Chapter 1: International Chapter 1: International BusinessBusiness

Vocabulary(1)Vocabulary(1)

• Economic surplusEconomic surplus– profit or the money that remains after all the expenses are profit or the money that remains after all the expenses are

paid.paid.

• PortfolioPortfolio– The list of shares in business owned by a person or a The list of shares in business owned by a person or a

company; holdings in the form of stocks, bonds or other company; holdings in the form of stocks, bonds or other securities.securities.

• A parent companyA parent company– Holding company (branch and subsidiary company)Holding company (branch and subsidiary company)

• Turnkey projectTurnkey project– It is a contract under which a firm agree to fully design, It is a contract under which a firm agree to fully design,

construct and equip a facility and then turn the project over to construct and equip a facility and then turn the project over to the purchaser when it is ready for operation. It often involves the purchaser when it is ready for operation. It often involves large, complex multiyear projects such as construction of a large, complex multiyear projects such as construction of a nuclear power plant, an airport, or an oil refinery. nuclear power plant, an airport, or an oil refinery.

Vocabulary (2)Vocabulary (2)

• ExpropriationExpropriation– Taking away (property) or dispossessing (sb. form an Taking away (property) or dispossessing (sb. form an

estate, etc.)estate, etc.)

• ContemplateContemplate– have in view as a purpose, intention or have in view as a purpose, intention or

possibilitypossibility• ExtraterritorialExtraterritorial

– free from the laws of the state in which one livesfree from the laws of the state in which one lives

• CollectionCollection– Obtaining payment of a debt, e.g. billObtaining payment of a debt, e.g. bill

• Correspondent bankCorrespondent bank– A bank that has regular business with another bank or A bank that has regular business with another bank or

company in a distance place (esp. in a foreign country)company in a distance place (esp. in a foreign country)

Vocabulary(3)Vocabulary(3)

• Insurance policyInsurance policy– A document issued by the insurer, setting out the exact A document issued by the insurer, setting out the exact

terms and conditions of an insurance transaction.terms and conditions of an insurance transaction.

• Insurance certificateInsurance certificate– A simplified insurance policyA simplified insurance policy

• Weight memoWeight memo– A note made out by a seller and used to indicated the A note made out by a seller and used to indicated the

net and gross weights of each package.net and gross weights of each package.

• Institutional Institutional – Of, from , or connected with institutionOf, from , or connected with institution

• MultilateralMultilateral– Involving two or more participantsInvolving two or more participants

Vocabulary(4)Vocabulary(4)

• ImplementImplement– Put (sth.) into effect; carry outPut (sth.) into effect; carry out

• LegislationLegislation– Action of making lawAction of making law

• AdjudicationAdjudication– Judge, esp. in a competitionJudge, esp. in a competition

• et al =etc.=etceteraet al =etc.=etcetera– The rest; and so onThe rest; and so on

1.What is Business1.What is Business

• Business is Business is – a combination of all these activities a combination of all these activities

which include production, distribution which include production, distribution and sale of goods and service for a and sale of goods and service for a profit. profit.

– Creating profit or economic surplus is a Creating profit or economic surplus is a primary goal of business activities.primary goal of business activities.

2.What is International 2.What is International BusinessBusiness

• International business as a field of International business as a field of management training deals with the management training deals with the special features of business activities special features of business activities that cross national boundaries.that cross national boundaries.

• Multinational enterprises: an Multinational enterprises: an enterprise based in one country and enterprise based in one country and operating in one or more other operating in one or more other countries.countries.

3.The Scope of International 3.The Scope of International Business Activities Business Activities

• International transactions in physical goods and in International transactions in physical goods and in serviceservice

• International investment: capital supplied by residents International investment: capital supplied by residents of one country to residents of another.of one country to residents of another.– Foreign Direct Investment----it defined as Foreign Direct Investment----it defined as

investments that give the investor effective control investments that give the investor effective control and are accompanied by managerial participation.and are accompanied by managerial participation.(the country in which the parent company’s (the country in which the parent company’s headquarters is located is called the home country; headquarters is located is called the home country; any other country in which the company operates is any other country in which the company operates is known as a host country.)known as a host country.)

- Foreign Portfolio investment----it is purchase of - Foreign Portfolio investment----it is purchase of foreign financial assets (stock, bonds, and foreign financial assets (stock, bonds, and certificates of deposit) for a purpose other than certificates of deposit) for a purpose other than control. control.

Other forms of international Other forms of international business activitiesbusiness activities• Exporting: is the selling of products made in one’s Exporting: is the selling of products made in one’s

own country for use or resale in other countries.own country for use or resale in other countries.

