IB Important Qs - International Business

Most important topic in International Business **Tools for Country Selection** 1. **Market Potential Index (MPI)** - Measures the potential of emerging markets based on factors like market size, growth rate, and consumption capacity. - Used by companies to identify which foreign markets to en...

Most important topic in International Business **Tools for Country Selection** 1. **Market Potential Index (MPI)** - Measures the potential of emerging markets based on factors like market size, growth rate, and consumption capacity. - Used by companies to identify which foreign markets to enter. 2. **Global Competitive Index (GCI)** - Published by the World Economic Forum, it ranks countries based on productivity and competitiveness. - Factors include infrastructure, macroeconomic stability, labor market efficiency, and innovation capability. 3. **FDI Confidence Index** - Published by Kearney, it reflects the willingness of companies to invest in foreign markets. - Factors include political stability, regulatory transparency, and economic outlook. 4. **Global Political Risk Index** - Evaluates the risk of political instability in a country. - Factors include government stability, corruption levels, conflict likelihood, and regulatory risks. ## **International Product Life Cycle** - A theory explaining how a product evolves in the international market: 1. **Introduction:** Product developed and sold in the home market. 2. **Growth:** Exporting begins as demand rises globally. 3. **Maturity:** Production may shift abroad to reduce costs. 4. **Decline:** Demand decreases, and the product may be phased out or replaced. ## **International Monetary System** 1. **Fixed Exchange Rate:** - Currencies are pegged to a specific value, such as gold or another currency (e.g., Bretton Woods system). - Provides stability but limits flexibility in monetary policy. 2. **Floating Exchange Rate:** - Currency value is determined by market forces (supply and demand). - Allows flexibility but can be volatile. ## **Modes of Payment in International Trade** 1. **Advance Payment:** - Importer pays the exporter before the goods are shipped. - High risk for the importer but ensures payment security for the exporter. 2. **Letter of Credit (LC):**  - **Recoverable LC:** Can be canceled or modified without the beneficiary’s consent. - **Non-recoverable LC:** Cannot be changed without all parties’ agreement, offering higher payment assurance. 3. **Consignment Sales:** - Exporter sends goods to the importer, who pays only after selling them. - Risk is higher for the exporter since payment is not guaranteed. 4. **Open Account:** - Goods are shipped, and payment is expected after a specified period (e.g., 30-60 days). - Poses high risk for the exporter but can improve relationships with the importer. Here is a structured overview of **Strategy and Structure of International Business**: ## **Market Entry Strategies** 1. **Exporting** - Selling goods or services produced domestically to foreign markets. - **Direct Exporting:** Company handles exports directly. - **Indirect Exporting:** Uses intermediaries like trading companies or agents. 2. **Contractual Agreement** - Establishing business relationships through contracts without ownership transfer. - Includes licensing, franchising, and management contracts. - Useful for reducing risk and initial investment. 3. **International Strategic Alliance (SA)** - Partnership between two or more firms to achieve strategic objectives (e.g., sharing technology, market access). - Each party maintains independence. 4. **Joint Venture (JV)** - A new entity is created, owned jointly by two or more firms from different countries. - Combines resources, technology, and market expertise. 5. **Other Entry Modes** - **Mergers & Acquisitions (M&A):** Buying or merging with a foreign firm. - **Greenfield Investment:** Establishing a new business or facility in the foreign market from scratch. ## **Business Expansion Modes** 1. **Trade-Related Modes** - Involve activities like exporting and importing. - Focus on expanding international trade flows without establishing a physical presence. 2. **Contractual Modes** - Partnerships through legal agreements like **licensing** (granting rights to use intellectual property) and **franchising** (allowing use of brand and business model). - Management contracts and turnkey projects also fall under this category. 3. **Investment Modes** - Involve **Foreign Direct Investment (FDI)**, such as opening subsidiaries, joint ventures, or acquiring foreign businesses. - Allows for deeper market control but entails higher risks and costs. Here is a structured framework for **International Business**: ## **Globalization: Concept and Factors Affecting Globalization and Restructuring** - **Globalization**: The process of increasing interdependence among countries through trade, investment, technology, and cultural exchange. - **Factors Affecting Globalization**: - **Technological Advances**: Internet, communication, and transportation technologies. - **Economic Factors**: Growth of multinational corporations, trade liberalization, financial markets. - **Political Factors**: Reduction of trade barriers, formation of trade blocs (e.g., EU, NAFTA). - **Cultural Factors**: Spread of consumer culture, global branding, and lifestyle convergence. - **Restructuring**: Involves economic adjustments by companies and nations to remain competitive in a global market, such as outsourcing, mergers, or supply chain realignment. ## **International Business: Reasons for Expansion** - **Market Seeking**: Expanding into new markets to access new customers. - **Resource Seeking**: Gaining access to raw materials, labor, or technology. - **Efficiency Seeking**: Reducing costs through economies of scale or outsourcing. - **Strategic Asset Seeking**: Acquiring knowledge, technology, or brand reputation. - **Risk Diversification**: Reducing dependence on a single market or region. ## **Key Concepts in International Business** - **International Trade**: Exchange of goods and services between countries. - **International Marketing**: Marketing products across national borders by adapting to local markets. - **International Investment**: Cross-border investment through **Foreign Direct Investment (FDI)** or portfolio investments. - **International Management**: Coordinating and managing business activities in multiple countries. - **Global Business**: Operating across multiple regions with an integrated global strategy. ## **New Trade Theory: Internal and External Economies of Scale** - **Internal Economies of Scale**: Cost savings within a firm as production increases (e.g., bulk purchasing, automation). - **External Economies of Scale**: Cost savings due to the growth of an industry (e.g., specialized suppliers, shared infrastructure). - This theory explains how firms can gain a competitive edge and why some industries tend to concentrate in certain regions or countries. ## **International Political System and Ideologies** - **Types of Governments**: - **Democracy**: Citizens participate in decision-making. - **Authoritarianism**: Concentrated political power with limited freedoms.  - **Monarchy**: Power held by a king or queen. - **Economic Systems**: - **Capitalism**: Market-driven economy. - **Socialism**: State controls major sectors of the economy. - **Mixed Economy**: Combines elements of capitalism and socialism. - **Political Systems**: Influence business operations through regulations, taxation, and trade policies. - **Concept of Embargo and Sanction**: - **Embargo**: Complete ban on trade with a specific country. - **Sanction**: Restriction on trade or financial transactions with targeted entities or countries for political reasons. ## **Principles of International Law** - **Sovereignty**: Respect for a nation’s authority within its borders. - **Treaties and Agreements**: Binding agreements between countries. - **Dispute Resolution**: Mechanisms like the **WTO** and **International Court of Justice**. - **Human Rights and Environmental Laws**: International standards that businesses must adhere to. ## **Cultural Orientation in International Business** - **Hofstede’s Cultural Dimensions**: Framework for understanding cultural differences (e.g., power distance, individualism vs. collectivism). - **High-Context vs. Low-Context Cultures**: - High-context: Relies on implicit communication (e.g., Japan). - Low-context: Focuses on explicit, direct communication (e.g., USA). - **Impact on Business**: Culture influences negotiation, management style, marketing, and customer behavior.