International Business: Fundamentals (PDF)

### **1. What is International Business (IB)?** International Business is when companies do business or invest in other countries. It involves buying, selling, and working across borders. New technologies like e-commerce, AI, and big data help companies connect and grow worldwide. But working globa...

### **1. What is International Business (IB)?** International Business is when companies do business or invest in other countries. It involves buying, selling, and working across borders. New technologies like e-commerce, AI, and big data help companies connect and grow worldwide. But working globally also brings new challenges, like dealing with different markets, cultures, and laws. **Example:** A company like **Coca-Cola** sells its drinks in almost every country, adapting its flavors and marketing to fit local cultures, while still being an international brand. ### **2. Globalization, Localization, and Glocalization** - **Globalization**: This is when economies and markets around the world become more connected. Companies can sell their products globally and reduce costs by producing in cheaper countries. - **Localization**: This is when companies adapt their products or services to meet local market needs. Sometimes, they even source materials locally to support the local economy. - **Glocalization**: This is a mix of globalization and localization. Companies adjust their global products to fit local cultures. **Example:** **Netflix** uses **glocalization** by offering local shows and movies in each country while still providing its global content. ### **3. Why Do Companies Go International?** Companies go international for several reasons: - **Economic reasons**: Countries trade to take advantage of what they are good at. Some countries are better at making certain goods cheaper or faster, so they trade with others. - **Business reasons**: Companies want to grow and make more money by entering new markets. They also don't want to depend only on their home market. **Example:** **IKEA**, the Swedish furniture company, sells its products all over the world. It expanded because it saw the potential to sell its low-cost furniture in many different markets. ### **4. What's the Difference Between Trade and FDI?** - **International Trade**: This means importing (buying goods from other countries) and exporting (selling goods to other countries). - **Foreign Direct Investment (FDI)**: This is when a company sets up a factory or business in another country or buys a company there. **Example:** **Apple** imports components like screens from Asia to build its iPhones (trade). It also has offices and stores in many countries, like its big office in Ireland (FDI). ### **5. International Business vs. International Trade** **International Trade** is mainly about buying and selling goods and services across borders. **International Business** is bigger---it includes trade but also things like investing, creating partnerships, and managing offices in different countries. **Example:** **Amazon** sells goods internationally (trade) but also builds warehouses and offices in many countries to manage its global operations (business). ### **6. Advantages and Disadvantages of Globalization** - **Advantages**: Globalization helps economies grow because it makes businesses more efficient, spreads new ideas, and connects countries politically and culturally. - **Disadvantages**: It can lead to problems like low wages for workers in poor countries, exploitation, and harm to the environment. **Example:** **H&M**, the clothing company, manufactures clothes in countries like Bangladesh where labor is cheaper. This reduces costs but can lead to poor working conditions. ### **7. Sustainability in International Business** Sustainable business means companies need to balance three things: people (social responsibility), planet (environmental impact), and profit (making money). In a global market, companies are expected to consider the well-being of people and the environment, not just profits. **Example:** The **Fair-Trade** certification ensures that products like coffee and chocolate are made ethically, meaning the workers are paid fairly and the environment is protected. ### **8. The Role of International Business Professionals** Future international business professionals need to be able to help companies navigate the global market responsibly. They should know how to use technology, work with people from different cultures, and create strategies that are good for the planet and society. **Example:** Someone working at **Tesla** might need to understand both the technology behind electric cars and the different environmental regulations in countries where the company wants to sell them. ### **Key Ideas to Keep in Mind:** - **Globalization** connects countries economically, **localization** tailors products to local needs, and **glocalization combines** both. - **International trade** involves imports and exports, while **FDI** is when companies set up businesses or invest in other countries. - Companies go international to grow, reduce costs, and access new markets. - **Sustainability** is about balancing people, the planet, and profits in international business. - Future professionals in IB need to understand technology, culture, and sustainability to help companies