International

Business and
Accounting
What is International business?

The study of transactions taking place across

national borders for the purpose of satisfying
the needs of individuals and organizations.
What is Globalization?

 Globalization is the word used to describe the

growing interdependence of the world’s economies,
cultures, and populations, brought about by cross-
border trade in goods and services, technology, and
flows of investment, people, and information.
Why study International Business?

 Globalization has led to almost all businesses being

international to some extent
 Today it is almost impossible to find a product or
service that does not have an international aspect to
its customer base, as well as at least one element of
its supply chain
 By supply chain, we refer to the chain inputs that
come from other sources, including the raw
materials, components, and equipment used to
produce, store, and package the product or service
Factors affecting International
Business
Internal Factors (Micro-environment):
 Company Strategy
 Company Resources
 Company expansion
 Route (type and nature of entry and expansion)
 Type of products and services
 Nature of products and services
 Nature and Number of markets
Factors affecting International
Business
 External Factors (Macro Factors):
Macroenvironment/ external environment is
the total environment outside the firm, in
which firms operates includes-
 Political

 Economic

 Social

 Technological

 Legal

 Environmental
Macro-environment:
Factors Contributing to Rapid
Growth in International Business
 Increase in and wider application of technology
E.g., internet, transportation, online operations
 Liberalization of cross-border trade and resource movements
E.g., Zara, Levi's manufacturing in Pakistan, Airbus etc.
 Removal of political and trade barriers
E.g., CPEC, NAFTA, SAARC, EU etc.
 Development of services that support international business
E.g., R&D centers, Call centers, education, hotels, airports etc.
 Growing consumer demand and pressures
E.g., Fashion, styles, new products, green products
Factors Contributing to Rapid
Growth in International Business
 Increase in global competition
EXP- Apple, Samsung, One Plus etc.
 Interconnected marketplace (Global Market)
E.g., Starbucks vs Sattar Buksh.
 Increasing adoption of International Rules
E.g., ISO certifications, AACSB
accreditation etc.
International Trade

 The “classical” view of international business has

been international trade, in the form of exporting
and importing.
 Trade is about transactions between actors that are
physically located in different places.
 These actors may be in the same country, but
located in different states or provinces, for instance.
 They may be in different countries; in which case
the activity is known as international trade.
Exports and Imports

 Exports:Goods and services produced

by a firm in one country and then sent
to another country.
 Imports:Goods and services produced
in one country and bought in by
another country.
Economic globalization: The growing interdependence of locations
and economic actors across countries and regions.

Economic Actors: includes not only MNEs, but all formally and systematically organized entities (such as non-
governmental organizations, clubs, associations, charities, governmental organizations, state-owned firms, hospitals, research
centers, and universities), and firms of all sizes from very small entrepreneurs to large firms.
Interdependence

 It refers to a mutual reliance between groups of

actors, and the degree of this mutual reliance can
vary considerably.
Example:
The decision of the United Kingdom to withdraw from
the European Union in June 2016 proved to be difficult
to implement because both the EU and the UK are
highly interdependent and are bound very tightly
together.
Types of Interdependence:
Upstream vs Downstream
 Upstream production is the process of exploring and extracting
raw materials, whereas the downstream stage involves
processing the materials into a finished product and selling it
Upstream vs Downstream Supply
Chain Activities
Push vs Pull Factors

 Push factors relate to phenomena in a company's

domestic market that motivate it to enter into new
markets.
 Pull factors are phenomena in other international
markets that draw the company to them.
Factors that shape Globalization
 There are an assortment of “push” and “pull” factors as
well, which affect the capacity of a firm to
internationalize.
 At the upstream end of the firm’s activities, it must
balance push factors arising from rising prices of inputs
that encourage it to go abroad to seek cheaper inputs. At
the same time, these activities are “pulled” abroad
because there are scale economies from relocating these
activities in foreign locations.
 At the downstream end, closer to the final market and
the customer, there are a variety of push and pull
factors. The home market may be mature, and firms
need to seek new opportunities for growth in new and
faster-growing countries (push factor). On the other
hand, there may be barriers to exports that encourage
Dynamics of Globalization
Global Market Convergence

A process of homogenization with multiple

dimensions such as culture, policy, and
economy across nations.
 Theway consumption patterns in products
appear to evolve and become more similar
across different parts of the world.
What are institutions?

