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International Business

A Brief History


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IB

IB as a discipline is relatively new.

Started well before the time of Christ, and Greek

merchants.

In 1600, Great Britains British East India

Company, a newly formed trading firm,

began to establish foreign branches

throughout Asia.


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An action soon followed by many of the

other European nations intent on exploiting

trade opportunities for national advantage,

including Portugal, the Netherlands and

France.

In 1602 , the Dutch East India Company was

formed to carry out colonial activities in Asia and to open

ocean trade routes to the East.


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The 17th and 18th century's- Age of

Mercantilism: the power of nations

depended on the sponsorship of national

Governments.

1700s: American foreign direct investment in the English

plants established before the civil war.


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International Company (IC)

Either a global of a multi-domestic company.

Global or Globalization: over used and

misused in IB because of prestige that

managements believe these words bring to their

companies.


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Global Company is an organization that:

1. Searches the world for

(a) market opportunities,

(b) threats from competitors,

(c) sources of products, raw materials, knowledge,

innovation, and financing, and

(d) personnel.

In other words, it has global vision.

2. Maintains a presence in key markets around the world.


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3. Looks for similarities, not differences, among markets.

4. Standardizes operations worldwide in one or more of thefirmsfunctional areas.

5. Integrates its operations worldwide.

There are those who believe a global firm must possessall of

these characteristics and have a worldwide locus ofcontrol andownership.

Critics of this definition claim there is no global firm

by that definition.


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GLOBALIZATION FORCESFive major kinds of drivers, all based on change,

are leading international firms to the globalization

of their operations:

(1) Political,

(2) Technological,

(3) Market,

(4) Cost, and

(5) Competitive


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IB1. Political unification and socialization of the global community.

Preferential trading arrangements, such as the North AmericanFree Trade Agreement and the European Union,

Two other aspects of this trend are contributing to the

globalization of business operations:

(a) the progressive reduction of barriers to trade and foreign

investment by most governments, which is hastening the

opening of new markets by international firms that are both

exporting to them and building production facilities in them,and

(b) the privatization of much of the industry in formerly

communist nations and the opening of their economies to

global competition.


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IB2.Technological Advances:

computers and communications technology

Cable and satellite TV systems

Global communications networks

The Internet and network computing

Internet videoconferencing

e-mail on the Internet

The ease of obtaining information and making

transactions on the Internet (faxes, telephones, or regular mail)

The emergence of third-generation (3G) broadband

wireless telecommunications technologies and

associated applications


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3. Market

* As companies globalize, they also become global

customers. , When do you want us there?

Finding the home market saturated also sends

companies into foreign markets.


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4. Cost

Economies of scale to reduce unit costs.

Globalize product lines to reduce development,

production, and inventory costs.

Move production or other parts of the companys value

chain to countries where the costs are lower.

Innovations in computing and telecommunications.

Decline in transportation costs.


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5. Competitive

Competition continues to increase in intensity.

New firms, many from newly industrialized and

developing countries, have entered world markets in

automobiles, computers, and Electronics.

Another competitive driving force: companies are

defending their home markets from competitors by

entering the competitors home markets to distract them.


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Many firms that would not have entered a single country

because it lacked sufficient market size have established

plants in the comparatively larger trading groups

(European Union, ASEAN, Mercosur).


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IBEXPLOSIVE GROWTH

Foreign Direct Investment

Direct investments in equipment, structures, and

organizations in a foreign country at a level that is

sufficient to obtain significant management control; does

not include mere foreign investment in stock markets.

Exporting

The transportation of any domestic good or service to a

destination outside a country or region; the opposite of

importing, which is the transportation of any good or

service into a country or region, from a foreign

origination point.


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UNCTAD Estimates

There were 70,000 companies in 2004, with a total of

690,000 foreign affiliates, that accounted forapproximately 25 percent of global output.

They accounted for two-thirds of world trade. Foreign

affiliates sales (almost $19 trillion in 2004) were far in

excess of global trade ($11 trillion).


