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International Business Session 1. What is International Business? Business transactions between...
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Transcript of International Business Session 1. What is International Business? Business transactions between...
International BusinessSession 1
What is International Business?
Business transactions between parties from more than one country
Sourcing, Manufacturing, Selling, Developing
Parties may include◦Private individuals◦Individual companies◦Groups of companies◦Governmental agencies
Why Study International Business?
Today’s business environment is global.Conducting international business
presents unique risks, challenges and opportunities.
ASK YOURSELF: is your company maximizing the opportunities of global business across the value chain?
Key ObjectivesLearn to:
1. Understand the global business environment and how it is different from the national environment.
2. Select between the different modes of international business
3. Analyze and react to different cultural contexts
4. Research and evaluate global markets.5. Assess how countries can shape global
business through policy and integration6. Understand the EU’s role in the global
marketplace
International vs. DomesticOPPORTUNITIES
1.Seek opportunities for growth through market diversification
2.Gain new ideas about products, services, and business methods
3.Better serve key customers that have relocated abroad
4.Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products
International vs. DomesticOPPORTUNITIES
5. Gain access to lower-cost or better-value factors of production
6. Develop economies of scale in sourcing, production, marketing, and R&D
7. Confront international competitors more effectively or thwart the growth of competition in the home market
International vs. DomesticRISKS1. Cross-cultural risk: a situation or event
where a cultural miscommunication puts some human value at stake
2. Country risk: potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country
3. Currency risk: risk of adverse unexpected fluctuations in exchange rates
4. Commercial risk: firms potential loss or failure from poorly developed or executed business strategies, tactics, or procedures
Basic Indicators of International BusinessBalance of Payments
◦http://www.cnb.cz/en/statistics/bop_stat/bop_q/bop_usd_en.htm
Indices ◦Demographic◦Economic◦Business◦Social and Technological
Balance of Payments (BOP) Accounting System
Measures and records all economic transactions between residents of one country and residents of all other countries during specified time period
Provides understanding of performance of each country’s economy in international markets
Signals fundamental changes in country competitiveness
Assists policy makers in designing appropriate public policies
7-11Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall
Major Components of the BOP Accounting System
7-12
Current Account
Capital Account
Official Reserves
Errors and Omissions
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall
Table 7.6. U.S. Balance of Payments in 2007
7-13Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall
Population vs. GDPas percentage of world total
World Population 2010
Demographics
16
Population Pyramids
China India
Purchasing Power Parity (PPP)
World GDP 2008
Per Capita GDP
Doing BusinessProduced by World BankEvaluates business regulations
and enforcement180+ countries10 categories of data
www.doingbusiness.org
National Business Environment1. Starting a Business Tracks the procedures,
time, and costs for a limited liability company to legally start operation.
2. Dealing with Licenses Tracks the procedures, time and costs to build a warehouse, including obtaining necessary licenses and permits, completing required notifications and inspections and obtaining utility connections.
3. Hiring & Firing Workers Measures the flexibility of regulations for hiring and firing workers and the costs of hiring and firing.
National Business Environment4. Registering Property Tracks the steps, time, and
cost involved in registering property.
5. Getting Credit Explores the role of creditor rights and credit information registries in expanding access to credit.
6. Protecting Investors Measures the strength of minority shareholder protections against directors’ misuse of corporate assets for personal gain.
7. Paying Taxes Records the tax that a medium-size company must pay or withhold in a given year, as well as measures of the administrative burden in paying taxes.
National Business Environment8. Trading Across Borders Details the costs
and procedures involved in importing and exporting a standardized shipment of goods.
9. Enforcing Contracts Evaluates the efficiency of contract enforcement by following the evolution of a payment dispute and tracking the time, cost, and number of procedures involved from the moment the plaintiff files the lawsuit until actual payment.
10. Closing a Business Measures the time and cost of bankruptcy procedures, and develops indices of procedural bottlenecks in bankruptcy law
Web ResourcesCountry Financial and Demographic info
◦ http://www.worldbank.org◦ https://www.cia.gov/library/publications/the-world-
factbook/index.html◦ http://globaledge.msu.edu/◦ http://www.oecd.org
Economic and Political Freedom◦ http://www.freedomhouse.org/template.cfm?page=1◦ http://www.heritage.org/index/
National Business Environment◦ http://www.doingbusiness.org
Human Development◦ http://www.undp.org
Why do nations trade?
