INTERNATIONAL

BUSINESS
DR : TAHA KASSEM

INTERNATIONAL BUSINESS
International business consists of all commercial
transactionsincluding sales and investments that
take place between two or more countries.
This definition confines business operations to
international subjects ,states, only , while other
parties can and really perform business
operations in foreign environments.
Hence, it would be more accurate to call this kind of
business as global or transnational business.

WHAT IS GLOBAL BUSINESS?

Global business consists of:

business transactions between parties from
more than one country.
transactions that are devised and carried out
to satisfy the objectives of individuals,
companies, and states.

The parties involved in such transactions

may include private individuals, companies,
groups of companies, countries and/or
governmental agencies.

WHO IS INTERESTED IN
TRANSNATIONAL BUSINESS?
As you now know, international business refers to a
broad set of entities and activities.
But who cares about international business in the first
place?
The Stakeholders and stakeholder analysis

A stakeholder is an individual, organization or a

state whose interests may be affected as the result
of what another individual or organization does.

Beyond the company and governments, other

stakeholder groups might include industry
associations, trade groups, suppliers, consumers and
labor.

Stakeholder analysis is a technique you use

to identify and assess the importance of key
people, groups of people, or institutions that
may significantly influence the success of
your activity, project, or business.
In the context of what you are learning here,
individuals or organizations will have an
interest in transnational business if it affects
them in some waypositively or negatively.

FACTORS CONTRIBUTING TO RAPID

GROWTH OF GLOBAL BUSINESS
1. Increase in and expansion of technology
2. Liberalization of cross-border trade and
resource movements
3. Development of services that support
international business
4. Growing consumer pressures
5. Increasing global competition
6. Changing political situations
7. Expanding cross-national cooperation
1-6

BARRIERS TO CROSS-BORDER ECONOMIC

ACTIVITY
CAGE ANALYSIS
Pankaj Ghemawats research suggests that to study
barriers to cross-border economic activity you will
use a CAGE analysis.
The CAGE framework covers these four factors:
1. Culture
Cultural distance refers to differences based in
language, norms, national or ethnic identity, levels of
trust, tolerance, respect for entrepreneurship and
social networks, or other country-specific qualities.

2. Administration
Administrative distance refers to historical
governmental ties, such as those between India and
the United Kingdom.
This makes sense; they have the same sorts of laws,
regulations, institutions, and policies. Membership in
the same trading block is also a key similarity.
Conversely, the greater the administrative differences
between nations, the more difficult the trading
relationshipwhether at the national or corporate
level.

 3. Geography This is perhaps the most obvious

difference between countries.
You can see that the market for a product in Los
Angeles is separated from the market for that same
product in Singapore by thousands of miles.

Generally, as distance goes up, trade goes down,

since distance usually increases the cost of
transportation.
Geographic differences also include time zones,
access to ocean ports, shared borders, and climate.

 4. Economics Economic distance refers to

differences in demographic and socioeconomic
conditions.
The most obvious economic difference between
countries is the economic system, size (as
compared by gross domestic product, or GDP).
Another is per capita income.
This distance is likely to have the greatest effect

 Facts concerning CAGE Analysis

Each of these CAGE dimensions shares the common notion of distance.
CAGE differences are likely to matter most when the CAGE distance is
great.
That is, when CAGE differences are small, there will likely be a greater
opportunity to see business being conducted across borders.
A CAGE analysis also requires examining an organizations particular
industry and products in each of these areas.
When looking at culture, consider how culturally sensitive the products are.
When looking at administration, consider whether other countries coddle certain
industries or support national champions.
When looking at geography, consider whether products will survive in a
different climate.
When looking at economics, consider such issues as the effect of per capita
income on demand.

HOW DOES GLOBAL BUSINESS DIFFER

FROM DOMESTIC BUSINESS?
Simply put, domestic business involves
transactions occurring within the boundaries of a

single country.
Global business differs from domestic business

for a number of other reasons.

