Unit I

International Business An Overview Globalization introduction to the field of International Business, Significance, and Modes of International Business

 A business decision making is based on the internal and external environmental factors. The internal environmental factors are :
Value system, mission and objectives, management structure and nature, internal power relationship, human resources, company image and brand equity and other factors such as physical assets and facilities, R&D and Technological capabilities, marketing resources and financial factors.

International Business An overview

International Business An overview

External environmental factors are broadly classified as two. 1) Micro Environmental factors 2) Macro Environmental factors Micro Environmental factors are: suppliers, customers, competitors, marketing intermediaries and public Macro Environmental factors are: economic environment, political and regulatory environment, social/cultural environment, demographic environment, technological environment and natural environment.

What is Globalization?
Markets The shift toward a more integrated and interdependent world economy. Production

Multinational Enterprises (MNE)

A MNE has a worldwide approach to foreign markets and production an integrated global philosophy encompassing both domestic and international markets.

Characteristics of the Global Enterprise

1. DRAWS RESOURCES FROM A GLOBAL POOL capital, labor, materials 2. VIEWS THE WORLD AS ITS HOME 3. ESTABLISHES A WORLDWIDE PRESENCE IN ONE OR MORE BUSINESSES but may go global by chance or design 4. PURSUES A GLOBAL BUSINESS STRATEGY 5. TRANSCENDS EXTERNAL AND INTERNAL BOUNDARIES

Globalization
Trade and investment barriers are disappearing. Perceived distances are shrinking due to advances in transportation and telecommunications. Material culture is beginning to look similar. National economies merging into an interdependent global economic system.

Globalization of Markets
Merging of historically distinct and separate national markets into one huge global marketplace. Facilitated by offering standardized products: Citicorp Coca-Cola Sony PlayStation McDonalds Does not have to be a big company to participate: Over 200,00 U.S. companies with less than 100 employees had foreign sales in 2000.

The Largest Global Markets

NOT CONSUMER GOODS

Industrial Goods and Materials Commodities such as aluminum, oil and wheat. Industrial products such as microprocessors, aircraft. Financial assets such as U.S. Treasury bills and Eurobonds.

Globalization of production
Refers to sourcing of goods and services from locations around the world to take advantage of Differences in cost or quality of the factors of production Labor Land Capital

Globalization of Production
GLOBAL PRODUCT - The sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor, energy, land and capital). Companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering increasing their competitiveness.

Globalization: Pros& Cons

Pros Increased revenue opportunity through global sales. Reduced costs by producing in low cost countries. Cons Different nations = different problems. Similarities between nations may be superficial. Global planning may be easy, but global execution is not.

International Business (IB) -Definitions

1) IB field is concerned with the issues facing international

companies and governments in dealing with all types of crossborder transactions. 2) IB involves all business transactions that involve two or more countries. 3) IB consists of transactions that are devised and carried out across borders to satisfy the objectives of individuals and organizations. 4) IB consists of those activities private and public enterprises that involve the movement across national boundaries of goods and services, resources, knowledge or skills.

 International Trade: When a firm exports goods or services to consumers in another country. Foreign Direct Investment: When a firm invests resources in business activities.

International Management (IM)

IM defined as a process of accomplishing the global objectives of a firm by: (1) effectively coordinating the procurement, allocation, and utilization of the human, financial, intellectual, and physical resources of the firm within and across national boundaries and (2) effectively charting the path toward the desired organizational goals by navigating the firm through a global environment that is not only dynamic but often very hostile to the firms very survival.

Modes of International Business

The six major modes of international business are : 1. Imports and exports, 2. Tourism and transportation, 3. Licensing and franchising, 4. Turnkey operations, 5. Management contracts, and 6. Direct and portfolio investment.

Modes of International Business

1) IMPORTS AND EXPORTS Imports and exports are the most common mode of international business, particularly in smaller companies even though they are less likely to export. Large companies are more likely to engage in other modes of international business in conjunction with importing and exporting. Companies may import and export merchandise, defined as tangible goods brought into or out of (respectively) a country. While exports and imports apply mainly to goods, they can also apply to services, or nonproducts.

Modes of International Business

TOURISM AND TRANSPORTATION Most service imports and exports revolve around tourism and transportation. The revenue gained from international tourism and transportation is best seen in hotels, airlines, travel agencies, and shipping companies. For many countries, especially in the Caribbean and Southeast Asia, their income on foreign tourism is more important than their income from exports. The same holds true in countries such as Norway and Greece, who earn a considerable amount from foreign shipping

Modes of International Business

LICENSING AND FRANCHISING Many companies enter into international licensing agreements, allowing other countries around the world to use their assets (ie: trademarks, patents, copyrights, or expertise) under contract, receiving royalty payments in return. Similarly, many companies engage in franchising, as a mode of business where the franchisor allows the franchisee to use a trademark that is an essential part of the franchisee's business. For example, Gloria Vanderbilt has franchised her name out to several clothing companies, forming the Gloria Vanderbilt line. The franchisor also assists on a continuing basis in the operation of the business-for example, by providing components, management services, and technology.

Modes of International Business

TURNKEY OPERATIONS Companies also pay fees that may be incurred on an international level for engineering services handled through turnkey operations and management contracts. A turnkey operation involves construction of facilities, performed under contract, which is then transferred to the owner when the company is ready to begin operating.

Modes of International Business

MANAGEMENT CONTRACTS Management contracts are initiated when one company supplies personnel to perform general or specialized management functions for another company. This is most evident in Disney's theme parks in France, Japan, and China.

Modes of International Business

DIRECT AND PORTFOLIO INVESTMENT. Finally, international business occurs within direct and portfolio investments. a portfolio investment is a noncontrolling interest in a company that usually involves either taking stock in a company or making loans to a company in the form of bonds, bills, or notes that the investor purchases.

The End