International Business

DIB3003/DEB2313

R.SARAVANAN RAMACHANDRAN
 Module Objective
1.To instil an appreciation for the integration of the forces creating
patterns of international trade co-operation and international business
2.To create an awareness of holistic frameworks of international
participation available to organizations
3.To promote understanding regarding organizational issues in
international businesses related to control and management of
international organizations
4.To instil an appreciation of the key factors that affect cross-cultural
management
 Learning Outcomes
Upon completion of this module, students should be able to:

1. Recognise the impact of various factors in the international business

environment
2. Recognise business operations especially with regard to businesses
that operate across borders
3. Apply the cross cultural frameworks to form market and
organizational strategies
4. Develop alternative strategies for international market entry
 Topics
1. Introduction to International Business and Globalization
• Country factors
• National differences
• Cultural differences

2. Trade and Investment

• Trade theory
• Political economy of trade
• FDI theory
• Political economy of FDI
• Regional economic integration
 Topics
3. Global Monetary System
• Foreign exchange market
• International Monetary System
• The global capital market

4. International Business Strategy

• Common strategies in international business
• Organization of international business
• Entry and exit strategies in international business
• Strategic alliance in international business
 Topics
5. International Business Operations
• Exporting, importing and counter trade
• Global manufacturing and material management
• Global marketing and R&D
• Global Human Resource Management
• Accounting in International Business
 Assessment
The assessment for this course comprises of Coursework components
(60%) and Final Examination (40%) for a total of 100%

1. Coursework (60%)
• Assignment (40%)
• Mid-semester Examination (20%)

2. Final Examination (40%)

 1.Introduction To Globalization and
International Business
• Brief explanation of globalization
• The act of conducting business across national borders
• Includes trade between countries or businesses
• Often involves market entry or operational set-up in regions other than
one’s domestic environment
• To gain a larger market share of products and services through new
market entry
• To achieve economies of scale through mass production which is
promoted through globalized products
 1.Introduction To Globalization and
International Business
• Brief explanation of International business
• Occurs when a country or organization engages in business across
national borders
• Occurs when organizations work with foreign partners or collaborators
• Occurs through Foreign Direct Investments
• Organizations often benefit from collaborative activities as resources
and expertise not available inhouse could be sourced
• Engaging in international business could prove to be a risk
diversification strategy
 Overview of international business

“An American might drive to work in a car designed in Germany that

was assembled in Mexico by American Automaker Ford components
made in the United States and Japan that were fabricated from Korean
Steel and Malaysian rubber”
 Overview of international business
You have no choices but to operate in a world shaped by globalisation. There are
two options: Adapt or die.”
Andres S. Gvove, Chairman, Intel Corporation

“You do not choose to become global. The market chooses for you.”
Alain Gomez, CEO, Thomson, S.A

“There is no purely domestic industry anymore.”

Robert Pelosky and Morgan Stanley
 Overview of international business
• National or domestic economy is merging into an interdependent and
integrated global economy system. This process referred to as
globalization

• Globalization creates many opportunities as firms can increase their

revenues by selling around the world, and/or reduce their operation
costs by producing in nations where key inputs like labour are cheap

• However, many foreign firms have entered into protected industries and
have become a threat to many domestic businesses.
 Globalization & types of globalization
1.It’s a concept initiated and driven by politicians worldwide to create a
borderless world and covers all areas beyond business alone.

2.In business, there are two aspects of globalization

• Globalization of market
create huge global marketplace and sell internationally
• Globalization of production
sourcing and producing goods and services around the world to take
advantage of countries difference in the cost and quality
International business vs Globalization
International business Globalization
( international company) ( Global Company)

Competes or doing business with selected pursuing a market presence on most

foreign countries continents and in virtually all of the
world’s major countries.

global companies are integrated and

coordinated in, at least, the following
ways:
• Global organisational structure
• Global production
• Global marketing
Reason for expansion into foreign market
• To gain new access to customers or market
• To achieve lower operation cost
• To spread business risk across wider market base
• To achieve global presence
• To capitalize on competitiveness
Impact of international business
Consumer Firm Country
many varieties or choices Bigger market job opportunities
Cheaper Lower operation cost Foreign direct investment

