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International Business Week 1 and 2

The document introduces international business and globalization, highlighting the exchange of goods and services across borders and the role of globalization in connecting economies. It discusses key drivers of internationalization, such as market-seeking and resource-seeking behaviors, and outlines the roles of global institutions like the WTO, IMF, and UN in facilitating international trade. Additionally, it covers theories of international trade and investment, including absolute and comparative advantage, product life cycle theory, and Dunning's Eclectic Paradigm, which explain the motivations behind international business activities.

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7 views4 pages

International Business Week 1 and 2

The document introduces international business and globalization, highlighting the exchange of goods and services across borders and the role of globalization in connecting economies. It discusses key drivers of internationalization, such as market-seeking and resource-seeking behaviors, and outlines the roles of global institutions like the WTO, IMF, and UN in facilitating international trade. Additionally, it covers theories of international trade and investment, including absolute and comparative advantage, product life cycle theory, and Dunning's Eclectic Paradigm, which explain the motivations behind international business activities.

Uploaded by

anabelonwuka
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Week 1: Introduction to International Business

Week 1: Introduction to International Business

International Business and Globalization

International business refers to the exchange of goods, services, technology, capital,


and knowledge across national borders. As globalization intensifies, the world is
becoming more interconnected economically, culturally, and politically. This
integration allows businesses to access broader markets, diversify their operations,
and benefit from comparative advantages across regions.

Globalization, the driving force behind international business, encompasses the


process by which businesses and other organizations develop international
influence or start operating on an international scale. Its primary drivers include
technological advancements (especially in communication and transportation),
reduction in trade barriers, liberalization of markets, and the increasing significance
of multinational corporations.

Drivers of Internationalization

Internationalization is the strategic process businesses undergo to expand


operations beyond domestic borders. Key drivers include:
- Market-seeking behavior: Access to new customer bases.
- Resource-seeking behavior: Access to cheaper or higher-quality inputs.
- Efficiency-seeking: Optimizing production by locating in cost-effective
environments.
- Strategic asset-seeking: Acquiring advanced technologies or brand value.

Global Institutions Supporting International Business

Several institutions play critical roles in regulating, facilitating, and supporting


international trade and business:
- World Trade Organization (WTO): Oversees global trade rules among nations. It
ensures trade flows as smoothly and predictably as possible and provides a
platform for negotiating trade agreements and resolving disputes.
- International Monetary Fund (IMF): Provides financial support and economic
guidance to member countries, especially in cases of balance-of-payments issues. It
promotes international monetary cooperation and exchange rate stability.
- United Nations (UN): While not a trade organization per se, the UN impacts
international business through policies related to development, labor, and human
rights. Its sub-agencies, like UNCTAD, directly support global trade and
development initiatives.

In summary, the dynamics of international business are shaped by globalization


forces and supported by institutional frameworks that facilitate cooperation and fair
trade practices.
Week 2: Theories of International Trade and Investment
Week 2: Theories of International Trade and Investment

International Trade and Investment Theories

Understanding the motivations and mechanisms behind international trade and


investment is central to international business studies. Several classical and modern
theories offer insights into why nations engage in trade and how firms
internationalize.

1. Absolute and Comparative Advantage

Proposed by Adam Smith, the absolute advantage theory posits that countries
should produce and export goods they can produce more efficiently than others, and
import goods in which other countries have an advantage.

David Ricardo extended this with the comparative advantage theory, which shows
that even if a country lacks absolute advantage, it can benefit from trade by
specializing in products where it has the lowest opportunity cost. This principle
forms the foundation for free trade policies and supports global specialization.

2. Product Life Cycle Theory

Raymond Vernon’s Product Life Cycle (PLC) theory explains how a product’s
production location shifts over its lifecycle:
- Introduction: New products are developed and sold in the innovating country
(usually developed economies).
- Growth: As demand increases, the product is exported to other developed markets.
- Maturity: Standardization leads to production being outsourced to developing
countries to cut costs.
- Decline: The product becomes commoditized; production remains in low-cost
locations while innovators move on to new products.

This model highlights how innovation and cost dynamics affect global production
and trade patterns.

3. Dunning’s Eclectic Paradigm (OLI Framework)


John Dunning’s Eclectic Paradigm, also known as the OLI model, provides a
comprehensive approach to understanding foreign direct investment (FDI). It
suggests three key advantages must align for a firm to invest abroad:
- Ownership-specific advantages (O): Firm-specific assets such as technology, brand,
or management skills.
- Location-specific advantages (L): Host country benefits like market size, resources,
or regulatory conditions.
- Internalization advantages (I): Benefits of owning production rather than
licensing/franchising (e.g., control, IP protection).

The OLI model helps explain why firms become multinational enterprises and how
they choose investment destinations.

Collectively, these theories provide a foundational lens through which to assess


global trade and investment behaviors and strategies.

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