International business course
INTERNTIONAL BUSINESS –
MBA
Griffin R
Pustay M
INTERNATIONAL BUSINESS
https://www.belstu.by/Portals
/0/Charles-Hill-InternationalBusiness.pdf
International Business is all business transactions
- private & governmental – that involve two or
more countries. Private companies undertake such
transactions for profit; governments may or may
not do the same in their transactions.
Evolution of International Business
International Trade
India, during 1980s could create markets
for its products, in addition to mere
exporting.
International Business
International Marketing
Later, they started producing in one foreign
country and marketing in other foreign
countries. For example, Uni Lever established
its subsidiary company in India, i.e., Hindustan
Lever Lim
ited (HLL). HLL produces its products in India
and markets them in Bangladesh, Sri Lanka,
Nepal etc
• International business includes any
business transactions that are carried out
by two or more countries.
• The parties involved in such transactions
may be submitted by individuals , private
companies , groups of companies and /
or government organizations .
As an example, we can consider operations such as :
• the purchase of raw materials in one country and their
transport into the territory of another country for further
processing;
• a transportation the finished products from one
country to another for the purpose of sale in the retail
trade;
• building factories in foreign countries in order to get
profit based on the use of cheaper labor;
• a Bank loan of one country to finance operations in
another country.
International
company
organization carrying out the export of
national capital abroad for doing
business in other countries.
Internal entrepreneurship ( incountry business ) is reduced to the
implementation
of
business
operations , not going beyond the
borders of one state .
т
Characteristic features of IB :
1. The main aim of IB, as well as incountry ,is to make a profit .
2. IB - it is primarily a business
interaction of private firms or their
units located in different countries.
3. IB is based on the possibility of
benefiting from the advantages of
cross-country deals .
Why do the Business firms of a country go to
other countywide?
1) to achieve Higher Rate of Profits
2) because of excess production
What differentiates international business
from domestic ones?
•
•
•
•
•
•
Competition,
legal restraints,
government controls,
weather,
fickle consumers
and a number of other factors
What then makes Internationalization of
Business challenging?
The Level of Technology
Domestic Economic Climate
The capacity
to invest in plants and
Domestic
Competition
• Technical expertisePolitical
may notDecision
be available
facilities,
either
in
domestic
or
foreign
Eastman Kodak at
dominated
the U.S film
market and
could
a level necessary
for
product
support.
For
e.g.
The
U.S.
Government placed a
markets,
to a largeprofit
extent
a function
of
depend
onisachieving
goals
that
provided
capital
• The general population
may
not
have to
an Libya to condemn
total
ban
on
trade
with
the
domestic
economic
vitality.
If
Political
&
Legal
Issues
invest in foreignadequate
markets. level
Without
having toknowledge
worry about
of technical
Libyan
support
forto
terrorists’
attacks,
economic
conditions
deteriorate,
The
issues
abroad
are
often
amplified
by
the “alien
status”
the company’s lucrative
base,
management
had
the
time
properly maintain equipment.
imposed
restrictions
ontotrade
with South
against
foreign
investment
of the
company.
There
are two
dimensions
the alien
status
&restrictions
resources to
devise
aggressive
international
marketing
• Locals have to be specially
trained
or
the
apartheid,
and placed a
and purchasing
becompetitive
imposed
toAfrica
ofmay
a foreign
business:
aliento
in protest
the
sense
that foreigners
programs.
However,
the
structure
changed
company will have tototal
provide
the
ban
onintrade
withculture
Iraq, whose
strengthen
the
domestic
economy.
control
the
business
and,
alien
that the
of the host
when Fuji Phototechnical
Film became
a
formidable
competitor
by
support. actions constituted a threat to the
country
is United
alien toStates,
the management.
lowering film prices
in steps
the
a $ The
300 alien status of the
• Take
to ensurenational
thatopening
thesecurity
UniteditStates
& its
business
means
that,
when
viewed
asaofanthe
outsider,
can be
million plant, and
gaining
12
%
of
the
U.S
market.
As
importance of routineallies.
maintenance
is the international
In eachprejudiced
case
seen
as
an
exploiter
and
receive
result, Kodak had
a direct energy
and the
resources back or unfair
understood
and carried
out.
operations
of United
State’s companies
treatment
at the hands
the home
local
authorities.
to the United States.
Competitive
withinof
their
whether it was IBM, Exxon were restricted
country affects a company’s domestic as well as
by these political decisions.
international plans.
The difference between IB and in-country
business:
Financial ( currency conversion ) ;
Legislative ;
Cultural ;
Resource ( natural, human ) .
т
Why do Companies engage in
International Business?
