A presentation for global international business environments

1. International Business
Dr. Magdy Abdelsattar Omar
Dr. Magdy Abdelsattar 1

2. Agenda
IB Environment
Environment
Analysis
Strategy
Formulation
Implementation
Choices
Dr. Magdy Abdelsattar 2

3. Components of Globalization
Globalization
Of
Markets
Production
Investment
Technology
Dr. Magdy Abdelsattar 3

4. Globalizations Pro’s & Con’s
Increased
1.Expansion of cross-national cooperation
2.Changes in political situations and
government policies
3.Increase in global competition.
4.Growth of consumer pressures.
5.Development of services that support IB.
6.Liberalization of cross-border trade and
resource movements.
7.Rise in and application of technology.
Criticisms
•Country Sovereignty (control).
•Environment
•Some people may lose.
•Increase to personal stress.
Dr. Magdy Abdelsattar 4

5. International Business
• International business consists
of transactions that are devised
and carried out across national
borders to satisfy the objectives
of individuals companies , and
organizations.
Dr. Magdy Abdelsattar 5

6. Why Go International
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7. Stages of Internationalization
Domestic
Company
Limits operation, Vision, Mission to National political boundaries.
International
Company
Focus on domestic practices but extend wings to foreign countries
(Export/Import).
Multinational
company
Different strategy for different market
Global
Company
Either produce in one country and market globally or produce globally
and market domestically.
Transnational
Company
Products, markets, invests and operates across the world
Dr. Magdy Abdelsattar 7

8. Approaches to International Business
Ethno-
Centric
Domestic companies view foreign markets as an extension to
domestic markets.
Poly-Centric Companies establish foreign subsidiaries and empowers its
executives.
Regi-centric Subsidiaries consider regional environment for policy/strategy
formulation.
Geo-centric Companies view the entire world as a single unit.
Dr. Magdy Abdelsattar 8

9. International Business Challenges
Exchange rate
instability
Entry
requirements
Trade barriers
Corruption &
Bureaucratic
Human capital
Technological
pirating
Quality
Dr. Magdy Abdelsattar 9

10. Business Macro-Environments
Political Factors
Economic
Factors
Social &
Cultural Factors
Technological
Factors
Legal Factors
International
Factors
Natural Factors
Dr. Magdy Abdelsattar 10

11. Business Micro-Environments
Shareholders
Creditors
Bankers &
financial
Institutions
Competitors
Suppliers &
Distributors
Market &
Intermediary
Customers
Dr. Magdy Abdelsattar 11

12. Internal Environments
Organization
Structure
Production
Finance
Marketing &
Salles
Human capital
R&D
Organization
Culture
Dr. Magdy Abdelsattar 12

13. Going International
Is there
International
Demand for the
firm's product?
Can the product
be modified to
fit a foreign
market?
Is the foreign
business climate
suited to
imports/export?
Does the firm
have or can it
get the
necessary skills
and knowledge
to do business
abroad?
Go International
Stay Domestic
YES YES YES
YES
NO NO NO NO
NO
Dr. Magdy Abdelsattar 13

14. Factors affects social and culture enviroment
Culture
Attitude
of people
Religion
Education
Income &
lifestyle
Natural
Factors
Demograp
hic Factors
Taste &
Preference
Health &
safety
factors
Family
Technolog
ical
factors
Dr. Magdy Abdelsattar 14

15. Dimensions of National Culture (Hofstede)
POWER DISTANCE INDEX (PDI)
INDIVIDUALISM VERSUS COLLECTIVISM (IDV)
MASCULINITY VERSUS FEMININITY (MAS)
UNCERTAINTY AVOIDANCE INDEX (UAI)
LONG TERM ORIENTATION VERSUS SHORT TERM NORMATIVE
ORIENTATION (LTO)
INDULGENCE VERSUS RESTRAINT (IVR)
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16. Cultural approach
Poly-
centrism
Ethno-
centrism
Geo-
centrism
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17. Political Enviroment
• Political ideology is the body of complex ideas, theories and
objectives.
• Political ideology of the people in the same country vary widely due
to the variation in culture, ethnic group, tribal. Community, religious
and economic groups.
• Democracy: Pure democracy aims that all citizens should be equal politically
and legally and should enjoy freedom.
• Totalitarianisom: is extreme to democracy.
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18. Political spectrum
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19. Types of Governments Governments
Representative
Democracy
Parliamentary
Democracy
Presidential
Democracy
Authoritarian
Democracy
Religious
Democracy
Totalitarianism
Communist
totalitarianism
Theocratic
totalitarianism
Tribal
totalitarianism
Right wing
totalitarianism
Dr. Magdy Abdelsattar 19

