International Business

Dr.
Hamid Khodadad Hosseini Tarbiat Modares University
INTERNATIONAL
BUSINESS
A MANAGERIAL PERSPECTIVE
An Overview of International
Business
1
Prentice
International
Hall © 2002Business
International
3e Business 3e
Objectives
To define internal business (IB) and describe how it
differs from domestic business
To explain why companies engage in IB and why its
growth has accelerated
To introduce different modes a company can use to
accomplish its global objectives
To illustrate the role social science disciplines play in
understanding the environment of IB
To provide an overview of the primary patterns for
companies’ international expansion
To describe the major countervailing forces that affect
IB
2
International Business 3e
Changes which dramatically altered
the landscape of global business
– Emerging markets in Eastern Europe

– The European Monetary Union
– The rapid move away from traditional distribution structures in Japan, Europe,
and many emerging markets
– The growth of middle-income households the world over
– The continued strengthening and creation of regional market groups such as EU,
NAFTA, AFTA, APEC, FTAA, …
– The successful completion of GATT and the creation of WTO
– The continuing privatization and deregulation of telecommunications throughout
the world
– The restructuring, reorganizing and refocusing of companies
– The transformation of the internet from a toy to a major international business
3
Why Study International
Business?
• Almost any large organization you work for will have
international operations or be affected by the global
economy.
• Small businesses also are becoming more involved in
international business.
• Studying international business will help you keep pace
with your future competitors.
• Studying international business will help you stay abreast
of the latest business techniques and tools, many of
which are developed outside the country.
• You need to study international business to obtain
cultural literacy.
4
The Contemporary Causes
of Globalization
• Several basic motives have
compelled firms to become more
global in both their orientation and
actions:
– To leverage core competencies
– To acquire resources and supplies
– To seek new markets
– To better compete with rivals
5
International Business vs.
Domestic Business
International business can differ from domestic
business for a number of reasons, including the
following:
– The countries involved may use different currencies, forcing at
least one party to convert its currency into another.
– The legal systems of the countries may differ, forcing one or more
parties to adjust their practices to comply with local law.
– The cultures of the countries may differ, forcing each party to
adjust its behavior to meet the expectations of the other.
– The availability of resources differs by country; the way products
are produced and the types of products that are produced vary
among countries.
6
The International Operations
Foreign- Environment
(Uncontrollable)
Cultural
Economic Environment
Forces Domestic- Environment
Forces Uncontrollable
(Uncontrollable)
Country Market A
Controllable (s) Competitive Environment

Political/Legal Forces
Uncontrollable
Forces
Price Product Country Market A
Competitive
Political/Legal Structure
Forces
Environment
Promotion Place
Uncontrollable
Country Market A
Economic Cultural Level of
Climate Forces Technology
Geography
and
Infrastructure
Structure of
Distribution
7
Reasons for Growth of IB
Expansion of technology— transportation and communication
are quicker and less costly
Liberalization of cross-border movements
• Government barriers reduced because:
– desire for better access to greater variety of goods
and services
– domestic producers forced to be more competitive
– lowered trade barriers to their own exports
Development of supporting services by business and
governments to:
• Ease the flow of goods and services sold abroad
• Reduce risks of IB
Increase in global competition— firms have become more
global to maintain competitiveness
8
International Companies—terminology
Strategic alliance— collaborative arrangement of critical

importance to the competitive viability of one or more
partners
Multinational enterprise (MNE)— company with global approach
to foreign markets and production
Globally integrated company— integrates operations located in
different countries
Multidomestic company— foreign-country operations act fairly
independently
9
External Influences on IB
Physical and societal factors— must understand
• Politics that affect whether and how IB occurs
• Domestic and international law determines what
managers can do in IB
• Economics
• Geography—determine location and availability of world’s
resources
Competitive environment
• Varies by industry, company, and country
– strategies differ across companies
» e.g., importance of controlling labor costs
» e.g., influence of local and international competitors
– size of market differs across countries
10
Evolution of Strategy in International Process
Risk minimization— foreign operations viewed as risky
international commitments evolve gradually
Patterns of expansion
• Passive to active pursuit of IB opportunities
– initially wait for foreign opportunity
• External to internal handling of IB
– rely on intermediaries at first
• Limited to extensive modes of operations
– begin with importing or exporting operation
• Few to many foreign locations
• Similar to dissimilar business environments
Leapfrogging of expansion— new companies begin with
international focus
• Possible because of founder’s experience and
technological advances that help define foreign markets
11
Countervailing Forces— complicate decision making
Global standards—export suited to many countries
– results in economies of scale
– based on global strategy
Nationally responsive practices— adjust product or service
unique local conditions
– multidomestic approach advisable
Country versus company competitiveness
• Companies compete by seeking maximum efficiency
global scale
• Countries compete with each other to attain economi
political, and social goals
– no consensus on measures of goal attainment
• Relationship unclear between country and company
performance
– high-value activities— produce high profits or
performed by well-paid employees
12
Countervailing Forces (cont.)
Sovereignty—freedom from external control
• Countries will cede in order to:
– gain reciprocal advantages
» bilateral or multilateral commercial treaties or
agreements
– attack problems that cannot be solved by a single
country
» problem is too big or widespread
» problem results from conditions that spill over
from another country
– deal with areas of concern that lie outside the
territory of all countries (noncoastal areas of the
ocean, outer space, Antarctica)
» technologically advanced countries believe that
companies should reap benefits from exploitation
» other countries want to share the spoils
13
International Business
International business
consists of business
transactions between parties
from more than one country.
14
International Business Involvement:
High
Global Transnational
Business Business
Cost Pressure
International Multidomestic
Business Business
Low High
Pressure for local Responsiveness
15
A. Irregular International Business :
• No Direct Business:
A company Does not actively cultivate
customers outside national Boundaries.
• Infrequent International Business:

