CHAPTER 1: INTRODUCTION TO Importance

INTERNATIONAL BUSINESS
1. Earn foreign exchange
International Business 2. Optimum utilization of resources
3. Achieve its objectives
• All commercial transactions between two or more 4. To spread business risks
countries 5. Improve organization’s efficiency
• Involves modes of business that differ from those 6. Get benefits from Government
at the domestic level 7. Expand and diversity
• Foreign conditions diversity company’s external 8. Increase competitive capacity
environment
The Need for International Business
International Business: all commercial transactions
between two or more countries − Causes the flow of ideas, services, and capital
across the world
− Private firms are profit-oriented. − Offers consumers new choices
− Government organizations may or may not be − Permits the acquisition of a wider variety of
profit-oriented. products
− Facilitates the mobility of labor, capital, and
The international business environment is more complex
technology
and diverse than the domestic business environment.
− Provides challenging employment opportunities
International business consists of transactions that are − Re-allocates resources, makes preferential choices,
devised and carried out across national borders to satisfy and shifts activities to a global level
the objectives of:
International Business Questions and Challenges
• Individuals
• Companies • Will an idea, good, or service fit into the
international market?
• Organizations
• Should trade or investment be used to enter a
Nature foreign market?
• Should supplies be obtained domestically or
• Accurate information & timely
abroad?
• The size of the international business
• What product adjustments are necessary to be
• Market Segmentation
responsive to local conditions?
• International markets have more potential than
• What are the threats from global competitors?
domestic markets

Scope

• International Marketing
• International Finance and Investments
• Foreign Exchange
• Global HR

Features

• Large scale operations

• Integration of economies
• Dominated by developed countries and MNCs
• Benefits to participating countries
• Keen competition The Fours Types of Risks in International Business
• Special role of science and technology
• Cross-cultural risk – a situation or event where a
• International restrictions
cultural miscommunication puts some human
value at stake.
 • Country risk – potentially adverse effects on o Counter competitors’ advantages
company operations and profitability holes by
Modes of International Business
developments in the political, legal, and economic
environment in a foreign country. Merchandise Exports and Imports – are the most common
• Currency risk – risk of adverse unexpected international economic transaction, especially for smaller
fluctuations in exchange rates. companies. And major source of international revenue and
• Commercial risk – firms potential loss or failure expenditures for most companies
from poorly developed or executed business
Service Exports and Imports Nonproduct International
strategies, tactics, or procedures.
Earnings
Risks: Always Present but Manageable
• Tourism and Transportation
• Managers need to understand their implications, • Performance of services for a fee
anticipate them, take proactive action to reduce • Use of assets by others – Licensing Agreements
adverse effects.
• Some risks are extremely challenging, e.g., the East Investments – ownership of foreign property in exchange
Asian economic crisis of 1998 generated for financial return.
substantial commercial, currency, and country Foreign direct investment investors gains a controlling
risks. Political and social unrest surged to interest in foreign company by joint venture or mixed
Indonesia, Malaysia, South Korea, Thailand, and venture another option is portfolio investment.
the Philippines.
International Companies the terminology
Why Companies engage in International Business?
• Strategic alliance collaborative arrangement of
• Expand sales greater purchasing power in the critical importance to the competitive viability of
world as a whole one or more partners
• Acquire resources of products, services, • Multinational Enterprise (MNE)
components also, foreign capital, technologies,
information Licensing – official or legal permission to carry on an
• Diversify sources of sales and supplies, takes activity.
advantage of business cycle differences among A permit from an authority to own or use something, do a
countries particular thing or carry on a trade through agreement
• Minimize competitive risk to prevent competitor between licensed entity (License) and granting authority.
from gaining advantages
Franchising – a marketing system revolving around a two-
Reasons that firms engage in International Business party agreement, whereby the franchisee conducts
➢ To expand sales business according to the terms specified by the franchisor.
o Volkswagen (Germany)
• Single franchise owner
o Ericsson (Sweden)
• Master franchisee
o Michelin (France)
o Nestle (Switzerland) International Business Operations and Influences
o IBM (USA)
o Seagram (Canada)
o Sony (Japan)
➢ To acquire resources
o Products, components, services
o Foreign capital
o Technologies
o Information
➢ To minimize risk
o Take advantage of business cycle
differences among countries
o Diversify supplies across countries
 Geography – determine location and availability of world’s
resources

To must operate within a company’s external environment,

its managers must have:

• Knowledge of business operations

• A working knowledge of social sciences..
• And how they affect all functional business fields