High quality product & Branding & reputation Political gain

services
follows latest trend Talent and potential transfer of technology
optimization
Transfer of technology Join venture /strategic
alliance
Join venture/strategic
alliance
Impact of International Business
(consumer, firm & country)
• Bigger market
• Many varieties or choices
• Job opportunities
• Lower operation cost
• Foreign direct investment
• Follow latest trend
• Transfer of technology
• Branding & Reputation
• Strategic alliance / joint venture
• Talent or potential utilization
• High quality product and services
• Political gain
 Group Activity

• Form groups of fours or five and prepare a PowerPoint presentation

on the advantages of globalization to Malaysian firms based on your
understanding of today’s class
• Your presentation could consist of six to eight slides
• Every member of the group should participate in the presentation
CHAPTER 2
National Differences
Political, Economy, Legal, Culture & etc
 Learning Outcome
• Determine various aspect of national differences
• Apply tool(PESTLE) and available indexes to
perform analysis on national differences
• To make business decision based on national
differences analysis
Introduction

• Countries are differ in many ways such as political,

economy, legal, cultural, technology and etc
• All these differences can have major impact &
implications to the international business
• This has made international business more complicated
than domestic one
National Differences analysis Roadmap
Indexes
(Democracy,
Transparency, Ease of
doing business)

Analysis:
Critical Product/service
Countries Politics, Economy,
technology, legal & Evaluation Proposal
Culture

Tools
(PESTLE &
Hofstede)
Countries Differences: Politics, economy & legal
Types of Political System
Democracy Monarchy Totalitarianism Authoritarianis
m
government of the power resides in a single nondemocratic political systems ruled by an
people, by the family that rules from individual or a group of individuals who are not
people, for the one generation to the freely elected by their populations and who often
people next generation. exercise arbitrary power.

people make their Royal families still rule more repressive as they an individual or a group
own decisions about today, but their power try to regulate and control of individuals holds
the policies and has declined from all aspects of citizens’ power, restricts or
distribution of centuries ago. lives and fortunes prohibits popular
resources that affect participation in
them directly governance, and
represses dissent.
Countries Differences: Politics, economy & legal
Index

• There are reliable data available for public to analyse and

make decision on certain aspects of country
• These data are produced through comprehensive research
by world bodies, NGO and societies
• These data may helpful to make decision on international
business strategy
Countries Differences: Politics, economy & legal
Indexes
Index Description Produced by

To determine political system being Economic Intelligence

Democracy index
practiced & effectiveness unit
Corruption Perception To determine corruption level at public Transparency
Index sectors International

To measure the convenience of setting up

Ease of doing business World Bank Group
and doing business

Crime Index To measure crime rate against population Numbeo

Countries Differences: Politics, economy & legal
Indexes
Index Description Produced by

Climate Change To determine strategies & implementation

Germanwatch e.V
Performance Index to preserve environment
conservative think-tank
Economic Freedom To measure the degree of equal economic The Heritage Foundation
Index right and opportunities in the country and The Wall Street
Journal

To compare the size of the economy World Bank Group /

World GDP Ranking
among countries IMF
Global Innovation To measure the innovativeness in business
WIPO
Index sector
Countries Differences: Politics, economy & legal

Economic system
 societies or governments organize and distribute available
resources, services, and goods across a geographic region
or country.
 regulate factors of production, including capital, labour,
physical resources, and entrepreneurs.
 An economic system encompasses many institutions,
agencies, and other entities.
Countries Differences: Politics, economy & legal
Types of Economic System
Traditional Command Market Mixed
economy economy economy economy
goods, services, and work, dominant, centralized based on the concept of free combine the
all of which follow certain authority(government) that markets characteristics of the
established trends. controls a significant market and command
portion of the economic economic systems
structure.
very basic and the most works very well as long as very little government Most industries are
ancient of the four types. the central authority interference. The government private, while the rest,
exercises control with the exercises little control over comprised primarily
general population’s best resources, and it does not of public services, are
interests in mind interfere with important under the control of
segments of the economy the government.

very few resources to Also known as planned regulation comes from the Mixed systems are the
share in communities system people and the relationship norm globally
between supply and demand.
Countries Differences: Politics, economy & legal

Economic Performance Indicator of a country

 GDP Growth
 Inflation Rate
 Currency value (against major currencies)
 Unemployment Rate
Countries Differences: Politics, economy & legal