succeed globally. ### **1. Free Trade** Free trade is the exchange of goods and services between countries without many restrictions. It gives people access to a wider variety of products, encourages competition (which often leads to better prices and quality), and allows businesses to sell to a global market. **Example:** The European Union (EU) is the largest free-trade area in the world, allowing goods to move easily between its member countries without import taxes. ### **2. Regional Trading Agreements** Countries often form trading groups or alliances to simplify trade. These groups allow them to remove tariffs (taxes on imports) and promote easier business across borders. **Example:** **NAFTA** (now **USMCA**) is an agreement between the US, Canada, and Mexico that allows goods to flow freely between these countries. ### **3. Economic and Monetary Union (EMU)** An EMU is when countries not only cooperate economically but also share a single currency. This helps stabilize trade and investment between member states. **Example:** The **Eurozone** is an example of an economic and monetary union where countries like France, Germany, and Italy use the same currency (the Euro). ### **4. Protectionism** Protectionism happens when a country tries to protect its local industries by limiting foreign competition. This can be done by adding import taxes (tariffs), setting quotas on foreign goods, or giving subsidies to local businesses. **Example:** **Tariffs on steel imports** imposed by the US aimed to protect American steel manufacturers from cheaper foreign steel, making imported steel more expensive. ### **5. International Organizations** Several global organizations support and regulate international trade: - **United Nations (UN)**: Works on peace and security, but also global trade rules. - **World Trade Organization (WTO)**: Helps countries negotiate trade deals and resolve trade disputes. - **International Monetary Fund (IMF)**: Provides financial aid to countries facing economic problems. - **OECD**: Promotes policies that improve economic and social well-being worldwide. **Example:** The **WTO** helped settle a trade dispute between **Airbus** (EU) and **Boeing** (US), preventing a trade war. ### **6. External Analysis for International Business** To succeed in a new country, companies must understand the local business environment. The DEPEST analysis helps with this: - **D**emographic: Population trends, age, education level, etc. - **E**conomic: Income levels, economic activity, and purchasing power. - **P**olitical: Government laws, tariffs, and regulations. - **E**cological: Environmental concerns like climate change and pollution. - **S**ocio-cultural: Culture, language, religion, and social behaviors. - **T**echnological: Level of technological development and innovation. **Example:** A company like **IKEA** entering India would study demographics (age groups), the economy (how much people can spend), and socio-cultural factors (local preferences for furniture style). ### **7. Competition, Supplier, and Distribution Analysis** Companies need to analyze their competitors and how they manage their supply chain (how they source materials and deliver products). They also need to consider how they will distribute their products, depending on the type of goods and market demand. **Example:** **Amazon** analyzes competitors like **Walmart**, looks at how they handle shipping and suppliers, and works to ensure fast delivery through an efficient distribution network. ### **8. Stakeholder Mapping** Stakeholders are all the people or groups affected by a business. Stakeholder mapping helps identify who these people are and how much influence they have on the business. There are four main steps: 1. Identify the stakeholders (customers, employees, governments, etc.). 2. Analyze their interest and influence. 3. Map them to visualize their relationships with the business. 4. Prioritize and decide how to engage with each group. **Example:** For **Tesla**, key stakeholders include investors, customers, governments (due to regulations), and suppliers of car parts. ### **Key Takeaways:** - **Free trade** allows goods to move without many restrictions, encouraging global commerce. - **Regional trading agreements** make trade easier between neighboring countries. - **Protectionism** is when countries protect their local industries by limiting imports. - **International organizations** help regulate trade and solve disputes between countries. - **External analysis (DEPEST)** is crucial for businesses entering new markets to understand local conditions. - Analyzing competitors, suppliers, and distribution systems helps businesses thrive globally. - **Stakeholder mapping** ensures companies engage effectively with those who are affected by or interested in their activities. ### **1. Governance of Companies** Governance refers to the way companies are directed and held accountable. There are different models, but the **Anglo-Saxon model** is common. This model focuses on **\"doing good by doing well\"**, meaning companies prioritize profit for shareholders, often ignoring long-term environmental or social costs. **Example:** **Amazon** focuses on fast growth and profits, but is often criticized for its environmental impact (e.g., excess packaging, pollution from transportation) and working