Professional Documents
Culture Documents
Chap001 - International Business
Chap001 - International Business
Chap001 - International Business
Introduction to
International
Business
International Business and
Trade?
IB – performance of trade and investment
activities by firms across national borders.
The world is moving away from self-contained
national economies toward an
interdependent, integrated global economic
system.
1-2
International Business and
Trade?
IT - Exchange of products and services
across national borders; typically through
exporting and importing.
Exporting - Sale of products or services to
customers located abroad, from a base in the
home country or a third country.
Importing - Procurement of products or services
from suppliers located abroad for consumption in
the home country or a third country.
1-3
Why study Global /
International Business?
A facilitator of the global economy -
Globalization
A contributor to national economic well-
being
A competitive advantage for the firm
An activity with societal implications
1-4
Why study Global /
International Business?
Globalization - the shift toward a more
integrated and interdependent world
economy
The world is moving away from self-contained
national economies toward an
interdependent, integrated global economic
system
1-5
Reasons for IB?
A Competitive Advantage for the Firm
Increase sales
1-8
Why Engage in International
Business?
1. Seek opportunities for growth through market
diversification
1-12
International Operations of
Small Businesses
Born global firm: a young entrepreneurial company
that initiates international business activity very early in
its evolution, moving rapidly into foreign markets.
‘Born Globals’ and SMEs:
Are often more innovative, adaptable, and have quicker
response times;
Are better able to serve niche markets;
Leverage the Internet to do international business;
Tend to minimize fixed costs and outsource, due to limited
resources;
Tend to flourish on private knowledge that they cultivate
via their knowledge networks.
1-13
Difference between Domestic
Trade and International Trade?
Managing an international business differs from
managing a domestic business because
countries are different
the range of problems confronted in an international
business is wider and the problems more complex
than those in a domestic business
firms have to find ways to work within the limits
imposed by government intervention in the
international trade and investment system
international transactions involve converting money
into different currencies
1-14
Types of International
Business?
Four Major Types of IB
1) Exporting - Exporting is often the first
choice when manufacturers decide to expand
abroad. Simply stating, exporting means
selling abroad, either directly to target
customers or indirectly by retaining foreign
sales agents or/and distributors.
exporting has minimal impact on the firm’s human
resource management
1-15
Types of International
Business?
2) Licensing - there is an agreement whereby
a firm, called licensor, grants a foreign firm
the right to use intangible (intellectual)
property for a specific period of time, usually
in return for a money.
Licensing of intellectual property such as patents,
copyrights, manufacturing processes, or trade
names abound across the nations
1-16
Types of International
Business?
3) Franchising - Franchising is an option in
which a parent company grants another
company/firm the right to do business in a
prescribed manner.
Closely related to licensing is franchising.
Franchising differs from licensing in the sense that it
usually requires the franchisee to follow much stricter
guidelines in running the business than does licensing
1-17
Types of International
Business?
4) International investment - Transfer of assets
to another country or the acquisition of assets in
that country.
4.1) International Portfolio investment (typically
short-term): Passive ownership of foreign securities
such as stocks and bonds, to generate financial
returns.
4.2) Foreign direct investment (FDI) (typically long-
term): An internationalization strategy in which the
firm establishes a physical presence abroad through
acquisition of productive assets such as capital,
technology, labor, land, plant, and equipment.
1-18
Types of International
Business?
4) International investment –
4.2) Foreign direct investment
4.2.1) joint ventures - A joint venture is
defined as “the participation of two or more
companies jointly in an enterprise in which each
party contributes assets, owns the entity to some
degree, and shares risk”.
4.2.2) Wholly – owned subsidiaries - In
contrast, a wholly-owned subsidiary is owned 100%
by the foreign firm
1-19
Modes of International
Business?
1-20
Problem Arises in IB
1-21
Problem Arises in IB
1-24
Problem Arises in IB
1-25
Internationalization: Process,
theories
Internationalization is the process through
which a firm expands its business outside
the national domestic markets
1) MNCs – A firm that carries out its value
chains in more than one country. It is generally
headquarted in one home country while it
operates in one or more host countries.
TNCs – A MNC that does not identify itself with
any specific nation, but acquires truly
international features (i.e not country dependent)
and high local responsiveness.
1-26
Internationalization: Process,
theories
1-27
Internationalization: Process,
theories
Strategies / Ways of Going Internationalization
1) Importation
2) Exportation
3) FDI
4) Licensing
5) Franchising
6) Joint Venture
7) Manufacturing in Foreign Country
8) Management Contracts
9) Consultancy Services
10) Strategic Partnerships
1-28
Internationalization: Process,
theories
Theories about internationalization
Absolute cost advantage – (Adam Smith, 1970s)
“an exchange of goods will take place only if each
of the two countries can produce one commodity at
an absolutely lower production cost than the other
country”.
– When countries specialise on basis of absolute
advantage in costs, they stand to gain through
international trade, just as a tailor does not make his own
shoes and shoemaker does not stitch his own suit and
both gain by exchanging
1-29
Internationalization: Process,
theories
Theories about internationalization
Comparative cost advantage
Gravity model of trade
New Trade Theory
1-30
Internationalization: Process,
theories
Theories about internationalization
Comparative cost advantage
Gravity model of trade
New Trade Theory
1-31