Chapter 1

Overview of International Business

International Business
International Business
Business that engages in cross border commercial
transactions with individuals, private firms and public
sector organizations.
It is the study of transactions taking place across national
borders for the purpose of satisfying the needs of
individuals and organizations.
In its broadest sense, Globalization refers to the broadening set of
interdependent relationships among people from different parts
of a world that happens to be divided into nations. It also refer
the integration of world economies through the reduction of
barriers to the movement of trade, capital, technology and
people.
Basis for Studying International Business

Assess better career opportunity and interact

effectively
Become a business man or working as an
executive in a MNC
To keep pace with competitive world
To know the latest business techniques and
tools
To obtain cultural literacy
 Factors in Increased
Globalization
Increased in and expansion of technology
Liberalization of cross border trade and recourse
movements
Growing consumer pressure
Increased global competition
Changing political situations
Expand cross national cooperation
Gain reciprocal advantage
Multinational problem solving
 Whats wrong with
Globalization?
Threats to National Sovereignty
The question of local objectives and policies
The question of small economies overdependence
The question of cultural homogeneity
Economic growth and environmental
stress

Growing income inequality and personal

stress

Is Offshoring Good Strategy?

Growth of IB/Reason for Doing IB

Market Expansion : Productive capacities made

Nestle to ship milk in 16 different countries in
1875
Resources acquisition : Resource scarceness
and unavailability make US firm to buy coffee,
bananas from SA, Japan buy forest product
from Canada, oil from Middle East, Africa.
Sony assemble plants in Malaysia, Firms in
many countries buy communication equipment
from Northern Telecom (Canadian)
Competitive force : Because of economies of
scale and financial strength that comes with
larger organizational size, small firm like
Mazda struggle for years of its largest domestic
competitors because of lack of resources
Toyota, Nissan
Technological changes : Exxon relies on
computer
Social changes : Kellogg
Government trade and investment polices
change
Activities/ Modes of International Business

1. Export and Import-

Exporting can be direct and indirect.
Direct exporting the company sells products to a
customer in another country.
Example-Boeing is the largest exporter in America.
Indirect exporting the company sells to a buyer
(importer or distributor) in the home country who in
turn exports the product.
a) Merchandise exports and imports/visible trade
b) Service export and import/invisible trade
2. International Investment
a) FDI : the company that invests within a foreign country to
capitalize on low cost labor, to avoid high import taxes, to
reduce the high costs of transportation to market, to gain
access to raw materials or as a means of gaining market
entry.
Example
Koreas Samsung invested $500 to build television tube
plants in Tijuana.
Nestle built a new milk factory in Thailand.

b) Portfolio Investment : purchase of foreign financial assets Like

stocks, bonds certificate of deposit- 1000 shares of Sonys
common stock by a Danish pension fund
Other Operational activities
1. Licensing : It is an agreement whereby a
licenser grants the rights to intangible
property to another entity for a specified
period in return the licensor receives a
loyalty fee from licensee.
Example -Walt Disney Company may permit
a German clothing manufacturer to market
children pajamas
2. Franchising : A firm in one country authorizes
a firm in a second country to utilizes its brand
names, logos, operating techniques in return
for a royalty payment.
Example-McDonalds Corporation franchises
its fast food restaurant worldwide.
3. Merger : Two companies come in together and
agree to combine the entity into one.
Alternative Strategies: Stages of
Development Model

1. Domestic
2. International
3. Multinational
4. Global
5. Transnational
Domestic Firm-Firm that engages in
investment in domestic market and owns or
controls value adding activities in a country.
Example Aftab Group.
International Company -Firm that engages in
investment in domestic market mainly and
owns or controls value adding activities in a
country but sometime or regularly sells
product in foreign market.
Example Shah Cement
Different Forms of MNC
a. MNC : Firm that engage in foreign direct investment and owns or controls
value adding activities in more than one country.
Example-Standard Chartered Bank
b. MNE : Company that is headquartered in one country but having operation in
other countries.
Example-Wimpy
c. MNO : Company which engage in profit and non profit seeking business
operations
Example- Brac, UN, Save the Children
d. Multi-domestic corporation : It views itself as a collection of relatively
independent operating subsidiaries, each of which is focused on a specific
domestic market and free to customized its products, marketing campaign and
production techniques to best serve the needs of the local customers. The
multi-domestic approach is particularly useful when distinct differences exist
among national markets; economics of scale in production, distribution ,and
marketing are low; and coordination cost between the parent corporation and
its foreign subsidiaries are high. Because each subsidiary needs to be
responsive to local market, the parent typically delegates much power and
authority to mangers of its subsidiaries in host countries.
Example Unilever, Proctor and Gamble
Global corporation : Global companies
produce for the world market. Production takes
place where it can be done cheapest. The
company is not organized according to
country, like a MNC, but according to
products. Management is highly centralized.
The products are not designed to cater for
specific local tastes. The attractive feature of
the products of global companies is their price,
since the standardized and high volume
production method make it possible to produce
cheaply. The product division managers have
the power in a global company.
Transnational corporation : TNC try to
combine the market specific approach of MNCs
and the standardized production methods of the
global companies. The management is therefore
organized along country management and
product management. The organization structure
of a TNC resembles an international matrix or
network, in which the efforts of country
managers (to cater for local tastes) and product
managers (to increase efficiency) are
coordinated
 Why international business
differs from domestic business?
Physical and social factors
Geographic influences
Political policies
Behavioral factors
Economic forces
The competitive environment
Competitive strategy for products
Company resources and experience
Competitors faced in each market