20. Legal system components
• Legal ststem: Is the mechanism
for conceiving, stipulating,
interpreting, and enforcing the
laws in a formal jurisdiction.
Constitutional
Law
Criminal
Law
Civil and
Commercial
Law
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21. Economic System
• Economic System: It is an organization of institutions to satisfy human
needs/wants.
• Economiuc systems are based on resource allocation.
• There are three types of economic system
• Capitalism: under this system, customer allocates resources.
• This economic system provides for economic democracy, thus giving the customer, his
choice for products.
• Communism: In this, economic system, provate property and property rights
to incom are abolished.
• Mixed: Under this system, major factor of production and distribution are
owned, managed, and controlled by the state.
Dr. Magdy Abdelsattar 21

22. Economic spectrum
Dr. Magdy Abdelsattar 22

23. Types of economics and its assessments
Developed
Developing
Economics in
Transaction
(Emerging)
Economy
Balance of
payment
Deflation
Foreign Direct
investment
Income
distribution
Inflation
Misery index
Poverty
Public debt
Unemployment
Dr. Magdy Abdelsattar 23

24. International Trade Theories
Classical country
based theories
Mercantilism
Absolute
Advantage
Comparative
Advantage
Modern Firm
based theories
Factor
proportion
Country
similarity
Product life
cycle
Global
Strategic
Rivalry
Dr. Magdy Abdelsattar 24

25. Factor Mobility Theory
production
factors
Capital
Labour
Land
Entrepreneurship
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26. Protectionism: Governmental actions to influence international trade are known as protectionism.
Economic Rationales
To fight unemployment
To protect infant industries
To develop an industrial base
Economic relationships with other countries
Noneconomic Rationales
Maintain essential industries
Promoting acceptable practices abroad
Maintain or extend spheres of influence
Preserve national culture
Dr. Magdy Abdelsattar 26

27. Instruments of Trade Control
Instruments
Tariff (Duty) Subsidies Non-Tariff
Aids and Loans
Quotas
Embargo
Buy Local
Legislation
Standards and
Labels
Specific
Permission
Requirements
Administrative
Delays
Dr. Magdy Abdelsattar 27

28. Kindss of Economic Integration
Free Trade
Area
Group of countries agreeing to abolish all trade restrictions.
Customs
Union
+ they adopt a uniform commercial policy of barriers and
restrictions.
Common
Market
++ they allow free movement of human resource and capital.
Economic
Union
+++ Achieve uniformity in monetary fiscal policy.
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29. Important Trading Blocks
OPEC NAFTA SAARC EU
ASEAN APEC SAFTA MERCOSUR
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30. Important International Trading Institutions
World Bank IMF WTO GATT
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31. Foreign Exchange
Over the
counter
market
The OTC market is composed of
commercial banks, investment
banks, and other financial
institutions.
Exchange
traded
market
The exchange-traded market
comprises securities exchanges,
where certain types of foreign-
exchange instruments, such as
futures and options, are traded.
Spot
transactions
forward
transactions
FX Swap
Options
Futures
Dr. Magdy Abdelsattar 31

32. Foreign Exchange
American
terms,
(direct
quote)
which is the number of
units of the domestic
currency for one unit
of the foreign currency
European
terms,
(indirect
quote)
It is the number of
units of the foreign
currency for one unit of
the domestic currency
CME
Group
NASDAQ
NYSE:
ICE
Dr. Magdy Abdelsattar 32

33. International Financial Market
Dr. Magdy Abdelsattar 33

34. International institutions
BIS
Bank for International Settlements
IMF
International Monetary Fund
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35. Determination of Exchange Rates
Brenton Woods Agreement
Quota
System
Special
Drawing
Right (SDR)
Hard Peg
dollarization
currency
board
Soft Peg
conventional
fixed-peg
arrangement
Floating
Arrangement
Dr. Magdy Abdelsattar 35