Global business differs from domestic business

in that a firm operating across borders must deal
with the forces of three kinds of environments

domestic, foreign, and international.

In contrast, a firm whose business activities are
carried out within the borders of one country
needs to be concerned essentially with only the
domestic environment.

However, no domestic firm is entirely free from

foreign or international environmental forces
because

the

possibility

of

having

to

face

competition from foreign imports or from foreign

competitors that set up operations in its own
market is always present.

The Domestic Environment is all the forces originating in the

home country that influence the life and development of the firm
and its outputs.
The Foreign Environment: The forces in the foreign environment
are the same as those in the domestic environment except that
they occur outside the firms home country.
However, they operate differently for several reasons, including
cultural, political, economic and historical differences .
The international environment consists of the interactions
(1) between the domestic environmental forces and the
foreign environmental forces and (2) between the foreign
environmental forces of two countries when an affiliate in one
country does business with customers in another.

INFLUENCE OF EXTERNAL AND INTERNAL

ENVIRONMENTAL FORCES
The term environment as used here means all the
forces influencing the life and development of the firm
and its outputs.
The forces themselves can be classified as external
(uncontrollable variables) and internal( controllable
variables).
The external forces are commonly called
uncontrollable forces.
Management has no direct control over them, although
it can exert influencesuch as lobbying for a change in
a law and heavily promoting a new product that requires
a change in a cultural attitude.

External forces
Legal: foreign and domestic laws governing how international
firms must operate.
Economic: variables such as, gross national product [GNP], unit
labor cost, and personal consumption expenditure that
influence a firms ability to do business and kinds of economic
system, open, command or mixed.
Political: elements of nations political climates such as
nationalism, forms of government, and international
organizations.
Socio-cultural: elements of culture (such as attitudes, beliefs,
and opinions) important to international managers.
Labor: composition, skills, and attitudes of labor.

 Competitive: kinds and numbers of competitors,

their locations, and their activities.

Distributive: national and international agencies
available for distributing goods and services.
Financial: variables such as currency value rate,
interest rates, inflation rates, and taxation.
Physical: elements of nature such as geography,
climate, and natural resources.

INTERNAL FACTORS (CONTROLLABLE

FORCES)
The elements over which management does have control are
the internal forces, such as the factors of production (capital,
technology, and people) and the activities of the organization
(personnel, finance, production, and marketing) and the
organizational architecture.
These are the controllable forces which management must
administer in order to adapt to changes in the uncontrollable
variables.

 Organizational architecture :
refers to the totality of a firms organization,
including formal organizational structure, control
systems, incentives, integrating mechanisms,
processes, organizational culture, and people.

Organizational structure
The typically hierarchical arrangement of lines
of authority, communications, rights and duties
of an organization.

Control systems are the metrics used to measure

performance of subunits and make judgments about
how well managers are running those subunits.
There are four main types of control systems:
1. Personal controls control by personal contact with
subordinates
Most widely used in small firms
2. Bureaucratic controls control through a system of
rules and procedures that directs the actions of
subunits
The most important bureaucratic controls are
budgets and capital spending rules

3. Output controls setting goals for subunits to

achieve and expressing those goals in terms of
relatively objective performance metrics
Control is achieved by comparing actual
performance against targets and intervening
selectively to take corrective action
4. Cultural controls exist when employees buy
into the norms and value systems of the firm
Firms with strong culture have less need for other
forms of control

Organizational Culture refers to a systems of values and

norms that are shared among people in organizations
Organizations have their own values and norms that
employees are encouraged to follow
Organizational culture tends to change very slowly.

Incentives are the devices used to reward appropriate

managerial behavior

Sanctions are the devices used to punish deviant

managerial behavior

Processes are the manner in which decisions are made

and work is performed within the organization

People human resources in organizations, recruitment,

promotion and selection.