Acquire Resources: Manufacturers and
Social changes:
when
consumer
behavior
distributors
seek
out products,
services
Expand Sales
changed
(for
example, you’ve
a fast-food
and
components
produced
in foreign
Many of the world’s largest companies
restaurant,
but last
yearalso
in your
countries.
They
look country
for foreign
over
half
of their
sales from outside
was a big
propaganda
of healthy
way ofderive they
when
is an
overwhelming
capital,
technologies
and Competition:
information
their
home
country. These
companies
living, so
to loseSometimes
moneyamount
andthey
have
of
close
in domestic
canyou
usestart
at home.
use
thiscompetitors
include
BASF
[Germany],
Electrolux
to search
for newtheir
clients
on aFor
new
market
market
and
your
business
is loosing
profit,
to reduce
costs.
example,
Disney
[Sweden],
Gillette
United States],
so to maintain
have[The
to enter
relies on cheap manufacturing
bases
in it you
Nestle
market
China & Taiwan to supplyanother
clothing
to its[Switzerland], Phillips
[Netherlands] & Sony [Japan]. However,
souvenir outlets.
smaller
companies may also depend on
Technological
changes:
instance,
when
Also, Disney
buysfor
from
the U.K.’s
Stafford
foreign has
sales. They make sales of
high-tech
company
working
in a the
home
Shire
Tableware
because
company
to larger companies, which in
countrydeveloped
understand
that technology
oncomponents
automated
techniques
for
sell finished products abroad.
which their
business
is based
much more
putting
complicated
patterns
onturn
mugs,
developed
in anouther
regions
and they
which
Disney sells
in its outlets.
have much more opportunities there
-
markets expansion;
Acquisition of resources;
Competition;
Technological changes ;
Social changes ;
Task 2.1. Russian entrepreneur engaged
in buying clothes abroad, for example in
China and selling it on the territory of
Russia.
Determine whether the activity is part
of the international business and the
company international company?
Task 2.2. The Japanese company has built a
plant for the production of cars in the
Russian Federation. Plant staff is almost
entirely Russian except for a few senior
management positions. Production is
focused on the Russian market. Determine
whether this is an international Japanese
company and whether it is an international
business, justify your answer involved?
Task 2.3. Russian company X and the foreign firm Y
founded a joint venture Z in the Russian Federation.
The company is engaged in manufacture and sale of
household chemicals on the territory of Russia and
CIS countries. On the basis of submitted information,
the definition of an international business and its
characteristics, determine whether company X is an
international company and whether it is an
international business, justify your answer involved.
Which advantages foreign firm Y has from founding a
joint venture Z with Russian company?
Task 2.4. Nestle withdrew their products
to the markets of other countries and,
since 1875, delivered milk in 16 countries
around the world. Unlike Nestle many US
companies prefer to limit their business to
national market, which led to the loss of
lucrative financial opportunities.
Determine which causes of the
international business growth led to the
current situation?
Task 2.5. Wholesale US firms engaged in
the supply of fruits and vegetables, buy
bananas and coffee in South America,
Japanese firms buy nuts in Canada, and
the majority of firms from around the
world make the purchase of the oil in the
Middle East. Determine which reason for
international business growth is
considered in the example and let her
performance?
Task 2.6. Sony and Matsushita Electric
companies have assembly plants in
Malaysia, where the labor force is
relatively low cost. Determine which
reason for the growth of international
business is considered in the example
and let her performance?
The incentives of foreign business in modern
conditions include:
• The increase in profit compared with the activity in
the domestic national market ;
• the impact of a large and powerful company ( for
example, acting as its subcontractor ) ;
• initiative of the government and international
organizations (government loans in developed
countries , or the support of international financial
institutions)
• adverse conditions in the domestic market ,
forcing companies to transfer their activities
abroad.
An example is the increase in costs associated
with government regulation ( such as the federal
and regional taxes , the cost of environmental
protection measures in order to achieve
compliance with national standards for the
protection of the environment);
• market size , natural resources and the
availability of low-cost skilled labor and "human
capital" - highly skilled engineers and scientists
in the receiving country .
• risk sharing ( for example, when entering the
market with new products ) . In this case, it is
advisable to share the risks with a foreign
partner ;
• the possibility of obtaining new foreign
technology , foreign capital and experience of
the organization’ production and marketing ;
• maintain the level of competitiveness by entering
the sphere of foreign economic activity;
• use of financial capacity (of low bank interest
rates , funds and loans from local , foreign and
international organizations ) of the host country ;
• preferential tax treatment abroad , allowing to
increase the competitiveness of export goods in
the conditions of growing competition in the
global market .