36. Determination of Exchange Rates
The role of
Central Banks
Central Bank
Reserve Assets
Central Banks
and
Intervention in
the Market
Black Markets
Convertible
Currencies
Hard and Soft
Currencies
Dr. Magdy Abdelsattar 36

37. Global Debt and Equity Markets
CFO
Make
financing
decisions
Make
investment
decisions
Manage
short-term
capital
International
Bonds
Foreign
bonds
Eurobond
Global
Bond
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38. Taxation and Business
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39. Foundations of Ethical Behavior
• learn what is right and wrong but don’t necessarily understand why their behavior is
right or wrong.
Preconventional level
• we learn role conformity, first from our peers (including parents), then from societal laws
Conventional level
• or principled level, where individuals internalize moral behavior, they truly believe such
behavior is right
Postconventional level
Dr. Magdy Abdelsattar 39

40. Foundations of Ethical Behavior
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41. Foundations of Ethical Behavior
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42. IB Strategy
Position
Choices
Actions
Dr. Magdy Abdelsattar 42

43. Elements of Business Enviroments
• political stability.
• Government's foreign relations.
• political system
• Legal integrity of system
Political & Legal
status
• Level of development.
• Infrastructure conditions.
• Economic and price stability.
• Economic policy.
Economic Status
• Language and cultural traditions.
• Educational status.
• Social psychology.
• Religious beliefs.
Social & Culture
status.
Dr. Magdy Abdelsattar 43

44. Kindss of International Risks
Political Risks Disruptions owing to internal or external events or regulations as a
result of government.
Economic Risks Exposes the business performance.
Competitive
Risks
Assessment on competition prevailing in a country.
Operations
Risks
Risk of infrastructure, taxation, policies, availability of raw material.
Foreign
exchange risk
Natural of foreign currency and exchange rate changing
Dr. Magdy Abdelsattar 44

45. IB Strategy Value Creation
Resources
Capabilities
Core
Competencies
Dr. Magdy Abdelsattar 45

46. IB Strategy Value Creation
Business Level
Generic
strategies
Cost
leadership
strategy
Differentiatio
n strategy
Integrated
cost
leadership/
differentiat
ion
strategy
Corporate Level
International
Strategy
Localizatio
n Strategy
Global Strategy
Transnation
al Strategy
Dr. Magdy Abdelsattar 46

47. Competing Dilemma
Potential to standardize.
Responding
to local
customers’
preferences.
institutional agents.
Mapping
the
Interaction.
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48. Location Choices
Dr. Magdy Abdelsattar 48

49. Country Attractiveness/Strength (GE-McKinsey) Matrix
Grow Hold
Hold Harvest
Dr. Magdy Abdelsattar 49

50. Mods of Entry
Direct/Indirect
Exporting
Mergers &
Acquisition
Turn Key
Project
Direct
Investment
Franchising &
Licensing
Joint Ventures
Management/
Manufacturing
Contract
Dr. Magdy Abdelsattar 50

51. Types of exporters
Non-
Exporter.
Irregular
Exporter.
Regular
Exporter.
Who are Importers?
Input
Optimizers
Opportunistic
Arbitrageurs
Dr. Magdy Abdelsattar 51

52. Problems and Pitfalls to Exporting
Financial risk.
Customer
Management.
International
Business
Expertise.
Marketing
Challenges.
Top
Management
Commitment
Government
Regulation.
Trade
documentation
Dr. Magdy Abdelsattar 52

53. Countertrade
Barter
Buyback
Offset
Switch or
Swap
trading
Counter-
purchase
Dr. Magdy Abdelsattar 53

54. International Collaborative
Reasons for Failures
Relative importance to
partners.
Control problems.
Divergent objectives.
Comparative contributions and
appropriations.
Differences in culture.
Considerations for Success
Fitting modes to country
differences.
Finding and evaluating
partners.
Negotiating agreements: The
question of secrecy.
Controlling through contracts
and trust.
Evaluating continually.
Adjusting the internal
organization.
Dr. Magdy Abdelsattar 54

