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International Business IIIntroduction to the course

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Task In pairs answer the following questions:

1. What is International Business?

2. Why should we study international business?

3. What does shape the profit-related activities across national boundaries?

4. What are the differences between domestic and international business?

5. Why do companies go international?

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The Importance of International Business

What is International Business? International business is all

commercial transactions—private and governmental—between two or more countries. Private companies undertake such transactions for profit; governments may or may not do the same in their transactions.

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The Importance of International Business

Why should we study international business?

1. International business comprises a large and growing portion of the world’s total business. Today, global events and competition affect almost all companies—large or small—because most sell output to and secure supplies from foreign countries. Many companies also compete against products and services that come from abroad.

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The Importance of International Business

Why should we study international business?

2. A company operating in the international business field will engage in modes of business, such as exporting and importing, that differ from those it is accustomed to on a domestic level.

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Growth of International Business What does shape the profit-related

activities across national boundaries?

.

Globalization

Regional Trading Blocs EU

NAFTA

CIS

Information Technology

Workforce diversity

Emerging Economies

Political Instability

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Growth of International Business

The paradigm of the “Global Village” Countries differ

Culture Political Systems Economic Systems Legal Systems Economic Development

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International Business Vs Domestic Business.

Systems are different. Issues are more complex. Conversion of Money into

different currencies. Constraints and limitations

from foreign governments.

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Why do companies go international?

First consider:Mission•What is the purpose of the company’s existence?

Objectives

•What is the company trying to accomplish?

Strategies

•Means to achieve the objectives.

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Why do companies go international?

Minimize Competitive

Risk.

Acquire Resources.

Expand Sales.

Diversify sources of sales and supplies.

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Minimize Competitive Risk

It’s a defensive reason. Protection against domestic

companies that might gain advantages abroad.

That rival company could use those advantages to improve the domestic operations later.

Prevent a competitor to gain advantages.

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Acquire Resources

Products, services, and components produced in foreign countries.

Foreign capital, technologies, and information they can use at home.

Cost reduction sweatshops.

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Expand Sales

By reaching international markets, companies increase their sales faster than when they focus on a single market.

These sales depend on the consumers’: interest in the product their ability to purchase the product.

Higher

Sales

Higher

Profit

Go International !

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Diversify Sources Of Sales And Supplies

Minimize fluctuations in sales and profits

Sales increase in a country that is expanding economically and decrease in another that is in recession.

Avoid the full impact of price fluctuations or shortages in any one country.

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Additional Factors

Increase in Global Competition. Development and Expansion of

Technology. Liberalization of Cross-Border

Movements. Development of Supporting

Services. Consumer pressures.

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Increase in Global Competition

New products quickly become known globally.

companies can produce in different countries.

Suppliers Competitors and Customers of domestic companies

have become international as well.

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Development and Expansion of Technology

Internet Commercial transatlantic supersonic travel Faxing - E-mailing Teleconferencing Overseas direct-dial telephone service Sales over the Internet (electronic commerce; e-

commerce sales). Transportation and communication costs are more

conducive for international business operations.

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Liberalization of Cross-Border Movements

The European Union, the NAFTA, and other regional economic blocs throughout the world provide fewer restrictions on cross-border movements.

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Development of Supporting Services

Companies and governments of various countries, alike, have developed services that ease international business.

Mail (Government monopoly) Banking

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Consumer Pressures

Tastes have changed. Consumers know about products

and services available in other countries.

More, new, better and differentiated products.

Spend on R&D.

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Modes of International Business

Merchandise Exports and Imports The most common

international economic transaction.

Tangible products.

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Modes of International Business

Service Exports and Imports. Tourism and transportation Movies

Crew Performance of Services Fees

(Turnkey operations - Manufacturing Contracts)

Use of Assets Royalties (Licensing – franchising)

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Modes of International Business

Investments FDI

Joint Venture (companies) Mixed Venture (government + company)

Portfolio Investment Non-controlling interest in a company.

Stocks

Loans

Financial Benefits.

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EXPORTING

Send a firm’s products or services to international destinations. Indirect: without the firm’s ultimate

involvement Cost CEM (ads), MEA (no ads, own name)

Direct: Import without intermediaries Export department. Export Sales Subsidiary

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COUNTERTRADE

Arrangements in which the flow of goods and services in both directions is the core of the transaction.

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CONTRACT MANUFACTURING

Contractual agreement between a company and a foreign producer under which the foreign producer manufactures the company’s product. The company controls promotion

and distribution. Pharmaceutical industry.

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LICENSING

In this agreement, the international company, the licensor, agrees to make available to another company abroad , the licensee, use of its: Patents and trademarks Manufacturing process Know-how Trade secrets Managerial and technical services.

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FRANCHISING

Is a form of licensing. Transfer of technology, business

system, brand name, trademark and other property rights.

Franchisor: developed the business, lends the names and brands.

Franchisee: buys the rights (fees or royalties) to operate the business under the name of the franchisor.

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MANAGEMENT SERVICE CONTRACTS

It is a long term agreement, in which the legal owners of the property and real estate enter into a contract with an outsider firm to run and operate the business. The Firm gets regular payments as

well as commissions.

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TURNKEY PROJECTS

The international company engages in the design and construction of the entire operation, once it is finished, the management goes to local personnel in exchange of a substantial fee. Airports, dams, electric power

stations, roads, factory complexes: steel mills, refineries, chemical plants and automobile plants.

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FOREIGN DIRECT INVESTMENT

Serve a local market better (HFDI) Copy and paste from the HQ plant. As it is “there” it substitutes trade.

Lower cost imputs (VFDI) Splitting the value chain activities to

low-cost location.

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FOREIGN MODE OF ENTRY CHOICES

Decision to Internationalize

Wholly Owned International

Choices

Acquisition

Greenfield Investments

Cooperative International

Choices

Equity Joint Ventures

Nonequity Strategic Alliances / Licensing