International BusinessInternational BusinessSession 1

What is International What is International

Business?Business?

Business transactions between parties from more than one country

Sourcing, Manufacturing, Selling, Developing

Parties may include◦ Private individuals

◦ Individual companies

◦ Groups of companies

◦ Governmental agencies

Why Study International Why Study International

Business?Business?

Today’s business environment is global.

Conducting international business presents

unique risks, challenges and opportunities.

ASK YOURSELF: is your company

maximizing the opportunities of global

business across the value chain?

Key ObjectivesKey Objectives

Learn to:

1. Understand the global business environment and how it is different from the national environment.

2. Select between the different modes of international business

3. Analyze and react to different cultural contexts

4. Research and evaluate global markets.

5. Assess how countries can shape global business through policy and integration

6. Understand the EU’s role in the global marketplace

International vs. DomesticInternational vs. Domestic

OPPORTUNITIESOPPORTUNITIES1.Seek opportunities for growth through

market diversification

2.Gain new ideas about products,

services, and business methods

3.Better serve key customers that have

relocated abroad

4.Be closer to supply sources, benefit

from global sourcing advantages, or

gain flexibility in the sourcing of

products

International vs. Domestic

OPPORTUNITIES

5. Gain access to lower-cost or better-

value factors of production

6. Develop economies of scale in

sourcing, production, marketing, and

R&D

7. Confront international competitors

more effectively or thwart the growth

of competition in the home market

International vs. DomesticInternational vs. Domestic

RISKSRISKS1. Cross-cultural risk: a situation or

event where a cultural miscommunication puts some human value at stake

2. Country risk: potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country

3. Currency risk: risk of adverse unexpected fluctuations in exchange rates

4. Commercial risk: firms potential loss or failure from poorly developed or executed business strategies, tactics, or procedures

Basic Indicators of International Basic Indicators of International

BusinessBusiness Balance of Payments

◦ http://www.cnb.cz/en/statistics/bop_stat/b

op_q/bop_usd_en.htm

Indices

◦ Demographic

◦ Economic

◦ Business

◦ Social and Technological

Balance of Payments (BOP) Balance of Payments (BOP)

Accounting SystemAccounting System

Measures and records all economic transactions between residents of one country and residents of all other countries during specified time period

Provides understanding of performance of each country’s economy in international markets

Signals fundamental changes in country competitiveness

Assists policy makers in designing appropriate public policies

7-11Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Major Components of the BOP Major Components of the BOP

Accounting SystemAccounting System

7-12

Current Account

Capital Account

Official Reserves

Errors and Omissions

Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 7.6. U.S. Balance of Payments in 2007Table 7.6. U.S. Balance of Payments in 2007

7-13Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Population vs. GDPPopulation vs. GDPas percentage of world totalas percentage of world total

World Population 2010World Population 2010

DemographicsDemographics

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Population PyramidsPopulation Pyramids

China India

Purchasing Power Parity Purchasing Power Parity

(PPP)(PPP)

World GDP 2008World GDP 2008

Per Capita GDPPer Capita GDP

Doing BusinessDoing Business

Produced by World Bank

Evaluates business regulations and

enforcement

180+ countries

10 categories of data

www.doingbusiness.org

National Business National Business

EnvironmentEnvironment1. Starting a Business Tracks the procedures,

time, and costs for a limited liability company to legally start operation.

2. Dealing with Licenses Tracks the procedures, time and costs to build a warehouse, including obtaining necessary licenses and permits, completing required notifications and inspections and obtaining utility connections.

3. Hiring & Firing Workers Measures the flexibility of regulations for hiring and firing workers and the costs of hiring and firing.

National Business National Business

EnvironmentEnvironment4. Registering Property Tracks the steps, time, and

cost involved in registering property.

5. Getting Credit Explores the role of creditor rights and credit information registries in expanding access to credit.

6. Protecting Investors Measures the strength of minority shareholder protections against directors’ misuse of corporate assets for personal gain.

7. Paying Taxes Records the tax that a medium-size company must pay or withhold in a given year, as well as measures of the administrative burden in paying taxes.

National Business National Business

EnvironmentEnvironment8. Trading Across Borders Details the costs and

procedures involved in importing and exporting a standardized shipment of goods.

9. Enforcing Contracts Evaluates the efficiency of contract enforcement by following the evolution of a payment dispute and tracking the time, cost, and number of procedures involved from the moment the plaintiff files the lawsuit until actual payment.

10. Closing a Business Measures the time and cost of bankruptcy procedures, and develops indices of procedural bottlenecks in bankruptcy law

Web ResourcesWeb ResourcesCountry Financial and Demographic info

◦ http://www.worldbank.org

◦ https://www.cia.gov/library/publications/the-world-factbook/index.html

◦ http://globaledge.msu.edu/

◦ http://www.oecd.org

Economic and Political Freedom

◦ http://www.freedomhouse.org/template.cfm?page=1

◦ http://www.heritage.org/index/

National Business Environment

◦ http://www.doingbusiness.org

Human Development

◦ http://www.undp.org

Why do nations trade?Why do nations trade?

