What is International Business?

Business transactions between parties from more than one country– Buying & selling raw materials, finished

goods, or services across borders.

– Operating factories or facilities overseas.

– Borrowing money in one country to finance operations in another.

How Does International BusinessDiffer from Domestic?

Currency conversions are required Differing legal systems Cultural differences Economic differences Infrastructure differences

Why Study International Business?

Most of us will work for companies that have international connections.

To develop cultural literacy. To keep in step with management

tools, production techniques, and technology that other countries are developing.

Why Companies Trade

To increase sales & broaden markets To seek cheaper raw materials or to

lower production costs To find goods not available in

domestic markets, or at a lower price than those available domestically

To seek better prices for their products

Comparative Advantage

Produce and export those goods and services for which it is relatively more productive than other countries

Import those goods and services for which other countries are relatively more productive than it is

International Business Activities

Exporting and Importing International Investments Licensing, Franchising, and

Management Contracts

Exporting and Importing

Exporting: selling of products made in one’s own country for use or resale in other countries

Importing: buying of products made in other countries for use or resale in one’s own country

International Investments

Capital supplied by residents of one country to residents of another

2 categories:– Foreign direct investments

– Portfolio investments

Other Forms of International Business Activity

Licensing: firm in one country licenses the use of its intellectual property to a firm in a second country in return for a royalty payment

Franchising: firm in one country authorizes a firm in another country to utilize its operating system and intellectual property

Management Contracts

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

Common in upper-end international hotel industry

Vital Information in International Business

Basic geography Market characteristics Culture Politics

Political Risk

Ownership risk Operating risk Transfer risk

Examples of Political Risks

Expropriation Confiscation Campaigns against

foreign goods Mandatory labor

benefits legislation Civil wars Inflation

Kidnappings, terrorist threats, and other forms of violence

Repatriation Currency

devaluations Increased taxation

Basic Country Knowledge

Is the country a democracy or dictatorship? Does country rely on free market or

government controls? Does government view foreign firms as

positive influence? Are firm’s customers private or public? Does government act arbitrarily? Is existing government stable?

Insurance against Political Risks

Overseas Private Investment Corporation (OPIC)

Multilateral Investment Guarantee Agency (MIGA)

Elements of Culture

Culture

Social Structure

Language

Values/ Attitudes

Communication

Religion

Hall’s Low-Context, High-Context Approach

Low-context: words used by speaker explicitly convey speaker’s message

High-context: the context in which a conversation occurs is just as important as the words spoken; cultural clues are critical to communication

Figure 4.2 High- and Low-Context Cultures

Ger

man

Sw

iss

Sca

ndin

avia

n

U.S

./ C

anad

ian

Bri

tain

Ital

ian

Spa

nish

Gre

ek

Ara

b

Vie

tnam

ese

Japa

nese

Kor

ean

Chi

nese

LowContext

HighContext

Hofstede’s Five Dimensions

Social Orientation Power Orientation Uncertainty Orientation Goal Orientation Time Orientation

Social Orientation

Individualism Collectivism

Relative importance of theinterests o the individual versus

interests of the group

Power Orientation

Power Respect Power Tolerance

Appropriateness of power/authority within

organizations

Uncertainty Orientation

Uncertainty Acceptance Uncertainty Avoidance

An emotional responseto uncertainty and change

Goal Orientation

Aggressive Goal Behavior Passive Goal Behavior

What motivates peopleto achieve different goals

Time Orientation

Long-term Outlook Short-term Outlook

The extent to whichmembers of a culture

adopt a long-term or a short-termoutlook on work and life

Spectrum of Effects

Free Trade No Trade•Jobs migrate

•Low wages

•Poor conditions

•Fewer jobs in developing countries

•Higher prices

•Fewer products

Trade with Social Responsibility

How? Code of Ethics

Issues on Trade Intervention

Should a national government intervene to protect the country’s domestic firms by taxing foreign goods entering the domestic market or constructing other barriers against imports?

Should a national government directly help the country’s domestic firms increase their foreign sales through export subsidies, government-to-government negotiations, and guaranteed loan programs?

Industry-Level Arguments

National Defense Argument Infant Industry Argument Maintenance of Existing Jobs Strategic Trade Theory

Strategic Alternatives

Global StrategyThe firm views the world assingle marketplace. Primarygoal is to create standardizedproducts

Home ReplicationThe firm uses the core com-petency or firm-specific advantage it developed athome

Multidomestic StrategyThe firm operates as a collection of relativelyindependent Subsidiariesfocusing on domestic market

Transnational StrategyThe firm attempts to combinethe benefits of global scaleefficiencies with the benefitsof local responsiveness

Low HighPressures for Local Responsiveness and Flexibility

Pre

ssur

es f

or G

loba

l E

ffic

ienc

ies

High

Low

Choosing a Mode of Entry

Exporting

InternationalLicensing

InternationalFranchising

Specialized Modes

Foreign Direct Investment

Decision Factors:Ownership advantagesLocation advantagesInternalization advantagesOther factors

Need for controlResource availabilityGlobal strategy

Marketing

Process of planning and executing the conception, pricing, promotion,

and distribution of ideas, goods,and services to create exchanges that satisfy

individuals and organizational objectives

Marketing Mix

How to develop the firm’s products How to price those products How to sell those products How to distribute those products to the

firm’s customers Who is the Target Market?

Figure 16.2 The Elements of the Marketing Mix for International Firms

Product PlacePromotionPricing

Marketing Mix

Standardization versus Customization

Should the firm adopt an ethnocentric approach?

Should it adopt a polycentric approach?

Should it adopt a geocentric approach?

Method of Payment

Payment in advance Open account Documentary collection Letters of credit Credit cards Countertrade

Necessary Skills and Abilities for International Managers

Skills and AbilitiesNecessary to DoThe Job

•Technical•Functional•Managerial

Skills and AbilitiesNecessary to WorkIn a Foreign Location

•Adaptability•Location-specific skills•Personal characteristics

Improved Chances of Succeeding inAn International Job Assignment

Phases in Acculturation

Honeymoon

Disillusionment

Adaptation

Biculturalism

Thanks for a fun quarter!