Introduction to International Business ANGUS BUSINESSMAN HONORED 3g INTERNATIONAL TRADE FELLOWSHIP Sino British trade relations body. The Young lcebreakers is the latest 1 to expand the network of connections A nn Angus businessman has spoken of his pride in being honored by 2 the cultural deficit between China and development within the organizatio and continue the role of helping to reduce the rest of the world. ‘As a former economic development ief with Angus Council, Mr Valentine poneored the authority’ program to forge inks with China over 15 years and since Chapter 1 Carryout his retiral from the authority continues: to build new ties to the east through his ‘Valentine International Business ‘Connections consultancy. 1. Explain the international business, environmental factors, and strategic hoies of ntematonal business 2, Understand the global busines, ral, eps nes ipertanes td lens er neato tastes 4, Discuss the components ofa global tunes pl and completes involved in interatonal business WHAT YOU CAN FIND ‘Manager's Library ‘An Introduction to International Economies: “New Perspectives on the World Economy, by ‘A. Alffed Taubman: Global Business: ‘The Man to ‘Emirates Airlines Conepiualizing the ‘Modem Shopping MallsCHAPTER 1 | INTERNATIONAL BUSINESS Carryout 1.1 International Business':* Answers to Derive + Explain the features of intemational business ‘+ Define the environmental factors of international business + Describe reasons and benefits why organizations want to internationalize their business Intemational business is a word used to cooperatively explain all profitable deals (confidential and governmental, trades, assets, logisties, and transport) that ake place among ‘two or more regions, countries and nations outside their political periphery. Regularly, private companies start such transactions for profit; governments undertake them for profit and for politcal reasons. It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources contain money, skills, people ete. for worldwide production of physical goods and services such as finance, banking, insurance, construction ete, ‘The simplest definition for international business is “eross border economic activity’. ‘This has existed in various forms ever since human communities began interacting with ‘one another. When human tribes first started trading beads or minerals like flint more than. ten thousand years ago, they were engaging in prehistoric forms of international business. Ofcourse, trade has become slightly more complicated since then. Nowadays, intemational business refers to the exchange not only of physical goods but also of services, capital, technology, and human resources. The first point to make about this field is that it covers a very broad spectrum of activities. We look at how firms can increase their profitability by expanding their operations in foreign markets. We discuss the different strategies that firms pursue when competing internationally, consider the pros and cons of these strategies, discuss the various factors that affect a firm's choive of strategy, and Took atthe tactics firms adopt when competing head to head across various national markets, Just as important isto recognize what makes international business distinct from other areas of study, and where it overlaps with them. Many aspects of domestic business are also found in intemational business, but they are treated differently because of the later field's ‘emphasis on cross- border aspects. Similarly, international business covers most if not all of the same topics as international management but goes much further. Where international ‘management focuses mainly on decisions made by individuals operating within a corporate setting, international business also incorporates the broader political, economic, social, technological, philosophical, and environmental contexts within which firms operate. Itis avery broad discipline with connections to many if not most ofthe issues affecting people in their daily lives. The best international business students and practitioners can analyze (on many different levels and tend not to recognize artificial borders between business, iuip:wwwadecco.com/en-USiest/Documents/global-compact-yearbook-2014. pat =https/kalyan-ity-blogspot.com/20{ 1/09/what-is-interational-business-meaning.himlINTRODUCTION TO INTERNATIONAL BUSINESS : CHAPTER 1 ‘224 politics. Indeed, the ability and desire to embrace diversity give this {Gistinct philosophy and enduring attraction. ‘business conducts business transactions all over the world. These ‘Seclude the transfer of goods, services, technology, managerial knowledge, ‘other countries. International business involves exports and imports. Fusiness is also known, called or referred as a global business or an jmarketing. business has many options for doing business, it includes: goods and services. Jicense to produce goods in the host country. ‘a company. ‘2 branch for producing and distributing goods in the host country. ‘managerial services to companies in the host country. of International Business tics or features of intemational business are: Beaciois to participating countries le marnanm a SSS Pe nee EAT Gage Ses ‘ona very huge scale. ion F atese da pandas thalacal aienet. Then tha eurplas goods are Chported ee a agi aan a economies of many countries. This is because it uses finance from one country, labor from another country, and infrastructure from another country. It designs the product in one country, produces its parts in many different countries and assembles ‘the product in another country. It sells the product in many