International Business: An Overview

• International Business involves commercial transactions across national borders.

Elements of International Business

• Foreign market entry strategies

• Participants include firms, intermediaries, facilitators, and governments

• International business risks

• International investments

• International trade

• Globalisation of markets

• Much focus is on emerging markets like BRIC and 'Big Ten' countries

• Ireland is a top 5 service exporter and a top 4 service importer

Globalisation

• Globalisation of markets is the convergence of buyer preferences, leading to the marketing of global products
• In November 2024, unadjusted goods exports totaled €20.5 billion

Consequences of Globalisation: Increasing Interdependence

• Locations are increasingly interdependent
  • Cross-border migration
  • Blending of cultures
  • More homogeneous consumption patterns
  • Global value chains connecting local clusters
  • Standardisation of various kinds
  • Cooperation in supranational institutions
• Firms are increasingly interdependent
  • More joint ventures, alliances, and M&A
  • Growing cross-border competition for markets, resources, and expertise
  • Shared agendas set by governance institutions
• People are increasingly interdependent

Case Vignette: Instagram

• Instagram is a global phenomenon
  • Has over 2 billion active users in 2023
  • Available in all languages
  • 80% of users live outside the firm's home country (USA)
  • Uses FDI to establish offices worldwide
• Globalisation involves markets and productions
• Globalisation of production involves dispersal

Benefits of Globalisation

• Market Globalisation benefits include:
  • Reduced marketing costs
  • Creation of new market opportunities
  • Levels of uneven (seasonal) income streams
  • Addresses product modifications to match local buyers' needs
  • Heightens awareness of global sustainability
• Product Globalisation benefits include:
  • Access to lower cost workers
  • Access to technical expertise
  • Access to production inputs

Forces Driving Globalisation

• Falling barriers to trade and investments facilitate globalisation
• General Agreements on Tariffs and Trade (GATT) (1947) promoted free trade by reducing tariffs and non-tariff barriers
• World Trade Organisation enforces the rules of international trade
  • Helps the free flow of trade
  • Helps negotiate the further opening of markets
  • Settles trade disputes among its members

Economic Development

• Availability of Money impacts globalisation

  • The World Bank provides financing for national economic development, especially in re-developing countries
  • The International Monetary Fund (IMF) regulates fixed exchange rates and enforces rules of the international monetary system, and promotes international monetary cooperation

• Regional trade agreements involve smaller groups of nations integrating economies by fostering trade and boosting cross-border investment

  • North American Free Trade Agreement (NAFTA) was renegotiated to USMCA
  • United States – Mexico – Canada Agreement (USMCA)
  • European Union (EU)
  • Asia Pacific Economic Cooperation (APEC)
  • G20

• Technological innovation: Digital transformation fundamentally changes operations to create customer-focused competitive advantage

  • Innovations make moving data, goods, and equipment easier, faster, and less costly
  • Involves E-commerce, email, video conferencing, Internet, SMACIT, BRAIC technologies, Intranets, Extranets, and advancements in transportation technologies

Arguments for and Against Globalisation

• The job and wages debate examines job elimination, wage lowering, and worker exploitation in developed countries versus wealth increase, labor market flexibility, and economic advancement in all nations
• The income inequality debate questions wage gaps and factory movement to low-wage nations against income boosts in developing nations
• The culture debate focuses on homogenization versus profit from specialisation
  • Homogenization is the increasing similarity of cultures
  • Hybridization is the interaction between local and global cultures that transforms cultures
• The national sovereignty debate considers national autonomy, government selection, border control, and binding international agreements
  • Erodes national sovereignty
  • Empowers supranational institutions at the expense of national governments
  • National political authorities entering into binding agreements on behalf of citizens violate the rights of state governments
• The environment debate discusses the exploitation of lax environmental laws by Western firms versus firms supporting reasonable environmental laws and sustainable practices

Economic Development Defined

• Economic development is increasing economic well-being, quality of life, and general welfare.

