferedmuch with the operations of foreign firms.

- Argentina has suffered high inflation and

other economic turmoil.



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Currency Risk (Financial Risk)

Currency exposure: General risk of unfavorableexchange rate fluctuations.

Asset valuation: Risk that exchange rate fluctuations will

adversely affect the value of the firms assets and liabilities.

Foreign taxation: Income, sales, and other taxes vary

widely worldwide, with

implications for company

performance and profitability.

Inflation: High inflation,

common in many countries,complicates business

planning and the pricing

of inputs and finished goods.

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Examples

The Indian rupee has fluctuated

a lot since 1990.

The U.S. has relatively high

corporate income taxes.

Brazil and Russia have

experienced very high inflation.



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Commercial Risk

Weak partner Operational problems

Timing of entry

Competitive intensity Poor execution of

strategy

General commercial risks such as these lead tosub-optimal formulation and implementation of the

firms international value-chain activities.



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The Four Risks of IB: Conclusion

These risks are always present, but manageable.

Managers need to understand, anticipate, and

take proactive action to reduce their effects.

Some risks are extremely challenging.

Example

The recent global financial crisis generated many

commercial, currency, and country risks, affecting banksand other firms worldwide, and leading to steep declines

in national stock markets and normal business activity.



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Who Participates in International Business?

Multinational enterprise (MNE): A large company with

substantial resources that performs various businessactivities through a network of subsidiaries and affiliates

located in multiple countries; e.g., Caterpillar, Samsung,

Unilever, Vodafone, Disney.

Small and medium-sized enterprise (SME): Typically

a company with 500 or fewer employees. Over 90% of

all firms in most countries are SMEs. SMEs increasingly

engage in international business.

Born global firm: A young, entrepreneurial SME that

undertakes substantial international business at or near

the time of its founding.


Geographic Locations of the


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Geographic Locations of the

500 Largest Multinational Enterprises




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(cont.)

Non-governmental organizations: Many of thesenonprofit organizations conduct cross-border

activities. They pursue special causes and serve as

advocates for social issues, education, politics, and

research.

Examples

The Bill and Melinda Gates Foundation and the British

Wellcome Trust both support health and educationalinitiatives.

CARE is an international nonprofit organization dedicated to

reducing poverty.



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Non-governmental Organizations



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Why do Firms Participate in IB?

To seek oppo rtuni t ies for grow th throughmarket diversi f icat ion

E.g., Harley-Davidson, Sony, Whirlpool.

To earn h igher margins and p rof i ts

Often, foreign markets are more profitable.

To gain new ideas about p roduc ts, services,

and bus iness m ethods

E.g., GM refined its knowledge about making small,

fuel-efficient cars in Europe.



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Why do Firms Participate in IB? (cont.)

To better serve key cus tomers that haverelocated abroad

E.g., when Toyota launched its operations in Britain,

many of its suppliers followed suit.

To be closer to supp ly sources, benefi t f rom

global sou rcing advantages, or gain

f lex ib i l ity in the sourc ing o f products

E.g., Dell sources parts and components from the

best suppliers worldwide.



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To gain access to lower-co st o r better-valuefactors of product ion

E.g., Sony does much of its manufacturing in China.

To develop econom ies of scale in sourc ing,

product ion , market ing , and R&D E.g., Boeing lowers its overall costs by sourcing,

manufacturing, and selling aircraft worldwide.



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To con front international compet itors moreeffect ively o r to thwart the grow th o f

compet it ion in the home market

Chinese appliance maker Haier established operations in

the United States, partly to gain competitive knowledgeabout Whirlpool, its chief US rival.

To in vest in a po tent ia lly rewarding relat ionsh ip

w ith a foreign partner French computer firm Groupe Bull partnered with

Toshiba in Japan to gain insights for developing

information technology.



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Why Should You Study IB?

To facilitate the global economy andinterconnectedness. IB brings nations closertogether.

To contribute to national economic well-being. IB fuels economic growth and risingliving standards.

To provide a competitive advantage for thefirm. IB provides companies with manybenefits, leading to profitability and competitiveadvantages.



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Why Should You Study IB? (cont.)

To gain a competitive advantage for yourself.Working internationally offers a range of

enlightening experiences, new knowledge, and

other benefits that enhance careersand its

exciting!

To provide an opportunity for global

corporate citizenship. Firms must be ethical

and socially responsible in their dealingsbecause IB affects numerous constituents, often

in unintended ways.



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C i ht 2012 P Ed ti I bli hi P ti H ll 1 40

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,mechanical, photocopying, recording, or otherwise, without the prior written

permission of the publisher. Printed in the United States of America.

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What is International Business (Slides)