Podcast
Questions and Answers
What is a new legal business entity recognized by the host country called?
What is a new legal business entity recognized by the host country called?
Which of the following is NOT a motivation for firm FDI?
Which of the following is NOT a motivation for firm FDI?
How does international business differ from domestic business?
How does international business differ from domestic business?
Complexity and risk due to differing macro forces, economic conditions, legal systems, and cultural differences.
Cross-cultural risk is a situation where a cultural misunderstanding places a company’s value at risk.
Cross-cultural risk is a situation where a cultural misunderstanding places a company’s value at risk.
Signup and view all the answers
What is cross-cultural literacy?
What is cross-cultural literacy?
Signup and view all the answers
What can government intervention in a host country lead to?
What can government intervention in a host country lead to?
Signup and view all the answers
What does the Index of Economic Freedom rank?
What does the Index of Economic Freedom rank?
Signup and view all the answers
What does commercial risk refer to?
What does commercial risk refer to?
Signup and view all the answers
What is international business?
What is international business?
Signup and view all the answers
What are the two megatrends underlying the changing business landscape?
What are the two megatrends underlying the changing business landscape?
Signup and view all the answers
Globalization of markets refers to the ongoing ________ integration and growing interdependency of countries worldwide.
Globalization of markets refers to the ongoing ________ integration and growing interdependency of countries worldwide.
Signup and view all the answers
What is a reactive motive for a firm to internationalize?
What is a reactive motive for a firm to internationalize?
Signup and view all the answers
Which of the following factors have driven the globalization of markets? (Select all that apply)
Which of the following factors have driven the globalization of markets? (Select all that apply)
Signup and view all the answers
International trade involves only the exchange of physical products.
International trade involves only the exchange of physical products.
Signup and view all the answers
What does GDP stand for and what does it represent?
What does GDP stand for and what does it represent?
Signup and view all the answers
What role do Multinational Enterprises (MNEs) play in international business?
What role do Multinational Enterprises (MNEs) play in international business?
Signup and view all the answers
What characterizes a 'born global' firm?
What characterizes a 'born global' firm?
Signup and view all the answers
________ refers to the procurement of products or services from suppliers located abroad for consumption in the home country.
________ refers to the procurement of products or services from suppliers located abroad for consumption in the home country.
Signup and view all the answers
SMEs account for a smaller percentage of total exports from countries compared to large firms.
SMEs account for a smaller percentage of total exports from countries compared to large firms.
Signup and view all the answers
Which of the following are considered risks of international business? (Select all that apply)
Which of the following are considered risks of international business? (Select all that apply)
Signup and view all the answers
What do Inuit languages have that reflects their environment?
What do Inuit languages have that reflects their environment?
Signup and view all the answers
What challenge can arise when translating words from one language to another?
What challenge can arise when translating words from one language to another?
Signup and view all the answers
Cultural differences can lead to effective relations with customers.
Cultural differences can lead to effective relations with customers.
Signup and view all the answers
Which of the following describes decision-making styles in business managers?
Which of the following describes decision-making styles in business managers?
Signup and view all the answers
What ethical practice differs significantly between countries?
What ethical practice differs significantly between countries?
Signup and view all the answers
What is an example of country risk?
What is an example of country risk?
Signup and view all the answers
What does currency risk refer to?
What does currency risk refer to?
Signup and view all the answers
The tendency of firms to systematically increase the international dimension of their business activities is called ___
The tendency of firms to systematically increase the international dimension of their business activities is called ___
Signup and view all the answers
What is the ultimate commitment-level of internationalization?
What is the ultimate commitment-level of internationalization?
Signup and view all the answers
Cultural miscommunication does not pose risks in international business.
Cultural miscommunication does not pose risks in international business.
Signup and view all the answers
Study Notes
International Business
- Refers to the performance of trade and investment activities by firms across national borders.
- Emphasizes crossing national boundaries, also known as cross-border business.
- Firms organize, source, manufacture, market, and conduct other value-adding activities on an international scale.
