This document defines key terms related to international business such as globalization, which refers to interdependent relationships among people from different parts of the world divided into nations, and international business, which involves commercial transactions between two or more countries. It also discusses reasons why firms engage in international business such as expanding sales and acquiring resources. Several theories of international business are presented, including comparative advantage and product life cycle theory. Modes of operation and types of international organizations are defined. Constraints and opportunities for international business in various regions are outlined.

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

2. 1-2
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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?
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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

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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.

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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

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Conditions of globalization
Four dimensions are used to rank countries in
globalization.
• Economic interdependence,
• Technological support for globalization,
• personal contact, and
• Political relationship globally.

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The Criticisms of Globalization
• Threats to national sovereignty
• Growth and environmental stress
• Growing income inequality

9. Globalization: Cause and Effect
1-9
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10. 1-10
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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

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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
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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.