Protectionism Free Trade

◦ Mercantilism

◦ Jobs

◦ Defense

◦ Infant Industry

◦ Comparative

Advantage

◦ Competitive

Advantage

Perspectives of the Nation and the FirmPerspectives of the Nation and the Firm

Comparative advantage

Is the concept that helps answer the question of all nations can gain and sustain national economic superiority

Competitive advantage

Is the concept that helps explain how individual firms can gain and sustain distinctive competence vis-à-vis competitors

Examples of National Comparative AdvantageExamples of National Comparative Advantage

China is a low labor cost production

base

India’s Bangalore region offers a

critical mass of IT workers

Ireland’s repositioning enabled a

sophisticated service economy

Dubai, a previously obscure Emirate,

has been transformed into a

knowledge-based economy

National advantage can be created

Examples of Firm Competitive AdvantageExamples of Firm Competitive Advantage

Dell’s prowess in global supply chain

management

Nokia’s design and technology

leadership in telecommunications

Samsung’s leadership in flat-panel TV

Herman Miller’s design leadership

in office furniture

(e.g., Aeron chairs)

Limitations of Early Trade TheoriesLimitations of Early Trade Theories

Do not take into account the cost of international transportation

Tariffs and import restrictions can distort trade flows

Scale economies can bring about additional efficiencies

When governments selectively target certain industries for strategic investment, this may cause trade patterns contrary to theoretical explanations

Today, countries can access needed low-cost capital on global markets

Some services do not lend themselves to cross-border trade

Michael Porter’s Diamond Model:Michael Porter’s Diamond Model:

Sources of National Competitive AdvantageSources of National Competitive Advantage

1. Firm strategy, structure, and rivalry – the presence of strong competitors at home serves as a national competitive advantage

2. Factor conditions – labor, natural resources, capital, technology, entrepreneurship, and know how

3. Demand conditions at home – the strengths and sophistication of customer demand

4. Related and supporting industries –availability of clusters of suppliers and complementary firms with distinctive competences

Porter’s Diamond of Porter’s Diamond of

National Competitive AdvantageNational Competitive Advantage

Firm Strategy,

Structure,

and Rivalry

Related and

Supporting

Industries

Factor

Conditions

Demand

Conditions

National Industrial PolicyNational Industrial Policy

Proactive economic development plan implemented by the public sector to nurture or support promising industry sectors with potential for regional or global dominance. Public sector initiatives can include:

Tax incentives

Monetary and fiscal policies

Rigorous educational systems

Investment in national infrastructure

Strong legal and regulatory systems

“the growing interdependence of “the growing interdependence of countries worldcountries world--wide through the wide through the increasing volume and variety of increasing volume and variety of crosscross--border transactions in goods border transactions in goods and services and of international and services and of international capital flows, and also through the capital flows, and also through the more rapid and widespread diffusion more rapid and widespread diffusion of technology.”of technology.”–– IMFIMF

37

Globalization

Growth of relations between nations Growth of relations between nations and cultures or between institutions and cultures or between institutions situated in different nations or situated in different nations or cultures. cultures.

38

Internationalization

What’s the difference?What’s the difference?

Globalization Internationalization

Growing world systems

Transnational,

Subnational and

Supranational actors

Driven by free markets

and technology

Relations between

nations

Nation state is central

actor

Driven by national

interests

39

Comparing the Growth Rates of World GDP Comparing the Growth Rates of World GDP

and World Exportsand World Exports

Productivity levelsProductivity levels

“The World is Flat” “The World is Flat”

Thomas FriedmanThomas Friedman

Triple Convergence:

1. 10 Flattening Forces Internet and IT integration

Outsourcing, Offshoring, Insourcing, Supply

Chain

Uploading, Informing at individual level

Technological speed and cost

2. Productivity Lag / Learning Curve

3. Opening of Countries (3 billion people) USSR, Central Europe, China, India, South

America

Market economies and integrated financial

system

Top Global Brands (select Top Global Brands (select

industries)industries)

Cars

1 Toyota

2 BMW

3 Porsche

4 Mercedes

5 Honda

6 Nissan

7 Ford

8 Chevrolet

9 VW

10 Lexus

Mobile Operators

1 China Mobile

2 Vodafone

3 Verizon Wireless

4 NTT DoCoMo

5 Orange

6 AT&T

7 T-Mobile

8 Movistar

9 MTS

10 TIM

Beer

1 Budweiser

2 Bud Light

3 Heineken

4 Corona

5 Stella Artois

6 Guinness

7 Miller Light

8 Skol

9 Amstel

10 Beck’s

Major Companies in NonMajor Companies in Non--Triad Triad

MarketsMarkets

Mahindra & Mahindra

Orascom

Lenovo

Infosys

Wipro

SABMiller

Embraer

Ranbaxy

Haier

Tata

Major Companies in NonMajor Companies in Non--Triad Triad

MarketsMarkets

Mahindra &

Mahindra

Orascom

Lenovo

Infosys

Wipro

SABMiller

Embraer

Ranbaxy

Haier

Tata

India Automotive

Egypt Cellular

China Computers

India Software

India Tech Services

South Africa Brewing

Brazil Aircraft

India Pharmaceuticals

China Appliances

India Automotive

Negative Consequences Negative Consequences

of Market Globalizationof Market Globalization

Loss of national sovereignty

Offshoring and the flight of jobs

Effect on the poor

Effect on health and safety

Effect on the natural environment

Effect on national culture

How Globalized is the World?How Globalized is the World?

Only Only semiglobalizedsemiglobalized??

http://www.ft.com/intl/businesseducati

on/iese