- They seek foreign customers and engage in collaborative relationships with foreign business partners.
- While international business is performed mainly by individual firms, governments and international agencies also undertake international business activities.
Globalization of Markets
- Refers to the macro trend of intense interconnectedness between countries worldwide.
- Associated with the internationalization of countless firms and dramatic growth in the volume and variety of cross-border transactions in goods, services, and capital flows.
- Has led to widespread diffusion of products, technology, and knowledge worldwide.
International Trade
- Exchange of products and services across national borders; typically through exporting and importing.
- Trade involves both products (merchandise) and services (intangibles).
Exporting
- Sale of products or services to customers abroad, from a base in the home country or a third country.
Importing or Global Sourcing
- Procurement of products or services from suppliers located abroad for consumption in the home country or a third country.
International Investment
- Transfer of assets to another country or the acquisition of assets in that country.
- Also known as ‘foreign direct investment’ (FDI).
International Portfolio Investment
- Passive ownership of foreign securities such as stocks and bonds, in order to generate returns.
Gross Domestic Product (GDP)
- The total value of products and services produced in a country over the course of a year.
World Trade
- Trade between nations, accompanied by substantial flows of capital, technology, and knowledge.
- Development of sophisticated global financial systems and mechanisms that facilitate the cross-border flow of products, money, technology, and knowledge.
- Greater collaboration among nations through multilateral regulatory agencies such as the World Trade Organization (WTO) and the International Monetary Fund (IMF).
- International trade in services accounts for about one-quarter of all international trade and is growing rapidly.
- In recent years, services trade has been growing faster than products trade.
- Larger advanced economies account for the greatest proportion of world services trade.
- This is expected, because services typically comprise more than two-thirds of the GDPs of these countries.
- Although services trade is growing rapidly, the value of merchandise trade is still much larger.
- One reason is that services face greater challenges and barriers in cross-border trade than merchandise goods.
World Trade and GDP Growth
- World trade has grown more than thirty-fold, while world GDP grew only tenfold.
- This is due to advanced (or developed) economies such as Britain and the United States now sourcing many of the products they consume from low-cost manufacturing locations such as China and Mexico.
Focal Firms
- Businesses that directly initiate international business transactions.
- Company trying to move a domestic product into the international market.
Multinational Enterprise (MNE)
- A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries.
- MNEs carry out research and development (R&D), procurement, manufacturing, and marketing activities wherever in the world the firm can reap the most advantages.
Small and Medium-Sized Enterprise (SME)
- Typically, companies with 500 or fewer employees, comprising over 90% of all firms in most countries.
- Increasingly engage in international business.
- In addition to accounting for smaller market shares of their respective industries, SMEs tend to have limited managerial and other resources and primarily use exporting to expand internationally.
- SMEs constitute the great majority of all firms.
- Account for about one-third of exports from Asia and about a quarter of exports from the affluent countries in Europe and North America.
- In some countries—for example, Italy, South Korea, and China—SMEs contribute roughly 50 percent of total national exports.
Born Global Firm
- A young, entrepreneurial SME that undertakes substantial international business at or near its founding.
- Found in advanced economies, such as Australia and Japan, and in emerging markets, such as China and India.
Non-governmental Organizations (NGOs)
- Many of these non-profit organizations conduct cross-border activities.
- Pursue special causes and serve as advocates for social issues, education, politics, and research.
Reasons Firms Participate in International Business
- Better serve key customers that have relocated abroad.
- Be closer to supply resources, benefit from global sourcing advantages, or gain flexibility in sourcing products.
- Gain access to lower-cost or better-value factors of production.
- Develop economies of scale in sourcing, production, marketing, and R&D.
- Confront international competitors more effectively or thwart the growth of competition in the home market.
- Invest in a potentially rewarding relationship with a foreign partner.
Drivers of Market Globalization
- Worldwide reduction of barriers to trade and investment.
- Transition to market-based economies and adoption of free trade in China, former Soviet Union countries, and elsewhere.