conditions. ### **2. Sustainability in International Business** **Sustainability** means meeting today's needs without harming the ability of future generations to meet theirs. This includes balancing the economy, society, and the environment. Businesses are encouraged to focus on **long-term positive impacts** rather than short-term gains. **Example:** **Patagonia**, a clothing company, practices sustainability by using eco-friendly materials, promoting repair over replacement, and donating profits to environmental causes. ### **3. Doughnut Economics** The idea of **Doughnut Economics** helps companies think about sustainability. The goal is to avoid overshooting environmental limits (like climate change) while making sure everyone has enough resources (food, water, health). **Example:** A company like **Tesla** aims to operate within planetary limits by producing electric cars that reduce carbon emissions while contributing to sustainable transportation. ### **4. Internationalization and Sustainability** As businesses grow globally, they face pressure to be more sustainable. International business can increase resource use and environmental harm, but companies can also drive positive change by adopting **sustainable practices**. **Example:** **IKEA** works globally to reduce its carbon footprint by using renewable energy and sustainable wood sources for its furniture. ### **5. Corporate Social Responsibility (CSR)** **CSR** means companies should not only focus on profits but also on **People (social responsibility)**, **Planet (environmental sustainability)**, and **Profit (economic sustainability)**. Companies are expected to have a positive impact on all three areas. **Example:** **Unilever** follows CSR by promoting fair trade, reducing plastic waste, and supporting communities where it operates. ### **6. The Role of IB Professionals in Sustainability** International Business (IB) professionals must create strategies that last for the long term. They should work **with nature**, using resources in ways that regenerate the environment rather than destroy it. They also need to understand the social and economic impact of their actions. **Example:** An IB professional at **Starbucks** would ensure that the company sources coffee beans sustainably and treats its farmers fairly while keeping the business profitable. ### **7. Business as a Force for Good** Companies are now encouraged to not only look for a **gap in the market** (business opportunities) but also a **gap in society** (social needs). This means looking for ways to make a positive impact on society and the environment. **Example:** **Dopper**, a company that produces reusable water bottles, was founded to reduce plastic waste and promote clean drinking water globally. ### **8. Transition and Transformation** Businesses need to undergo **transition** and **transformation** to be sustainable. A **transition** is a long-term process of change, while **transformation** is a noticeable shift in how a company operates. **Example:** The transition from **fossil fuels to renewable energy** is a global effort that will take decades. Companies like **BP** are transforming by investing more in solar and wind power. ### **9. Sustainable Multiple Value Creation (MVC)** Sustainable MVC means that businesses need to think about creating value not just in financial terms but also in terms of social, ecological, and societal impact. This involves balancing these different types of value in their business models. **Types of Value**: - **Organizational Value**: How well the company can achieve its goals and stay strong. - **Social Value**: How the company affects its employees and their families. - **Societal Value**: How the company affects the community it operates in. - **Ecological Value**: The environmental footprint of the company. - **Chain Value**: How the company's supply chain and customers are affected. **Example:** **Fairphone**, a smartphone company, creates **multiple value** by producing phones ethically, paying fair wages to workers, and minimizing environmental harm through recycled materials. ### **10. Business Model Templates (BMT)** A **Business Model Template** is a tool that helps businesses plan how they will create, deliver, and capture value. For sustainable businesses, this means focusing on **multiple values** (financial, social, and environmental) rather than just profits. **Example:** The **Business Model Canvas** is a popular tool that companies use to map out their business strategy, including key activities, customers, and value propositions. ### **11. Sustainable Business Models in International Business** In international business, companies must align their strategies with sustainability by ensuring their **operations**, **supply chains**, and **marketing** create value in multiple areas (social, environmental, and financial). **Example:** **Nike** is working to create a sustainable business model by reducing waste in its supply chain, using recycled materials, and promoting fair labor practices. ### **Key Points to Study:** 1. **Governance** and how companies are controlled. 2. The importance of **sustainability** and the balance between economy, society, and the environment. 3. **Doughnut Economics** and operating within planetary and social limits. 4. The role of **Corporate Social Responsibility (CSR)**. 