Temporary surpluses caused by variations in
production levels or demand may result in
infrequent business overseas. So, as
domestic demand increases and absorbs
surpluses, foreign sales activity is withdrawn.
16
B. Regular International Business :
• International strategy:
Companies that pursue an international strategy try

to create value by transferring valuable skills and
products to foreign markets where indigenous
competitors lack those skills and products.
An international strategy makes sense if a company

has a valuable distinctive competency that
indigenous competitors in foreign markets lack.
17
Multidomestic strategy:
Companies pursuing a multidomestic strategy orient
themselves toward achieving maximum local
responsiveness and transfer skills and products
developed at home to foreign markets. They
extensively customize both their product offering and
their marketing strategy to different national.
Also they also have a tendency to establish a

complete set of value-creation activities - including
production, marketing, and R&D - in each major
national market in which they do business.
18
• Global strategy:
In this situation, companies are pursuing a
low-cost strategy. Global companies tend not
to customize their product offering and
marketing strategy to local conditions because
customization raises costs.
Instead, global companies prefer to market a

standardized product worldwide so that they
can reap the maximum benefits from the
economies of scale that underlie the
experience curve.
19
• Transnational strategy:
The strategy makes When a company faces
high pressures for cost reductions and high
pressures for local responsiveness.
Companies that pursue a transnational strategy

are trying to simultaneously achieve low-cost
and differentiation advantages.
20
International Business:
The Choice of Entry Mode
• Importing and exporting

• International investments
– Foreign direct investments (FDI)
– Portfolio investments
• Licensing
• Franchising
• Management contracts
21
Importing and Exporting
• Exporting is the selling of products

made in one’s own in one’s own
country.
22
International Investments
• Foreign direct investments (FDI) are

investments made for the purpose of
actively controlling property, assets, or
companies located in host countries.
• Portfolio investments are purchases of
foreign financial assets (stocks, bonds,
and certificates of deposit) for a
purpose other than control.
23
Licensing
• Licensing is a legal arrangement

whereby a firm in one country licenses
the use of its intellectual property
(patents, trademarks, brand names,
copyrights, or trade secrets) to a firm in
a second country in return for a royalty
payment.
24
Franchising
• Franchising, a specialized form of

licensing, occurs when a firm in one
country (the franchisor) authorizes a
firm in a second country (the
franchisee) to utilize its operating
systems as well as its brand names,
trademarks, and logos, in return for a
royalty payment.
25
Management Contracts
• A management contract is an
arrangement wherein a firm in one
country agrees to operate facilities or
provide other management services to
a firm in another country for an agreed-
upon fee.
26
Environmental Change and
Globalization
• Firms would not have been able to expand
their international activities to the extent we
have observed in the post-World War II
period without significant changes in two key
areas:
– The political environment
– The technological environment
27
The Internet and
International Business
• The growth of the Internet and other
information technologies affect international
business in at least three different ways:
– The Internet and associated technologies facilitate
international trade in services.
– The Internet tends to level the playing field between larger
and smaller enterprises.
– The Internet holds considerable potential as an efficient
networking mechanism among businesses.
28
Overall Review
• International business encompasses any business transaction
that involves parties from more than one country.
• Studying international business is important for several
reasons.
• International business activity can take various forms.
• An international business is one that engages in commercial
transactions with individuals, private firms, and/or public-
sector organizations that cross national boundaries.
• International business has grown dramatically in recent years
because of strategic imperatives and environmental changes.
29
Dr. Hamid Khodadad Hosseini Tarbiat Modares University
INTERNATIONAL
BUSINESS
Chapter 2
Global Marketplaces and Business
Centers 30
Prentice
International
International
3e Business 3e
Chapter Objectives
After studying this chapter you should be able to:
• Evaluate the impact on business of the political and