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In 1995, UNCTAD estimated that there were only 45,000

parent companies with 280,000 foreign affiliates, with

total sales of US$7 trillion.

In 2004, only 19 nations had gross national incomes

(GNIs) greater than the total annual sales of Wal-Mart,

the company with the worlds greatest sales.

IB


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IBAlso in 2004, the total amount of money spent in Wal-

Marts worldwide was greater than the combined GNIs ofthe 112 smallest economies of the 208 listed in the

World Banks World Development Indicators database.

UNCTAD 2009

Estimated 82,000 transnational corporations (TNCs). And their 810,000 foreign affiliates. Account for not less than 10% of world GDP and

employing about 78 million people. UNCTADs list of the worlds largest 100 non-financial

TNCs is dominated by manufacturing and petroleum

companies.

Top 100 non-financial TNCs.: EU-based firms at the top of the list: 57 entries USA: 20 entries

Japan: 10 entries


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Why is IB Different?

A firm operating across boarders must deal

with the forces of three kinds of

environments:

i) Domestic

ii) Foreign

iii) International


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Business activities carried out with the

boarders of one:

Domestic environment

However, no domestic firm is entirely free

from foreign or international forces:

Competition from foreign imports

Foreign competitors that set up operations in

its own market


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IBEnvironments

All the forces influencing the life and

development of the firm.

Forces can be classified as:

External

Internal

The external forces are commonly called

Uncontrollable forces. Management has no direct control

over them although it can exert influences such as lobbying

for a change in a law and heavily promoting a new product

that requires a change in a cultur4al attitude

IB


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IBExternal Forces consists of:

1. Competitive: kinds and numbers of competitors, their

locations, and their activities.

2. Distributive: national and international agencies

available for distributing goods and

services.

3. Economic: variables (such as GNP, unit labor cost,

and personal consumption expenditure)

that influence a firms ability to do business.4. Socioeconomic: characteristics and distribution of the

human population.

5. Financial: variables such as interest rates, inflation

rates, and taxation.


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6. Legal: the many foreign and domestic laws governing howinternational firms mustoperate.

7. Physical: elements of nature such as topography, climate, andnatural resources.

8. Political: elements of nations political climates such as nationalism,forms of government,and international organizations.

9. Socio cultural: elements of culture (such as attitudes, beliefs, andopinions) important tointernational managers.

10. Labor: composition, skills, and attitudes of labor.11. Technological: the technical skills and equipment that affect how

resources are converted to products.


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THE FOREIGN ENVIRONMENT

Forces Have Different Values Forces Can Be Difficult to Assess The Forces Are Interrelated

THE INTERNATIONAL ENVIRONMENT

Interaction between domestic and foreign environmental forces or between setsof foreign environmental forcesThe international environment consists of the interactions:

(1) between the domestic environmental forces and the foreign environmentalforces and(2) between the foreign environmental forces of two countries when an affiliate

in one country does business with customers in another.This agrees with the definition of international business: business that involvesthe crossing of national borders.

IB


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IB


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IBPersonnel at the international environment interact:

if they are involved in any way with another nation,

whereas those in a foreign subsidiary do not unless they

too are engaged in international business through

exporting or the management of other affiliates.

Manager of Nokias China operations does not work in

the international environment if he or she sells cellular

phones only in China. If Nokias China operations export

cell phones to Thailand, then the sales manager is

affected by forces of both the domestic environment of

China and the foreign environment of Thailand and

therefore is working in the international environment.


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International organizations whose actions affect

the International Environment are also properly

part of it. These organizations include:

(1) worldwide bodies (e.g., World Bank),

(2) regional economic groupings of nations (e.g., North

American Free Trade Agreement, European Union), and

(3) organizations bound by industry agreements (e.g.,

Organization of Petroleum Exporting Countries).