5. The need for businesses to undergo **transition** and **transformation** for sustainability. 6. How businesses can create **multiple value** for stakeholders (organizational, social, ecological, chain). 7. Using **Business Model Templates (BMT)** to integrate sustainability into business planning. ### **1. Market Entry Strategy** - **Objective:** To defend, strengthen, and expand a company\'s competitive position in international markets. - **Modes of entry:** - **Import or Export:** Selling goods/services across borders. - **Contractual Cooperation:** Includes licensing, franchising, and strategic alliances. - **Direct Investment:** Involves a physical presence, like foreign subsidiaries or joint ventures. - **Strategic Alliances:** These are partnerships where companies collaborate to minimize risk and optimize management, often sharing technology, skills, or capital. ### **2. Strategic Alliances** - **Goals:** - Increase market penetration. - Improve competitiveness. - Develop new products and business opportunities. - Reduce costs and diversify products. - **Types of Alliances:** - **Defensive Alliances:** Protects or strengthens market position. - **Offensive Alliances:** Expands global operations to anticipate market changes. - **Vertical Alliances:** Between 2suppliers and producers. - **Horizontal Alliances:** Among competitors or companies producing similar products. ### **3. International Marketing** - **International Marketing vs. Multinational vs. Global Marketing:** - **International:** Marketing strategies tailored to each country\'s market. - **Global:** Uniform marketing strategies for all markets. - **Multinational:** Adapts to regional preferences but uses a common global strategy. - **Standardization vs. Adaptation:** - **Standardization:** Same product worldwide, benefiting from cost savings and global recognition. - **Adaptation:** Tailoring products and strategies to local markets, which can increase production costs but better meet customer needs. ### **4. Marketing Strategy** - **7 Ps in International Marketing:** - **Product:** Should it be standardized or adapted to the market? - **Price, Place, Promotion:** These are key for positioning. - **People, Process, Physical Evidence:** These additional Ps are crucial for the services market. ### **5. \"Think Globally, Act Locally\"** - This strategy combines a global approach with local adaptation. The core product remains standardized, but certain elements are tailored to meet local consumer preferences (e.g., packaging or marketing). ### **6. International Marketing Mix** - A company\'s marketing mix (product, price, place, promotion) may need to be adjusted based on the country, taking into account factors like culture, economy, and legal frameworks. ### **Examples:** 1. **Coca-Cola's Personalized Packaging:** Coca-Cola used personalized names on its bottles to connect with local consumers while maintaining the global identity of its product. 2. **Strategic Alliances:** Apple and IBM formed an alliance to penetrate enterprise markets, where Apple supplied hardware and IBM provided software services. ### **Key Takeaways:** - Choosing the right market entry strategy depends on a company's resources, market conditions, and long-term goals. - Strategic alliances can help mitigate risk and create competitive advantages. - Marketing in international business requires balancing global standardization with local adaptation to succeed. This should give you a solid foundation for your exam! Let me know if you\'d like more details on any topic. ### **1. International Strategy** - **Levels of Strategy:** - **Corporate Strategy:** Defines the market scope, objectives, and resource allocation across the business portfolio. - **Business Strategy:** Focuses on competitive advantage through cost leadership or differentiation, balancing standardization and local adaptation. - **Functional Strategy:** Aligns individual departments (e.g., HR, marketing, supply chain) with corporate goals. **Example:** McDonald\'s uses a **corporate strategy** of expanding into new markets globally while using **business strategies** to adapt their menus (e.g., localizing products like the \"McAloo Tikki\" in India). ### **2. Ansoff\'s Growth Matrix** - This matrix is used to explore growth opportunities: - **Market Penetration:** Increasing sales in existing markets. - **Market Development:** Entering new markets with existing products. - **Product Development:** Developing new products for existing markets. - **Diversification:** Developing new products for new markets. **Example:** A company introducing a new line of eco-friendly products in foreign markets would be using **product development** and **market development** strategies. ### **3. Pitfalls in International Business** - **Self-reference criterion:** Assuming what works in one market works in another. - **Higher risks and costs** compared to domestic markets. - **Inadequate organizational structure** or workforce for international scale. - **Cultural differences** may require product adaptation, but failing to adapt can lead to poor market reception. **Example:** Walmart struggled in Germany due to cultural differences and failed to localize their product offerings and business practices. ### **4. Mission, Vision, and Values** - **Mission:** The company\'s purpose. Example: \"We're in business to save our home planet\" (Patagonia). - **Vision:** What the company aspires to achieve in the future. - **Values:** The norms guiding decisions and behavior, such as environmentalism or integrity. **Example:** Patagonia's mission and vision align with environmental sustainability, reflected in their commitment to eco-friendly products. ### **5. Strategic Management Process** 1. **Strategic Analysis:** Understanding external (PEST analysis, Porter's Five Forces) and internal environments (resources, capabilities). 