economic characteristics of the world’s various
marketplaces.
• Appreciate the uses of national income data in making
business decisions.
• Discuss North America as a major marketplace and
business center in the world economy.
• Describe Western Europe as a major marketplace and
31
Chapter Objectives (cont.)
• Discuss the problems facing the economies

of the former communist countries of Eastern
and Central Europe.
• Discuss Asia as a major marketplace and
• Assess the development challenges facing
African, Middle Eastern, and South American
countries.
32
The First Rule:
Know the Territory
• Advertisements for the Energizer

Bunny were spectacular failures
when they were run on Hungarian
television. Most viewers there
assumed that the ads were for toy
bunnies.
33
The ‘Triad’ and the ‘Quad’
Much of the world’s current economic activity
is concentrated in a group of countries called:
• The Triad
– Japan, the European Union, and the United States
• The Quad
– the Triad plus Canada
34
The Marketplaces of North
America
• The United States

• Canada
• Mexico
• Greenland
• The countries of Central America
and the Caribbean
35
North America
Prentice Hall © 2002 International Business 3e

Invoicing Currency
The U.S. dollar serves as the invoicing

currency, that is, the currency in which
the sale of goods and services is
denominated, for about half of all
international transactions and is an
important component of foreign-
currency reserves worldwide.
37
Flight Capital
Because of its political stability

and military strength, the United
States also attracts flight
capital, that is, money sent out
of a politically or economically
unstable country to one
perceived as a safe haven.
38
The Marketplaces of
Western Europe
These countries can be divided into two groups:
• Members of the European Union (EU)

• Other countries in the region
39
Western Europe

The Marketplaces of Eastern
and Central Europe
• Eastern Europe
– The fifteen separate countries that resulted from the
disintegration of the Soviet Union in 1991
• Central Europe
– Albania, Austria, and the former Soviet satellite states of
Bulgaria, Czechoslovakia, Hungary, Poland, Romania,
Bosnia-Herzegovina, Croatia, Macedonia, and Slovenia
41
Eastern Europe

Central Europe

The Marketplaces of Asia
• Japan
• Australia and New Zealand
• The Four Tigers
– South Korea, Taiwan, Singapore, and Hong Kong
• China
• India
• Southeast Asian countries
– Thailand, Malaysia, and Indonesia
44
The Marketplaces of Africa and
the Middle East
• Africa
– Many experts believe South Africa will be the
dominant economic poser and the continent’s
growth engine in the 21st Century.
• Middle East
– The term Middle East is used to describe the
region located between southwestern Asia and
northeastern Africa.
45
Africa and the Middle East

The Marketplaces of South
America
• Major South American economies

include:
– Brazil, Argentina, Chile, and Colombia
• Many South American countries suffer
from huge income disparities and
widespread poverty among their
peoples, leading to political instability
and continual cries for reform.
47
South America

Chapter Review
• To compete successfully in the international
marketplace, managers need a basic understanding
of the world’s markets and their interrelationships.
• The Quad countries—Japan, members of the EU,
the United States, and Canada—are of particular
importance to MNCs.
• The North American market is one of the world’s
largest and richest.
• Another large, rich market for international
businesses is Western Europe, particularly the 15-
member EU.
49
Chapter Review (cont.)
• Asia is home to several of the fastest-growing
economies of the postwar period.
• Many African countries regained their independence
during the 1950s and 1960s. Their economies
primarily rely on natural resources and agriculture.
• While many of the South American countries are
rich in natural resources and farmlands, the
continent’s economic development since World War
II has been hindered by chronic political unrest and
import-substitution policies.
50
Dr Hamid khodadad Hosseini
INTERNATIONAL
BUSINESS
Chapter 4
The Role of Culture
51
Prentice
International
International
3e Business 3e
Chapter Objectives
• Discuss the primary characteristics of culture.