Driving up the decision on the feasibility of entering firms in
the sphere of foreign economic activity
Does the global market demand for company’s product?
yes
Can the company’s product adapt to the demand abroad?
no
yes
no
Is investment climate favorable in the host country for the
import?
yes
Whether the company has ability to act abroad?
no
yes
The company decides to enter the external economic
markets.
The company decides to stay on
domestic market
no
Risks in foreign trade activities:
Risk - capacity of entrepreneurs’ loss of their
resources , revenue , or the appearance of
additional costs as a result of some events .
Risk factors are divided into :
Subjective;
Objective.
Objective
factors
Factors independent of
the firms:
inflation,
competition,
political and
economical crisis,
Сustoms duties and
other restrictions etc.
Subjective
factors
Factors dependent on the
firms:
Production potential,
Technical risk
Labour organization,
Level of performance
and safety,
Professionalism of all
the staff and etc.
LECTURE 2
Periods of IB development
т
1. The commercial era
2. The expansion era
3. The era of concessions
4. The era of nation-states
5. The globalization Era
The commercial Era 1500-1850
• The era of great geographical discoveries;
• The prospect of the huge tradebenefits in
colonial goods in Europe - a driving force of IB;
• In parallel industry is developing a large
support of IB - from investment and credit , to
the logistics infrastructure ( storage, transport
).
т
The expansion era
1850-1914
• The final formation and structuring of colonial empires on
the background of the rapid industrial development of the
European countries and the United States .
• The character of "usefulness" of the colonies .
• Formulated the main reasons for the existence and
development of the IB :
т
Using resources more efficiently ( low cost and quality) ;
The expansion of markets ;
Finding new applications available financial resources;
The use of the opportunities offered by the local legal systems
The era of concessions
1914-1945
• The changing role of the
• Internationalization
largest companies
of world labor
• Formation of middle
market .
managers from the local
• Sharping
population .
competition in the
• Germany's defeat in World
world markets of raw
War I and the redistribution of materials , semimarkets .
finished and finished
• The Great Depression 1929products .
1932 .
The era of nation-states
1945-1970
• Formation and the rapid
• Breakthrough to
development many new
multinational
nation-states.
businesses of powerful
• The development of
American corporations .
international capital
markets , the emergence of • Formation of a complex
three- layer structure of
a new set of financial
international business.
instruments , the growth of
• The increase in number
international audit and
of MNCs
consulting sphere .
т
The globalization Era
since 70 –s ХХ.
• The revolution in information technology and
powerful development of telecommunications
technology have changed the traditional
business , leading them to a qualitatively new
level .
• International economic relations have covered
almost all of the country and the economy of
each to a greater or lesser extent dependent
on international business.
т
What Is Globalization?
Globalization refers to the shift toward a more
integrated and interdependent world economy.
Globalization has several facets, including the
globalization of markets and the globalization
of production.
THE GLOBALIZATION OF MARKETS
• The globalization of markets refers to the
merging of historically distinct and separate
national markets into one huge global
marketplace.
Typical of these is Hytech, a New York-based
manufacturer of solar panels that generates 40
percent of its $3 million in annual sales from
exports to five countries, or B&S Aircraft
Alloys, another New York company whose
exports account for 40 percent of its $8 million
annual revenues.
A company does not have to be the size of these
multinational giants to facilitate, and benefit
from, the globalization of markets.
In the United States, for example, nearly 90
percent of firms that export are small
businesses employing less than 100 people,
and their share of total U.S. exports has grown
steadily over the past decade to now exceed
20 percent.6 Firms with less than 500
employees accounted for 97 percent of all U.S.
exporters and almost 30 percent of all exports
by value.
Despite the global prevalence of
Citigroup credit cards, McDonald's
hamburgers, Starbucks coffee, and IKEA
stores, it is important not to push too far
the view that
national markets are giving way to the
global market.
However, significant differences still exist among
national markets along many relevant
dimensions, including consumer tastes and
preferences, distribution channels, culturally
embedded value systems, business systems, and
legal regulations.
The most global markets:
• aluminum, oil, and wheat;
• for industrial products such as
microprocessors, DRAMs {computer memory
chips), and commercial jet aircraft;
• for computer software;
• and for financial assets.
Global rivalries:
THE GLOBALIZATION OF PRODUCTION
• refers to the sourcing of goods and services
from locations aroundConsider
the globe
to take
Boeing's 777, a commercial jet
Eight Japanese
make parts
advantage of nationalairliner.
differences
insuppliers
the cost
for the fuselage, doors, and wings; a supplier
and quality of factors inofSingapore
production
(such
asnose
makes the doors
for the
landing gear; three suppliers in Italy
labor, energy, land, and
capital)
manufacture
wing flaps; and so on. In total,
some 30 percent of the 777, by value, is built
by foreign companies. For its most recent jet
airliner, the 787, Boeing has pushed this trend
even further; some 65 percent of the total
value of the aircraft is outsourced to foreign
companies, 35 percent of which goes to three
major Japanese companies.
