INTERNATIONAL BUSINESS 4.

COMMERCIAL RISK
- All commercial transactions between - poorly developed or executed business
two or more countries. strategies, tactics or procedures.
- Buying and selling of goods and
services across the border. MODES:
- More complex and diverse. 1. MERCHANDISE EXPORTS AND
IMPORTS
NATURE: - Most common international economic
1. Accurate information and timely transaction.
2. The size of international business - Major source of international revenue
3. Market segmentation and expenditures.
4. International markets have more 2. SERVICE EXPORTS AND IMPORTS
potential than domestic markets NONPRODUCT INTERNATIONAL
BUSINESS
SCOPE: - Performance of services for a fee.
1. International marketing 3. INVESTMENTS
2. International finance and investments - Ownership of foreign property in
3. Foreign exchange exchange for financial returns.
4. Global HR ➣ Foreign Direct Investment - investor gains a
controlling interest in foreign company by joint
FEATURES: venture.
1. Large scale operations ➣ Strategic Alliance - collaborative arrangement
2. Integration of economies of critical importance to the competitive viability
3. Dominated by developed countries and of one or more partners.
MNCs 4. LICENSING
4. Benefits to participating countries - Official or legal permission to carry on
5. Keen competition an activity.
6. International restrictions 5. FRANCHISING
7. Special role of science and technology - Two-party agreement.

IMPORTANCE: THE EXTERNAL INFLUENCES:

