International Business: Chapter 1

• International business (IB) involves a business (firm) engaging in international (cross-border) economic activities.
• IB includes the action of doing business abroad.
• Global business is a business around the globe, including both international (cross-border) and domestic business activities.
• A multinational enterprise (MNE) is a firm that engages in foreign direct investments and operates in multiple countries.
• Foreign direct investment (FDI) is an investment in, controlling, and managing value-added activities in other countries.
• Chapter 1 aims to explain international business, identify a fundamental question and core perspectives, and debate globalization.
• The chapter also aims to summarize trends in the global economy and draw implications for action by integrating global and local knowledge.

Important Economic Terms

• Gross national product (GNP) is measured as the sum of value added by resident firms, households, and government operating in an economy.
• Gross domestic product (GDP) is the total market value of all final goods and services produced within a country in a calendar year.
• Gross national income (GNI) is GDP plus income from nonresident sources abroad which is used by the World Bank.
• Purchasing power parity (PPP) is an adjustment made to the GDP to reflect differences in the cost of living.

European and Global Business

• International business (IB) is about the activity of doing business abroad and businesses engaging in international (cross-border) economic activities.
• The book used here goes beyond traditional IB textbooks with its coverage.
• The book focuses on issues worldwide as they are relevant to European businesses and managers.
• Focus is given to businesses in nearby countries, and the institutions of the EU, SMEs and research by European scholars in these fields.
• The book extends beyond developed economies by dedicating space to emerging markets.

Key Figures

• Figure 1.1 shows exports from EU member countries between 2010 and 2016.
• Figure 1.2 shows the contributions of emerging economies.
• Triad consists of North America, Western Europe, and Japan.
• BRIC is an acronym for the emerging economies of Brazil, Russia, India, and China.
• Group of 20 leaders from 19 major countries and the EU meet bi-annually for discussing global economic issues.

Unified Framework

• The fundamental question to the framework is: What determines the success and failure of firms around the globe?
• The two perspectives of this framework are an institution-based and a resource-based view.

Institution-Based View

• Doing business globally requires awareness of formal and informal rules.
• Formal rules, like treating domestic and foreign firms equally, increase the likelihood of success.
• Informal rules, such as norms, culture and values, play an equally important part.
• An institution-based view suggests that the formal and informal rules of the game, known as institutions, shed light on what is behind firms' performance around the globe.

Resource-Based View

• The resource-based view focuses on a firm's internal resources and capabilities.
• The "liability of outsidership" infers the more a firm's origins differ from the host environment.
• The liability of outsidership also considers how less the firm has experience in the host country and the further away its nearest prior affiliate.
• Firms like Coca Cola and Microsoft possess firm-specific resources which allows them to attain leadership positions.
• Resources and capabilities offset the liability of outsidership.

Globalization

• Globalization is a process leading to interdependence and mutual awareness among economic, political and social units, also among actors in general.
• New technologies accelerating communication and transportation create new business opportunities.
• Globalization can refer to the rising power of MNEs and increased inequality.
• Globalization also increases competition for jobs and changes distinctive national cultures.

Trends in Globalization

• The majority of humanity (four billion people) makes less than €1500 a year shown as the base of the pyramid.
• There is about one billion people in each of the top and middle tiers with earnings over €15,000 a year, and between €1,500-€15,000 a year respectively

Implications

• Think global, think local, integrate global and local knowledge and communicate effectively with people of different worldviews.