countries, ie, in the international market. Dominated by Developed Countries and MNCs: Intemational business isand politics. Indeed, the ability and desire to embrace diversity give this its distinct philosophy and enduring attraction, onal business conducts business transactions all over the world. These s include the transfer of goods, services, technology, managerial knowledge, tal to other countries. International business involves exports and imports. ational business is also known, called or referred as a global business or an I marketing {international business has many options for doing business, it includes: Exporting goods and services. Giving license to produce goods in the host country. Starting a joint venture with a company. Opening a branch for producing and distributing goods in the host country, Providing managerial services to companies in the host country. tures of International Business ‘nature and characteristics or features of international business are: Features of Global Business * Lange scale operations iy | * Intergration of economies of many countries || + Dominated by developed countries and MNCs * Benefots to participating countries | + Special role of science and technolog * International restrictions VEE | * Sensitive nature re 1.1: Feature of international business. Large Scale Operations: In international business, all the operations are conducted on a very huge scale, Production and marketing activities are conducted on a large scale. It first sels its goods in the local market. Then the surplus goods are exported. (See Figurel.1) Integration of Economies: International business integrates (combines) the economies of many countries. This is because it uses finance from one country, labor from another country, and infrastructure ftom another country. It designs the product in one country, produces its parts in many different countries and assembles the product in another country. It sells the product in many countries, ie. in the international market. Dominated by Developed Countries and MNC International business is INTRODUCTION TO INTERNATIONAL BUSINESS CHAPTER 1 5CHAPTER 1 > Marketing Researeh is the function that links the consumers, customers, and public to the marketer through information, INTERNATIONAL BUSINESS dominated by developed countries and their multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully control) foreign trade. ‘This is because they have large financial and other resources. They also have the best technology and research and development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. ‘Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market. + Benefits to Participating Countries: International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital ‘and technology. They get rapid industrial development. They get more employment “opportunities. Al this results in economic development of the developing countries. ‘Therefore, developing countries open up their economies through liberal economic policies. + Keen Competition: International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNCS are in a favorable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries. + Special Role of Science and Technology. Intemational business gives a lot of importance to science and technology. Science and Technology (S & T) help the ‘business to have large-scale production. Developed countries use high technologies. ‘Therefore, they dominate global business. International business helps them to ‘transfer such top high-end technologies to the developing countries. + International Restrictions: Intemational business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business. + Sensitive Nature: The international business is very sensitive in nature. Any change in the economic policies, technology, political environment, etc. has a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes. Environmental Factors of International Business Environmental factors for interational business comprise the external relations a firm will face in going global. These include, most importantly, the economic, political and legal environments, each ofthese always entangled with the others, Basic Issues ‘The central issues for the decision to go global are concerned with minimizing risk. A ‘company, when considering the environment that it will deal with when entering a new ‘market, has to deal with certain variables. This concern, for example, the cultural barriers toinvestment, the ability to reach a competitive edge with new investments and the strategic use of new technologies and natural resources that international investment might bring. The Economic Environment This element comprises the nature of the economic system and institutions of a particular country or region, It also takes into account the nature of human and natural resources within the tanget market. A firm will function very differently ina libertarian environment than within a highly statist one, Here, the activities and functions of local economic elites are also very important. The Political Environment ‘Closely tied to the economic environment is the political one, itself also dealing with the ‘ature of systems and institutions. Many variables to consider here are the stability ofthe ‘political system, the existence of local or international conflict, the role of state enterprises cd the nature of the bureaucracy. e Legal Environment existence of bureaucratic systems and cultures is central in making the decision to est globally. The nature of corruption, local values and assumptions that are built into mnal ideologies are major variables in