© 2001 Prentice Hall1-1 International Business by Daniels and Radebaugh Chapter 1 International Business: An Overview

© 2001 Prentice Hall 1-1

International Businessby

Daniels and Radebaugh

Chapter 1International Business:An Overview


ObjectivesTo define internal business (IB) and describe how it differs

from domestic businessTo explain why companies engage in IB and why its growth

has acceleratedTo introduce different modes a company can use to

accomplish its global objectivesTo illustrate the role social science disciplines play in

understanding the environment of IBTo provide an overview of the primary patterns for

companies’ international expansionTo describe the major countervailing forces that affect IB


Introduction to International Business (IB)IB—all commercial transactions between two or more countries

• Involves modes of business that differ from those at the domestic level

• Foreign conditions diversity company’s external environment

Why Companies Engage in IBExpand sales—greater purchasing power in the world as a

wholeAcquire resources—products, services, components

• also, foreign capital, technologies, informationDiversify sources of sales and supplies—takes advantage of

business cycle differences among countriesMinimize competitive risk—prevent competitor from gaining

advantages


International Business: Operations and Influences

Modes• Importing and exporting• Tourism and transportation• Licensing and franchising• Turnkey operations• Management contracts• Direct and portfolio investment

Functions• Marketing• Production• Accounting• Finance• Human resources

OverlayingAlternatives• Choice of countries• Organization and control mechanisms

MEANS

EXTERNAL INFLUENCES

COMPETITIVE ENVIRONMENT• Major advantage in price, marketing, innovation, or other factors• Number and comparative capabilities of competitors• Competitive differences by country

PHYSICAL AND SOCIETAL FACTORS• Political policies and legal practices• Cultural factors• Economic forces• Geographical influences

OPERATIONS

OBJECTIVES• Sales expansion• Resource acquisition• Diversification• Competitive risk minimization

STRATEGY


Reasons for Growth of IBExpansion of technology—transportation and communication

are quicker and less costlyLiberalization 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 competition—firms have become more global to maintain competitiveness


Means of Carrying Out International Operations

Modes• Importing and exporting• Tourism and transportation• Licensing and franchising• Turnkey operations• Management contracts• Direct and portfolio investment

Functions• Marketing• Production• Accounting• Finance• Human resources

OverlayingAlternatives• Choice of countries• Organization and control mechanisms

MEANS

EXTERNAL INFLUENCES

COMPETITIVE ENVIRONMENT

PHYSICAL AND SOCIETAL FACTORS

OPERATIONS

OBJECTIVES

STRATEGY


Modes of IBMerchandise exports and imports—most common international

economic transaction, especially for smaller companies• Major source of international revenue and expenditures

for most companiesService exports and imports—nonproduct international

earnings• Tourism and transportation• Performance of services for a fee

– turnkey operations– management contracts

• Use of assets by others—licensing agreements– royalties– Franchising—franchisor:

» allows franchisee to use trademark» provides components, technology, services


Modes of IB (cont.)Investments—ownership of foreign property in exchange for

financial return• Foreign direct investment—investor gains a controlling

interest in foreign company– joint venture– mixed venture

• Portfolio investment—noncontrolling interest

International Companies—terminologyStrategic alliance—collaborative 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 company—integrates operations located in different countries

Multidomestic company—foreign-country operations act fairly independently


Physical and Societal Influences on International Business

EXTERNAL INFLUENCES

COMPETITIVE ENVIRONMENT

PHYSICAL AND SOCIETAL FACTORS• Political policies and legal practices• Cultural factors• Economic forces• Geographical influences

OPERATIONS

OBJECTIVES

MEANS

STRATEGY


External Influences on IBPhysical and societal factors—must understand

• Politics that affect whether and how IB occurs• Domestic and international law determines what

managers can do in IB• Economics• Geography—determine location and availability of world’s

resourcesCompetitive 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

OPERATIONS

OBJECTIVES

MEANS

STRATEGY

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


Evolution of Strategy in International ProcessRisk minimization—foreign operations viewed as risky

international commitments evolve graduallyPatterns 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 expansion—new companies begin with international focus

• Possible because of founder’s experience and technological advances that help define foreign markets


DomesticBusiness

The Usual Pattern of Internationalism

HIGH

MEDIUM

LOW

C

Mode ofoperations

Limitedforeignfunctions,usuallyexport/import

Extensiveproductionabroad withFDI and allfunctions

Limited foreignproduction andmultiple functions

AImpetus forinternationalbusiness

Active searchfor opportunities

Passiveresponse to

proposals

D

One

Several

Many

Number of foreign countries in which a firm does business

E

Quitesimilar

Verydissimilar

Moderatelysimilar

Degree ofsimilaritybetweenforeign anddomesticcountries

B

Other firmshandle externalcontracts

Company handlesits own foreignoperations

Internal versusexternal handling offoreign operations


Countervailing Forces—complicate decision makingGlobal standards—export suited to many countries

– results in economies of scale– based on global strategy

Nationally responsive practices—adjust product or service to unique local conditions

– multidomestic approach advisableCountry 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 activities—produce high profits or

performed by well-paid employees


Countervailing Forces (cont.)Sovereignty—freedom 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

Documents

© 2001 Prentice Hall1-1 International Business by Daniels and Radebaugh Chapter 1 International Business: An Overview