Introduction to International Business Environment 1

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INTRODUCTIONTO INTERNATIONAL

BUSINESS ENVIRONMENTBy Dr. Archana Singh


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OBJECTIVE

To define globalization and international businessand show how they affect each other

To understand why companies engage ininternational business and why internationalbusiness growth has accelerated

To discuss the major criticisms of globalization

To become familiar with different ways in which acompany can accomplish its global objectives

To apply social science disciplines to understandingthe differences between international and domesticbusiness


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WHATIS INTERNATIONAL BUSINESS?

International business

involves all commercial transactionsprivate andgovernmentalbetween parties of two or more

countries. Global events and competition affectalmost all firmslarge or small. However, theinternational environment is more complex anddiverse than a firms domestic environment.


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Two mega trends are underscored that havealtered the international businesslandscape:

the globalization of markets or economiesand technological advances.


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PHASESOFGLOBALISATION


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THE FORCES DRIVINGGLOBALIZATION

Increase in and Expansion of Technology

Liberalization of Cross-Border Trade andResource Movement

Development of Services That SupportInternational Business

Growing Consumer Pressures

Increased Global Competition

Changing Political Situations Expanded Cross-National Cooperation


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WHATS WRONG WITH

GLOBALIZATION?

Threats to National Sovereignty

Economic Growth and Environmental Stress

Growing Income Inequality


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WHYDO FIRMS INTERNATIONALIZE?

1. Seek opportunities for growth through marketdiversification

2.Earn higher margins and profits

3.Gain new ideas about products, services, andbusiness methods

4.Better serve customers that have relocatedabroad

5.Be closer to supply sources, benefit from globalsourcing advantages, or gain flexibility in thesourcing of products


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CONTD

6. Gain access to lower-cost or better-valuefactors of production

7. Develop economies of scale in sourcing,

production, marketing, and R&D

8. Confront international competitors moreeffectively or thwart the growth ofcompetition in the home market

9. Invest in a potentially rewardingrelationshipswith foreign partners


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WHY STUDY INTERNATIONAL BUSINESS?

A facilitator of the global economy andinterconnectedness

A contributor to national economicwell-being

A competitive advantage for the firm

An activity with societal implications

A source of competitive advantage foryou


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CONTRIBUTORTO NATIONAL ECONOMICWELL-BEING

International trade is a critical engine for jobcreation. It is estimated that every $1 billionincrease in exports creates more than 20,000 new

jobs.

One of every seven dollars of U.S. sales is madeabroad.

International business is both a cause and a resultof increasing national prosperity.

Prosperity is accompanied by literacy rate gains,nutrition and health care improvements, with sometendencies towards freedom and democracy.


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A COMPETITIVE ADVANTAGEFORTHE FIRM

Increase sales

Maximize returns: Foreign markets often generatereturns far superior to those in domestic markets.

Global scale economies: International players canmaximize their efficiencies by securing cost-effective factor inputs from around the world.

Resource acquisition: Access to otherwiseunavailable critical resources


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AN ACTIVITYWITH SOCIETAL IMPLICATIONS

As firms increase their international activities, so doesresponsibility to society to be a good corporate citizen.

Large corporations like Wal-Mart, Unilever, and Sony haveannual revenues larger than the GDPs of many of the nationsthey operate.

The internationalization of thousands of firms negativelyimpacts the natural environment, e.g. pollution (Royal DutchShells refining operations in Nigeria).

Large banks and international investment brokers havedisrupted the economies of nations with aggressive currency

trading or by manipulating stock markets. Some MNEs ignore human rights and basic labor standards

by establishing factories in countries that pay low wages withsubstandard working conditions, e.g. Nike in Asia.

Building factories abroad often leads to job losses at home.


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A COMPETITIVE ADVANTAGEFOR YOU

Working across national cultures exposesmanagers to a diversity of experiences, newknowledge, novel ways of seeing the world, andunusual challenges.

Internationally-experienced managers are typicallymore self-confident, cosmopolitan, and havepositioned themselves for unique professionalopportunities.


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MODES OF OPERATION IN INTERNATIONAL

BUSINESS

Merchandise Exports and Imports

Service Exports and Imports

Investments

Direct Investment. Foreign direct investment (FDI)occurs when an investor gains a controlling interest in aforeign operation. A joint venture represents a directinvestment in which two or more parties shareownership of an FDI.

Portfolio Investment. Portfolio investment is a noncontrolling interest in a venture made in the form ofeither debt or equity. Often, firms use portfolioinvestment as part of their short-term financial strategy.


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TYPESOF INTERNATIONAL ORGANIZATIONS

There are numerous forms of collaborativearrangements through which companies worktogether internationally, such as minority ownership,licensing agreements, management contracts, or

other long-term contractual arrangements.


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Introduction to International Business Environment 1

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