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An Overview of International Business

BFMA 6043

MBA

PHMSB KOTA KINABALU

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Discussion Questions

1. Differences between international business and domestic business?

a.

b.

c.

d.e.

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Need for International Business

More and more firms around the world are going global, including: Manufacturing firms Service companies (i.e. banks, insurance,

consulting firms) Art, film, and music companies

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Need for International Business International business:

causes the flow of ideas, services, and capital across the world

offers consumers new choices permits the acquisition of a wider variety

of products facilitates the mobility of labor, capital,

and technology provides challenging employment

opportunities reallocates resources, makes preferential

choices, and shifts activities to a global level

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International Business is…….

any business transaction between parties from more than one country Buying and selling raw materials, inputs or finished

products across borders Operating plants in other countries Borrowing money in one country to finance operations in a

second country Any organization that engages in cross-border

commercial transaction Parties involved may include private individuals,

individual companies, and/or government agencies

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International versus Domestic Businesses

IB versus domestic business? IB transactions cross national boundaries Different currencies are used, forcing at least one

party to convert its currency into another Different legal systems, forcing one or more

parties to adjust their practices to comply with local law

Different cultures, forcing each party to adjust its behavior to meet expectations of the other

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Why Is International Business Difficult?

Domestic Environment All the uncontrollable forces in the home country that

surround and influence the firm’s life and development Foreign Environment

All the uncontrollable forces originating outside the home country that surround and influence the firm different values difficult to assess interrelated

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Why Is International Business Different? cont’d.

International Environment Interaction between domestic and foreign

environmental forces or between sets of foreign environmental forces

Increased complexity for decision-making

Decision making more complex

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Environments of International Business

Environment All the forces influencing the life and development

of the firm Forces

External Forces (Uncontrollable) – Forces over which management has no direct control

Internal Forces (Controllable) – Forces that management can use to adapt to external forces

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External Forces

Competitive Kind, number, location

Distributive For distributing goods and services

Economic GNP, unit labor cost, personal consumption expenditure

Socioeconomic Characteristics of human population

Financial Interest rates, inflation rates, taxation

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External Forces, cont’d.

Legal Laws governing how international firms must operate

Physical Topography, climate, and natural resources

Political Forms of government, and international organizations

Sociocultural Attitudes, beliefs, and opinions

Labor Skills, attitudes of labor

Technological Equipment and skills that affect how resources are converted to

products

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Internal Environmental Forces

Factors of Production Capital, raw materials, and people

Activities of the organization Personnel, finance, production, and marketing

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Why Study International Business?

Career opportunity :- any large organization will have int’l operations or affected by global economy

Small companies are also becoming more involved in international business

To keep pace with your future competitors To stay abreast of the latest business

techniques and tools To obtain cultural literacy

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Types of International Business

Export-import trade

Foreign direct investment

Licensing

Franchising

Management contracts

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Modes of International Business

Exporting and importing The selling of products made in one’s own country for

use or resale in other countries The buying of products made in other countries for

use or resale in one’s own country Merchandise exports and imports Service exports and imports

International investments Capital supplied by residents of one country to

residents of another

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Modes of International Business

Two types of international investments: Foreign direct investments (FDI) Portfolio investments

FDI – investments made for the purpose of actively controlling property, assets, or companies located in host countries

Portfolio investments – purchases of foreign financial assets (stocks, bonds, or certificates of deposits) for a purpose other than control

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Modes of International Business

Licensing Legal arrangement whereby a firm in one country licenses

the use of its intellectual property to a firm in a second country in return for a royalty payment

Franchising A specialized form of licensing, occurs when a firm in one

country (the franchisor) authorizes a firm in a second country (the franchisee) to utilize its operating systems as well as its brand names, trademarks, and logos in return for a royalty payment.

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Modes of International Business

Management contract 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.

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Key Players in International Business

Multinational Enterprises (MNEs) MNE is a business entity that has direct

investments (in the form of marketing or manufacturing subsidiaries) abroad in multiple countries Large economic and political muscle Generate significant jobs, investment, and tax

revenue

Entrepreneurs and Small Businesses

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The Growth of International Business

2 broad reasons:

Strategic Imperatives and Environmental Changesi. Seek opportunities for growth through market diversification

ii. Earn higher margins and profits

iii. Better serve key customers that have relocated abroad

iv. To leverage core competencies – to increase revenues and profits

v. To acquire resources and supplies

vi. Develop economies of scale in sourcing, production, marketing, and R&D

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The Growth of International Business

To seek new markets To better compete with rivals

Environmental Change and Globalization Changes in political environment

The roles of GATT and WTO Agreements among trading nations

Technological changes Improvements in technology – communications,

transportation, and information processing