- Industrialization, economic development, and modernization.
- Integration of world financial markets.
- Advances in technology.
Dimensions of Market Globalization
- Integration and interdependence of national economies.
- Rise of regional economic integration blocs.
- Growth of global investment and financial flows.
- Convergence of buyer lifestyles and preferences.
- Globalization of production activities.
- Globalization of services.
Societal Consequences of Market Globalization
- Contagion: Rapid spread of financial or monetary crises from one country to another.
- Loss of national sovereignty.
- Offshoring and the flight of jobs.
- Effect on the poor.
- Effect on the natural environment.
- Effect on national culture.
Firm-Level Consequences of Market Globalization
- Internationalization of the Firm’s Value Chain.
- Countless new business opportunities for internationalizing firms.
- New risks and intense rivalry from foreign competitors.
- More demanding buyers who source from suppliers worldwide.
- Greater emphasis on proactive internationalization.
Four Risks of International Business
- Cross-Cultural Risk
- Political Risk
- Economic Risk
- Legal Risk
Cross-Cultural Risk
- Occurs when cultural misunderstandings put some human value at stake.
- Cultural differences arise from differences in language, lifestyle, attitudes, customs, and religion where a cultural miscommunication jeopardizes a culturally-valued mindset or behavior.
- Values unique to a culture tend to be long-lasting and transmitted from one generation to the next.
- These values influence the mind-set and work style of employees and the shopping patterns of buyers.
- Foreign customer characteristics differ significantly from those of buyers in the home market.
Language
- Critical dimension of culture.
- Facilitates communication, but also offers a window on people’s value systems and living conditions.
- When translating from one language to another, it is often difficult to find words that convey the same meanings.
- Challenges impede effective communication and cause misunderstandings.
- Miscommunication due to cultural differences gives rise to inappropriate business strategies and ineffective relations with customers.
Negotiation Patterns
- Negotiations are required in many types of business transactions.
- e.g., Where Mexicans are friendly and emphasize social relations, Americans are assertive and get down to business quickly.
Decision Making Styles
- Managers make decisions continually on the operations and future direction of the firm.
- e.g., Japanese take lots of time to make important decisions, while Canadians tend to be decisive, and “shoot from the hip.”
- In developing countries, business owners are not looking to the long term, just trying to make it next month.
Ethical Practices
- Standards of right and wrong differ and vary a lot around the world.
- e.g., Bribes are relatively accepted in some countries such as in Africa, but for the most part not acceptable like in Sweden.
- In China, counterfeiters frequently publish translated versions of imported books without compensating the original publisher or authors, an illegal practice in most of the world.
International Business Risks
-
Ethical Standards:
- Ethical standards vary globally.
- Some multinational firms tolerate unsafe conditions even when illegal in origin countries.
- The fashion industry is an example, with unsafe working conditions in low-income nations supplying affluent global markets.
-
Country Risk (Political Risk):
- Potential negative impacts on company operations and profitability due to political, legal, and economic environment changes in a foreign country.
-
Government intervention:
- Restricts market access, imposes bureaucratic procedures, and limits profit repatriation.
- Varying degrees of intervention exist, with some countries having greater economic freedom (e.g., Singapore, Ireland) than others (e.g., China, Russia).
-
Laws and regulations:
- Laws affecting property rights, intellectual property, product liability, and taxation can hinder operations.
-
Economic instability:
- High inflation, national debt, and trade imbalances can negatively affect business.
- The global financial crisis of 2009 plunged many nations into recession.
-
Currency Risk (Financial Risk):
- Adverse fluctuations in exchange rates, impacting earnings and import costs when transactions involve multiple currencies.
- Currency exposure: The general risk of unfavorable exchange rate fluctuations.
- Asset valuation: The risk of exchange rates impacting the value of company assets and liabilities.
- Foreign taxation: International differences in taxes affect company performance and profitability.
- Inflation: High inflation complicates business planning and pricing of inputs and finished goods.
