International business

1. International Business
Part One
Background For International
Business
Chapter One
Globalization and International
Business

2. 1-2
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Definition of Globalization
The broadening set of
interdependent relationships
among people from different
parts of a world that happens
to be divided into nations

3. Globalization: What does it really
mean?
1-3
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

4. 1-4
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Definition of International Business
(IB)
All commercial transactions—
including sales, investments,
and transportation—that take
place between two or more
countries

5. 1-5
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Importance of Studying IB
• IB comprises a large and growing portion of the
world’s total business.
• Most companies either are international or
compete with international companies.
• Modes of operations may differ from used
domestically. The best way of conducting business
may differ by country.
• An understanding of IB helps making better career
decisions.

6. 1-6
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Factors in Increased Globalization
• Increase in and expansion of technology
• Liberalization of cross-border trade and resource
movements
• Development of services that support
international business
• Growing consumer pressures
• Increased global competition
• Changing political situations
• Expanded cross-national cooperation

7. 1-7
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Conditions of globalization
Four dimensions are used to rank countries in
globalization.
• Economic interdependence,
• Technological support for globalization,
• personal contact, and
• Political relationship globally.

8. 1-8
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
The Criticisms of Globalization
• Threats to national sovereignty
• Growth and environmental stress
• Growing income inequality

9. Globalization: Cause and Effect
1-9
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

10. 1-10
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Reasons That Firms Engage in
International Business
• Expanding sales
• Acquiring resources
• Minimizing risk

11. Why are firms motivated to expand their
business internationally?
Theories of International
Business
Theory of Comparative Advantage
 Specialization by countries can increase
production efficiency.
Imperfect Markets Theory
 The markets for the various resources
used in production are “imperfect.”

12. Why are firms motivated to expand their
business internationally?
Theories of International
Business
Product Cycle Theory
 As a firm matures, it may recognize
additional opportunities outside its home
country.

13.  Firm exports product
to accommodate foreign
demand.
 Firm creates
product to
accommodate local
demand.
The International Product Life Cycle
 Firm
establishes
foreign
subsidiary to
establish
presence in
foreign country
and possibly to
reduce costs.
a. Firm differentiates
product from
competitors and/or
expands product line in
foreign country.
b. Firm’s foreign
business declines as
its competitive
advantages are
eliminated.
or

14. 1-14
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Modes of Operation in
International Business
• Merchandise exports and imports
• Service exports and imports
 Tourism and Transportation
 Service Performance (Banking, Insurance,
Engineering and Management services).
 Asset Use (Licensing and Franchising)
• Investments (FDI and Portfolio investment)

15. 1-15
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Types of International Organizations
• Collaborative arrangements such as, Joint
ventures, Licensing, Franchising,
Management contracts, Minority
ownership and Long-term contractual
arrangements.
• Strategic Alliance excluding Joint
ownership.
• Multinational Enterprise (MNEs, MNCs
and TNCs).

16. International Business
Constraints
• As MNC managers attempt to maximize their
firm’s value, they may be confronted with
various constraints.
 Cultural constraints such as language, religion,
social custom and value.
 Legal constraints such as environmental
regulations, taxes, currency convertibility,
remittances.
 Ethical constraints.

17. International Opportunities
• Opportunities in Europe
 The Single European Act of 1987.
 The removal of the Berlin Wall in 1989.
 The inception of the euro in 1999.
• Opportunities in Latin America
 The North American Free Trade Agreement
(NAFTA) of 1993.
 The General Agreement on Tariffs and Trade
(GATT) accord.

18. International Opportunities
• Opportunities in Asia
 The reduction of investment restrictions by
many Asian countries during the 1990s.
 China’s potential for growth.
 The Asian economic crisis in 1997-1998.

19. International Opportunities
• Opportunities in South East Asia
 Resolution of LTTE problem in SriLanka.
 China’s potential for growth.
 Memorandum of Understanding between
India and Bangladesh.
 Transit between Bangladesh, India, Nepal
and Bhutan.