• Describe the various elements of culture and
provide examples of how they influence
international business.
• Identify the means by which members of a
culture communicate with each other.
• Discuss how religious and other values affect
the domestic environments in which
international businesses operate.
52
Chapter Objectives (cont.)
• Describe the major cultural clusters and

their usefulness for international
managers.
• Explain Hofstede’s primary findings
about differences in cultural values.
• Explain how ethical conflicts may arise
in international business.
53
E-Culture
• The rise of the Internet is altering the world’s
business cultures. It is affecting attitudes
toward risk taking, decision making,
organizational hierarchy, compensation, and
education.
• Many European and Asian firms have
structures that may not serve them well in the
Internet economy. Conversely, the culture of
many U.S. companies seems better adapted
to the Internet’s quick pace.
54
Culture
Culture is the collection of

values, beliefs, behaviors,
customs, and attitudes that
distinguish one society from
another.
55
Characteristics of Culture
• Culture reflects learned behavior that is transmitted

from one member of society to another.
• The elements of culture are interrelated.
• Because culture is learned behavior, it is adaptive;
that is, the culture changes in response to external
forces that affect the society.
• Culture is shared by members of the society and
indeed defines the membership of the society.
56
Elements of Culture
The basic elements of culture are:
• Social structure
• Language
• Communication
• Religion
• Values and attitudes
57
Social Structure
• Individuals, families and groups
– In all human societies, there are individuals living in family
units and working with each other in groups. Societies differ,
however, in the way they define family and in the relative
importance they place on the individual’s role within groups.
• Social stratification
– All societies categorize people to some extent on the basis of
their birth, occupation, educational achievements, and/or other
attributes. But the importance of these categories in defining
how individuals interact with each other within and between
these groups varies by society.
58
Social Structure (cont.)
• Social mobility
– Social mobility tends to be higher in less stratified
societies. Social mobility (or lack thereof) often
affects individuals’ attitudes and behaviors toward
such factors as labor relations, human capital
formation, risk taking, and entrepreneurship.
59
Language
• Language organizes the way members of a society
think about the world. It filters observations and
perceptions, and thus affects unpredictably the
messages that are sent when those individuals try to
communicate.
• The presence of more than one language group is an
important signal about the diversity of a country’s
population and suggests that there may also be
differences in income, work ethic, and/or educational
achievement.
60
World Languages

Africa’s Colonial Heritage

Language (cont.)
• Language as a competitive weapon

– Linguistic ties often create important competitive advantages
because the ability to communicate is so important in
conducting business transactions.
• Lingua franca
– As a result of British economic and military dominance in the
nineteenth century and U.S. dominance since World War II,
English has emerged as the predominant common
language, or lingua franca, of international business.
63
Language (conc.)
• Translation
– Some linguistic differences may be overcome through
translation. Translators must be sensitive to subtleties in the
connotations of words and focus on the translating of ideas,
not the words themselves.
• Saying no
– In contract negotiations, Japanese businesspeople often use
yes to mean “Yes, I understand what is being said.”
Misunderstandings can be compounded because directly
uttering no is considered very impolite in Japan.
64
Communication
• Nonverbal communication
– Members of a society communicate with each
other using more than words. In fact, some
researchers believe 80 to 90 percent of all
information is transmitted among members of a
culture by means other than language.
• Gift giving and hospitality
– Gift giving and hospitality are important means of
communication in many business cultures.
65
Religion
• Often religions impose constraints on the roles of

individuals in society. The caste system of
Hinduism traditionally has restricted the jobs
individuals may perform, thereby affecting the
labor market and foreclosing business
opportunities.
• The impact of religion on international businesses
varies from country to country depending on the
country’s legal system, its homogeneity of
religious beliefs, and its toleration of other
religious viewpoints.
66
Major World Religions

Values and Attitudes
• Culture also affects and reflects the secular

values and attitudes of members of a society.
Values are the principles and standards
accepted by members of a society; attitudes
encompass the actions, feelings, and
thoughts that result from those values.
• Time
– In Anglo-Saxon cultures, the prevailing attitude is
“time is money.” This contrasts sharply with
attitudes in Latin American cultures, for example.
68
Values and Attitudes (cont.)
• Age
– Youthfulness is considered a virtue in the United
States. However, in Asian and Arab cultures, age
is respected and a manager’s stature is correlated
with age.
• Education
– A country’s formal system of public and private
education is an important transmitter and reflection
of the cultural values of its society.
69
Values and Attitudes (conc.)
• Status
– In some societies, status is inherited as a result of
the wealth or rank of one’s ancestors. In others, it
is earned by the individual through personal
accomplishments or professional achievements.
70
Hall’s Low Context-High
Context Approach
• A low-context culture is one in which the
words used by the speaker explicitly convey
the speaker’s message to the listener.
• A high-context culture is one in which the
context in which a conversation occurs is just
as important as the words that are actually
spoken, and cultural clues are important in
understanding what is being communicated.
71
The Cultural Cluster
Approach
• The cultural cluster approach is another

technique for classifying and making
sense of national cultures. A cultural
cluster comprises countries that share
many cultural similarities. Many clusters
are based on language similarities.
72
A Synthesis of Country Clusters