• Two approaches to economic development are

  • Organic development
  • Investment focus

• Nations should specialise in what they're good at (Adam Smith - International Trade)

Country Classification: Least Developed Countries

• Home to approximately 1.1 billion people.
• From 2018-2020, 80% of LDCs were classified as commodity-dependent.
• LDCs' vulnerability is caused by narrow export bases and high dependence on food imports ( pushed an additional 32 million people into extreme poverty in 2020 alone).
• From 1969-2019, 69% of worldwide deaths caused by climate-related disasters occurred in LDCs (<4% of total world greenhouse gas emissions in 2019)
• LDCs are marginalised in global trade and face additional challenges due to trade partners' environmental policies.

Measures of Economic Development

• Gross national product (GNP) measures all goods/products produced by citizens, including outside a nation's borders
• Gross Domestic Product (GDP) measures the size of the economy and total economic activity in a country.
  • Strengths include that it's a widely used standard, accurate, and includes FDI
  • Weakness include that it doesn't reflect the impact on climate due to production or voluntary activities/measure happiness
• Drawbacks of using GNP or GDP per capita, include:
  • Uncounted transactions e.g. volunteer work, unpaid household work, gambling
  • Shadow economy – represents 35% of GDP in developing/emerging economies, 15% in advanced
  • Question of growth i.e. only a snapshot of 1 year's economic output
  • Problem of averages i.e. average for entire country, but urban areas often more developed than rural
  • Pitfalls of comparison e.g. currency needs to be translated at official exchange rates, but this doesn't outline what currency can buy in home country

Uncounted Transactions During COVID in Ireland

• Hairdressers were being offered up to €200 for a haircut from clients, compared to the regular price of €40 - €50 before Covid-19
• A prolific Irish drug dealer is selling fake Covid-19 vaccine certificates on the dark web for as much as €350 each
• Goods and services often flow through shadow economies using barter, which is the exchange of goods and services without using money

Political System

• A political system includes the structures, processes, and activities by which a nation governs itself
• Totalitarianism - individuals govern without the support of the people, tightly control people's lives, and do not tolerate opposing viewpoints
  • Imposed authority
  • Lack of consstututional guarantees
  • Restricted participation
• Secular Totalitarianism: Political leaders rely on military and bureaucratic power
  • Communist totalitarianism: Social and economic equality via an all-powerful Communist party and socialism.
  • Tribal totalitarianism: Characterized by one-party system
  • Right-wing totalitarianism: Characterized by excessive pro-government propaganda/censorship/denial of rights
• China's current political system mixes LW and RW totalitarianism
  • Encouraging investment needed to modernise factories
  • Little patience for dissidents who demand greater political freedoms
  • Does not allow full freedom of press
  • See 'China's great firewall is rising' re Internet censorship.

Doing Business in Totalitarian Countries

• Pros:
  • Little political opposition
  • Potentially profitable business opportunities
• Cons:
  • Corruptive practices (bribes, kickbacks to government officials)
  • Risky
    • Different interpretation of laws
    • War
  • Ethical Dimensions (damaged publicity/Human right issues-environmental issues)
• Theocratic Totalitarianism: Religious leaders are also its political leaders
  • They enforce laws and regulations based on religious beliefs
  • Often cede power from military force
• Democracy: Government leaders are elected directly by the wide participation of the people or by their representatives
  • Freedom of expression
  • Periodic Elections
  • Full civil and property rights
  • Minority rights

Political Risk

• Likelihood that society will undergo political change that negatively affects local business activity
  • Depends on government stability, conflict, military and religious involvement in politics, corruption
  • Macro risk threatens domestic and international companies in every industry
  • Micro risk threatens companies only within a particular industry
• Sources of political risk include:
  • Conflict and violence: government resentment, territorial disputes, ethnic, racial & religious disputes
  • Terrorism & Kidnapping: means of political statement e.g. 9/11, high ransom
  • Property seizure: confiscation, expropriation, or nationalisation
  • Funds transfer: government interference regarding movement of funds
  • Policy changes: ideals of new political parties, pressure from SIGs, civil or social unrest
  • Local content requirements: use of local raw materials, local suppliers, local workers

Cultural Dimensions

• Culture: set of values, beliefs, rules, and institutions held by a specific group of people

  • Key to international business activity

• Characteristics of culture:

  • Learned behavior
  • Interrelated
  • Adapted
  • Shared

• Nation-states support and promote national culture

  • Build museums and monuments to preserve legacies of important events and people
  • Intervene in business to preserve treasures of national culture
  • Regulate culturally sensitive sectors of the economy