• Importing: is the buying of products made in other Importing: is the buying of products made in other countries for use or resale in one’s own country.countries for use or resale in one’s own country.

• Licensing: is a contractual arrangement in which a Licensing: is a contractual arrangement in which a firm in one country licenses the use of its firm in one country licenses the use of its intellectual property (patents, trademarks, brand intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) to a firm in a names, copyrights, or trade secrets) to a firm in a second country in return for a royalty payment.second country in return for a royalty payment.

• Franchising: is a specialized form of licensing, Franchising: is a specialized form of licensing, occurs when a firm in one country authorizes a occurs when a firm in one country authorizes a firm in a second country to utilize its operating firm in a second country to utilize its operating systems as well as its brand names, trademarks systems as well as its brand names, trademarks and logos in return for a royalty payment. and logos in return for a royalty payment.

• Management contract: is an arrangement Management contract: is an arrangement wherein a firm in one country agrees to wherein a firm in one country agrees to operate facilities or provide other operate facilities or provide other management services to a firm in another management services to a firm in another country for an agreed-upon fee.country for an agreed-upon fee.

(Hotel industry: Marriott and Hilton, Hyatt)(Hotel industry: Marriott and Hilton, Hyatt)

Park Hyatt, Grand Hyatt, Hyatt RegencyPark Hyatt, Grand Hyatt, Hyatt Regency

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Choosing a Mode of EntryChoosing a Mode of Entry

Copyright 2010 Pearson Education, Inc.

4.International Risk 4.International Risk • Carefully evaluate the cost, benefits and Carefully evaluate the cost, benefits and

risks.risks.

• The special risk elements confronted in The special risk elements confronted in – Financial risk----involve balance-of-payments, Financial risk----involve balance-of-payments,

exchange rates, inflation, interest rates.exchange rates, inflation, interest rates.– Political risk----Macropolitical risk affects all firms Political risk----Macropolitical risk affects all firms

in a country for example civil war; micropolitical in a country for example civil war; micropolitical risk affects only a specific firm or firms within a risk affects only a specific firm or firms within a specific industry.specific industry.

– Regulatory risk----different legal system, Regulatory risk----different legal system, overlapping jurisdictions and dissimilar policies.overlapping jurisdictions and dissimilar policies.

– Tax risk----unforeseen changes in fiscal policies Tax risk----unforeseen changes in fiscal policies and uncertainty to application of tax laws.and uncertainty to application of tax laws.

5.International Business Law5.International Business Law

• The Legal EnvironmentThe Legal Environment

----Common Law----Common Law

----Civil Law----Civil Law

----Religious Law----Religious Law

----Bureaucratic Law----Bureaucratic Law

Common LawCommon Law

• Based on wisdom of judges decisions on Based on wisdom of judges decisions on individual cases through historyindividual cases through history

• Cases create legal precedents and juryCases create legal precedents and jury

• Countries Using Common LawCountries Using Common Law

---United States---United States

---Canada---Canada

---Australia---Australia

---India---India

---New Zealand---New Zealand

Civil LawCivil Law

• Based on codification of what is and Based on codification of what is and is not permissableis not permissable

• Originated in biblical times with the Originated in biblical times with the RomansRomans

• Reinforced by French Napoleonic Reinforced by French Napoleonic codecode

• Judge determines scope of evidence Judge determines scope of evidence collected and presentedcollected and presented

Egypt’s legal system is a blend of English Egypt’s legal system is a blend of English common law, the French Napoleonic code, common law, the French Napoleonic code, and Islamic Lawand Islamic Law

Religious LawReligious Law

• Based on the officially established Based on the officially established rules governing faith and practice of rules governing faith and practice of a particular religion.a particular religion.

• Theocracy: country that applies Theocracy: country that applies religious law to civil and criminal religious law to civil and criminal conduct.conduct.

Bureaucratic LawBureaucratic Law

• Bureaucratic law is the legal system Bureaucratic law is the legal system in communist countries and in in communist countries and in dictatorships.dictatorships.

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Laws Affecting Laws Affecting International Business TransactionsInternational Business Transactions

Sanction

Embargo

Extraterritoriality

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Laws Directed Against Foreign Laws Directed Against Foreign FirmsFirms

Nationalization Expropriation

Confiscation Privatization

When the host government When the host government compensates the private owners for compensates the private owners for their losses, the transfer is called their losses, the transfer is called expropriation. When the host expropriation. When the host government offers no compensation, government offers no compensation, the transfer is called confiscation. the transfer is called confiscation. Both are kinds of nationalization. Both are kinds of nationalization. Nationalization means transfer Nationalization means transfer ownership of resources from the ownership of resources from the private to the public sector.private to the public sector.

