International Business and Globalization Overview

International Business and Globalization

• International business encompasses transactions like trade, investment, and knowledge transfer across borders.
• Globalization, a key driver, increases national market interconnectedness, driven by tech (communications, logistics) and policy shifts (trade liberalization).
• The GATT and WTO reduced trade barriers, facilitating smoother global trade.
• Globalization drivers include technological advancements, economic liberalization, and converging consumer preferences (e.g., smartphones, fast food).
• Globalization challenges include environmental degradation, income inequality, and cultural homogenization.

Alternative Routes to Internationalization

• Firms internationalize via various entry modes with varying risk levels and advantages.
• Exporting is a common initial step, with direct (firm-buyer) and indirect (intermediaries) variations.
• Licensing allows foreign firms to use trademarks or technology, reducing risk and control.
• Franchising provides a complete business model; an example is McDonald's.
• Joint ventures share risks and resources with local partners, particularly in complex markets.
• Wholly owned subsidiaries provide full control but entail higher operational risk; e.g., Toyota's factories in North America.
• Entry mode selection depends on resources, risk tolerance, and market potential.

Theories of International Trade

• International trade theories explain why countries trade and gain.
• Absolute advantage (Adam Smith): Specialization in goods produced most efficiently.
• Comparative advantage (David Ricardo): Benefit even if a country is less efficient in all goods (lowest opportunity cost specialization).
• Heckscher-Ohlin model: Trade based on factor endowments (resources). Examples include oil-exporting nations or garment exports from labor-abundant countries.
• Product Life Cycle theory: Trade shifts from developed to developing nations, following product innovation, standardization, and manufacturing.
• New trade theories (economies of scale and product differentiation): Important for impactful global markets. Example: Airbus and Boeing's dominance.

Overview of Emerging Markets

• Emerging markets are transitioning from developing to developed.
• Rapid industrialization and integration into the global economy. Examples include China's recent transformation.
• Characterized by increasing GDP growth rates, urbanisation, and expanding middle classes with rising purchasing power; e.g., India, Brazil, and South Africa.
• Governments in emerging markets attract FDI through policies like tax incentives and infrastructure. Example: China's Special Economic Zones.
• Opportunities include large consumer bases and cost-effective labor, accompanied by challenges. Examples include political instability, corruption, and complex regulations and underdeveloped infrastructures.

MNCs and Their Strategies

• Multinational Corporations (MNCs) operate globally, balancing global efficiency with local needs.
• Global strategy: Standardizes products for global markets, resulting in economies of scale (e.g., Coca-Cola).
• Transnational strategy: Balances global integration with local responsiveness (e.g., Unilever, adapting to local tastes, but benefiting from shared global resources.)
• Multi-domestic strategy: Prioritizes adaptation to local markets (e.g., McDonald's menus).
• MNC challenges: managing cultural diversity, regulations, and political risks, e.g. trade disputes such as US-China tensions.

Political and Legal Foundations

• Political systems (democracies vs. totalitarian regimes) and legal systems (common, civil or religious law) affect business operations.
• Political risks like nationalization, corruption, and trade restrictions threaten businesses; e.g., Venezuelan nationalizations.
• Understanding and adaptation to these systems are crucial for mitigating risks.

Government Intervention

• Governments intervene in trade to protect domestic industries, national security, and economic growth; examples of intervention tools include tariffs (taxes), quotas (limit quantities), and subsidies (financial support for local producers).
• EU agricultural subsidies illustrate protection, but potentially distort trade.
• Balance between free trade and protectionism is essential for sustainable growth and international cooperation.

Cultural Environment of IB

• Culture profoundly influences business practices and interactions.
• Hofstede's cultural dimensions (individualism vs. collectivism, power distance, uncertainty avoidance) are crucial for understanding cross-cultural differences. Examples include Japan's collectivist culture's emphasis on consensus.
• Cultural adaptation is critical for success in international operations.

Ethics, CSR, and Sustainability

• Ethics in international business promote fairness and integrity, while CSR broadens perspectives to include legal, ethical, and philanthropic responsibilities. Patagonia's emphasis illustrates this.
• Sustainability focuses on balancing present and future needs, facing ethical dilemmas such as labor exploitation and environmental damage.
• Incorporating ethics benefits trust and long-term success.

International Monetary and Financial Environment

• The international monetary system (exchange rate systems) and institutions (IMF, World Bank) support global trade and investment.
• Fixed vs. floating exchange rates; Fixed rates offer stability but limit monetary policy flexibility.
• IMF assists countries facing balance of payments crises, while World Bank supports development projects.
• Financial risks (currency volatility, interest rate fluctuations) affect businesses. Hedging instruments (e.g., forward contracts, options) mitigate these risks.