• Subculture: Can differ from the dominant culture in language, race, lifestyle, value, attitudes

Need for Cultural Knowledge

• A visual deception of culture could resemble an iceberg, with 9/10 of our cultural makeup existing below the surface
• Developing cultural literacy
  • Detailed knowledge about a culture that enables a person to work happily and effectively within it
  • Improves managers' ability to manage employees, market products, and conduct negotiations in other countries

Barriers to Developing Cultural Literacy

• Enthnocentricity involves believing that your culture is dominant or superior to other cultures. Seriously undermine international business projects.
• Judging other countries diets.
  • Expecting others to speak English
  • Judging cultural dress
• Colonial imperialism
• Delegitimizing others religious celebrations
• Assimilationism
• Xenophobia: Fear of other races

Components of Culture

• Aesthetics
• Physical & Material Environments
• Education
• Values & Attitudes
• Manners & Customs
• Personal Communication
• Social Strucutre
• Religion

Values

• Ideas, beliefs, and customs to which people are emotionally attached e.g. honesty, freedom, and responsibility
  • Affect a people's work ethic and desire for material possessions e.g. Guanxi in China
  • The influx of values from other cultures can be fiercely resisted
• Attitudes: reflect a people's underlying values
  • Positive or negative evaluations, feelings, and tendencies that individuals harbor toward objects or concepts
  • Learned from role models e.g. parents, teachers, and religious leaders
  • Differ from one country to another because they are formed within a cultural context
• Aesthetics: can be important when a company conducts business in another culture e.g. in advertising
• Manners: appropriate ways of behaving, speaking, and dressing in a culture
  • Customs: Habits or ways of behaving in specific circumstances that are passed down through generations in a culture
  • In specific contexts
  • Folk custom
  • Popular custom: Behaviour shared by a heterogeneous group or by several groups
  • Ways of living – e.g. McDonalds in Vietnam
• Social structure: embodies a culture's fundamental organisation, its groups and institutions, system of social positions and relationships, and the process by which its resources are distributed
  • Social group associations: Collection of two or more people who identify and interact with each other
• Social status: how a culture divides its population according to status.
  • Positions within the structure
  • Social stratification (wealth, education, family background, power)
• Social mobility: ease with which individuals can move up or down a culture’s “social ladder”
  • Caste system
  • Class system (e.g. ABC demographics)
• Education
  • The global literacy rate is 87%
  • However, around 800 million adults remain illiterate globally
  • The quality of a nation’s education system is related to its economic development
  • Problem of 'brain drain' – departure of highly educated people from one profession, geographic region, or nation to another
• Religion
  • 85% of the world's population have some religious affiliation
  • Shapes peoples’ attitudes
  • Constrains the roles of individuals in society
  • Affects consumer buying behaviour and seasonal patterns of consumption
  • Impact on international businesses
    • Legal system
    • Homogeneity of religious beliefs and tolerance
• Personal Communication - People in every culture have a communication system to convey thoughts, feelings, knowledge, and information through speech, writing, and actions
  • Spoken and written language
  • Implications for managers
  • Potential for language blunders
  • Use of lingua franca: third or ‘link’ language understood by two parties who speak different native languages
  • Idioms
  • Body language communicates through unspoken cues (facial expressions, hand gestures, intonation, eye contact, body positioning and posture) and is differs from culture to culture e.g. etiquette regarding the handshake, proximity, physical gestures, etc

Specific Aspects of a People's Beliefs and Behaviours

• Perception of time: flexible versus tight schedules

• View of work: work to live versus live to work

• Material culture: technology in a culture to manufacture goods and provide services

• Cultural change

  • Cultural trait: anything that represents a culture’s way of life, including gestures, material objects, traditions, and concepts.
  • Cultural diffusion
  • Cultural imperialism

• Making sense of national cultures: Hofstede identified six dimensions along which people differ across cultures:

  • Individualism versus collectivism
  • Aggressive versus passive goal behaviour
  • Power respect versus power tolerance
  • Time orientation between long-term and short-term outlooks
  • Acceptance versus avoidance /indulgence of uncertainty Making sense of national cultures: Hofstede identified six dimensions along which people differ across cultures

• Cultural cluster: comprises countries that share many cultural similarities, thereby reducing some of the need to customise business practices to meet the demands of local cultures

