International Business

CHAPTER 1
AN OVERVIEW OF INTERNATIONAL BUSINESS

Chapter Objectives
1. 2.

3.

4.
5.

Discuss the meaning of international business Explain the importance of understanding international business Identify and describe the basic forms of international business activities Discuss the causes of globalization Comprehend the growing role of emerging markets in the global economy

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What Is International Business?


Business transactions between parties from more than one country
 Buying

& Selling raw materials, inputs / finished products across borders, operating plants in other countries to take advantage of local resources & borrowing money in one country to finance operations in a second country.



Parties may include
 Private

individuals  Individual companies  Groups of companies  Governmental agencies

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How Does International Business Differ from Domestic?
   

Currency conversion Legal systems Culture Availability of resources (natural resources, skill & knowledge)

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Why Study International Business?


Large organizations
 (int.oprtns

/affected by the global economy)



Foreign-owned subsidiaries
 (understand

basic business conducted by them)



Small businesses
 (becoming

more active in IB, buying & selling compete with foreign markets)
Need to develop the skills & understand the culture so that won’t loose to competitors

  

Competitors Business techniques and tools Cultural literacy
 (diff

way of life & doing business )

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International Business Activities





Exporting and Importing International Investments Licensing, Franchising, and Management Contracts

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Exporting and Importing




Exporting: selling of products made in one’s own country for use or resale in other countries Importing: buying of products made in other countries for use or resale in one’s own country

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Visible and Invisible Trade


Trade in Goods
 Merchandise

exports and imports  Visible trade/ tangible product (clothing)
 Malaysia  Malaysia

export palm oil TO Thai import electrical appliance FROM China



Trade in Services
 Service

exports and imports  Invisible trade/ intangible products (banking & tourism)
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International Investments




Capital supplied by residents of one country to residents of another Two categories:
 Foreign

direct investments: investments made for the purpose of actively controlling property, assets, or companies located in host countries.
 Ford’s

investment in Sweden’s Volvo Corporation is a foreign direct investment.

 Portfolio
 For

investments: are purchases of foreign financial assets (stocks, bonds, cds) for a purpose other than control. example, a Danish pension fund purchased 1,000 shares of Sony common stock. 1-9

Other Forms of International Business Activity

Licensing is a contractual arrangement in which a firm in one country licenses the use of its intellectual property to a firm in another country in exchange for a royalty payment Coco Cola & F &N

Franchising Franchising is a specialized form of licensing which occurs when a firm in one country authorizes a firm in another to utilize its operating systems as well as its brand names, trademarks, and logos for a royalty payment. Eg: Mc.Donalad

Management Contracts A management contract is an arrangement wherein a firm in one country agrees to operate facilities or provide other management services to a firm in another country for an agreed-upon fee. Examples include Marriott and Hilton which do not own all of the hotels that bear their brand names
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Variations of Organizations
Multinational Corporation Have extensive involvement in international business. Typically own and control foreign assets, buy resources in a variety of countries, create goods or services, and then sell those goods and services in a variety of countries. Eg: Sony, McD, Samsung, Proton Multinational Enterprise International organization but not true MNC Multinational Organization International organization, whether for-profit or not-forprofit. Eg: WWF

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Table 1.1 The Largest MNCs
 


    

ExxonMobil Wal-Mart Royal Dutch Shell BP General Motors Sony Samsung DHL

 


    

Chevron DaimlerChrysler Toyota Motor Ford Motor ConocoPhillips Proton Nestle Dell
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Globalization & Motives




Globalization : The inexorable integration of markets, nation-states, and technologies in a way that is enabling individuals, corporations, and nation-states to reach around the world faster, farther, cheaper, and deeper than ever before. Motives:
 To

leverage core competencies (a distinctive strength or advantage that is central to a firm’s operation)  To acquire resources and supplies ( materials)  To seek new markets (capture opportunity and sales)  To better compete with rivals (healthy competition, consumer 1-13 have more options)

Environmental Change and Globalization

Changes in Political Environments
Open to trade, changes in political party, new policy structure and management

Technological Changes

Internet, broadband, wifi, roaming, gadgets, Smartphone, easy and convenience

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Globalization and Emerging Markets

   

Argentina Brazil China India Indonesia


   

Mexico Poland South Africa South Korea Turkey

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