Hofstede’s Five Dimensions
• Social orientation
• Power orientation
• Uncertainty orientation
• Goal orientation
• Time orientation
74
Social Orientation
• Social orientation is a person’s beliefs

about the relative importance of the
individual and the groups to which that
person belongs.
• The two extremes of social orientation
are individualism and collectivism.
75
Power Orientation
• Power orientation refers to the beliefs

that people in a culture hold about the
appropriateness of power and authority
differences in hierarchies such as
business organizations.
• The extremes of the dimension of
power are power respect, and power
tolerance.
76
Uncertainty Orientation
• Uncertainty orientation is the feeling

people have regarding uncertain and
ambiguous situations.
• The extremes of the uncertainty
dimension are uncertainty acceptance,
and uncertainty avoidance.
77
Goal Orientation
• Goal orientation is the manner in which

people are motivated to work toward
different kinds of goals.
• The extremes of the goal dimension are
aggressive goal behavior, and passive
goal behavior.
78
Time Orientation
• Time orientation is the extent to which members

of a culture adopt a long-term versus a short-term
outlook on work, life, and other aspects of
society.
• Some cultures, such as those of Japan and
Taiwan, have a long-term, future orientation that
values dedication and perseverance. Other
cultures, such as Pakistan and West Africa, tend
to focus on the past and present, emphasizing
respect for traditions and fulfillment of social
obligation.
79
Acculturation
Acculturation is the process

by which a person not only
understands a foreign
culture but also modifies and
adapts his/her behavior to
make it compatible with that
culture.
80
Cultural Differences and
Ethics
• Cultural differences often create

ethical problems. Acceptable
behavior in one culture may be
viewed as immoral in another.
81
Chapter Review
• Understanding cultural differences is critical to

the success of firms engaging in international
business.
• A society’s culture also reflects its values,
beliefs, behaviors, customs, and attitudes.
• A society’s culture comprises numerous
elements.
• Language is an important cultural element, for
it allows members of the society to
communicate with each other.
82
Chapter Review (cont.)
• Religion influences attitudes toward work,

investment, consumption, and responsibility
for one’s behavior. Religion may also
influence the formulation of a country’s laws.
• A society’s culture reflects and shapes its
values and attitudes, including those toward
time, age, status, and education.
• Researchers have grouped countries
according to common cultural characteristics.
83
Chapter Review (conc.)
• Hofstede has identified five basic

cultural dimensions along which people
may differ: social orientation, power
orientation, uncertainty orientation, goal
orientation, and time orientation.
• Cultural differences often create ethical
dilemmas for international
businesspeople.
84

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Dr.

Hamid Khodadad Hosseini Tarbiat Modares University

– Emerging markets in Eastern Europe

Controllable (s) Competitive Environment

Strategic alliance— collaborative arrangement of critical

• Infrequent International Business:

Companies that pursue an international strategy try

An international strategy makes sense if a company

Also they also have a tendency to establish a

Instead, global companies prefer to market a

Companies that pursue a transnational strategy

• Importing and exporting

• Exporting is the selling of products

• Foreign direct investments (FDI) are

• Licensing is a legal arrangement

• Franchising, a specialized form of

• Evaluate the impact on business of the political and

• Discuss the problems facing the economies

• Advertisements for the Energizer

• The United States

Prentice Hall © 2002 International Business 3e

The U.S. dollar serves as the invoicing

Because of its political stability

• Members of the European Union (EU)

Prentice Hall © 2002 International Business 3e

Prentice Hall © 2002 International Business 3e

Prentice Hall © 2002 International Business 3e

Prentice Hall © 2002 International Business 3e

• Major South American economies

Prentice Hall © 2002 International Business 3e

• Discuss the primary characteristics of culture.

• Describe the major cultural clusters and

Culture is the collection of

• Culture reflects learned behavior that is transmitted

Prentice Hall © 2002 International Business 3e

Prentice Hall © 2002 International Business 3e

• Language as a competitive weapon

• Often religions impose constraints on the roles of

Prentice Hall © 2002 International Business 3e

• Culture also affects and reflects the secular

• The cultural cluster approach is another

Prentice Hall © 2002 International Business 3e

• Social orientation is a person’s beliefs

• Power orientation refers to the beliefs

• Uncertainty orientation is the feeling

• Goal orientation is the manner in which

• Time orientation is the extent to which members

Acculturation is the process

• Cultural differences often create

• Understanding cultural differences is critical to

• Religion influences attitudes toward work,

• Hofstede has identified five basic

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