InterBus_PreLim.pdf

THE CHALLENGING CONTEXT OF INTERNATIONAL BUSINESS  LEARNING OBJECTIVES: By the end of the discussion, the students should be able to: 1. Understand how international business differs from domestic business, 2. Describe the history and future of international business, 3. Discuss the dramati...

THE CHALLENGING CONTEXT OF INTERNATIONAL BUSINESS  LEARNING OBJECTIVES: By the end of the discussion, the students should be able to: 1. Understand how international business differs from domestic business, 2. Describe the history and future of international business, 3. Discuss the dramatic internationalization of business, 4. Identify the kinds of drivers that are leading firms to internationalize their operations; and 5. Compare key arguments for and against the globalization of business. WHAT IS INTERNATIONAL BUSINESS AND WHAT IS DIFFERENT ABOUT IT? INTERNATIONAL BUSINESS- a business that is carried out across national borders. FOREIGN BUSINESS- the operations of a company outside its home or domestic market. INTERNATIONAL COMPANY- a company with operations in multiple nations. THE INFLUENCE OF EXTERNAL AND INTERNAL ENVIRONMENTAL FORCES  EXTERNAL FORCES INTERNAL FORCES Competitive Factors of production Distributive Activities of the organization Economic Socioeconomic Financial Legal Physical Political Sociocultural Labor Technological THE DOMESTIC ENVIRONMENT -is all the uncontrollable forces originating in the home country that surround and influence the life and development of the firm. THE FOREIGN ENVIRONMENT -refers to all the uncontrollable forces originating outside the home country that surround and influence the firm.  FORCES IN THE FOREIGN ENVIRONMENT: 1. Forces have different values 2. Forces can be difficult to assess 3. The forces are interrelated  THE INTERNATIONAL ENVIRONMENT -interaction between domestic and foreign environmental forces, as well as interactions between the foreign environmental forces of two countries. FORCES IN THE INTERNATIONAL ENVIRONMENT: 1. Decision making is more complex 2. Self- reference criterion IS INTERNATIONALIZATION OF BUSINESS A NEW TREND, AND WILL IT CONTINUE?  EXPANDING NUMBER OF INTERNATIONAL COMPANIES TRANSNATIONAL CORPORATION- an enterprise made up of entities in more than one nation, operating under a decision- making system that allows a common strategy and coherent policies.  FOREIGN DIRECT INVESTMENT AND EXPORTING ARE GROWING RAPIDLY FOREIGN DIRECT INVESTMENT (FDI)- direct investments in equipment, structures, and organizations in a foreign country at a level sufficient to obtain significant management control; does not include mere foreign investment markets. EXPORTING- the transportation of any domestic good or service to a destination outside a country or region. IMPORTING- the transportation of any good or service into a country or region, from a foreign origination point.  WHAT IS DRIVING THE INTERNATIONALIZATION OF BUSINESS?  THE FIVE MAJOR KINDS OF DRIVERS 1. Political Drivers 2. Technological Drivers 3. Market Drivers 4. Cost Drivers 5. Competitive Drivers  WHAT IS GLOBALIZATION AND WHAT ARE THE ARGUMENTS FOR AND AGAINST THE GLOBALIZATION OF BUSINESS? ECONOMIC GLOBALIZATION- the tendency toward an international integration and interdependency of goods, technology, information, labor, and capital, or the process of making this integration happen.  ARGUMENTS SUPPORTING GLOBALIZATION 1. Free trade enhances socioeconomic development 2. Free trade promotes more and better jobs CONCERNS WITH GLOBALIZATION 1. Globalization has produced uneven results across nations and people 2. Globalization has had deleterious effects on labor and labor standards 3. Globalization has contributed to a decline in environmental and health conditions INTERNATIONAL TRADE AND INVESTMENT  LEARNING OBJECTIVES: By the end of this discussion, the students should be able to: 1. Describe the magnitude of international trade and how it has grown, 2. Distinguish among the theories that explain why certain goods are traded internationally, 3. Describe the size, growth, and direction of foreign direct investment; and 4. Explain several of the theories of foreign direct investment. VOLUME OF INTERNATIONAL TRADE  MAJOR TRADING PARTNERS: THEIR RELEVANCE FOR MANAGERS 1. Business climate in these importing nations is already relatively favorable. 2. Export and import regulations are not insurmountable. 3. There should be no strong cultural objections at home to buying that nation’s goods. 4. Satisfactory transportation facilities have already been established.  MAJOR TRADING PARTNERS: THEIR RELEVANCE FOR MANAGERS 5. Import channel members (merchants, banks, and customs brokers) are experienced in handling import shipments from the exporter’s area. 6. Currency from the foreign country is available to pay for the exports. 7. The government of a trading partner may be applying pressure on its importers to buy from countries that, like the U.S, are good customers for that nation’s exports. Trade Deficit- the amount by which the value of imports into a nation exceeds the value of its exports. Trade Surplus- the amount by which the value of a nation’s exports exceeds the value of its imports. INTERNATIONAL TRADE THEORIES  MERCANTILISM An economic philosophy based on the belief that: 1. A nation’s wealth depends on accumulated treasure, usually precious metals such as gold and silver; and 2. To increase wealth, government policies should promote exports and discourage imports.  THEORY OF ABSOLUTE ADVANTAGE A nation’s ability to produce more of a good or service than another country for the same or lower cost of inputs. THEORY OF ABSOLUTE ADVANTAGE  THEORY OF COMPARATIVE ADVANTAGE When one nation is less efficient than another nation in the production of each of two goods, the less efficient nation has a comparative advantage in the production of that good for which its absolute disadvantage is less. THEORY OF COMPARATIVE ADVANTAGE HOW EXCHANGE RATES CAN CHANGE THE DIRECTION OF TRADE?  CURRENCY DEVALUATION A reduction in the value of a country’s currency relative to other currencies. EXPLANATIONS FOR THE DIRECTION OF TRADE 1. Differences in Resource Endowments 2. Overlapping Demand 3. Product Differentiation 4. International Product Life Cycle (IPLC) EXPLANATIONS FOR THE DIRECTION OF TRADE Resource Endowment- the land, labor, capital, and related production factors a nation possesses. EXPLANATIONS FOR THE DIRECTION OF TRADE Overlapping Demand- the existence of similar preferences and demand for products and services among nations with similar levels of per capita income. EXPLANATIONS FOR THE DIRECTION OF TRADE Product Differentiation- unique differences producers build into their products with the intent of positively influencing demand. EXPLANATIONS FOR THE DIRECTION OF TRADE International Product Life Cycle (IPLC)- a theory explaining why a product that begins as a nation’s export eventually becomes its import.  FOREIGN INVESTMENT Portfolio investment- the purchase of stocks and bonds to obtain a return on the funds invested. Direct investment- the purchase of sufficient stock in a firm to obtain significant management control. THEORIES OF INTERNATIONAL INVESTMENT Greenfield investment- the establishment of new facilities from the ground up. Cross- border acquisition- the purchase of an existing business in another nation.  MONOPOLISTIC ADVANTAGE THEORY - Theory that foreign direct investment is made by firms in industries with relatively few competitors, due to their possession of technical and indigenous firms.  STRATEGIC BEHAVIOR THEORY - Theory suggesting that strategic rivalry between firms in an oligopolistic industry will result in firms closely following and imitating each other’s international investments in order to keep a competitor from gaining an advantage. Oligopolistic industry- an industry with a limited number of competing firms.