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International Business II

Introduction to the course

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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.