2. **Strategic Objectives:** Setting clear, measurable goals (e.g., market share, innovation). 3. **Strategy Formulation:** Developing growth strategies based on analysis. 4. **Implementation:** Executing strategy through value chain adjustments, human resource management (HRM), and organizational changes. 5. **Evaluation and Control:** Monitoring outcomes and making necessary adjustments. **Example:** Tesla's strategy includes innovation and expansion into international markets by building Gigafactories globally. ### **6. SWOT and TOWS Analysis** - **SWOT (Strengths, Weaknesses, Opportunities, Threats):** Analyzes a company\'s internal strengths/weaknesses and external opportunities/threats. - **TOWS Matrix:** A strategic tool to turn SWOT findings into actionable strategies. For example: - **S-O Strategy (Strength-Opportunity):** Use strengths to take advantage of opportunities. - **W-T Strategy (Weakness-Threat):** Minimize weaknesses to avoid threats. **Example:** A company with a strong brand (strength) could leverage it to enter a new, fast-growing market (opportunity). ### **7. Global Business Strategies** - **Global Strategy:** High integration and standardization across markets (e.g., Apple's consistent product offerings globally). - **Multinational Strategy:** High local responsiveness, adapting products to meet local market needs (e.g., Unilever adapting its product formulations to suit different regional preferences). - **Transnational Strategy:** Balancing global efficiency with local adaptation. ### **8. Human Resource Management (HRM) in Global Organizations** - **Ethnocentric Approach:** Management practices are home-country-centric. - **Polycentric Approach:** Each subsidiary adapts to local markets. - **Geocentric Approach:** Emphasizes a global approach, integrating diverse perspectives. **Example:** Coca-Cola operates with a **polycentric approach**, adapting marketing and product offerings to fit local cultures while maintaining the brand's global identity. ### **9. Strategic Fit** - **Challenge:** Maintaining alignment between an organization's internal capabilities (resources, objectives) and external market dynamics (opportunities, threats). **Example:** Amazon's global strategy focuses on technology and logistics, adjusting its model to fit local regulations and customer preferences. ### **10. The Value Chain** - The value chain includes all activities from product development to delivery to customers, with cross-functional alignment. - Global companies need to adjust their value chains to fit different markets, which includes procurement, logistics, marketing, and sales. **Example:** Nike adjusts its value chain by sourcing materials locally in some markets to lower costs and improve delivery efficiency. ### **1. Supply Chain Management (SCM)** - **Definition:** SCM involves planning, implementing, and controlling the efficient flow of goods, services, and information from suppliers to customers. This includes both the forward and reverse flow. - **Goal:** Meet customer requirements in the most efficient manner possible. **Example:** Amazon uses advanced supply chain management to ensure quick delivery and efficient inventory management globally. ### **2. Logistics for International Business** - **Logistics:** The process of moving goods from the manufacturer to the buyer, including transport, storage, and managing the flow of information. - **Components of Logistics:** - Transport strategy (road, rail, water, air). - Packaging and labeling. - Transshipment and storage. **Example:** The blockage of the **Suez Canal** in 2021 disrupted global logistics, delaying goods and costing billions. This emphasizes the importance of efficient logistics management. ### **3. Modes of Transport** - **Road Transport:** Ideal for short-distance shipments (e.g., Full Truck Load or Less than Truck Load). - **Water Transport:** Common for large, heavy shipments (e.g., Full Container Load or Less than Container Load). - **Rail Transport:** Suitable for land-based, long-distance transport. - **Air Transport:** Fastest but most expensive, used for high-value or time-sensitive goods. **Example:** Most international shipping relies on **container ships**, with companies like Maersk operating large fleets. ### **4. Transport Documents** - Key documents include: - **Bill of Lading (Water Transport):** Serves as a receipt, proof of contract, and title of goods. - **CMR Document (Road Transport):** Required for road shipments across international borders. - **Air Waybill (Air Transport):** Used for air shipments, detailing the goods being transported. **Example:** When exporting electronics from China to the U.S., companies use a **Bill of Lading** to ensure proof of shipment and delivery. ### **5. Circular Economy and Supply Chains** - A **circular economy** focuses on