55. Factors Affecting to Operate Abroad
•Geographic:
•Demographic.
Physical factors.
•Culture
•Politics
•Law
•Economy
Institutional
factors.
•Customers
•Suppliers
•Distributors
Competitive
factors.
Dr. Magdy Abdelsattar 55

56. Supply Chain Management
Global
Operation
strategy
compatibility
configuration
coordination
control.
Dr. Magdy Abdelsattar 56

57. Supply chain configurations
Sourcing
Configurations
Vertical
integration
Utilizing
industrial
clusters.
Make or Buy
Decisions .
Supplier
relationships
.
Conflict
Minerals .
Dr. Magdy Abdelsattar 57

58. Supply chain Technology
EDI (Electronic Data Interchange)
ERP (Enterprise Resource Planning)
RFID (Radio Frequency ID)
Private technology exchange (PTX),
Extranet
Intranet
Dr. Magdy Abdelsattar 58

59. Quality Standards
Six Sigma
ISO
Standards
Industry Specific
Standards
Company
Specific
Standards
Dr. Magdy Abdelsattar 59

60. Marketing
Orientations
Production Orientation
Sales Orientation
Customer orientation
Strategic Marketing Orientation
Social Marketing Orientation
Segmenting
Global Segment
By Country
Mixing the Marketing Mix
Mass Markets
Dr. Magdy Abdelsattar 60

61. Product
Standardization
Legal considerations
Cultural considerations
Economic considerations
Country Adaptation
Dr. Magdy Abdelsattar 61

62. Pricing
Government
Intervention
Export Price
Escalation
Market
Diversity
Fluctuations
in Currency
Value
Fixed Versus
Variable
Pricing
Dr. Magdy Abdelsattar 62

63. Factors in Push–Pull Decisions.
Type of distribution system.
Cost and availability of media to reach target markets
Consumer attitudes toward sources of information.
Price of the product compared to incomes
Dr. Magdy Abdelsattar 63

64. International
Accounting
Standards • U
• S
• G
• A
• A
• P
Dr. Magdy Abdelsattar 64
• United
• States
• Generally
• Accepted
• Accounting
• Principles
• I
• F
• R
• S
• International
• Financial
• Reporting
• Standards
• F
• A
• S
• B
• Financial
• Accounting
• Standards
• Board
• I
• A
• S
• B
• International
• Accounting
• Standards
• Board
US GAPP
IFRS
156
Rules-based Principles-based

65. Translating Financial Statements
Translation
•the process of restating foreign-currency
financial statements into U.S. dollars
Consolidation
•the combination of all these translated
financial statements into one.
Dr. Magdy Abdelsattar 65

66. Translation Method
Functional
Currency
Local currency
Current rate
Reporting
currency of
parent
Temporal
method
Risk Exposure
Translation
exposure
occurs because exposed accounts—those
translated at the current exchange rate—
either gain or lose value in dollars when
the exchange rate changes.
Transaction
exposure: Denominating a transaction in a foreign
currency gives rise to transaction
exposure because the company has
accounts receivable or payable in foreign
currency that must be settled eventually.
Economic
exposure,
also known as operating exposure, is the
potential for change in expected cash
flows that arises from the pricing of
products, the sourcing and cost of inputs,
and the location of investments.
Dr. Magdy Abdelsattar 66

67. Staffing Frameworks
Ethnocentric. Polycentric
Geocentric
Dr. Magdy Abdelsattar 67

68. Selection Considerations
Technical
competence
Self-orientation.
Others
orientation.
Resourcefulness.
Global mindset.
Dr. Magdy Abdelsattar 68

69. Preparation and Development
Predeparture
preparation programs.
In-country
development
programs.
Family Matters
Compensation Plans
Dr. Magdy Abdelsattar 69

70. Organization
Structures
Classical
Vertical
Centralization
Decentralization
Horizontal
Functional
structure
Divisional
structure
Global Matrix
Mixed Structure
Neoclassical
Network
structure
Virtual
Organization
Dr. Magdy Abdelsattar 70

71. Coordination Systems
Coordination by
standardization
Coordination by plan
Coordination by mutual
adjustment
Control Systems
Bureaucratic Control
Market Control
Clan control
Dr. Magdy Abdelsattar 71

72. Organization Culture
Dr. Magdy Abdelsattar 72