International Business Ch.

Globalization: The broadening set of interdependent relationships among people from different
parts of a world that happens to be divided into nations.
International Business: All commercial transactions-including sales, investments and
transportation- that take place between two or more countries.
Goal of International Business:
− The goal of private business is to make profits
− Governments may undertake international transactions either for profit or for political
reasons
Importance of studying International Business:
− Most companies either are international or compete with international companies
− Modes of operations are different from those used domestically
− The best way of conducting business may differ by country
− An understanding helps you make better career decisions
− An understanding helps you decide what governmental policies to support
Factors in International Business Operations

Dimensions of the Foreign Policy Globalization Index:

1. ECONOMIC
2. TECHNOLOGICAL
3. PERSONAL CONTACT
4. POLITICAL
Factors in increased Globalization:
1. INCREASE IN TECHNOLOGY- Advances in technology has caused productivity to
increase which in turn, has increased demand. This has attributed to
(1) population growth
(2) economic growth.
2. LIBERALIZATION OF CROSS-BORDER TRADE & RESOURCE MOVEMENTS-
Over time, governments have reduced international movement restrictions because of
(1) their citizens wanting greater variety,
(2) competition causes domestic producers to become more efficient
(3) they hope to encourage other countries to also lower their barriers.
3. DEVELOPMENT OF SERVICES THAT SUPPORT IB- Companies have developed
services (banking, insurance, consultation) that make running international businesses
easier.
4. GROWING CONSUMER PRESSURES- Because of innovations in transportation and
communication, consumers are more aware of diverse product offerings and are well
informed on how to access them.
5. INCREASED GLOBAL COMPETITION- Pressures of increased foreign competition
can persuade companies to buy or sell abroad.
6. CHANGING POLITICAL SITUATIONS- The fall of the USSR causing the end of the
communist regime in most of the world opened up new business opportunities. Also,
governments are more willing to support programs and help domestic companies.
7. EXPANDED CROSS-NATIONAL COOPERATIONS- Governments realized their need
(1) to gain reciprocal advantages,
(2) to attack problems that cannot be solved individually jointly
(3) to deal with areas of concern that don’t lie within any nation’s territory.
Major Criticisms of Globalization:
− THREATS TO NATIONAL SOVEREIGNTY- Small economies become more
dependent on large economies for supplies and sales. Also, globalization homogenizes
culture and countries find it harder to maintain the traditional ways of life.
− ECONOMIC GROWTH AND ENVIRONMENTAL STRESS- Globalization consumes
more nonrenewable resources and increases environmental damage.
− GROWING INCOME INEQUALITY- Globalization has created access to a huge supply
of low skilled and low-cost labor and that access has reduced the real wage growth of
labor in rich countries (The rich get richer and poor get poorer)
− PERSONAL STRESS- Globalization goes hand in hand with increased job and social
status insecurity.

Why do Companies Engage in International Business? (See main figure; Objectives)

− TO EXPAND SALES- Pursuing international sales increases potential profits because
there are more potential consumers in the world than in a single country.
− TO ACQUIRE RESOURCES- Companies seek out foreign sources either because their
domestic supply is inadequate or because they’re looking for something to give them a
competitive advantage. Foreign sources give companies
(1) lower costs,
(2) new or better products
(3) additional knowledge.
− TO MINIMIZE RISK- International operations can reduce operating risk by (1)
smoothing sales and profits by minimizing swings
− (2) preventing competitors from gaining advantages.
Modes of Operations in International Business (See main figure; Means; Modes)
− MERCHANDISE EXPORTS AND IMPORTS- Merchandising exports are tangible
goods that are sent out of a country. Merchandising imports are goods brought into a
country.
− SERVICE EXPORTS AND IMPORTS- Service exports and imports are international
nonproduct sales and purchases that take many forms:
(1) tourism and transportation,
(2) service performance which include Turnkey Operations, which are construction projects
performed under contract and transferred to owners upon operation, and Management
Contracts, which are arrangements where a company performs management functions for
another company
(3) asset use, which allows usage of trademarks, patents, copyrights etc.
− INVESTMENTS- Foreign Investments mean ownership of foreign property in
exchange for a financial return. It takes two forms:
(1) Foreign Direct Investment (FDI) where the investor takes a controlling interest in a
foreign company.
(2) Portfolio Investment which is a noncontrolling financial interest in another entity.
Portfolio investments usually take form in stocks or loans.

Collaborative Arrangement: Companies working together on an international basis in any

number of ways
Strategic Alliance: An agreement that’s of critical importance to one or more partners or to an
agreement that doesn’t involve joint ownership
Multinational Enterprise: A company that takes a worldwide view of markets and production,
willing to consider new ventures anywhere in the world.
PHYSICAL AND SOCIAL FACTORS
1. Geographic Influences
Managers who are knowledgeable about geography are in a position to determine the location,
quantity, quality and availability of the world’s resources as well as the best way to exploit them
2. Political Policies
Political disputes can disrupt trade and investment and can result in the loss of considerable
tourist revenue. Politics determine where and how international business can take place
3. Legal Policies
Each country has its own laws regulating business, known as Domestic Law. This includes both
home and host country regulations. International Law however, is set by agreements among
countries.
4. Behavioral Factors
The related disciplines of anthropology, psychology, and sociology can help managers better
understand values, attitudes and beliefs in a foreign environment.
5. Economic Forces
Economics explains country differences in costs, currency, and the market size.

THE COMPETITVE ENVIRONMENT

Porter’s Competitive Strategy for Products (Cost Leadership, Focus, Differentiation)
1. Developing a favorable brand image
2. Developing unique characteristics