• Managerial mindsets to global culture:

  • Ethnocentric orientation: using our own culture as the standard for judging other cultures
  • Polycentric orientation
  • Geocentric orientation: a global mindset in which the manager is able to understand a business or market without regard to national boundaries

• Socialisation/Acculturation: when internalised in more than one culture can help in developing more complex skills and innovative solutions to problems

Regional Economic Integration

• Micheal McGrath is the EU commissioner for Ireland
• Is “The process by which countries in a geographic region cooperate to reduce or eliminate barriers to the international flow of products, people or capital”
• Regional trading blocs are groups of nations in a geographic region undergoing economic integration
• Free Trade Area: Economic integration by which countries remove all barriers to trade among themselves but where each country determines its own barriers against nonmembers
• Customs union: economic integration by which countries remove all barriers to trade among themselves and set a common trade policy against nonmembers
• Common Market: Economic integration by which countries remove all barriers to trade and to the movement of labor and capital among themselves and set a common trade policy against nonmembers
• Economic union: Economic integration by which countries remove all barriers to trade and the movement of labor and capital among members, set a common trade policy against nonmembers, and coordinate their economic policies
• Political union: Economic and political integration by which countries coordinate aspects of their economic and political systems
• Benefits of trade - free movement of trade
• Free movement of people
• Social progress – GDPR which is enforced by the EU
• Courts of justice
• Policies, fisheries, and agriculture
• Green deal – Climate Change
• Huge market over 440 million consumers in the EU
• Ethics of EU – it's a democracy
• Against regional integration
• Mono culture – lose our national identity
• Lack of Sovereignty – handing over control monetary or political or defence control
• EU European Union
• USMCA: United States Mexico Canada Agreement - signed by Donald Trump during first presidency
• MERCOSUR Southern Common Market
• ASEAN: Association of Southeast Asian Nations - determine the number of countries in it and name them
• APEC: determine who is in it and what it is
• AFCFTA
• Europe, after WW2 faced 2 challenges
  • Rebuild. Avoid further armed conflict.
  • Increase industrial strength to stay competitive with US

Integration in Europe - EU

• Treaty of Paris (1951) (6 countries) > European Coal and Steel Community removal remove barriers to trade in coal, iron, steel, and scrap metal

• Treaty of Rome (1957) > European Economic Community – future common market, common transportation and agricultural policies

• Single European Act (SEA) (1987) remove remaining barriers, enhance competitiveness of European companies. ‘Principle of mutual recognition’.

• Maastricht treaty (1993) – calling for a single common currency after 1/1/1999, monetary and fiscal targets for those in monetary union, and a political union of member nations (e.g. common defense policy)

• Becoming the European Union (EU) in 1994 involved bloc membership expansions with currently 27 members

• Candidates for EU membership must meet ‘Copenhagen criteria'

  • Stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities
  • Functioning market economy and the ability to cope with competitive pressure and market forces within the EU
  • Ability to take on the obligations of membership,:rules, standards and adherence to the aims of political, economic and monetary union
  • Micheal McGrath

• Ireland and UK joined in 1973

• Brexit

  • 1973: UK joined European Community
  • 2016: Referendum - Concern over loss of sovereignty, etc., led to vote to leave by 52%
  • 2020: UK officially left EU on 31st Jan
  • 2021: Trade and Cooperation Agreement between EU and UK to govern future relationship - Several challenges remained
    • 1st agreement – NI (Northern Ireland) protocol
    • Amended agreement – Windsor framework – between Ireland, UK and EU

• European Monetary Union – EU plan that established its own central bank and currency in January 1999

• Maastricht treaty outlined economic criteria to partake in the Euro/European Monetary Union

  • Consumer price inflation <3.2%; must not exceed 3 best countries by >1.5%
  • General government deficit no higher than 3% of GDP
  • Gov debt no higher than 60% of GDP
  • Interest rates on long term gov securities must not exceed, by >2%, those of 3 countries with lowest inflation rates
  • Single currency influences activities of EU companies

• 20 EU nations adopted the euro

• EU common economic policies

  • Business and industry
  • Regional Policy
  • Agriculture and rural development – Payments from EU of EU farmers
  • Competition