Dispute ResolutionDispute Resolution

• Which country’s law applies?Which country’s law applies?

• In which country should the issue be In which country should the issue be resolved?resolved?

• Which technique should be used to Which technique should be used to resolve the conflict?resolve the conflict?

• How will the settlement be enforced?How will the settlement be enforced?

Conflict Resolution Conflict Resolution TechniquesTechniques

Mediation

Litigation

Arbitration

Negotiation

6.Commercial Credit6.Commercial Credit a. Remittancea. Remittance

– Mail Transfer (M/T) Mail Transfer (M/T) – Telegraphic Transfer (T/T)Telegraphic Transfer (T/T)– Demand Draft (D/D)----bank draftDemand Draft (D/D)----bank draft

b. Collectionb. Collection– D/P (documents against payment), D/P (documents against payment),

insurance policy or certification, weight insurance policy or certification, weight memo, packing listmemo, packing list

– D/A (documents against acceptance)D/A (documents against acceptance)

C. Letter of creditC. Letter of credit

7.Management of 7.Management of International BusinessInternational Business

• Planning----it involves determining overall Planning----it involves determining overall company objectives and deciding how these company objectives and deciding how these goals can best be achieved.goals can best be achieved.

• Organizing----it is the process of putting the Organizing----it is the process of putting the plan into action.plan into action.

• Directing----guide, teach, and motivate workers Directing----guide, teach, and motivate workers so that they reach their potential abilities.so that they reach their potential abilities.

• Coordinating----it is to bring into proper Coordinating----it is to bring into proper relations among the various departments of the relations among the various departments of the company.company.

• Controlling----it evaluates how well company Controlling----it evaluates how well company objectives are being met.objectives are being met.

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Figure 11.2 Steps in International Figure 11.2 Steps in International Strategy FormulationStrategy Formulation

Develop a mission statement

Perform a SWOT analysis

Set strategic goals

Develop tactical goals and plans

Develop a control framework

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Mission StatementsMission Statements

• Clarifies the organization’s purpose, Clarifies the organization’s purpose, values, direction;values, direction;

• Communicates firm’s strategic direction;Communicates firm’s strategic direction;• Specifies firm’s target customers and Specifies firm’s target customers and

markets, principal products, geographical markets, principal products, geographical domain, core technologies, concerns for domain, core technologies, concerns for survival, plans for growth and profitability, survival, plans for growth and profitability, basic philosophy, and desired public basic philosophy, and desired public image.image.

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SWOT AnalysisSWOT Analysis

• StrengthsStrengths

• WeaknessesWeaknesses

• OpportunitiesOpportunities

• ThreatsThreats

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Strategic GoalsStrategic Goals

Strategic goalsStrategic goals are the major are the major objectives the firm wants to objectives the firm wants to

accomplish through pursuing a accomplish through pursuing a particular course of action. particular course of action.

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Tactical Goals and PlansTactical Goals and Plans

• Middle Middle management management issuesissues

• Details of Details of implementationimplementation

• ExamplesExamples– HiringHiring– CompensationCompensation– Career pathsCareer paths– Distribution and Distribution and

logistics logistics

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Control FrameworkControl Framework

A A control framework control framework is the set of is the set of managerial and organizational managerial and organizational

processes that keep the firm moving processes that keep the firm moving toward its strategic goals.toward its strategic goals.

8.Brief introduction to WTO8.Brief introduction to WTO

• IntroductionIntroduction• Its essential functions areIts essential functions are

– Administering and implementing the multilateral and Administering and implementing the multilateral and plural-lateral trade agreement which together make up plural-lateral trade agreement which together make up the WTO;the WTO;

– Acting as a forum for multilateral trade negotiation, Acting as a forum for multilateral trade negotiation, establishing impartial procedure for resolving trade establishing impartial procedure for resolving trade disputes;disputes;

– Overseeing National trade policies and reduce Overseeing National trade policies and reduce remaining trade barriers through multilateral remaining trade barriers through multilateral negotiations;negotiations;

– Cooperating with other international institutions Cooperating with other international institutions involved in global economic policy-making.involved in global economic policy-making.

