Meaning of International Business

• Failure to take a global perspective is a critical mistake for managers.

Levels of International Business Activity

• Domestic business is the lowest level of international activity.
• Global business is the highest level of international activity.

The Meaning of International Business

• A domestic business acquires resources and sells products/services within one country.
• An international business is based in a single country but acquires resources and/or revenues from other countries.
• A multinational business uses a global marketplace for materials, borrowing, manufacturing, and sales.
• A global business transcends national boundaries and isn't tied to a single home country.

Trends in International Business

• The U.S. dominated global markets after WWII.
• Rebuilt countries were ready for growth while U.S. companies became complacent.
• Increased population and affluence led consumers to want new/better products.
• Foreign products flooded the U.S. market, leading to greater competition.

Managing the Process of Globalization

• Exporting involves making a product in the firm's domestic marketplace and selling it in another country.
• Importing means bringing a good, service, or capital into the home country from abroad.
• Importing and/or exporting is often the first type of international business a firm engages in.
• Direct investment occurs when a firm establishes a headquarters in one country and builds or buys operating subsidiaries in a foreign country.
• Strategic alliances are formed when two or more companies work together for mutual gain.
• Licensing involves one company allowing another to use its brand name, trademark, patent, or other assets in exchange for a royalty based on sales.
• Joint ventures are a type of strategic alliance where both partners share ownership in the enterprise.
• Maquiladoras are light assembly plants in northern Mexico, near the U.S. border.

Advantages and Disadvantages of Internationalization

• Importing/Exporting advantages: small cash outlay, little risk, and no adaptation necessary.
• Importing/Exporting disadvantages: tariffs, taxes, high transportation costs and government restrictions.
• Licensing advantages: increased profitability and extended profitability.
• Licensing disadvantages: inflexibility and competition.
• Strategic Alliances and Joint Ventures advantages: quick market entry and access to materials and technology.
• Strategic Alliances and Joint Ventures disadvantages: shared ownership (limits control and profits).
• Direct Investment advantages: enhanced control and existing infrastructure.
• Direct Investment disadvantages: complexity, economic risk, political risk and uncertainty.

Competing in a Global Market

• Business functions remain consistent regardless of the level of international involvement, but complexity increases for international firms.
• The decision to focus on globalization or regionalism is critical; most MNCs use both global and local resources and activities.

Structure of the Global Economy

• A market economy is based on private business ownership, with supply and demand influencing business strategy.
• Clusters of countries with high levels of trade are known as market systems.

Mature Market Economies

• North American Free Trade Agreement (NAFTA) promotes trade between the U.S., Canada, and Mexico.
• The European Union (EU) is the first and most important international market system.
• Pacific Asia is a market system in Southeast Asia.

High-Potential/High-Growth Economies

• These economies are underdeveloped and immature, with weak industries, currencies, and relatively poor consumers.
• Examples are China, India, Brazil, Russia, Vietnam, and South Africa.
• These nations are experiencing significant development and growth.
• Barriers include consumers' lack of wealth and poor infrastructure.

Other Economies

• The Middle East is difficult to classify due to its vast wealth but political instability and cultural differences.
• Countries with political or ethnic violence are poor business risks.
• Cuba presents a unique opportunity as it emerges into the global market.

Role of the GATT and the WTO

• The General Agreement on Tariffs and Trade (GATT) promotes international trade by reducing barriers.
• The World Trade Organization (WTO) began in 1995, replacing GATT.
• The WTO requires members to open their markets to international trade and has 3 main goals: promote fair trade, reduce trade barriers, and resolve trade disputes.

Three Aspects of the economic environment

• Economic systems: Most countries are moving toward a market economy.
• Natural resources: These vary by country, as well as access to and use of natural resources
• Infrastructure: Includes schools, hospitals, power plants, railroads, highways, ports, airfields, and distribution systems.

The Political/Legal Environment

• Government stability includes the ability to stay in power and the permanence of policies toward business.
• If nationalized, a company is taken over by the government.
• Incentives for multinational trade include tax cuts, low interest rates, or other subsidies.
• A tariff is a tax on goods shipped across national boundaries.
• A quota is a limit on the number or value of goods that can be traded.
• An export restraint agreement sets voluntary limits on exported/imported goods between governments.
• "Buy national" legislation gives preference to domestic producers.
• An economic community has a set of countries that agree to reduce/eliminate trade barriers among member nations. These include:
  • A formalized market system
  • The European Union (EU)
  • NAFTA
  • The Latin American Integration Association
  • The Caribbean Common Market

The Cultural Environment

• Values, symbols, beliefs, and language differ from one country to another.
• Barbie dolls don't sell well in Muslim countries.
• Different cultures value time differently.
• Language can be a barrier; both spoken and nonverbal aspects can cause problems for managers.

Individual Differences Across Cultures

• Individualism: Interests of the individual take precedence.
• Collectivism: Interests of the group take precedence.
• Power Respect: Authority is inherent.
• Power Tolerance: Authority is not inherent.
• Uncertainty Acceptance: Positive response to change.
• Uncertainty Avoidance: Structure preferring.
• Aggressive Goal Behavior: Value possessions, money, and assertiveness.
• Passive Goal Behavior: Value relationships, quality of life, and welfare of others.
• Long-Term Outlook: Willingness to work hard for years.
• Short-Term Outlook: Prefer immediate rewards.

Globalization and Organization Size

• Multinational corporations (MNCs) adopt a global perspective and compete in the marketplace.
• Medium-size organizations remain primarily domestic but may buy/sell products made abroad and face foreign competition at home.
• Small organizations participate as local suppliers to MCCs and perform simple importing/exporting.

Management Challenges

• Planning and decision-making demands broad understanding of the environment and competition.
• Organizing is influenced by the degree of local managers' control.
• Leading requires understanding cultural factors for individuals, motivation, leadership, communication, and group processes.
• Controlling involves operations management, productivity, quality, technology, and information systems.