• European Parliament - adopts EU law by debating/amending legislation proposed by European Commission; exercises political supervision over all EU institutions

• European Commission - Executive body of EU drafting legislation, manages and implements policy, and monitors member nations compliance with EU law

  • Ursula Von Der Leyen – Leader of EU
  • Paschal O'Donohue – minister for finance
    • Personal spending 2.3%
    • Wages grew to 2.9%

6 Commission Priorities 2019-2024

• A European green deal
• A Europe fit for the digital age
• An economy that works for people
• A stronger Europe in the world
• Promoting our European way of life
• A new push for European democracy

Integration in Europe - EFTA

• Some nations didn't want to be part of a common market but wanted benefits of a free trade area
• Formed the European Free Trade Association (EFTA) in 1960 to focus on trade in industrial goods
  • Members: Iceland, Liechtenstein, Norway, Switzerland
    • Population – approx. 13.6 million; GDP - ~$990 billion
• Created the European Economic Area (EEA) via EFTA and EU to cooperate on:
  • Free movement of goods, people, services, & capital
  • Environment, social policy, and education

NAFTA and Chevy

USMCA

• Country of origin rules: Automobiles must have 75% of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5% under NAFTA)
• Labor provisions: 40-45% of automobile parts must be made by workers who earn at least $16 an hour by 2023
  • Mexico agreed to pass new labor laws to give greater protections to workers
• US farmers get more access to the Canadian dairy market
• Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond life of the author (up from 50)
• Contains a Sunset clause: The agreement adds a 16-year sunset clause – meaning the terms of the agreement expire, or “sunset,” after 16 years

International Trade

• 34-39 million Americans identify as Irish critical for Irish trade
• International Trade means the purchase, sale, or exchange of goods and services across national borders
• Domestic Trade means trade that occurs between different states, regions, or cities within a country

Key Facts About International Trade

• Value of trade passing though some nations borders actually exceeds the amount of goods and services the nation produces
• Germany counts as 13% of UKs trade
• US, UK, Germany, Netherlands and France remain Irelands most significant trading partners

Benefits of International Trade Include

• Greater choice of goods and services
• Means of job creation
• Increased revenues
• Decreased competition
• Longer product lifespan
• Easier cash flow management
• Better risk management/market diversification
• Benefits from currency exchange and conversion
• Access to export financing
• Disposal of surplus goods
• Enhanced reputation
• Opportunity to specialise

Export Insights

• Computer services exports at €228.2bn remind the largest export category

• Royalties/licences service imports at €141.8bn remained the largest import category

• Increasing global fragmentation highlights Mr. Donohoe's commitment to controlling the controllable in order to improve resilience, competitiveness, and productivity

• Subsidies: financial assistance to domestic producers in the form of cash payments, low-interest loans, tax breaks, product price supports, etc

  • Producers get subsidies because the Government wants them to make more of their product
  • Subsidies benefit 3rd level education + racing industry + agriculture industry + Health insurance + public transport

• €6.3 billion has been paid out under the EWSS

• Trade Finance article – competing with your competitors by offering credit terms through export letters of credit

• Special government agencies are responsible for promoting exports (e.g., trade official trips to meet potential business partners abroad)

• Export tariff: levied by government of a country that is exporting product

• Transit tariff: levied by government of a country that product is passing through on way to final destination

• Import tariff: levied by government of a country that is importing product:

  • Ad valorem tariff levied as % of stated price of imported product
  • Specific tariff levied as a specific fee for each unit of imported product
  • Compound tariff made up of both

• Countries levy tariffs to protect domestic producers and generate revenue

• 8th largest exporter in Europe

• Pharmaceuticals to US

• 400 million in digital exports

• 1800 clients at a time

• Enterprise Ireland are based on domestic trade

• Research Ireland

• IDA focus on international trade

• Because part of EU we can bring people from around Europe to work in Ireland

IDA In Ireland

• There are 400 IDAs(Industrial Development Agency) in Ireland

• 70% of business is repeat business

• What IDA does:

  • Funding for training – invest in production line what training you will need
  • Funding research project
  • Help companies decarbonise – reduce intact cost
  • Buy land and prep it for the next project
  • Build offices outside of main cities

• Ireland is strong in medical titanium

• A political system whereby individuals govern without the support of people, tightly control people – totalitarianism