this field. A great concem is the extent to which isa culture of law or a culture of personal patronage, where negotiations are done on rather than a legal basis. The impact of international lending agencies such as the emational monetary fund or the World Bank is also important in creating a legal culture -a business will have to take seriously. ‘ial Structure fs such as Robert Brown and Alan Gutterman hold that social structure comprises the values of a people and transcends the institutions mentioned above. Issues such as jon between the individual and the collective, religion, family life and even time S and gender roles are all significant in terms of dealing with a new population ive to these might be the difference between success and failure and Benefits why Organizations nternationalize their Business ‘many organizations which want to increase their business abroad. ional for a variety of reasons, but typically they want company In this blog post we will find out some of these things, and also benefits that organizations can reach by the act of making something SS for interationalize are growth, employees, resources and ideas ‘axe looking intemational markets for getting growth because they want ess. Probably the most important reason to intemnationalize business is hire cheaper employees. Some companies go international to locate ‘to have in their home markets. Also companies go international cir work force and have new ideas. INTRODUCTION TO INTERNATIONAL BUSINESSCHAPTER 1 | INTERNATIONAL BUSINESS So, what benefits organization could achieve by internationalizing? Maybe it depends, con what kind of organization it is, but one benefit is that organization can save money. Organization can also get new ideas from the new employees. Different backgrounds. ‘work force can bring up fresh ideas which can help a company’s growth. Usually when a ‘company goes international it gets more conspicuousness and because of that it gets more clients. When the company in international it is easier to make co-operation with other companies of course one of main points is that organizations want to expand their business. ‘When organization expands its business abroad, its possible to get more customers. When company gets more customers it often means that they get more money too.CHAPTER 1 ed Taubman: The Man to Conceptualizing the Shopping Malls an American entrepreneur and philanthropist, known for conceptualizing the modern shopping {Sion transformed many lives along with his own; his isthe story of aman who rose from ragsto riches. Sezant family, he stated working at a young age alongside receiving his education. Fe developed his i mand space during his architectural studies. He started from a small realestate development firm Srachandising and retailing, he became a shopping mall magnate, with an enormous enterprise under i S_llons of dollar. He incorporated his ideas to build incredible retail store, hotels, enclosed malls JPloncered the concept of shopping mall, an emerging trend in the global arena. The combination of his slisped the emergence of shopping centers around the world10 CHAPTER 1 INTERNATIONAL BUSINESS Carryout 1.2 Strategic Choices? Answers to Derive + Explain the international and multi-domestie strategy + Define the transnational strategy and structure of strate Strategic choice is the third logical element of the strategy formulation process. Choice is at the center of strategy formulation. If there are no choices to be made, there can be little value in thinking about strategy at all. On the other hand, there will always, in practi be limits on the range of possible choices. In general, small enterprises tend to be limited by their resources, whereas large enterprises find it difficult to change quickly and so tend to be constrained by their past. In large corporations, managers may find their range of ‘choice limited because some choices are made at a higher level or in another country. In the public sector, the genuine strategic choices may be made by politicians so that the role of the manager is limited to devising how best to implement strategies rather than to ponder fundamental choices of future direction for themselves, Even when managers are apparently fiee to make strategic choices, results may eventually depend as much on chance and opportunity as on the deliberate choices of ‘those managers. When considering future strategies, it may seem that there are clear choices to be made. When reflecting on outcomes in retrospect, its often clear that events, and particularly unexpected events, played a major role in determining results. When ‘considering choice, itis necessary to take a prescriptive view. Descriptive ways of thinking may help to explain the outcomes after the event. Inatidy logical world, any process of choice could be rationally divided into four steps identify options, evaluate the options against preference criteria, select the best option, and then take action. This suggests that identifying and choosing options can be done purely analytically. In practice, it may be difficult to identify all possible options with equal clarity or at the same time, Unexpected events can create new opportunities, destroy foreseen ‘opportunities, or alter the balance of advantage between opportunities. Identifying and ‘evaluating options is a useful approach but it has limitations. It is necessary to remember thatthe future may evolve differently from any of the options. Good strategic choices have to be challenging enough to keep ahead of competitors ‘but also have to be achievable. Analysis has an important role in making strategic