1. Earn foreign exchange 1. POLITICAL - affect whether and how
2. Optimum utilization of resources international business occurs.
3. Achieve its objectives 2. DOMESTIC AND INTERNATIONAL
4. To spread business risks LAW - what managers can do.
5. Improve organization’s efficiency 3. ECONOMICS - types of investment.
6. Get benefits from government 4. GEOGRAPHY - location and availability
7. Expand and diversity of world’s resources.
8. Increase competitive capacity
WHY STUDY INTERNATIONAL BUSINESS:
TYPES OF RISKS: 1. Facilitator of the global economy and
1. CROSS-CULTURAL RISK interconnectedness
- cultural miscommunication puts some 2. Contributor to national economic
human value at stake. well-being
2. COUNTRY RISK 3. Competitive advantage for the firm
- adverse effects on company 4. Activity with societal implications
operations and profitability. 5. Source of competitive advantage for you
3. CURRENCY (FINANCIAL) RISK
- fluctuations in exchange rates.
MAXIMIZE RETURNS - Foreign markets often
generate returns far superior than those in the
domestic markets.
● Managers must need to understand
risks and implications and anticipate
them and take proactive actions to
reduce adverse effects.
● Expanding sales and greater purchasing
power in your country is one of the
reasons why we engage in international
business.
● Economic failure and mismanagement
is one of the characteristics of
commercial risk (FALSE).
● International business markets have
more potential than domestic markets.
CULTURE
- Specific learned norms
- Integral part of external environments
MASCULINITY INDEX
- Degree of admiration for success,
sympathy for the unfortunate,
preference for being better than others.
POWER DISTANCE
- Relationship between superiors and
subordinates.
INDIVIDUALISM
- Low dependence on organization and
desire for personal time, freedom, and
challenge.
LOW-CONTEXT CULTURE
- Focuses on firsthand information that
bears directly on issues to be decided.
CULTURE SHOCK
- Frustration from having to learn to cope
with new cultural cues and expectations.
● If a company does not pay minimum
wages it will be subjected to RA NO.
8188.
● If a company is a service establishment
with not more than 10 employees they
are exempted from minimum wage laws.
● SMEs are acknowledged to have the
major roles in the contribution to
regional, local and community economic
● development.
● SMEs are perceived to have greater
linkages to micro-enterprises and
medium and large businesses.
POLITICAL SYSTEM
- Structural dimensions and power
dynamics of its government.
POLITICAL ENVIRONMENT
- Acts performed by the government that
have an impact on any business’
day-to-day operations. It is a result of
the political climate in the nation in
which you currently do business or want
business.
- Constitutes the type of government.
TYPES OF GOVERNMENT:
1. DEMOCRATIC
- nation citizens hold political power
- Use an economic system based on
supply and demand (Market Economy)
➣Democracy - all citizens are politically and
legally equal.
➣Third wave of Democratization - number of
democracies doubled in two decades.
2. TOTALITARIANISM
- Government controls all aspects of life,
including values, attitudes and beliefs.
➣Theocratic - religious leaders are the political
leaders.
➣Theocracy - inspired by divine guidance.
➣Secular - comes from the military or moves up
to the single party.
➣Totalitarianism System - subordinates the
individual, interest of the collective.
MIXED SYSTEMS
- combination of both types, citizens are
free to trade and create companies
through the government.
ISOLATIONISM
- Political principle or practice of showing
interest only in your own country and not
being involved in any political, military or
international activities.
CONSERVATIVE ATTITUDES
- Favor limits on government activities
and promotes private ownership.
- Allows the marketplace to operate as
freely as possible.
LIBERAL ATTITUDES
- Favors more on government
involvement in the business.
● INTERNATIONAL TAXES - annual tax
➣Progressive - higher taxes for higher salaries.
➣Regressive - higher taxes for lower salaries.
➣Flat - everyone pays the same percentage.
● SALES TAX - sales of the products.
● EXCISE TAX - levied on the specific
goods or services, included in the price
of the product.
● PAYROLL TAX - tax employers are
required to withhold from employees
paycheck.
● VALUE ADDED TAX - paid on the
increased value of the goods.
● TRADE BARRIERS - discourage
international trade.
● FREE TRADE - increase trade, can
improve the economic well being of the
people in the country.
GOVERNMENT
- Political systems that have the capacity
to make broad changes to monetary and
fiscal policy, including raising and
lowering interest rates, which has a
huge impact on business.
POLITICAL RISK
- Negatively affect business interests and
profitability resulting from political
instability or political change.
➢ TRADE SANCTIONS
- Use of tariff, boycott or embargo to
make political statements.
➢ EXPROPRIATION
- Act of taking control and ownership of a
foreign company or operation with
compensation.
➢ CONFISCATION
- Taking of private property with
compensation.
❖ COMMON LAW - local customs,
traditions and precedent.
❖ CIVIL LAW - set of codes based on
broad legal principles.
❖ THEOCRATIC LAW - religious
teachings.
❖ PRODUCT SAFETY AND CONSUMER
PROTECTION - apply to manufacturers
and purchasing companies.
❖ LABOR LAWS - vary from country to
country.
LABOR LAWS:
1. Minimum wage rates
2. Length of the work week and overtime
3. Hiring, firing, and layoff policies
4. The age of which a person can work
5. The right to form a labor union
6. The right to strike
❖ INTELLECTUAL PROPERTY - fixed in
a tangible medium of expression.
❖ COPYRIGHT - legal protection of the
creator.
❖ TRADEMARK - legally identifies
ownership of a registered brand.
❖ PATENT - gives an inventor exclusive
rights to manufacture, sell or use an
invention.
❖ LITIGATION - used to resolve a dispute
through the court system
❖ MEDIATION - intervention between
conflicting parties.
❖ ARBITRATION - process to resolve
disputes.
 OPERATIONAL ISSUES: TRADE
1. Starting a business - Exchange of goods and services for the
2. Entering and enforcing contracts satisfaction of human wants.
3. Hiring and firing local workers
4. Closing down the business DOMESTIC OR NATIONAL TRADE
- Trade is confined to the geographical
● Currency devaluation and conversion limits of a country.
restriction are two of the many economic
risks that companies take when INTERNATIONAL OR FOREIGN TRADE
engaging in international business. - Trade between two countries.
● International business economic risks
are independent of political risk SOUTH-SOUTH TRADE
(FALSE). - Merchandise trade between developing
● Only international firms should do a countries.
study of the social environment before
entering the market (FALSE). INTRA-FIRM TRADE
● The political, legal, and regulatory - Trade within the same company.
environment can be very influential
insofar as the way you carry out THEORY OF MERCANTILISM
business activities. - Believes in nationalism and the welfare
● The legal-political conditions in the of the nation alone.
global business environment are
uniform across the countries (FALSE). THEORY OF ABSOLUTE COST ADVANTAGE
● The political stability of a country is a - Adam Smith (1776)
key part of government efforts to attract - Countries gain from trading, if they
foreign investment to their country. specialize according to their production
● Cultural and social factors might also be advantages.
an impact in government’s intervention
in international trade. THEORY OF COMPARATIVE COST
● Shrewdness global managers realize ADVANTAGE
that to be effective in a country, they - Ricardo (1817)
need to know its recent political, - Opportunity cost of the two goods are
economic and legal history, different in both the countries.
● National security issues can impact both
the import and exports of a country, as
some governments may not want
advanced technological information to
be sold to unfriendly foreign interests.
● Governments intervene in trade to
protect their nation’s economy and
industry, as well as promote and
preserve their social, cultural, political,
and economic structures and
philosophies.