 Institutions are the “sets of common habits,

routines, established practices, rules, or laws that
regulate the interaction between individuals and
groups.” They are the “invisible glue” that holds all
economic actors together.
 Institutions can be formal and informal.
Formal and Informal Institutions
 Formal institutions are rules that may take the form of
legal codes, laws, and promulgations, government
decrees that are legally laid out and codified. Formal
institutions can also exist in the form of rules within a
firm. Responsibilities, job descriptions, codes of conduct,
and accounting and financial regulations are all forms of
formal institutions that are binding upon employees
within a firm.
 Informal institutions are—by definition—not always laid
out in the form of written instruction, but come out of
usage and tradition and are often unwritten and tacit.
That is, people in that particular environment may
“know” these rules, but to outsiders they are unknown,
and are often transmitted simply by use.
Institutional Inertia

 Formal institutions can be changed by senior

management (the dress code in IBM used to be a
formal institution) and by countries when new laws
are passed by government, but this does not
necessarily change the behavior of people. There
may be a formal law that requires firms not to
discriminate on the basis of age or gender, but this
does not change the informal institution: there is
still a glass ceiling for women in most companies.
Habits and routines continue to prevail, often long
after the formal institutions have changed. This is
known as institutional inertia. In general, informal
Example

 Almost all European countries passed laws that

forbade smoking in public spaces 20 years ago, but
it took another 10 years before it became socially
unacceptable to do so
World Trade Organization

 The World Trade Organization (WTO) was

established on January 1, 1995, and it is now the
umbrella organization that governs the international
trading system.
 An international organization that deals with the
rules of trade among member countries; one of its
most important functions is to act as a dispute-
settlement mechanism.
 It is the successor to the General Agreement on
Tariffs and Trade (GATT)- A major trade agreement
that was established to negotiate trade concessions
among member countries, and since superseded by
Objectives of WTO

(1) to set and enforce rules for international trade,

(2) to provide a forum for negotiating and monitoring
further trade liberalization,
(3) to resolve trade disputes,
(4) to increase the transparency of decision-making
processes,
(5) to cooperate with other major international
economic institutions involved in global economic
management, and
(6) to help developing countries benefit fully from the
global trading system
Functions of WTO
1. To implement rules and provisions related to trade policy
review mechanism.
2. To provide a platform to member countries to decide future
strategies related to trade and tariff.
3. To provide facilities for implementation, administration and
operation of multilateral and bilateral agreements of the
world trade.
4. To administer the rules and processes related to dispute
settlement.
5. To ensure the optimum use of world resources.
6. To assist international organizations such as, IMF and IBRD
for establishing coherence in Universal Economic Policy
determination.
What are Tarriffs?
 A tariff is a type of tax levied by a country on an
imported good at the border. Tariffs have historically
been a tool for governments to collect revenues, but
they are also a way for governments to try to protect
domestic producers.
 As a protectionist tool, a tariff increases the prices of
imports. As a result, consumers would choose to buy the
relatively less expensive domestic goods instead.
 Governments may impose tariffs to raise revenue or
protect domestic industries—especially nascent ones—
from foreign competition. By making foreign-produced
goods more expensive, tariffs can make domestically
produced alternatives seem more attractive.
Bilateral vs Multiteral trade
agreement
 Bilateral trade occurs between two nations. In this
trade, the partner countries trade their goods and
services with one another on a favored ground
based on a bilateral trade agreement.
 Multilateral trade agreements are commerce
treaties among three or more nations. The
agreements reduce tariffs and make it easier for
businesses to import and export. Since they are
among many countries, they are difficult to
negotiate.