Introduction to international business

International business is not new – businesses and nations have conducted trade across
national boundaries for centuries.

Lured by the prospects of large markets and/or sources of raw materials, businesses
have traded with other parts of the world.

But as we will see later global business and global industry is different.

Overseas trade and Ansoff’s matrix

Thinking about international business in the context of Ansoff’s matrix:

 Entry into overseas markets represents market development.

 Existing products are sold in new markets.
 It is appealing because:

- market penetration is difficult in saturated markets.

- product development is costly.
- diversification is risky
Why enter overseas markets?
The reasons for entering overseas markets can be categorised into “push” and “pull” factors:
Push factors

 Saturation in domestic markets

 Economic difficulty in domestic markets
 Near the end of the product life cycle at home
  Excess capacity
 Risk diversification

Pull factors

 The attraction of overseas markets

 Increase sales
 Enjoy greater economies of scale
 Extend the product life cycle
 Exploit a competitive advantage
 Personal ambition

Factors in the choice of which overseas market(s) to enter:

 Size of the market (population, income)

 Economic factors (state of the economy)
 Cultural linguistic factors (e.g. preference for countries with similar cultural
background)
 Political stability (there is usually a preference for stable areas)
 Technological factors (these affect demand and the ease of trading)

Constraints and difficulties in entering overseas markets:

 Resources
 Time
 Market uncertainty
 Marketing costs
 Cultural differences
 Linguistic differences
 Trade barriers
 Regulations and administrative procedures.
 Political uncertainties
 Exchange rates (transactions costs & risks)
 Problems of financing
 Working capital problems
 Cost of insurance
 Distribution networks

Exporting is only one method of doing business internationally

 We normally think of overseas trade in terms of exporting and importing goods

and services
 This involves transporting goods and selling them across national boundaries.
 Direct exporting implies that the domestic firm is actively involved in selling
the goods abroad
  Indirect exporting means that the marketing of goods is delegated to export
agents and the UK manufacturer concentrates on production
 But exporting involving the movement of goods is only one method of engaging
in international business

Other methods of market entry

 Overseas product an/or assembly (producing goods abroad)

 International alliances and joint ventures (working with foreign companies)
 International M&A (mergers and acquisitions across frontiers)
 International franchising and licensing allowing foreign based firms to produce,
market and distribute goods in specified areas abroad)

GLOBALISATION OF WORLD ECONOMY

            The world economy has been emerging as a global or transnational economy. A global
or-transnational economy is one which transcends the national borders unhindered by artificial
restrictions like Government restrictions on trade and factor movements. Globalisation is a
process of development of the world into a single integrated economic unit. The Transnational
economy is different from the international economy. The international economy is
characterised by the existence of different national economies the economic relations between
them being regulated by the national Governments. The transnational economy is a borderless
world economy characterised by free flow of trade and factors of production across national
borders.
             Drucker in his New Realities observes that in the early or mid seventies — with OPEC
and President Nixon's floating of the dollar — the world economy changed from being
international to transnational. According to Drucker, Che transnational economy is
characterised by, inter alia, the following features
             1. The transnational economy is shaped mainly by money flows rather than by trade
in goods and services. These money flows have their own dynamics. The monetary and  fiscal
policies of sovereign Governments increasingly react to events in the international money and
capital markets rather than, actively shape them.
             2. In the transnational economy management has emerged as the decisive factor of
production and the traditional factors of production, land and labour, have increasingly
become secondary. Money and capital markets too have been increasingly becoming
transnational and universally obtainable. Drucker, therefore, argues that it is management on
which competitive position has to be based.
             3. In the transnational economy the goal is market maximisation and not profit
maximisation.
             4. Trade, which increasingly follows investment, is becoming a function of investment.
             5. The decision making power is shifting from the national state to the region (i.e., the
regional blocs like the European Community, North American Free Trade Agreement,           
etc.)
             6. There is a genuine — and almost autonomous — world economy of money, credit
and investment flows. It is organised by information which no longer knows national
boundaries.
       7. Finally, there is a growing pervasiveness of the transnational corporations which see
the entire world as a single market for production and marketing of goods and services.
             There are, thus, many factors which tend to promote the transnatlonalisation of the
world economy. The multilateral trade negotiations under the auspices of GATT/WTO have
been liberalising trade and investment.
             A growing proportion of the world output is traded internationally and the faster
growth of trade, than the GDP, is bringing about world economic integration. This economic
integration is reinforced by the massive cross-border capital flows. The progress of the
regional blocs increasingly integrate the regional economies.