choice ‘but judgment and skill are also critical. For instance, sometimes it may be better to delay raking a decision whereas at other times a wrong decision may be better than no decision ‘Strategie choices that keep options open may be preferable in an uncertain future to defined Strategies that depend for their success on uncertain events happening. Such judgments require wisdom as much as analytical skill. “putp/classes bus.oreyonstate.cdu/spring-05/ba469/dibrellChapter"420OutlinesimO8.doeINTRODUCTION TO INTERNATIONAL BUSINESS ‘These words of caution lay the ground for that might otherwise seem to make the pxocess of strategic choice sound too mechanistic. Since strategic choice tends to be so fuzzy, itis useful to define the words being used. ‘We shall adopt the following definitions. + Choice and strategic choice refer to the process of selecting one option for implementation. = Anoption is a course of action that it appears possible to take. The simplest form of choice is therefore between taking an option and not taking it doing it or not doing, it. Most choices have more shades of possibility than this = A strategic option is a set of related options (typically combining options for product’ markets and resources) that form a potential strategy. For instance, it might be an option to enter a new market in a new country. The entry to that ‘market with a chosen method of distribution and known way of acquiring necessary distribution resources in fact, a complete business plan of how to enter the new market successfully would become a strategic option. Chosen Strategy is the strategic option that has been chosen aternational Strategy ss that pursue an international strategy try to ereate value by transferring valuable and products to foreign markets where indigenous competitors lack those skills and ts, Most international firms have created value by transferring differentiated product =rings developed at home to new markets overseas: ‘An international strategy makes sense if a firm has a valuable core competence that enous competitorsin foreign markets lack, and ifthe firm faces relatively weak pressures Jocal responsiveness and cost reductions. In such circumstances, an international can be very profitable. However, when pressures for local responsiveness are high, pursuing this strategy lose out to firms that place a greater emphasis on customizing, ic offering and market strategy to local conditions. Due to the duplication of ring facilities, firms that pursue an international strategy tend to suffer from high costs. This makes the strategy inappropriate in manufacturing industries where essures are high. iti-domestic Strategy suing a multi domestic strategy orient themselves toward achieving maximum onsiveness. Multi domestic firms extensively customize both their product and their marketing strategy to match different national conditions. They also tend sh 2 complete set of value creation activities including production, marketing, D in each major national market in which they do business. As a consequence, lly fail to realize value from experience curve effects and location econot sly, many multi domestic firms have a high cost structure. They also tend to doa ‘of leveraging core competencies within the firm. General Motors, profiled in the is 2 good example of a company that has historically functioned as a multi ation, particularly with regard to its extensive Furopean operations, which ‘self-contained entities. domestic strategy makes most sense when there are high pressures for local and low pressures for cost reductions. CHAPTER 1 “1| INTERNATIONAL BUSINESS Transnational Strategy In today’s environment, competitive conditions are so intense that to survive in the global marketplace, firms must exploit experience-based cost economies and location economies, they must transfer core competencies within the firm, and they must do allthis while paying attention to pressures for local responsiveness. They note that in the modem multinational enterprise, core competencies do not reside just in the home country. They can develop in any of the firm's worldwide operations. Thus, they maintain that the flow of skills and product offerings should not be all one way, from home firm to foreign subsidiary, as in the case of firms pursuing an international strategy. Rather, the flow should also be from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary @ process they refer to as global learning. ‘A transnational strategy makes sense when a firm faces high pressures for cost reductions and high pressures for local responsiveness. Firms that pursue a transnational strategy are trying to simultaneously achieve low-cost and differentiation advantages. AAs attractive as this sound, the strategy is not an easy one to pursue. Pressures for local responsiveness and cost reductions place conflicting demands on a firm. Structure of Strategic Choice Figure 1.2 shows how the three logical elements of the strategy formulation process interlock. The shaded background isa reminder of the importance of context as determining the issues to be resolved by strategie choice. Figure 1.3 expands the detail to illustrate the significance of the overlaps. The common gqound between any two circles is of some interest but it is only where all three circles ‘overlap that logically viable options exist. The chosen strategy emerges as the chosen viable option. It is where the differing requirements of intent and assessment are most fully met that is, where the three logical elements overlap, The areas where any two circles overlap are also of interest, The criteria for