-
Commercial Risk:
- Potential for loss or failure due to poorly developed or executed business strategies and tactics.
- Common areas of poor decision-making include partner selection, market entry timing, pricing, product features, and promotional themes.
- Failures in international markets have higher costs compared to domestic blunders.
- Marketing inferior or harmful products, failing customer expectations, and inadequate customer service can damage reputation and profitability.
- Currency fluctuations can affect various commercial deals.
Managing International Business Risk
- Understanding, anticipating, and taking proactive measures to mitigate risk.
- Some risks are highly challenging, but all are manageable.
- Researching and analyzing environments to anticipate potential risks and their implications is crucial.
- The global financial crisis highlighted the interconnectedness of commercial, currency, and country risks, affecting various businesses worldwide.
Cultural Context of International Business
- Culture: Values, beliefs, customs, arts, and products of human thought characterizing a society.
- Cross-cultural risk: Misinterpretations due to unfamiliar languages, values, beliefs, and behaviors.
- Socialization: Learning the rules and patterns appropriate to one's society.
- Acculturation: Adapting to a culture different from one's own, often experienced by expatriate workers.
Cultural Considerations
-
Hall’s High- and Low-Context Typology of Culture:
- High-context culture: Communication relies heavily on nonverbal cues and implicit understandings.
- Low-context culture: Communication relies primarily on explicit verbal messages.
-
Nonverbal Communication:
- Body language, gestures, facial expressions, and space management vary across cultures.
- Understanding these differences is crucial for effective communication.
-
Hofstede’s Typology of National Culture:
- Individualism versus collectivism: Individual focus vs. group focus.
- Power distance: How a society addresses inequalities in power.
- Uncertainty avoidance: Tolerance for risk and uncertainty.
- Masculinity versus femininity: Society's orientation based on traditional gender roles.
- Long-term vs. short-term orientation: Deferring gratification for long-term success.
- Indulgence versus restraint: Control over impulses and desires.
International Business Fundamentals
- International business: Trade and investment activities across national borders.
- Globalization of markets: Ongoing economic integration and interdependency of countries worldwide.
- Internationalization: The tendency of firms to progressively increase their international business activities.
Key Perspectives on International Business
- Macro perspective (trend): Globalization of markets leads to economic interconnectedness among countries.
- Micro perspective (focus): Firm level, activity-driven focus on international business.
- Value-Chain Perspective: Companies conduct value-adding activities on a global scale, including sourcing, manufacturing, marketing, selling, and employing various entry strategies (e.g., exporting, strategic alliances, and direct investment).
International Trade and Investment
- International Trade: Cross-border exchange of goods and services through exporting and importing.
- Exporting: Selling goods and services to customers abroad.
- Importing (global sourcing): Procurement of goods and services from foreign suppliers.
- International Investment: Cross-border transfer or acquisition of assets, including capital, technology, talent, and infrastructure.
Types of International Investment
- International Portfolio Investment: Passive ownership of foreign securities (stocks, bonds) for financial returns.
- Foreign Direct Investment (FDI): Long-term investment, granting investors partial/full ownership of a foreign enterprise.
-
Motivations for FDI:
- Setting up manufacturing facilities for production.
- Opening sales offices for marketing and distribution.
- Establishing regional headquarters for support activities.
Differences Between Domestic and International Business
- Complexity: Macro forces like economic conditions, culture, legal systems, and political environments vary across countries, increasing complexity for international operations.
- Risk: Uncontrollable variables within foreign environments require effective risk management.
Key Drivers of Internationalization
- Strategic (Proactive) Motive: Seeking foreign market opportunities and acquiring new knowledge.
- Reactive Motive: Serving key customers that have expanded abroad.
The Role of Globalization and Technology
- Globalization: Accelerates technological development.
- Technology: Facilitates globalization and its advancement.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your understanding of key concepts in international business, including foreign direct investment, cross-cultural risks, and globalization. This quiz covers essential topics that shape the international business landscape and the motivations behind firm internationalization.