Legal System
 framework of rules and institutions within a nation
regulating individual’s relations with one another and
between them and the government
Countries Differences: Politics, economy & legal
Types of Legal System
Common Law Code Law Theoretical
Law
derived from judges’ decisions, dominant legal tradition today in based on religious teachings, as they
rather than statutes or more than 80 countries mostly in are enshrined in the religious scriptures.
constitutions Europe, all of Central and South
America, parts of Asia and Africa,
It is based on tradition, past comprehensive system of rules Islamic law, Shari at, is the most widely
practices and legal precedents set ( codified) which are applied and practiced religious legal system in
by courts through interpretation interpreted by judges. today’s world.
of statues, legal legislation, and
past rulings.
generally divided into three based on morality rather than
separate codes: commercial, civil, commercial requirement of human
and criminal behaviour in all aspects of a person’s
self and social life
Analytical Tool: PESTLE
• Tool for business analysis
• used by companies to track the environment they’re operating in or are
planning to launch a new project/product/service
Analytical Tool: PESTLE
Political
• To determine political stability and the impact of policies towards business
• Tax policy; environmental regulations; trade restrictions and reform; tariffs; political
stability

Economic
• To determine the strength and performance of the economy of the country
• Economic growth/decline; interest, exchange, inflation and wage rates; minimum wage;
working hours; unemployment (local and national); credit availability; cost of living

Sociocultural
•To determine needs, expectations and taste and preferences of local people
•Cultural norms and expectations; health consciousness; population growth rates; age
distribution; career attitudes; health and safety
Analytical Tool: PESTLE
Technological
•To determine the readiness, acceptance and integration of technology among people and
country
•New technologies are continually emerging (for example, in the fields of robotics and
artificial intelligence), and the rate of change itself is increasing. How will this affect the
organisation’s products or services?

Legal
• To determine specific rules and regulations that impact business operation
• Changes to legislation impacting employment, access to materials, quotas, resources,
imports/exports, and taxation

Environmental
•to determine the impact of environmental strategies and practices on business operation
•Global warming and the increased need to switch to sustainable resources; ethical
sourcing (both locally and nationally), including supply chain intelligence. Pandemics and
other emergencies
PESTLE analysis: How to perform

Form a Team

Categorize the level

Analyze all the Determine & execute
of impact to
Set Objective six(6) areas interventions
business

Example: • Prioritize and tackle

• High, medium and the issues with
Low major impact to the
• Major & minor business
Activity
• Examples of countries with various types of political,
economic and legal system
• Ranking of selected countries for various type of
data/index
CHAPTER 3
National Differences
Socio Cultural
Learning Outcome

1) Describe Six (6) Hofstede Cultural Dimensions

2) Analyze 6 Hofstede cultural dimensions among 5
countries from different continents
3) Discuss six (6) business practices across different
culture by a Global Company (McDonald)
 Socio Cultural
common traditions, habits, practices,
patterns and beliefs present in a ethnic,
society of population group
 Custom &
Traditions

Religion Language

Socio
Cultural

Lifestyle Education
 Socio Cultural in international business
• The cost of ignoring preferences, lifestyle, customs & tradition, practices of
people could be very high for international business

• The buying and consumption habit of consumers largely impacted by various

elements of socio cultural as listed above

• For an international business to be successful, it is a MUST to understand

and adapt business strategy according to local socio cultural practices
Examples of socio Cultural impact in
international business
• The introduction of cheaper version of iPhone in China

• The lack of interest in Fast Food & processed such as Pizza, Macdonald, and
Maggie in India

• The use of different Proton logo for overseas market

• Failures of Wall Mart in several countries like Germany, China & etc

• The strategy of Starbucks of not showing currency value next to price

Hofstede Cultural Dimensions
Suitable tool to understand the differences in
national culture across countries using specific
dimensions and to judge how is the business is
done across different cultures
Hofstede Cultural Dimensions

6
Dimensions
Power Distance
The extent to which inequality and power are tolerated. In this
dimension, inequality and power are viewed from the viewpoint
of the followers

HIGH LOW
Autocracy in leadership Participative or consultative style of management;
Authority and decision making is centralized Decision Making Responsibility & Authority
decentralized
Existence of hierarchy & Bureaucracy Flat Structure organization
Privileges comes power Less supervisory Staff
More supervisory staff Towards egalitarianism
Individualism Vs Collectivism
considers the degree to which societies are integrated into groups
and their perceived obligations and dependence on groups.