eliminating waste by creating closed loops where products and materials are reused, repaired, or recycled, minimizing resource loss. - **10R Strategies** (Reduce, Reuse, Recycle, etc.) aim to make the supply chain more sustainable by looping resources back into the economy instead of creating waste. **Example:** Companies like **IKEA** are shifting towards circular supply chains by recycling furniture and using sustainable materials. ### **6. Key Global Logistics Hubs** - Europe has significant logistics hubs, such as **Rotterdam**, the largest port in Europe, handling vast amounts of cargo from around the world. - **Top 10 Ports:** Locations like Shanghai and Singapore are critical for global trade. **Example:** The **Port of Rotterdam** plays a crucial role in European logistics, with goods being distributed across the continent from there. ### **7. Importance of Transport Policy** - The supplier often decides the mode of transport, but the complexity of international logistics is often underestimated. - **Factors to consider:** Cost, speed, reliability, and the environmental impact of different transport modes. **Example:** A company may opt for air transport for high-value items like pharmaceuticals to reduce lead times, despite higher costs. ### **8. Reverse Logistics** - **Definition:** Reverse logistics focuses on the return of goods, such as returned items, recycling, or disposal of products. - This is increasingly important in sustainable supply chains and circular economies. **Example:** Companies like **Drentea** focus on reverse logistics, ensuring materials are recycled and waste is minimized through their circular loop design. ### **9. Suez Canal Blockage** - The Suez Canal blockage in 2021 highlighted how critical certain shipping routes are to global trade. - The canal connects Europe and Asia, and disruptions caused billions in losses globally due to delayed shipments. **Example:** A single day of blockage caused around \$9.6 billion in delayed goods. This is why contingency planning is essential in supply chain management. ### **10. The Circular Economy** - **R-Strategies:** Aim to make supply chains more sustainable by reducing, reusing, and recycling materials, thus minimizing waste. **Example:** The fashion brand **H&M** uses recycled fabrics and offers customers recycling incentives, contributing to a circular economy. This summary covers the main topics of international supply chain management, logistics, and the growing importance of sustainability in global operations. Let me know if you need further clarification on any topic! ### **1. International Payments** - **Types of Payment Methods**: - Debit/Credit cards, SWIFT payments, Cryptocurrencies, Digital wallets, Alternative methods. - **Forms of Payment**: - Clean payment (no business documents needed, quick), - Clean collection (bank collection), - Documentary collection (requires business documents like invoices, shipping documents), - Documentary credit (Letters of Credit - L/C), - International bank guarantee (used for securing obligations like payment or performance). #### **Example:** If a company in Europe buys goods from an Asian supplier, they might use a **Letter of Credit (L/C)** to guarantee that the payment will be made once the goods are shipped, and the necessary documents are presented. This reduces risks for both parties. ### **2. Legal Systems in International Business** - **Home Country Laws**: Regulations in the company\'s home country. - **Host Country Laws**: Rules in the country where business is being conducted. - **International Laws**: Global agreements and treaties that impact international transactions. #### **Example:** When a U.S.-based company operates in Germany, it must comply with **German labor laws** (host country laws) while also considering U.S. regulations on foreign investments (home country laws). ### **3. Ethics in International Business** - **Ethical Relativism**: Each country\'s ethical standards are respected. - **Ethical Imperialism**: A company imposes its home country\'s ethics in foreign countries. - **Corruption**: The abuse of public power for personal gain, which can hinder competition and fairness in international markets. #### **Example:** A company from a country with strict anti-bribery laws, such as the U.K., might struggle to operate in regions where **corruption** is widespread. They will need to balance ethical standards with local practices. ### **4. Key Legal Considerations** - Employment law, Intellectual property, Contract terms, Business culture, Arbitration, Taxes, Data protection, and Free trade agreements. #### **Example:** When a company hires foreign workers, it must consider **local employment laws** like minimum wage and benefits in that country, which might differ significantly from those in the home country. ### **5. International Finance Concepts** - **Choice of Payment Conditions**: Influenced by the relationship between businesses, complexity, cultural differences, political and economic situations, and demands from banks. - **SEPA (Single Euro Payment Area)**: An initiative simplifying euro payments across Europe. ### **6. Forms of International Guarantees** - **Financial Obligations**: - Payment bond, Advance payment guarantee, Bid bond. - **Non-financial Obligations**: - Performance bond, Maintenance guarantee, Customs guarantee.