International Business Flashcards
Meaning of international business
Business transactions between more than one country.
Includes;
– Buying & selling raw materials, finished goods, or services across borders.
– Operating factories or facilities overseas.
– Borrowing money in one country to finance operations in another.
Difference between international business and domestic
Currency conversions are required • Differing legal systems • Cultural differences • Economic differences • Infrastructure differences • (PESTEL)
Why study international business
Work for companies with international
connections.
• To develop cultural literacy.
• To keep in step with management tools, production techniques, and technology that other countries are developing.
• Globalized World
• Overcoming Barriers: business will be impacted by
international influences.
Types of international business
Export-import trade International Investments Licensing Franchising Management contracts
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
Reasons for exporting
To serve markets where the firm has no or limited production facilities.
– To remain price-competitive in the home market
– To test foreign markets and foreign competition inexpensively
– To offset domestic market’s cyclical sales
– To achieve additional sales
– To extend a product’s life cycle
– To respond strategically to foreign competitors
– To achieve the success the firm’s management has seen others achieve
– To improve the efficiency of manufacturing equipment
Reasons for importing
To obtain natural resources that are not available
• Unsuitable climate for certain foods
• To avail of services not in country.
• To have variety and choice of goods & services.
International investments
Capital supplied by residents of one country to residents of another • Two categories: – Foreign direct investments (FDI) – Portfolio investments
Foreign Direct Investments
Foreign direct investment (FDI) happens when a
firm invests directly in facilities in a foreign country
• Involves ownership of entity abroad for
–production
–Marketing/service
–R&D
–Raw materials or other resource access
Portfolio investments
Diversifying portfolios internationally.
• Portfolio refers to any collection of financial assets
such as stocks, bonds, and cash.
• E.g. purchase of 1000 shares of Sony’s common
stock by a Danish pension fund
Licensing
Firm in one country licenses the use of its intellectual property to a
firm in a second country in return for a royalty payment.
• Intellectual property is a legal concept which refers to creations of
the mind for which exclusive rights are recognized.
• Includes patents, trademarks, brand names, copyrights, or trade
secrets
Franchising
firm in one country authorizes a firm in
another country to utilize its operating system, business
model and intellectual property
Management contracts
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
• Common in upper-end international hotel industry
Globalization and international business
Globalization has a more broad and universal concept of
the global marketplace, while international business is
application of a business model to various markets across countries.
Major drivers of globalization
– Expansion of technology: It crosses national or cultural boundaries.
– Transportation and communication improvements
– World economic trend:-Liberalization, Deregulation,
reduction in tariffs, privatization
– Common market needs promotes globalization.
– Leverages advantages possessed by global companies such as economies of scale, experience transfer,
improved resource utilization etc.
Restraining forces of globalization
–Management shortsightedness, ethnocentric style
and fear of the unknown in many organization.
–Government policies, controls and barriers.
- Government tends to support the local players and frames rules to protect them
Management orientation towards international business
- Ethnocentric: a parochial view where management perceive the dominant culture of its home country as superior to others
- Polycentric: it seeks to accept cultures differ from country.
- Regio centric: management tends to view world regions in terms of their similarities and differences (eg. European Union, North America)
- Geocentric: management views the entire world as accepting or working towards some common cultural values and aims to develop integrated world marketing strategies. This is a
true global company.
Motives for globalization
To leverage core competencies: this is a strength that is central to a firm’s operations • To acquire resources and supplies • To seek new markets • To better compete with rivals
Criticisms of globalization
Threats to national sovereignty
• Negative costs of economic growth
• Increasing income inequality
Tools that may be used to assess proposals for
global development
Johnson & Scholes’ three tests (suitability, acceptability, feasibility)
b) PESTEL analysis
c) Porter’s Diamond (competitive advantage of nations)
Johnson and Scholes
Suitability: Does the strategy provide an appropriate answer to the situation identified in the corporate appraisal?
2) Acceptability to shareholders and other stakeholders: Acceptability is
concerned with the expected performance of outcomes if a strategy is
implemented. It can be assessed in three broad ways:
a) Returns
b) Risk
c) Stakeholder’s attitude
Feasibility: Feasibility is concerned with whether or not the organization has:
– adequate resources (cash, people, information, etc.)
– ability to accommodate the required level of performance
– ability to withstand competitive retaliation
– ability to acquire the required technology, materials and
other resources
– legal capacity
– ethical considerations
– sufficient time
Reasons that firms engage in international business
To expand sales and profits
To acquire resources
To minimize risk
To increase prestige of the product and the organization.
Product development costs can be shared in a larger market.
To increase the competitive edge in the domestic market