choice derive from intent and assessment. Feasible options may exist which are not aligned to strategic intent. This, of course, may raise the question of whether the strategic intent should be changed. Infeasible options may seem highly attractive and may have powerful supporters, so the reasons why they are infeasible may need to be carefully debated with clear evidence in support. Choices of what not to do may sometimes be as important as ‘choosing what to do. (See Figure |.2 and 1.3) Result of process (Chosen strategy Figure 1.2: Result of the strategy formulation processan ices ‘Feasible but ees Choosing a strategy from amang strategie options. the process for choosing. strategy may be structured something like Figure gh the reality is likely to be much messier. process of choice starts by identifying available options. The chosen strategy will the questions ‘what’, ‘how’, ‘why’, ‘who’, and ‘when’, so each option will provisional answers to each of these questions exc are likely to be different kinds of options. Figure 1.4 shows three types products! arkets, resources/capabilities, and method of progress that are typical but not, exhaustive, (See Figure 14) ‘Gplions to Improve resources and capabilities + Linking into available suatesic options zt => ED ture of making strategie choice. “Theoritial rameworks for making strategic choice the choice? INTRODUCTION TO INTERNATIONAL BUSINESS : CHAPTER 1 : 13CHAPTER 1 > Foreign Direct Investment irect investment into production in a country by a ‘company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. > International Business is a ‘term used to collectively describe all commereial transactions that take place between two or more regions, countries and nations beyond theit political boundary. INTERNATIONAL BUSINESS. Carryout 1.3 Global Business‘ Answers to Derive + Explain the nature, scope, need and problems for international business + Define the reasons for recent international business growth + Describe the importance of international business Global business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations. ‘These transactions take on various forms, which are often interrelated. Primary types of international business are import export trade and foreign direct investment (FDI). The latter is carried out in varied forms, including wholly owned subsidiaries and joint ventures. ‘Additional types of international business are licensing, franchising, and management contracts, As the definition indicates, as for any kind of domestic business, “satisfaction” remains a key tenet of global business. Beyond this, because transaction environmental factors, to different constraints, and to quite frequent conflicts resulting from different laws, cultures, and societies. The basic principles of business still apply, but their application, complexity, and intensity vary substantially. To operate outside national borders, firms must be ready to incorporate international considerations into their thinking and planning, making decisions. related to questions such as these + How will our idea, good, or service fit into the international market? + Should we enter the market through trade or through investment? + Should we obtain our supplies domestically or from abroad? + What product adjustments are necessary to be responsive to local conditions? + What threats from global competition should be expected and how can these threats be counteracted? When management integrates these issues into each decision, international markets can provide growth, profit, and needs satisfaction not available to those that limit their activities to the domestic marketplace. Nature, Scope, Need and Problems for International Business International Business is the process of focusing on the resources of the globe and ‘objectives of the organizations on global business opportunities and threats. International ‘htp:/sbaet.uca.edu/publications/intemational_business/pdtfO1 patas global trade of goods/services or investment. More comprehensive ‘aot focus on the “firm” but on the exchange process free trade occurs when does not attempt to influence, through quotas or duties, what its citizens another country or what they can produce and sell to another country. The ‘trade allow a country to specialize in the manufacture and export of products produced most efficiently in that country. The patter of international trade 3s that are easy to understand (Saudi Arabiaoil or Mexico/labor intensive are not so easy to understand (Japan and cars) of International Business information “on not only accurate bat should be timely “siz of the intemational business should be large ‘segmentation based on geographic segmentation jonal markets have more potential than domestic markets International Business “international business is as follows: al marketing al finance and investments HR exchange International Busines: ‘international business are as follows: Seve higher rate of profits the production capacity beyond the demand of the domestic country petition in the home country home market [conditions of technology and managerial competence power, transportation 0 raw material mi, Privatization and Globali market share cross border business is due to falling trade barriers (WTO), decreasing tion (LPG) INTRODUCTION TO INTERNATIONAL BUSINESS : CHAPTER 1 7 > Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. > Privatizati process of transferring ownership of a business, enterprise, agency, public service or public property from the publie sector to the private sector, either to a business that operates for a profit or to a non- profit organization, the