Differences between WTO and GATTDifferences between WTO and GATT(General Agreement on Tariffs and (General Agreement on Tariffs and Trade)Trade)• GATT focused on promoting trade in GATT focused on promoting trade in

goods; WTO’s mandate includes goods; WTO’s mandate includes – trade in goods trade in goods – trade in services trade in services – international intellectual property protectioninternational intellectual property protection– trade-related investmenttrade-related investment

• WTO’s enforcement powers are stronger WTO’s enforcement powers are stronger

The WTO’s Principles of the The WTO’s Principles of the Trading SystemTrading System

Enforcement of WTO Enforcement of WTO DecisionsDecisions• Country failing to live up to the Country failing to live up to the

agreement may have a complaint agreement may have a complaint filed against itfiled against it ；；

• WTO panel evaluates complaintWTO panel evaluates complaint ；；• If found in violation, the country may If found in violation, the country may

be asked to eliminate the trade be asked to eliminate the trade barrier.barrier.

WTO ChallengesWTO Challenges

• General Agreement on Trade in General Agreement on Trade in Services (GATS)Services (GATS)

• Agreement on Trade-Related Aspects Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)of Intellectual Property Rights (TRIPS)

• Trade-Related Investment Measures Trade-Related Investment Measures Agreement (TRIMS)Agreement (TRIMS)

9. Tariffs (1)9. Tariffs (1)

• It is a tax placed on goods involved It is a tax placed on goods involved in international trade, four functions;in international trade, four functions;– Ad valorem tariff is assessed as a Ad valorem tariff is assessed as a

percentage of the value for duty of the percentage of the value for duty of the imported goods;imported goods;

– Fixed tariff is assessed as a fixed dollar Fixed tariff is assessed as a fixed dollar amount per unit of quantity such as amount per unit of quantity such as weight or other standard measure;weight or other standard measure;

9.Tariffs (2)9.Tariffs (2)

--A composite tariff has both an ad --A composite tariff has both an ad valorem component and a fixed valorem component and a fixed component;component;

--An alternative tariff consists of an ad --An alternative tariff consists of an ad valorem tariff and a fixed tariff and valorem tariff and a fixed tariff and an instruction to pay either the an instruction to pay either the higher or the lower amount.higher or the lower amount.

10. Dumping and subsidies10. Dumping and subsidies

• Dumping occurs when an exports Dumping occurs when an exports sells a product to country at a lower sells a product to country at a lower price than the price charged in its price than the price charged in its home market.home market.

• Countries often offer a variety of Countries often offer a variety of subsidies to firms operating within subsidies to firms operating within their borders to increase economic their borders to increase economic activity and job creation.activity and job creation.

11.Supplement reading (1)11.Supplement reading (1)

• Doha ministerial conference about Doha ministerial conference about medicine issuemedicine issue– It confirms right of countries to take measures It confirms right of countries to take measures

to protect public health in general but not only to protect public health in general but not only in the case of health crisis;in the case of health crisis;

– It lay out key measures and flexibilities to It lay out key measures and flexibilities to overcome barriers to access to medicine;overcome barriers to access to medicine;

– The grounds for issuing a compulsory license The grounds for issuing a compulsory license are unlimited. Members are free to determine are unlimited. Members are free to determine for themselves what a national emergency, in for themselves what a national emergency, in case the procedure for issuing a compulsory case the procedure for issuing a compulsory license easier and faster.license easier and faster.

11.Supplement reading (2)11.Supplement reading (2)• Unsolved problems:Unsolved problems:

– Political issue influence can easily be brought to bear on Political issue influence can easily be brought to bear on government to make them unlikely to issue compulsory government to make them unlikely to issue compulsory license;license;

– No matter how emergency, must negotiation with patent No matter how emergency, must negotiation with patent holder. On the other hand, increased patent protection holder. On the other hand, increased patent protection leads to higher drug prices;leads to higher drug prices;

– All countries only are allowed to import if they can show All countries only are allowed to import if they can show either they doneither they don’’t have any manufacturing capacity in t have any manufacturing capacity in pharmaceutical or what capacity they do is currently pharmaceutical or what capacity they do is currently insufficient for the purpose of meeting its need. insufficient for the purpose of meeting its need. Enforcement of WTO rules has negative effect on local Enforcement of WTO rules has negative effect on local manufacturing capacity;manufacturing capacity;

– How to ensure that production for export to a country that How to ensure that production for export to a country that has issued compulsory license. At the same time, has issued compulsory license. At the same time, ambiguous on scope of disease; ambiguous on scope of disease;

– Grants developed countries have extra 10 years, until Grants developed countries have extra 10 years, until 2016 to the implementation deadline for pharmaceutical 2016 to the implementation deadline for pharmaceutical product patent production because weakening patent product patent production because weakening patent protection have devastating efforts on research and protection have devastating efforts on research and development capabilities of research based industry. development capabilities of research based industry.

Comprehension questionsComprehension questions(Page 13)(Page 13)