Professional Documents
Culture Documents
Introduction
Business is defined as a set of activities relating to
industry and commerce. When these activities are performed on an international level, these can be termed as international business. Basic functions, processes and techniques of international business are essentially the same as those involved in domestic business. What is different is the environment within which these functions are performed and processes are carried out,
While doing business within one's own country, one is familiar with most of the environmental factors and is readily able to cope with them. But the task of managing international business is not that easy. Because of operating in environments which are unfamiliar and different from the domestic environment, one needs to be extra careful and vigilant to these environmental differences. These variations may need adaptation for business success.
Definition
International Business means carrying business
activities beyond national boundaries. It normally includes the transactions of economic resources such as goods, capital, services(comprising technology, skilled labour, transportation, etc.) & international production. Production may include production of physical goods or provision of services like banking, finance, insurance etc..
International Business is all business transactions that involve two or more countries. International Business comprises a large and growing portion of the worlds total business. International Business usually takes place within a more diverse external environment. International trade is a vital part of the economy Trade has contributed to world wide economic growth
A) To Expand Sales: company's sales are dependent on two factors: the consumers interest in their product or services and the consumers ability and willingness to buy them. B) Acquire Resources: products, services, technology, and information C) Diversify Sources of Sales and Supplies D) Minimize Competitive Risk: companies move internationally for defensive reasons. Profits from one market can be used to expand operations in other markets
Expansion of Technology: transportation, telecommunications; Transportation and telecommunications costs are more
Liberalization of Cross-Border Movements: goods, services, labour, Capital Development of Supporting Institutional Arrangements:
development by business and governments of institutions that enable us to effectively apply that technology. Increase in Global Competition: new products become global; Globalization of production
Trade policies
Trade policies aimed to protect domestic producers do usually reduce
social welfare Tariffs, import quotas, tariff rate quotas, variable levies, state trading At a specific point in time, the effects of import quota and tariffs are similar Given the dynamic of price changes, tariffs are preferable to other import restrictions since world price changes are transmitted to the domestic market Export subsidies Export subsidies do not only reduce domestic welfare, they are also costly for the national Budget Foreign exporters suffer, while foreign importer benefit from export subsidies Price discrimination they realize an additional rent by charging different price for different countries Technical barriers to trade
as intermediary to re-invoice exports and imports) International services companies (re-invoice services through an international company) International construction and / engineering companies International transport/distribution companies Royalty companies Real estate companies Shipping and ship management companies Commission agents E-business international business is in the Banking, Commerce & Finance and International Trade & Relations subjects
MODES OF INVESTMENT
Foreign Direct Investment: gives the investor a controlling Interest in a
foreign company. It gives access to: - foreign markets - foreign resources - higher profits than exporting - partial ownership
Understanding a Companys Physical and Societal Environment Managers need a working knowledge of business operations, a working Knowledge of political sciences, law, anthropology, sociology, economics, and geography.
Difference between domestic trade and foreign trade and their peculiar problems Trade, no doubt, implies exchange of goods between persons, but there are marked differences between domestic trade and international trade. The differences and the complications arise therein are as follows: Distance The distance involved in export of goods in external trade is generally greater than on the domestic trade.
Language differences
There are differences in the languages of the nations of the world. The overseas traders should be very careful in preparing the publicity material in the languages of the trading country A producer should have full knowledge about the market of his products. For exporting goods particularly a thorough research is undertaken.
Cultural difference
Technical difference In the national market the difference in the technical specification for goods and their requirements is not wide. Tariff barriers In the national trade, there are no custom duties, exchange restrictions, fixed quotas or other tariff barriers.
International Business activities that require the movement of resources, goods, services, and skills across national boundaries all business transactions that involve two or more countries International Trade the export or import of goods or services to
International Investment investment of resources in business activities outside a firms home country International Management the performance of the management functions
Why Globalize?
expand sales
when domestic markets are saturated, should go overseas to increase sales and profits
acquire resources
resources may be more readily available and less costly in other countries
avoid tariffs
Home Country
country in which the parent organization is based
Host Country
country in which the parent organization makes the investment
Economic Communities
Cultural Differences
Free trade doctrine - predicts that if each country agrees to specialize in the production of goods that it can produce most efficiently, it will
make the best use of global resources result in lower prices
During the last 50 years, communications and transportation technology has dramatically improved
Jet aircraft, fiber optics, satellites have provided fast, secure communications and transportation These have also reduced cultural differences
Managers now face a more dynamic and exciting job due to global competition.
Economic Integration
Free Trade Area: all barriers to trade among member countries are removed, so that goods and services are freely traded among the member countries NAFTA (North American Free Trade Agreement)
Customs Union: barriers to trade among members are dismantled while a common trade policy with respect to nonmembers is established Common Market: no barriers to trade exists between members and a common external trade policy is in force; also, factors of production, such as labor, capital, and technology move freely between member countries European Union (EU) SAARC ASEAN
Competitors
Distribu tors
Customers
Sociocultural System
Economic system
Political/Legal Environment
Different legal systems: common law or civil law
Representative democracies: such as the U.S., Britain, and Canada Citizens elect leaders who make decision for electorate. Usually has a number of safeguards such as freedom of expression, a fair court system, regular elections, and limited terms for officials Well-defined legal system and economic freedom Totalitarian regimes: a single political party or person monopolize power in a country Typically do not recognize or permit opposition Do not have most safeguards found in a democracy Difficult to do business with given the lack of economic freedom Human rights issues also cause managers to avoid dealing with these countries
Economic Environment
Economic Systems Market Economy
production and prices are dictated by supply and demand production of goods and services is privately owned competitive markets strong currencies institutional support well-functioning infrastructures investment opportunities for individuals social welfare, consumer-directed, administratively guided
Economic Environment
Command Economy
government sets goals and determines the price and quantity of what is produced most command economies are moving away from the command economic system
Mixed Economy
certain economic sectors controlled by private business, while others are government controlled many mixed countries are moving toward a free enterprise system
Recent Trends
Current shift away from totalitarian dictators toward democratic regimes
very dramatic example seen in the collapse of the former Soviet Republic also very pronounced in Latin America and Africa
With this shift, has come a strong movement toward free market systems
this provides great opportunities to business managers on a global level many businesses are investing millions in former totalitarian countries to seize these opportunities
Sociocultural Forces
National culture: includes the values, norms, knowledge, beliefs, and other practices that unite a country. Values: abstract ideas about what a society believes to be good, desirable and beautiful.
Provides attitudes for democracy, truth, appropriate roles for men, and women. Usually not static but very slow to change.
examples of mores include theft, adultery, and are often enacted into law
Joint Venture:
the participation of two or more companies jointly in an enterprise in which each party contributes assets, owns the entity to some degree, and shares risk
International Expansion
Figure 4.6
Importing Exporting
Licensing Franchising
Low
High
a n a g e r ia l A
t t it
n
c e no t l ry i c e G t er i oc c e P n
o m e I n d i v i d u n a t le g r a t I a r k e t F o r e i g Wn o r l d w r i e n t e M d a r k e tM s a r k e t i
Geocentric: (sometimes called regiocentric management) tends to see the whole world as a single marketplace and as such employ a mix of management styles of the home country and host country
managers and other key personnel are selected based on merit without regard to their country of origin
Polycentric: the philosophy that the host countrys management style is superior to the home countrys style
will employ host country managers to run each subsidiary