Individualism Collectivism
Feel independent and less integrated with society Prefers to work in group and higher integration of
society
Individual choices and preferences are given priority Sharing of resources and readiness to give up
personal interest
Focuses on “I” Focuses on “WE”
more like atoms flying around in a gas more like atoms fixed in a crystal.
 Uncertainty Avoidance
The extent to which the members belonging to a society are
capable of coping with future of uncertainty and unknown

HIGH LOW
Strict rules, habit and practices Flexible
Rigid and minimal tolerance Tolerant towards new people, environment, culture
and different opinions
High stress and anxiety level Relax and open for changes
Focuses on Job security Changes job easily
 Masculinity Vs Femininity
Tough Vs Tender: Revolve around the emotional role
distribution between genders, which is again a prime issue in a
number of societies
Masculinity Femininity
Clear and distinct gender roles Genders are emotionally closer
Winning, achievement, material success important for Competing are not openly endorsed
both genders
Quantity is important and big is beautiful Emphasize on non materialistic angles of success
Both gender expected to be tough Both gender expected to be tender, modest with
focus on quality of life
Long Vs Short Term Orientation
considers the extent to which society views its time horizon.

Long Term Short Term

preparing for the future is always needed. past provides a moral compass, and adhering to it is
morally good
delaying short-term success or gratification in order to delivering short-term success or gratification, and
achieve long-term success places a stronger emphasis on the present than the
future
emphasizes persistence, perseverance, and long-term emphasizes quick results and respect for tradition.
growth.
 Indulgence Vs Restraint
considers the extent and tendency for a society to fulfill its desires. In other
words, this dimension revolves around how societies can control their impulses
and desires.

Indulgence Restraint
n an indulgent culture it is good to be free feeling is that life is hard, and duty, not
freedom, is the normal state of being.
Doing what your impulses want you to do, is
good.
Friends are important and life makes sense
Unique Business Culture
CHAPTER 4 & 5
 International Trade
Policies, Trade Agreements & Institutions
 Learning Objective
1) Discuss Five (5) key terminologies in International Trade
2) Discuss three (3) Types of trade barriers
3) Discuss three (3) examples of
• Trade Policies
• Trade barrier
4) Discuss five (5) types of regional economic agreements &
examples
5) Discuss four(4) major international Institutions that facilitate
international business
 Trade Policies
• Regulations, guidelines and
procedures established by a
government on doing business with
foreign countries

• The main objective is to safeguard

and protect own national interests

• Trade policies of a country differ

from one another
 Trade Policies
Priorities of a country when establish trade
policies are:
• Protect local or domestic
products/organization
• Protect employment for local
• National interest like identity, security
issues
• Protect local consumer
Trade
WAR
 Trade War

• When a country retaliates against another country

by imposing or raising tariffs on goods and services
imported from another country

• Due to trade deficit or unfair trade practices

 Trade Deficit
When imports of a country exceeds the value of
it’s export
Unfair Trade Practices
• When a country imposes unnecessary
rules & regulations to restrict import
• When a country imposes high tariff on
imports to protect local economy but
their exports not imposed tariff by
another country
• When a country stole confidential
information or intellectual property of
foreign company doing business in the
country
 Trade Barrier

Government Induced restrictions

on international trade
 Types of Trade Barrier
NON
TARIFF EMBARGO
TARIFF
Impose Restrictions Impose Restrictions Impose TOTAL BAN
through taxes through rules & of trade
regulations

• Quota • NO TRADE at all

• Impose or raise • Import Licensing
Import Tax • Currency Control
• Local content
requirement
• Local production
requirement
• Subsidies
• Preferential treatment
for certain countries
Trade Policies Examples
Favoring international business

Trade Policies Description

Easier Business Set To create hassle free and cost effective process for international companies to set up company
up process and operate their business in the country. Ease of doing business index is a good reference index.

