• What is international business?
International business – refers to the performance of trade and investment activities by firms across national borders. Value adding activities – include sourcing, manufacturing, marketing performed internationally (a.k.a. firms conduct these value adding activities on an international scale). International trade involves an exchange of physical and intellectual assets such as products, services, capital, technology, know-how, labor. Firms internationalize through various entry strategies such as exporting and direct foreign investment.
• What are the key concepts in international trade and investment?
Globalization of markets – refers to the ongoing economic integration and growing interdependency of countries worldwide.
International trade – exchange of products and services across national borders: typically through importing and exporting.
Importing (a.k.a. global sourcing) and Exporting
International Investment – refers to the transfer of assets to another country, or the acquisition of assets in that country
International Portfolio Investment – passive ownership of foreign securities such as stocks and bonds for the purpose of generating financial returns.
Foreign Direct Investment (FDI) – the firm establishes a physical presence abroad through the acquisition of productive assets such as capital, technology, labor, land, plant, equipment.
• How does international business differ from domestic business?
International business – conducted across national borders, uses distinctive business methods, is in contact with countries that differ in many factors (culture, language, legal system, economic situation, etc). When firms venture abroad they encounter 4 types of risk. Cross-cultural risk – cultural differences, negotiation patterns, decision-making styles, ethical practices. Country risk (a.k.a. political risk). Currency risk - currency exposure, asset valuation, foreign taxation, inflation. Commercial Risk – weak partner, operational problems, timing of entry, competitive intensity, poor execution of strategy.
• Who participates in international business?
Multinational Enterprise (MNE), Small and Medium-sized Enterprise, Born global firm. Non-governmental organizations (NGOs) – non profit.
• Why do firms pursue internationalization strategies?
9 reasons –
Seek opportunities for growth through market diversification
Earn higher margins and profits
Gain new ideas about products, services, and business markets
Better serve key customers that have relocated abroad
Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products (In business, the term word sourcing refers to a number of procurement practices, aimed at finding, evaluating and engaging suppliers of goods and services)
Gain access to lower- cost, or better-value factors of production
Develop economies of scale in sourcing, production, marketing, and R & D (economies of scale – when more units of a good or service can be produced on a larger scale, yet with less input costs)
Confront international competitors more effectively or thwart the growth of competition in the home market
Invest in a potentially rewarding relationship with a foreign partner
• Why globalization is not a new phenomenon
First phase of globalization – 1830s to late 1800s, aided by railroads and ocean transport, rise of manufacturing and trading companies
Second phase – 1900 to 1930, fueled by electricity and steel, early MNEs
Third phase – 1948 to 1970s, GATT (tariffs and taxes so high, so sought to reduce barriers to international trade), post war era, reduction of trade barriers worldwide, rise of global capital markets
Fourth phase – 1980 to present, fueled by internet and other technologies, rapid liberalization (fewer government regulations and restrictions, “removal of controls” to encourage economic