Protectionism Free Trade
◦Mercantilism◦Jobs◦Defense◦Infant Industry
◦Comparative Advantage
◦Competitive Advantage
Perspectives of the Nation and the Firm
Comparative advantageIs the concept that helps answer
the question of all nations can gain and sustain national economic superiority
Competitive advantageIs the concept that helps explain
how individual firms can gain and sustain distinctive competence vis-à-vis competitors
Examples of National Comparative Advantage
China is a low labor cost production base
India’s Bangalore region offers a critical mass of IT workers
Ireland’s repositioning enabled a sophisticated service economy
Dubai, a previously obscure Emirate, has been transformed into a knowledge-based economy
National advantage can be created
Examples of Firm Competitive Advantage
Dell’s prowess in global supply chain management
Nokia’s design and technology leadership in telecommunications
Samsung’s leadership in flat-panel TV
Herman Miller’s design leadership
in office furniture(e.g., Aeron chairs)
Limitations of Early Trade Theories
Do not take into account the cost of international transportation
Tariffs and import restrictions can distort trade flows
Scale economies can bring about additional efficiencies
When governments selectively target certain industries for strategic investment, this may cause trade patterns contrary to theoretical explanations
Today, countries can access needed low-cost capital on global markets
Some services do not lend themselves to cross-border trade
Michael Porter’s Diamond Model:Sources of National Competitive
Advantage1. Firm strategy, structure, and rivalry –
the presence of strong competitors at home serves as a national competitive advantage
2. Factor conditions – labor, natural resources, capital, technology, entrepreneurship, and know how
3. Demand conditions at home – the strengths and sophistication of customer demand
4. Related and supporting industries – availability of clusters of suppliers and complementary firms with distinctive competences
Porter’s Diamond of National Competitive Advantage
Firm Strategy, Structure,
and Rivalry
Related and SupportingIndustries
FactorConditions
DemandConditions
National Industrial Policy
Proactive economic development plan implemented by the public sector to nurture or support promising industry sectors with potential for regional or global dominance. Public sector initiatives can include:
Tax incentivesMonetary and fiscal policiesRigorous educational systemsInvestment in national infrastructureStrong legal and regulatory systems
“the growing interdependence of countries world-wide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology.” – IMF
37
Globalization
Growth of relations between nations and cultures or between institutions situated in different nations or cultures.
38
Internationalization
What’s the difference?
Globalization InternationalizationGrowing world
systemsTransnational,
Subnational and Supranational actors
Driven by free markets and technology
Relations between nations
Nation state is central actor
Driven by national interests
39
Comparing the Growth Rates of World GDP and World Exports
Productivity levels
“The World is Flat” Thomas Friedman
Triple Convergence:1. 10 Flattening Forces
Internet and IT integration Outsourcing, Offshoring, Insourcing, Supply
Chain Uploading, Informing at individual level Technological speed and cost
2. Productivity Lag / Learning Curve3. Opening of Countries (3 billion
people) USSR, Central Europe, China, India, South
America Market economies and integrated financial
system
Top Global Brands (select industries)
Cars
1 Toyota
2 BMW
3 Porsche
4 Mercedes
5 Honda
6 Nissan
7 Ford
8 Chevrolet
9 VW
10 Lexus
Mobile Operators
1 China Mobile
2 Vodafone
3 Verizon Wireless
4 NTT DoCoMo
5 Orange
6 AT&T
7 T-Mobile
8 Movistar
9 MTS
10 TIM
Beer
1 Budweiser
2 Bud Light
3 Heineken
4 Corona
5 Stella Artois
6 Guinness
7 Miller Light
8 Skol
9 Amstel
10
Beck’s
Major Companies in Non-Triad Markets
Mahindra & MahindraOrascomLenovo InfosysWiproSABMillerEmbraer RanbaxyHaierTata
Major Companies in Non-Triad Markets
Mahindra & Mahindra
OrascomLenovo InfosysWiproSABMillerEmbraerRanbaxyHaierTata
India AutomotiveEgypt CellularChina ComputersIndia SoftwareIndia Tech
ServicesSouth Africa BrewingBrazil AircraftIndia
PharmaceuticalsChina AppliancesIndia Automotive
Negative Consequences of Market Globalization
Loss of national sovereignty Offshoring and the flight of jobs Effect on the poor Effect on health and safety Effect on the natural environment Effect on national culture
How Globalized is the World?
Only semiglobalized?http://www.ft.com/intl/businessed
ucation/iese