The Emergence of Global Institutions
• General Agreement on Tariffs and Trade
(GATT) and its successor, the World Trade
Organization (WTO);
• the International Monetary Fund (IMF) and its
sister institution, the World Bank;
• and the United Nations (UN).
Drivers of Globalization
1) decline in barriers to the free flow of goods,
services, and capital that has occurred since
the end of World War II
2) technological change, particularly the
dramatic developments in recent decades in
communication, information processing, and
transportation technologies.
DECLINING TRADE AND INVESTMENT BARRIERS
During the 1920s and 30s
many of the world's nationstates erected formidable
barriers to international trade
and foreign direct investment.
One consequence, however, was "beggar thy
neighbor” trade policies, with countries
progressively raising trade barriers against
each other. Ultimately, this depressed world
demand and contributed to the Great
Depression of the 1930s.
The goal of removing trade barriers was enshrined
in the General Agreement on Tariffs and Trade
(GATT).
The Uruguay Round further reduced trade barriers;
extended GATT to cover services as well as
manufactured goods; provided enhanced
protection for patents, trademarks, and copyrights;
and established the World Trade Organization to
police the international trading system.
Average tariff rates for manufactured
goods
1913
1950
1990
2010
France
21%
18%
5.9%
3.9%
Germany
20%
25%
5.9%
3.9%
Italy
18%
25%
5.9%
3.9%
Japan
30%
-
5.3%
2.3%
Holland
5%
11%
5.9%
3.9%
Sweden
20%
9%
4.4%
3.9%
Great Britain
-
23%
5.9%
3.9%
United States
44%
14%
4.8%
3.2%
According to the United Nations, some 90 percent
of the 2,700 changes made worldwide between
1992 and 2009 in the laws governing foreign
direct investment created a more favorable
environment for FDI. Such trends have been
driving both the globalization of markets and the
globalization of production.
This is true in Japan, where U.S.
companies such as Apple and Procter &
Gamble are expanding their presence.
The
globalization
of
markets
and
production
and
And it is true in Europe, where the oncedominant
Dutch company
Philips has
the resulting
growth
of seen
world trade, foreign direct
its market share in the consumer
investment,
andbyimports
electronics
industry taken
Japan's JVC,all imply that firms are
Matsushita,
Sony,home
and Korea's
finding and
their
markets under attack from
Samsung and LG.
foreign competitors.
It is true in the United States, where
Japanese automobile firms have taken
market share away from General Motors
and Ford (although there are signs that
this trend is now reversing).
Since the end of World War II, the world has
seen major advances in communication,
information processing, and transportation
technology, including the explosive emergence
of the Internet and World Wide Web.
the low cost of airfreight, Dell can
Implications for theGiven
Globalization
of
use air transportation to speed up the
delivery of critical components to meet
Production
unanticipated demand shifts without
For •example,
Dell uses the Internet
to
transportation
costs
coordinate and control a globally
dispersed
production system
to such an
• information
processing
extent that it holds only three days'
worth of inventory at its assembly
locations. Dell's Internet-based system
records orders for computer equipment
as they are submitted by customers via
the company's website, then
immediately transmits the resulting
orders for components to various
suppliers around the world, which have a
real-time look at Dell's order flow and
can adjust their production schedules
accordingly.
delaying the shipment of final product to
consumers.
and communication
Dell also has used modem
communications technology to
outsource its customer service
operations to India. When U.S.
customers call Dell with a service
inquiry, they are routed to
Bangalore in India, where Englishspeaking service personnel handle
the call.
Implications for the Globalization of
Markets
For example, due to the
tumbling costs of
shipping goods by air,
roses grown in Ecuador
can be cut and two days
later sold in New York.
This has given rise to an
industry in Ecuador that
did not exist 20 years
ago and now supplies a
global market for roses.
In addition, low-cost jet travel has
resulted in the mass movement of people
between countries.
At the same time, global communication
networks and global media are creating a
worldwide culture. U.S. television
networks such as CNN, MTV, and HBO are
now received in many countries, and
Hollywood films are shown the world
over.
It is now as easy to find a McDonald's
restaurant in Tokyo as it is in New York, to
buy an iPod in Rio as it is in Berlin, and to buy
Gap jeans in Paris as it is in San Francisco.
Despite these trends, a firm that ignores
differences between countries does so at its
peril.
