IBT REVIEWER

INTERNATIONAL BUSINESS
 international business relates to any situation where the production or distribution of
goods or services crosses country borders – saylor.org
 all commercial transactions private and governmental between two or more countries –
Sinha, P.K 2012
WHY STUDY INTERNATIONAL BUSINESS?
 it comprises a large growing portion of the world’s total business;
 all companies are affected by global events and competition – Mittal, V. 2012
MULTINATIONAL COMPANY
 More focused on adapting their products and service to each individual local market
GLOBAL COMPANY
 has a foothold in multiple countries but the offerings and processes are consistent in each
country – Lazzari. Z, 2019
TRANSNATIONAL COMPANY
 They have invested in foreign operations, have a central corporate facility but give
decision-making, R&D and marketing powers to each individual foreign market. - Mittal,
V., 2012
NATURE OF INTERNATIONAL BUSINESS
1. International Restrictions
 Such restrictions are relating to foreign exchange, trade blocs, trade barriers and so on.
2. Benefits to Participating Countries
 International business can grant tons of benefits for those countries allowing it
3. Large scale operations
 When it comes to the production of goods and marketing of their products, international
business contains many operations at a time to fulfill the demand at a large scale globally
4. Integration of Economies
 Most of the time, the companies utilize the labor, resources, finance and establishments
of other countries which is a win-win situation for both
 5. Dominated by Developed Countries
 Developed countries like the USA, Japan and Europe have large financial capacity, best
technologies, large research and development centers which help them dominate the
international business.
6. Market Segmentation
 One of the natures of international business is it produces goods according to the demand
of consumers of different market segmentations.
7. Sensitive Nature
 It is highly affected by political environment, changes in economic policies, upgrade in
technologies, etc

INFLUENCES AND GOALS OF INTERNATIONAL BUSINESS

COMPANIES ENGAGE IN INTERNATIONAL BUSINESS TO:

1. Expand Sales
 Compared to one country, the number of people and the level of their purchasing powers
are higher for the international level.
2. Acquire resources
 businesses look for foreign resources such as capital, technologies and information
because those are either not available in their country or those can reduce the costs of the
company.
3. Minimize Risk
 Companies who seek out foreign markets minimize swings in sales and profits arising out
of business cycle recessions and expansions which occur differently in different
countries.
PROBLEMS OF INTERNATIONAL BUSINESS
Political and Legal Differences
 The complexity generally increases as the number of countries in which a company does
business increases.
Economic Differences
 The economic environment may vary from country to country
Differences in the Currency Unit
 This may sometimes cause problems of currency convertibility, besides the problems of
exchange rate fluctuations
Differences in the Language
 Even when the same language is used in different countries, the same words or terms may
have different meanings
Differences in the Marketing Infrastructure
 The availability and nature of the marketing facilities available in different countries may
vary widely.
Trade Restrictions
 particularly import controls, is a very important problem, which an international marketer
faces.
High Cost of Distance
 When the markets are far removed by distance, the transport cost becomes high and the
time required for affecting the delivery tends to become longer.
Differences in Trade Practices
 Trade practices and customs may differ between two countries.

INTERNATIONAL BUSINESS ENVIRONMENT

Lesson Objectives:
At the end of this lesson, you should be able to:
1. Explain the international socio-cultural framework;
2. Assess the role of technological developments;
3. Examine the relevant aspects of the international economic environment; and
4. Discuss the importance of the international political environment

1. Social and Cultural Environment

SOCIAL FACTORS
 involve reference groups, family, and social roles and statuses
CULTURE
 the customs, arts, social institutions, and achievements of a particular nation, people, or
other social group
Elements of Culture
ATTITUDES AND BELIEFS
 The set of attitudes and beliefs of a culture will influence nearly all aspects of human
behavior, providing guidelines and organization to a society and its individuals.
ATTITUDE TOWARDS TIME
 displayed in behavior regarding punctuality, responses to business communication,
responses to deadlines, and the amount of time that is spent waiting in an outer office for
an appointment.
ATTITUDE TOWARDS WORK AND LEISURE
 indicative of their views towards wealth and material gains. These attitudes affect the
types, qualities and numbers of individuals who pursue entrepreneurial and management
careers as well.
ATTITUDE TOWARDS ACHIEVEMENT
 with high stratified and hierarchical societies, there is a tendency to avoid personal
responsibility and to work according to precise instructions received from supervisors
that are followed by the latter
ATTITUDE TOWARDS CHANGE
  The international manager must understand what aspects of a culture will resist change
and how the areas of resistance differ among cultures, how the process of change takes
place in different cultures and how long it will take to implement change
ATTITUDE TOWARDS JOB
 The type of job that is considered most desirable or prestigious varies greatly according
to different cultures.
Cultural Dimension
 Because cultural attitudes vary so much among countries, it is harder to find general
patterns here than for the economic dimension. Thus, to determine the cultural aspects of
markets, we must, in large measure, analyze each society by itself without the benefit of
guiding generalizations
RELIGION
 a major determinant of the moral and ethical standards that play a large part in the
business process.
FAMILY SYSTEMS
 matters as the way in which the sexes attract each other bear both on products sold and
advertising methods, and they are subject to a host of local codes.
EDUCATIONAL SYSTEMS
 marketing factors are the literacy rate and the general level of education
Marketing in Cross – Cultural Context
 Culture is adaptive, and marketing strategies based on the values of society must also be
adaptive. As culture evolves, marketers may associate product or brand benefits with new
values, or they may have to change the product if that value is no longer gratifying in
society
2. Technological Environment
 Given the rapid pace of technological change, it is vital that firms carefully study
different elements in the technological segment. The marketers need to identify the speed
with which substitute technologies are likely to emerge and the timing of any major
technological changes.
International Business Environment