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IB


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IBDecision Making Is More Complex

Consider managers in a home office who must makedecisions affecting subsidiaries in just 10 different

countries (many internationals are in 20 or more

countries). They not only must take into account thedomestic forces but also must evaluate the influence

of 10 foreign national environments. Instead of having

to consider the effects of a single set of 10 forces, as dotheir domestic counterparts, they have to contend with

10 sets of 10 forces, both indiv idual ly and

col lect ively, because there may be some interaction.


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For example, if management agrees to labors

demands at one foreign subsidiary, chances are it will

have to offer a similarsettlement at another subsidiary

because of the tendency of unions to exchange

information across borders. Furthermore, as we shall

observe throughout this text, not only are there many

sets of forces, but there are also extreme differences

among them.

IB


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Another common cause of the added complexity of

foreign environments is managers unfamiliarity with

other cultures. To make matters worse, some

managers will ascribe to others their own preferences

and reactions. Thus, the foreign production manager,

facing a backlog of orders, may offer the workers extra

pay for overtime. When they fail to show up, themanager is perplexed: Back home they always want

to earn more money.

IB


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IB This manager has failed to understand that the workers

prefertime off to more money. This unconscious

reference to the managers own cultural values, called

the self-reference criterion, is probably the biggest

cause ofinternational business blunders. Successful

managers are careful to examine a problem in terms of

the local cultural traits as well as their own.

Self-reference criterion

Unconscious reference to ones own cultural values

when judging behaviors of others in a new and different

environment


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International Business

The Rapid Change


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Example:Selling Foreign Goods in China

Impenetrable

Subsidized Competition

Restricted Access

Conflicting Regulation

A lack of Protection for Intellectual Property

Opaque and Arbitrary Bureaucracy

IB


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IBExample:

1. It takes six months to obtain a one-year license. At least

there is an established procedure, albeit a costly and

cumbersome one.

2. Cost of reaching a consumer in China higher than in

many western countries

3. Local Partner( Required)

4. Chinese consumers seem to have even more a taste for

variety than most other consumers( P & G Cresttoothpaste: lemon, strawberry, salt and honey)

Strategy: Charge High Prices. Compete on Quality

Rather than Cost

IB


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In the past , complex in ternat ional t ransact ions

were the domain of diplomats and internat ional

policy and business experts. Today a converging

s e t o f p o w e r f u l e c o n o m i c , t e c h n o l o g i c a l ,

demographic and geopolitical trends will demand

that all citizens, not just the elite, have that kind of

g loba l f luency. Knowledge of the wor ld is not

l o n g e r a l u x u r y , i t i s a n e c e s s i t y .

-Nicholas Platt, president emeritus of the Asia Society


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Successful executives of the future will have all lived in

another country for several years

No one will be in a general management job by the end of

the decade who did not have international exposure and

experience

IB


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IBThe Value of International Business Education

1. 79 % believed that all business majors should take an

introduction to international business course;

2. About 70% felt that business graduates expertise in

foreign languages, international aspects of international

areas( e.g., marketing, finance), and business, human, or

political relations outside the United States is an important

consideration in making hiring decisions; and

3. A majority of the respondents believed that a number of

courses in the international business curriculum (e.g.,international marketing, international finance, export-

imports, international management) are their companies.

-Survey of Forbess 100 Largest Multinational Firms and

Fortunes America's 50 Biggest Exporters


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Salient Fact

All Managers need to have a basic knowledge of

international business to be able to meet the challenge

of global Competition.


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Use of Products by American

Casio watch for time

Nokia phone for message

Samsung for TV

Conair dryer after shower

Dannon Yogurt

Motts Apple Juice

Tasters Choice Coffee

Close up tooth paste

Honda Car

Firestone Tire

Shell Gasoline

IB


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IBJapanese students

Dressed in Lacoste Shirts

Levis Jeans

Nike Shoes

Dell Computers

Hamburgers and Cokes at McDonald

Starbuck Coffee Oakley Sunglasses

Ford Mustang Car

Goodyear tires


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What is common?

Both are consuming products made by foreign ownedcompanies

This Is Internat ional Bu siness