IB Operations and Influences - The EXTERNAL

International Business Measuring Globalization
INFLUENCES (Competitive Environment)
Political Engagement
Varies by industry, company, and country
• Foreign Aid
• Strategies differ across companies
• Treaties
− e.g., importance of controlling labor cost
• Organizations
− e.g., influence of local and international
• Peacekeeping competitors
Economic Integration • Size of market differs across countries

• International Trade IB Evolution of Strategy in International Process

• Foreign Direct Investment Patterns of Expansion
Personal Contact • Passive to active pursuit of International Business
• Travel and Tourism opportunities – initially wait for foreign
• Telephone opportunities
• Transfer Payment • Limited to extensive modes of operations – begin
with importing or exporting operation
Technological Connectivity • External to internal handling of Internal Business –
rely on intermediaries at first
• Internet Users
• Few to many foreign locations
• Hosts
• Similar to dissimilar business environments
• Secure Servers
Risk Minimization – foreign operations viewed as risky
International Business Globalization Good or Bad?
international commitments evolve gradually
• Threats to national sovereignty
Why study International Business?
• Economic growth and environmental stress
• Growing income inequality and personal stress • A facilitator of the global economy and
• Offshoring – transferring of production abroad is interconnectedness
controversial in terms of who benefits when costs • A contributor to national economic well-being
are reduces and whether the process exchanges • A competitive advantage for the firm
good jobs for bad ones. • An activity with societal implications
• A source of competitive advantage for you
IB Operations and Influences - The EXTERNAL
INFLUENCES (Physical and societal factors) Contributor to National Economic Well-Being
Political – that affect whether and how International • International trade is a critical engine or job
Business occurs creation. It is estimated that every $1 billion
increase in exports creates more than 20,000 new
Domestic and International Law – determines what
jobs.
managers can do in International Business
• One of every seven dollars of U.S. sales is made
Economics – determines the types of investments abroad.
• International business is both a cause and a result
of increasing national prosperity.
 • Prosperity is accompanied by literacy rate gains. positioned themselves for unique professional
Nutrition and health care improvements, with opportunities.
some tendencies towards freedom and
democracy.

A Competitive Advantage for the Firm

• Increase sales
• Maximize returns: foreign markets often generate
returns far superior to those in domestic markets.
• Global scale economies: International players can
The Philippine’s woodcraft and furniture products are
maximize their efficiencies by securing cost-
probably the most unique exports we have. Because of the
effective factor inputs from around the world.
formal and informal training of our furniture workers, we
• Resource acquisition: Access to otherwise
have a different styles and designs coming from all corners
unavailable critical resources
of the country. This industry has shown a steady growth of
An Activity with Societal Implications 11% per year for the past decade making it a truly surging
export of the Philippines. (examples are woodcarvings,
• As firms increase their international activities, so rattan and bamboo furniture)
does responsibility to society to be a good
corporate citizen. Woodcrafts and Furniture
• Large corporations like Wal-Mart, Unilever, and
Sony have annual revenues larger than the GDPs of
many of the nations they operate.
• The internationalization of thousands of firms
negatively impacts the natural environment e.g.
pollution (Royal Dutch Shell’s refining operations in
Nigeria).
• Large banks and international investment brokers Agri-food Products
have disrupted the economies of nations with
aggressive currency trading or by manipulating
stock markets.
• Some MNEs ignore human rights and basic labor
standards by establishing factories in countries
that pay low wages with substandard working
conditions, e.g. Nike in Asia.
• Building factories abroad often leads to job losses
at home. Marine Food Products
A Competitive Advantage for You

• Julie, the student in the opening vignette is

touched everyday by a variety of global business
transactions.
• She is considering a career in international
business because she is grasping its importance
and growing role in the world.
• Working across national cultures exposes Coconut Water and by-products
managers to a diversity of experiences, new
knowledge, novel ways of seeing the world, and
unusual challenges.
• Internationally-experienced managers are typically
more self-confident, cosmopolitan, and have
Fish and Shellfish Products Implications/Conclusions

• Managing an international business differs from

managing a domestic business because:
− Countries and cultures are different
− International business operations are
more complex than domestic operations
• A company’s own competitive strategy influences
Household Items how and where it can best operate.
• From one country to another, a company’s relative
competitiveness will vary because of the
differences in the local and foreign competitors
that are present.

Clothing and Fashion Accessories

Natural Health Products

Processed Food and Drinks

Electronics and Gadgets

Note: other tap exports of the Philippines consist of Gold,

Petroleum, Automotive parts and accessories,
Semiconductors (large-scale business)