3. Economic Environment

Economic Systems
 There are three types of economic systems: capitalist, socialist, and mixed. This
classification is based on the dominant method of resource allocation: market allocation,
command or central plan allocation, and mixed allocation, respectively.
Market Allocation
 relies on consumers to allocate resources. Consumers “write” the economic plan by
deciding what will be produced by whom.
Command Allocation
 the state has broad powers to serve the public interest. These include deciding which
products to make and how to make them.
Mixed Allocation
 In a market economy, the command allocation sector is the proportion of Gross Domestic
Product (GDP).
The International Economic Systems
 The principal forces have been the development of economic blocs like the European
Union (EU) and then the “economic pillars”– the World Bank, the International
Monetary Fund (IMF) and the evolution of the World Trade Organization from the
original General Agreement on Tariffs and Trade (GATT)
European Union
 aim to ensure the free movement of people, goods, services and capital within the internal
market; enact legislation in justice and home affairs; and maintain common policies on
trade, agriculture, fisheries and regional development.
World Bank
  The World Bank Group is one of the world’s largest sources of funding and knowledge
for developing countries. Its five institutions share a commitment to reducing poverty,
increasing shared prosperity, and promoting sustainable development
IMF
 working to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth, and
reduce poverty around the world while periodically depending on the World Bank for its
resources.
World Trade Organization
 operates a global system of trade rules, it acts as a forum for negotiating trade
agreements, it settles trade disputes between its members, and it supports the needs of
developing countries
General Agreement on Tariffs and Trade
 creating a credible and reliable system of international trade rules; ensuring fair and
equitable treatment of all participants (principle of non -discrimination); stimulating
economic activity through guaranteed policy bindings; and promoting trade and
development through progressive liberalization
Income and Purchasing Power Parity around the Globe
 When a company charts a plan for global market expansion, it often finds that, for most
products, income is the single most valuable economic variable.

Key Economic Issues that Influence International Business

INFLATION
 the pervasive and sustained rise in the aggregate level of prices measured by an index of
the cost of various goods and services. It results when demand grows faster than supply.
UNEMPLOYMENT
 The unemployment rate is the number of unemployed workers divided by the total
civilian labor force, which includes both the unemployed and those with jobs
DEBT
  The sum of government’s financial obligations, measures the state’s borrowing from its
population, from foreign organizations, from foreign governments, and from international
institutions.
INCOME DISTRIBUTION
 GNI, even weighted by the size of the population, can misestimate the relative wealth of
a nation’s citizens. There is a strong relationship between skewed income distributions
and the split between those who live in urban settings versus those who live in rural areas
POVERTY
 the state of having little or no money, few or no material possessions, and little or no
resources to enjoy a reasonable standard of life
BALANCE OF PAYMENTS
 officially known as the statement of International Transactions, records a country’s
international transactions that take place between companies, governments, or
individuals. Managers use the BOP as a comprehensive indicator of a country’s economic
stability.

4. Political Environment
Political Systems
 In order to appraise the political environment of a country, the knowledge of the form of
government of that country is essential. Basically, the government can be classified into
two categories – parliamentary (open) or absolutist (closed).
Political Risk
 political risks include imposition of new controls (such as trade restrictions, exchange
limitations or monetary controls), and war, revolution or insurrection.
Confiscation
 the process of a government’s taking ownership of a property without compensation.
Expropriation
 Often, a company whose property is being expropriated agrees to sell its operations – not
by choice but rather because of some explicit or implied coercion.
Nationalization
  Involves government ownership and it is the government that operates the business being
taken over.
Domestication
 foreign companies relinquish control and ownership either completely or partially to the
nationals
Indicators of Political Instability
Social Unrest
 caused by such underlying conditions as economic hardship, internal dissension and
insurgency, and ideological, religious, racial, and cultural differences.
Attitudes of Nationals
 An assessment of the political climate is not complete without an investigation of the
attitudes of the citizens and government of the host country. The nationals’ attitude
toward foreign enterprises and citizens can be quite inhospitable.
Policies of the Host Government
 Government policy formulation can affect business operations either internally or
externally. The effect is internal when the policy regulates the firm’s operations within
the home country. The effect is external when the policy regulates the firm’s activities in
another country.