International Business

International Business:
An Overview
Objectives
To define internal business (IB) and describe how it differs
from domestic business
To explain why companies engage in IB and why its growth
has accelerated
To introduce different modes a company can use to
accomplish its global objectives
To illustrate the role social science disciplines play in
understanding the environment of IB
To provide an overview of the primary patterns for companies
international expansion
To describe the major countervailing forces that affect IB
Chart1: Growth in the volume of world

merchandise trade and GDP, 2005-15
Annual % change
2001 Prentice Hall
1-5
Introduction to International Business (IB)

IBall commercial transactions between two or more countries
Involves modes of business that differ from those at the
domestic level
Foreign conditions diversity companys external
environment
Why Companies Engage in IB

Expand salesgreater purchasing power in the world as a
whole
Acquire resourcesproducts, services, components
also, foreign capital, technologies, information
Diversify sources of sales and suppliestakes advantage of
business cycle differences among countries
Minimize competitive riskprevent competitor from gaining
advantages
International Business: Operations and Influences

OPERATIONS
EXTERNAL INFLUENCES
PHYSICAL AND
SOCIETAL FACTORS
Political policies and
legal practices
Cultural factors
Economic forces
Geographical influences
COMPETITIVE
ENVIRONMENT
Major advantage in price,
marketing, innovation, or
other factors
Number and comparative
capabilities of competitors
Competitive differences
by country
OBJECTIVES
Sales expansion
Resource acquisition
Diversification
Competitive risk
minimization
STRATEGY
MEANS
Modes
Importing and exporting
Tourism and transportation
Licensing and franchising
Turnkey operations
Management contracts
Direct and portfolio
investment
Functions
Marketin
g
Producti
on
Accounti
ng
Finance
Human
Overlaying
Alternatives
Choice of
countries
Organization
and control
mechanisms
Reasons for Growth of IB

Expansion of technologytransportation and communication
are quicker and less costly
Liberalization of cross-border movements
Government barriers reduced because:
desire for better access to greater variety of goods
and services
domestic producers forced to be more competitive
lowered trade barriers to their own exports
Development of supporting services by business and
governments to:
Ease the flow of goods and services sold abroad
Reduce risks of IB
Increase in global competitionfirms have become more global
to maintain competitiveness
Means of Carrying Out International Operations

OPERATIONS
EXTERNAL INFLUENCES
OBJECTIVES
PHYSICAL AND
SOCIETAL FACTORS
STRATEGY
MEANS
COMPETITIVE
ENVIRONMENT
Modes
Importing and exporting
Licensing and franchising
Turnkey operations
Management contracts
Direct and portfolio
investment
Overlaying
Functions
Alternatives
Marketing Choice of
Production countries
Accounting Organization
Finance
and control
Human
mechanisms
resources
Modes of IB
Merchandise exports and importsmost common international
economic transaction, especially for smaller companies
Major source of international revenue and expenditures
for most companies
Service exports and importsnonproduct international earnings
Performance of services for a fee
turnkey operations
management contracts
Use of assets by otherslicensing agreements
royalties
Franchisingfranchisor:
allows franchisee to use trademark
provides components, technology, services
Modes of IB (cont.)
Investmentsownership of foreign property in exchange for
financial return
Foreign direct investmentinvestor gains a controlling
interest in foreign company
joint venture
mixed venture
Portfolio investmentnoncontrolling interest
International Companiesterminology
Strategic alliancecollaborative arrangement of critical
importance to the competitive viability of one or more
partners
Multinational enterprise (MNE)company with global approach
to foreign markets and production
Globally integrated companyintegrates operations located in
different countries
Multidomestic companyforeign-country operations act fairly
independently
Physical and Societal Influences on International Business

EXTERNAL INFLUENCES
OPERATIONS
PHYSICAL AND
SOCIETAL FACTORS
Political policies and
legal practices
Cultural factors
Economic forces
Geographical influences
OBJECTIVES
STRATEGY
COMPETITIVE
ENVIRONMENT
MEANS
External Influences on IB
Physical and societal factorsmust understand
Politics that affect whether and how IB occurs
Domestic and international law determines what
managers can do in IB
Economics
Geographydetermine location and availability of worlds
resources
Competitive environment
Varies by industry, company, and country
strategies differ across companies
e.g., importance of controlling labor costs
e.g., influence of local and international competitors
size of market differs across countries
Competitive Environment and International Business

EXTERNAL INFLUENCES
PHYSICAL AND
SOCIETAL FACTORS
COMPETITIVE
ENVIRONMENT
Major advantage in price,
marketing, innovation, or
other factors
Number and comparative
capabilities of competitors
Competitive differences
by country
OPERATIONS
OBJECTIVES
STRATEGY
MEANS
Evolution of Strategy in International Process

Risk minimizationforeign operations viewed as risky
international commitments evolve gradually
Patterns of expansion
Passive to active pursuit of IB opportunities
initially wait for foreign opportunity
External to internal handling of IB
rely on intermediaries at first
Limited to extensive modes of operations
begin with importing or exporting operation
Few to many foreign locations
Similar to dissimilar business environments
Leapfrogging of expansionnew companies begin with
international focus
Possible because of founders experience and
technological advances that help define foreign markets
The Usual Pattern of Internationalism

Impetus for
international A
business
HIGH
Active search
for opportunities
MEDIUM
Passive
response to
proposals
Moderately
similar
E
Degree of
similarity
between
foreign and
domestic
countries
Internal versus
external handling of
foreign operations
B
Very
dissimilar
LOW
Domestic
Business
Quite
similar
One
Several
Many
D
Company handles
its own foreign
operations
Other firms
handle external
contracts
Limited
foreign
functions,
usually
export/
import
Limited foreign
production and
multiple functions
Mode of
operations
Extensive C
production
abroad with
FDI and all
functions
Number of foreign countries in

which a firm does business
Countervailing Forcescomplicate decision making

Global standardsexport suited to many countries
results in economies of scale
based on global strategy
Nationally responsive practicesadjust product or service to
unique local conditions
multidomestic approach advisable
Country versus company competitiveness
Companies compete by seeking maximum efficiency on a
global scale
Countries compete with each other to attain economic,
political, and social goals
no consensus on measures of goal attainment
Relationship unclear between country and company
performance
high-value activitiesproduce high profits or
performed by well-paid employees
Countervailing Forces (cont.)

Sovereigntyfreedom from external control
Countries will cede in order to:
gain reciprocal advantages
bilateral or multilateral commercial treaties or
agreements
attack problems that cannot be solved by a single
country
problem is too big or widespread
problem results from conditions that spill over
from another country
deal with areas of concern that lie outside the
territory of all countries (noncoastal areas of the
ocean, outer space, Antarctica)
technologically advanced countries believe that
companies should reap benefits from exploitation
other countries want to share the spoils

International Business

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International Business:

Chart1: Growth in the volume of world

2001 Prentice Hall

Introduction to International Business (IB)

Why Companies Engage in IB

International Business: Operations and Influences

Reasons for Growth of IB

Means of Carrying Out International Operations

Physical and Societal Influences on International Business

Competitive Environment and International Business

Evolution of Strategy in International Process

The Usual Pattern of Internationalism

Number of foreign countries in

Countervailing Forcescomplicate decision making

Countervailing Forces (cont.)

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