Foreign Direct To attract investments by international companies and individuals in the country. Examples are
Investment investment or capital for local companies to start and grow, expanding or relocating their business
facilities in the country

one of the main attractive component for international business to operate in the country.
Low Corporate Tax Lowering the corporate tax will attract more international companies to the country. For an
example, Singapore is one of country with low corporate tax

This means that the government of the country has low or zero interference in the business
Total FREEDOM in operation of international companies. In certain countries, the government request the
business operation international company to share confidential business information to the government as well as
claim ownership of trade secrets & IP

Liberation of where government opening all the sectors of the economy to everyone to participate equally. In
Trade Policies Examples
NOT Favoring international business

Trade Policies Description

Higher Corporate Tax To impose higher corporate tax specifically targeting

international companies

Import Duty To impose import duty (tax) to products imported from another
country which directly increase the price of products and make
it harder to sell in the local market

This is to encourage the participation of local suppliers where

Use of Local Content international companies are required to use certain percentage
of local content in their production

This is to control the number of factories, outlet or operation

Quota facilities in the country, For an example, there is a limit on
number of outlets of foreign banks or petrol station in the
country to avoid monopoly as well as to provide opportunities for
local companies

Licensing For certain sectors or industries, licensing is required to

 Threats of
Substitutes

Porter’s Five
Forces Model
Supplier Competitive Buyer
Power Rivalry Power
&

International Business Threats of

New
Entrants
Porter’s Five Forces Model & International
Business

What?
Business Analytical Tool
 Porter’s Five Forces Model & International
Business

The Purpose
To understand & evaluate competitiveness of a
business environment in terms of profitability &
sustainability
 Porter’s Five Forces Model & International
Business

When to use
1. When starting a new business
2. When expanding to new location ( totally different
from existing one)
3. When expanding into new country
 Porter’s Five Forces Model & International
Business

How to Perform Analysis

1. Form a team
2. Brainstorm and analyze each force
3. Evaluate the overall impact of each force
4. Categorize the impact using signs or label
5. Determine favoring & NOT favoring forces
6. Make a final decision
 Porter’s Five Forces Model & International
Business
The objective of each force & Criteria
Supplier Power:
Objective:
How easy is for suppliers to increase the price of raw materials and other
inputs
Criteria:
1. Number of available suppliers
2. Strength & uniqueness of each supplier
3. Supplier switching ability & switching cost
 Porter’s Five Forces Model & International
Business

The objective of each force & Criteria

Buyer Power:
Objective:
How easy is for customers to bring down the price of product
Criteria:
1. Number of buyers
2. Purchasing power of buyers
3. Buyers choice of alternative
4. Buyers ability to switch & switching cost
5. Buyers intellectuality
 Porter’s Five Forces Model & International
Business
The objective of each force & Criteria
Threats of new entrants
Objective:
How easy is for customer to get alternate product which provide the same
purpose & experience
Criteria:
1. Number of substitutes available
2. Perceived quality & performance of substitutes
3. Price performance of substitutes
 Porter’s Five Forces Model & International
Business
The objective of each force & Criteria
Threat of substitutes
Objective:
How easy is for new player to venture into the industry/market
Criteria:
1. Government policies, rules & regulations
2. Start up/investment cost
3. Requirements (legal/industry/experience)
4. Economies of scale
5. Access to distribution channel
6. Brand loyalty / switching cost for buyer
 Porter’s Five Forces Model & International
Business
The objective of each force & Criteria
Competitive Rivalry
Objective:
How many & how strong is the competitors in the industry
Criteria:
1. How many competitors available?
2. Size of the competitors?
3. Brand reputation of competitors
4. The uniqueness of the competitors?
 Porter’s Five Forces Model & International
Business

Application for international business

1. Able to determine trade barrier & government policies in the
country
2. Able to determine the readiness for local market to accept foreign
product or support foreign company
3. Able to determine the purchasing capability of customers
4. Able to determine, how supportive is the supplier towards
foreign company
5. Able to determine the strength & capability of competitors
Regional Trade Agreements (RTA)
Treaty signed by two or more countries to promote
trade activities through various initiative among the
members.

