What is International Business? Business transactions between parties from more than one country...
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What is International Business?
Business transactions between parties from more than one country– Buying & selling raw materials, finished
goods, or services across borders.
– Operating factories or facilities overseas.
– Borrowing money in one country to finance operations in another.
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How Does International BusinessDiffer from Domestic?
Currency conversions are required Differing legal systems Cultural differences Economic differences Infrastructure differences
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Why Study International Business?
Most of us will work for companies that have international connections.
To develop cultural literacy. To keep in step with management
tools, production techniques, and technology that other countries are developing.
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Why Companies Trade
To increase sales & broaden markets To seek cheaper raw materials or to
lower production costs To find goods not available in
domestic markets, or at a lower price than those available domestically
To seek better prices for their products
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Comparative Advantage
Produce and export those goods and services for which it is relatively more productive than other countries
Import those goods and services for which other countries are relatively more productive than it is
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International Business Activities
Exporting and Importing International Investments Licensing, Franchising, and
Management Contracts
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Exporting and Importing
Exporting: selling of products made in one’s own country for use or resale in other countries
Importing: buying of products made in other countries for use or resale in one’s own country
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International Investments
Capital supplied by residents of one country to residents of another
2 categories:– Foreign direct investments
– Portfolio investments
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Other Forms of International Business Activity
Licensing: firm in one country licenses the use of its intellectual property to a firm in a second country in return for a royalty payment
Franchising: firm in one country authorizes a firm in another country to utilize its operating system and intellectual property
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Management Contracts
A firm in one country agrees to operate facilities or provide other management services to a firm in another country for an agreed-upon fee
Common in upper-end international hotel industry
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Vital Information in International Business
Basic geography Market characteristics Culture Politics
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Political Risk
Ownership risk Operating risk Transfer risk
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Examples of Political Risks
Expropriation Confiscation Campaigns against
foreign goods Mandatory labor
benefits legislation Civil wars Inflation
Kidnappings, terrorist threats, and other forms of violence
Repatriation Currency
devaluations Increased taxation
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Basic Country Knowledge
Is the country a democracy or dictatorship? Does country rely on free market or
government controls? Does government view foreign firms as
positive influence? Are firm’s customers private or public? Does government act arbitrarily? Is existing government stable?
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Insurance against Political Risks
Overseas Private Investment Corporation (OPIC)
Multilateral Investment Guarantee Agency (MIGA)
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Elements of Culture
Culture
Social Structure
Language
Values/ Attitudes
Communication
Religion
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Hall’s Low-Context, High-Context Approach
Low-context: words used by speaker explicitly convey speaker’s message
High-context: the context in which a conversation occurs is just as important as the words spoken; cultural clues are critical to communication
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Figure 4.2 High- and Low-Context Cultures
Ger
man
Sw
iss
Sca
ndin
avia
n
U.S
./ C
anad
ian
Bri
tain
Ital
ian
Spa
nish
Gre
ek
Ara
b
Vie
tnam
ese
Japa
nese
Kor
ean
Chi
nese
LowContext
HighContext
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Hofstede’s Five Dimensions
Social Orientation Power Orientation Uncertainty Orientation Goal Orientation Time Orientation
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Social Orientation
Individualism Collectivism
Relative importance of theinterests o the individual versus
interests of the group
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Power Orientation
Power Respect Power Tolerance
Appropriateness of power/authority within
organizations
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Uncertainty Orientation
Uncertainty Acceptance Uncertainty Avoidance
An emotional responseto uncertainty and change
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Goal Orientation
Aggressive Goal Behavior Passive Goal Behavior
What motivates peopleto achieve different goals
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Time Orientation
Long-term Outlook Short-term Outlook
The extent to whichmembers of a culture
adopt a long-term or a short-termoutlook on work and life
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Spectrum of Effects
Free Trade No Trade•Jobs migrate
•Low wages
•Poor conditions
•Fewer jobs in developing countries
•Higher prices
•Fewer products
Trade with Social Responsibility
How? Code of Ethics
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Issues on Trade Intervention
Should a national government intervene to protect the country’s domestic firms by taxing foreign goods entering the domestic market or constructing other barriers against imports?
Should a national government directly help the country’s domestic firms increase their foreign sales through export subsidies, government-to-government negotiations, and guaranteed loan programs?
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Industry-Level Arguments
National Defense Argument Infant Industry Argument Maintenance of Existing Jobs Strategic Trade Theory
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Strategic Alternatives
Global StrategyThe firm views the world assingle marketplace. Primarygoal is to create standardizedproducts
Home ReplicationThe firm uses the core com-petency or firm-specific advantage it developed athome
Multidomestic StrategyThe firm operates as a collection of relativelyindependent Subsidiariesfocusing on domestic market
Transnational StrategyThe firm attempts to combinethe benefits of global scaleefficiencies with the benefitsof local responsiveness
Low HighPressures for Local Responsiveness and Flexibility
Pre
ssur
es f
or G
loba
l E
ffic
ienc
ies
High
Low
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Choosing a Mode of Entry
Exporting
InternationalLicensing
InternationalFranchising
Specialized Modes
Foreign Direct Investment
Decision Factors:Ownership advantagesLocation advantagesInternalization advantagesOther factors
Need for controlResource availabilityGlobal strategy
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Marketing
Process of planning and executing the conception, pricing, promotion,
and distribution of ideas, goods,and services to create exchanges that satisfy
individuals and organizational objectives
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Marketing Mix
How to develop the firm’s products How to price those products How to sell those products How to distribute those products to the
firm’s customers Who is the Target Market?
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Figure 16.2 The Elements of the Marketing Mix for International Firms
Product PlacePromotionPricing
Marketing Mix
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Standardization versus Customization
Should the firm adopt an ethnocentric approach?
Should it adopt a polycentric approach?
Should it adopt a geocentric approach?
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Method of Payment
Payment in advance Open account Documentary collection Letters of credit Credit cards Countertrade
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Necessary Skills and Abilities for International Managers
Skills and AbilitiesNecessary to DoThe Job
•Technical•Functional•Managerial
Skills and AbilitiesNecessary to WorkIn a Foreign Location
•Adaptability•Location-specific skills•Personal characteristics
Improved Chances of Succeeding inAn International Job Assignment
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Phases in Acculturation
Honeymoon
Disillusionment
Adaptation
Biculturalism
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Thanks for a fun quarter!