International Business and Trade Week 2

CHAPTER 1: WHAT IS INTERNATIONAL BUSINESS?

Overview:
This chapter will introduce you to the study of international business including its
concepts, theories, and different forms. International business is a vital ingredient in strategic
management and entrepreneurship; it can help students in understanding the inner workings of
businesses in the international world. Furthermore, you’ll also gain a general understanding in
globalization wherein all things and markets become interconnected and significant.

Lesson Objective:
After successful completion of this lesson, you should be able to:
1. Know t he definition of international business.
2. Comprehend how strategic management is related to international business.
3. Understand how entrepreneurship is related to international business.

Course Material:
 Globalization – the deepening relationship and broadening interdependence among
people from different parts of the world, and especially among different countries.
 International Business – all commercial transactions between two or more countries,
whether they involve private or public parties.
o Importing and exporting
o Tourism and transportation
o Licensing and franchising
o Turnkey operations
o Management contracts
o Direct and portfolio investmet

* The International environment is more complex and diverse than a firm’s domestic
environment.

Management in International Business

 In addition to domestic business management skills, international business
management requires:
International Business and Trade Week 2

o Social science understanding

o Political science appreciation
o Legal awareness
o And an innate ability in:
 Anthropology
 Economics
 Geography
 Psychology
 Sociology

Why engage in International Business?

 Expand sales
o Volkswagen (Germany)
o Ericsson (Sweden)
o IBM (United States)
 Acquire resources
o Better components, services, products
o Foreign capital
o Technologies
o Information
 Minimize risk
o Take advantage of the business cycle for products/services
o Diversify among international markets

Reasons for Growth in International Business

 Rapid increase in and expansion of technology
 Transportation is quicker while costs are lower
 Communication enables control from afar
 Liberal government policies on trade and resources
 Development of institutions that support international trade
 Consumer pressures
 Increased global competition
International Business and Trade Week 2

Level of International Companies

 Multinational Enterprises (MNE) – global approach to markets and production. Any
business that has productive activities in two or more countries.
o Multinational Corporation (MNC)
o Transnational Company (TNC)
o Integrate various country operations while dispersing the location of control.
 Globally integrated company – integrated operations located in different countries.
o Integrate various country operations into an international headquarters control.
 Multidomestic company – multinational companies that allow local responsiveness.
Allow each of its foreign company to act fairly independently. Packaging and producing
products according to country.
o Countries operate autonomously
 Influences on International Business
o External Influences:
 Physical/Societal factors:
 Political policies and legal practices
 Cultural factors
 Economic factors
 Geographical influences
o Competitive Environment