The trade rules and conditions only applicable for

countries in the agreement.
Regional Trade Agreements (RTA)
Benefits
• Encourage free movement of goods
• Boost economic relationship among the countries
within the treaty at all areas
• New job creations and opportunities
Regional Trade Agreements (RTA)
History
• According to World Bank Group, the number of trade
agreements have increased rapidly from 50 in 1990 to more
than 280 in 2017

• Today, many agreements has gone beyond trade to include

other areas like intellectual property, investment flow,
social welfare and economic well being which is called as
Deep trade agreement.
Regional Trade Agreements (RTA)
Classification
Free Trade Customs Common
Area Union Market

Economic Political
Union Union
Regional Trade Agreements (RTA)
Classification
Free Trade Area
• An area within which countries agree to eliminate trade barriers with each other,
but not on imports form countries outside the Free Trade area.
• The best examples of a Free Trade Area is NAFTA (North America Free Trade
Agreement) & ASEAN Free Trade Area
• NAFTA, which created a free trade area among Canada, Mexico, and the United
States and two supplemental agreements on labour and environment issues, came
into existence on January 1, 1994 and revised as USMCA in December, 2019
Regional Trade Agreements (RTA)
Classification
Customs Union
• Countries agree to eliminate trade barriers with each other, and
adopt a common set of trade barriers against the rest of the world.
• The EU is the best known example a Custom Union.
Regional Trade Agreements (RTA)
Classification
Common Market

• Member sates enjoy free movement of goods, labour and capital.

• MERCOSUR (Argentina, Brazil, Paraguay, Uruguay) is a good example.
Regional Trade Agreements (RTA)
Classification
Economic Union

• Unified economic policy (monetary, fiscal and welfare) across

member states.
Regional Trade Agreements (RTA)
Classification

Political Union
• Sovereignty, regional, political and law-making, with a new
‘superstate’.
• The EU has aspirations of political union.
Regional Trade Agreements (RTA)
Examples
• United States Mexico Canada Agreement (USMCA)
• European Union (EU)
• Association of Southeast Asian Nations (ASEAN)
• Asia Pacific Economic Cooperation (APEC)
• African Continental Free Trade Area (ACFTA)
• MERCOSUR
• Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP)
Regional Trade Agreements (RTA)
Recent Issues
• United States has withdrawn from TPP Agreement
• NAFTA revised as USMCA
Regional Trade Agreements (RTA)
Malaysia
According to MITI website, Malaysia has signed several trade agreements such
as:

• ASEAN Free Trade Area

• ASEAN Australia – New Zealand
• ASEAN India
• ASEAN Japan
• ASEAN Korea
• ASEAN EU
• ASEAN Hong Kong, China
• RCEP
 International
Institutions
facilitate international trade
 International
Institutions
facilitate international trade

World Trade Organization

(WTO)
• Created on 1st Jan 1995 (HQ: Geneva, Switzerland)
• only global international organization dealing with
the rules of trade between nations
• goal is to ensure that trade flows as smoothly,
predictably and freely as possible.
• run by its member governments.
• All major decisions are made by the membership as a
whole, either by ministers (who usually meet at least
once every two years) or by their ambassadors or
delegates (who meet regularly in Geneva).
 International
Institutions
facilitate international trade

International Monetary Fund (IMF)

• Created on 27th December 1945 (HQ: Washington, USA)
• Consists of 189 countries as members
• Objective
• working to foster global monetary cooperation
• secure financial stability,
• facilitate international trade,
• promote high employment and sustainable economic
growth,
• reduce poverty around the world.
 International
United Nations Conference on Trade & Institutions

Development (UNCTAD)
facilitate international trade

• Created on 30th December 1964 (HQ: Geneva, Switzerland)

• Objective
• To support developing countries to access the benefits of a
globalized economy more fairly and effectively.
• To help equip developing countries to deal with the
potential drawbacks of greater economic integration.
• To provide analysis, facilitate consensus-building, and
offer technical assistance.
 International
International Chamber of Commerce Institutions

(ICC)
facilitate international trade

• Founded on 1919 (HQ: Paris, France)

• Largest Institutional representative of than 45 million
companies in over100 countries
Objective
• world business organization, enabling business to secure
peace, prosperity and opportunity for all

Key Activities
• enables businesses to cooperate in order to set rules,
resolve disputes, and advocate for policy change on the
world stage.
 International
Other International Business Institutions

Organization
facilitate international trade

• International Association of Business Communicators.

• International Business Organization. ...
• The Federation of International Trade Associations. ...
• The World Technology Network. ...
• International Assembly for Collegiate Business
Education. ...
• International Executives Association.
Thank you