Chapter 1 - Background for International Business Flashcards
What is international business?
all commercial transactions including sales,
investments, and transportation, taking
place between two or more countries
What are some value-adding activities?
sourcing, manufacturing, and marketing
The flows of international business
knowledge, trade-in products, trade in services, direct investments
______ is the leading company for international merchandise trade
China
Why do companies engage in international business?
- to expand sales (increase potential profits)
- to acquire new resources
- to diversify or reduce risks (prevent competitors from gaining advantages)
What are the factors contributing to the rapid growth of INB?
1) Increase/expansion of technology
2) Liberalization of cross-border trade and resource movements
3) Development of services that support international
business (insurance, bank credit agreements)
4) growing consumer pressures
5) increased global competition
6) changing political situations
7) expanded cross-national cooperation
What is a multinational enterprise? (MNE)
- take on a global approach to markets & production
- MNC or TNC’S
What is an SME?
- companies with 500 employees or less
- partake in international business
- make up 90% of businesses worldwide
What is a born global firm?
- young, entrepreneurial SME that undertakes international business at or near it’s founding
- take a lot of risks
- “niche” segment that larger companies ignore
Non-governmental organizations
- conduct cross border activities
- pursue and advocate for social and environmental issues
The four risks of international business
1) Cross-cultural risks
2) Commercial risks
3) Currency/financial risk
4) Country risk
Cross-cultural risk
- risks arising from different languages, lifestyles, attitudes, customs where a miscommunication could jeopardize a deal/connection
- could include decisions, ethical practices, negotiations etc.
- Ex: Mexicans = friendly, socialize / Americans = assertive, get down to business quickly
Country/political risk
- Government intervention, protectionism, and barriers to trade and investment
- instability politically and economically
- EX: Venezuela gov interferes with operations/ Russia pays bribes to gov. officials
Currency/financial risk
- worries that rate fluctuations and will affect the operations and assets of a firm (inflation, currency exposure)
- Ex: The yen has fluctuated throughout the past 20 years / Brazil has experienced very high inflation
Commercial risk
- weak partners, operational problems, timing of entry, poor execution strategy
