Chapter 1

An Overview of
International Business

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Basic Concepts and definition
Difference between International Business
& Domestic Business
Importance of International Business
Drivers of International Business
Risk in International Business
The Era of Globalization
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 Basic Concepts and definition
The world is moving away from self-
contained national economies toward an
interdependent, integrated global economic
system
International Business refers to the shift
toward a more integrated and
interdependent world economy

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Difference between International
Business & Domestic Business
INTERNATIONAL DOMESTIC BUSINESS
BUSINESS
 A business is said to be
 One which is engaged
domestic, when its
in economic
transaction with economic transactions
several countries in are conducted within
the world geographical
 whole world boundaries of the
 Multiple currencies country
 within the country
 Single currencies

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 Importance of International
Business
National Economy :
 It is important to meet imports of industrial
needs
 For rapid economic growth
 For profitable use of natural resources
 Increase inj employment opportunities
 Increase national income
 Increase standard of living of the people.

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 Importance of International
Business
Importance to Exporting Firm :
 Insuffieciency of Domestic Demand
 Technological Improvement
 Legal Restrictions
 Product Obsolescene
 Less Business risk
 Increase productivity
 Social Responsibility
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 Importance of International
Business

International Collaboration
International Businessbrings various
countries closer
Helps in Maintaining Good Political
Relations

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Drivers of International Business
 Limited Home Market  Transportation
 Excess of Production  Changing
 Global Marketplace Demographics
 Emerging Market  Liberalization of
share economic Policies
 Higher rate of Profits  Trading blocs
 Political stability  Difference in Tax
 Technology and System
Communication  Cultural Exchange

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 Risk in International Business

Cross-cultural risk : cultural differences,

decision making styles, etc
Commercial risk: weak partner, operational
problems, etc
Currency risk:currency exposure, asset
valuation , etc
Country risk:economic failures ,
mismanagement, etc
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 The Era of Globalization
 Ancient Civilization (beginning-late Middle Ages)
 Thousands of years of trade, migration and
conquest
 European Age of Exploration (1400s-1800s)
 Eupropeans conquer vast parts of Asia, Africa and
Latin America
 spreads capitalism to those areas
 Results in economic interdependency
 Beginnings of global politics and global trade
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 The Era of Globalization
Age of Imperalisn (1870 - 1914)
 Global production of commodities (raw
material) and manufactured good
 Development of steam power, railroads and
telegraph systems
 60 million Europeans migrate to North
America, South America, Australia and NEw
Zealand
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 The Era of Globalization
Post WWII Global Coorperation (1945-
1980)
 New era of global cooperationled by the
United States
 UN, World Bank, The International
Monetary Funds (IMF) and the General
Agreement on Tariffs and Trade (GATT)
formed to encourage new era of political
trade of development

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 The Era of Globalization
Modern Globalization ( 1980- present)
 Extreme interdependence among nations
 Explosive growth of powerful non-state
actors.

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