1. The Challenging World of International Business
Chapter 01
The Challenging World of International Business
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. What is an International Business (IB)?
LO1
International Business –
A business that buys, sells or invests cross national borders
Foreign Business –
A company operating outside its home country
Multidomestic Company (MDC) –
A firm with multicountry affiliates, each with its own business strategy based on perceived market differences

3. What is an IB? Global Company (GC) – International Company (IC) –
A firm that standardizes and integrates functional operations worldwide
International Company (IC) –
A global or multinational company

4. What is Different about IB?
LO2
International Business deals with 3 environmental forces:
Domestic
Foreign
International
Domestic Business deals with the domestic market environment
But…may face foreign competition in domestic markets

5. Influence of External and Internal Environmental Forces
LO2
Influence of External and Internal Environmental Forces
Three relevant terms:
Environment
All forces surrounding and influencing the life and development of the firm
Uncontrollable Forces
External forces over which management has no direct control, although it can exert an influence
Controllable Forces
Internal forces that management administers to adapt to changes in the uncontrollable forces

6. External Forces
LO2
Competitive – competitors, their number, locations, activities
Distributive – agencies available for distributing goods & services
Economic – GNP, GDP, unit labor cost, personal consumption variables that impact a firm’s ability to do business
Socioeconomic – characteristics & distribution of populations
Financial – interest & inflation rates, taxation, etc.
Legal – laws governing international operations of MNCs
Physical – topography, climate, natural resources
Political – local political climate, government structure, international organizations
Sociocultural – attitudes, values, beliefs, etc., of the local culture
Labor – composition, skills, and attitudes of local labor
Technological – technical skills & w equipment converting resources into product

7. Environments Domestic Environment Foreign Environment
LO2
Domestic Environment
All uncontrollable forces originating in the home country that surround and influence the firm’s life and development
Foreign Environment
All uncontrollable forces originating outside the home country that surround and influence the firm
International Environment
Interaction between domestic and foreign environmental forces or between sets of foreign environmental forces

8. The Foreign Environment
LO2
Forces are the same in all environments but occur and operate differently outside the home country.
Forces:
have different values
can be difficult to assess
are interrelational

9. The International Environment
LO2
Consists of Interactions Between:
Affect of International Organizations
Domestic and foreign environmental forces
Between the foreign environmental forces of 2 countries when 1 does business with customers in another by crossing national borders
Worldwide Bodies – World Bank, WTO
Regional Economic Groupings – NAFTA, EU
Organizations Bound by Industry Agreements - OPEC

10. Other Factors Complexity of Decision Making Self-Reference Criterion
LO2
Complexity of Decision Making
Self-Reference Criterion
Managers must consider the effect of EACH country they deal with and how their decisions might affect interactions between countries.
Managers tend to ascribe their own cultural values, preferences, taste, opinions to the host country.
The self-reference criterion is probably the biggest cause of international business blunders!

11. A Very Brief History of IB
LO3
Greek and Phoenician merchants traded before Christ
China world’s leading manufacturer for 1,800 years, replaced by Britain, 1844
Ottoman Empire trade routes <1300, Middle East, Europe, North Africa
East India Company 1600, branches throughout Asia; Dutch East India Company
The 17th and 18th centuries the “age of mercantilism”
Significant multinationals in late 1800s: Singer Sewing Machine, J&P Coates, Ford Motor Company

12. 3 Key Terms Foreign Direct Investment (FDI)
LO4
Foreign Direct Investment (FDI)
Direct investments of any type into a foreign country
Exporting
Transportation of any domestic good/service to a foreign country
Importing
Transportation of a foreign good/service into a country

13. Growth of International Firms and IB
LO4
International Companies
64,000 transnational corps. account for:
25% of global output
66.6% of world trade
866,000 foreign affiliates
53,000,000 employed, IB
700% sales growth >1990
(UNCTAD estimates)
FDI and Export Growth
World stock of outward FDI $16.2 trillion in 2008
Growth of world merchandise exports:
$2.0 trillion in 1980
$3.45 trillion in 1990
$16.1 trillion in 2008
$12.5 trillion in 2009 (Global recession)
Growth of world service exports
$365 billion in 1980
$781 billion in 1990
$1.483 trillion in 2000

14. What is Globalization? Globalization is:
The tendency toward an international integration of goods, technology, information, labor and capital, or the process of making this integration happen.
The term globalization was first coined by Theodore Levitt in a Harvard Business Review article predicting that technology-based “proletarianization” would lead to global standardization of consumer products at lower prices.

15. Drivers of Globalization
The details are on pages 12 & 13 in the text.
Political Drivers
Technological Drivers
Market Drivers
Cost Drivers
Competitive Drivers

16. Views On Globalization
Arguments Supporting Globalization
Concerns with Globalization
Free Trade:
enhances socioeconomic development
promotes more and better jobs
Globalization has:
produced uneven results across nations and people
deleterious effects on labor and labor standards
contributed to a decline in environment and health

17. Motives for Entering Foreign Markets
LO7
The details are on pages in the text.
Increase Profits & Sales:
Enter New Markets
Create New Markets
Availability of Faster-Growing Markets
Improved Communications
Obtain Greater Profits
Generate Greater Revenue
Lower Cost of Goods Sold
Higher Overseas Profits as an Investment Motive

18. The 7 Dimensions for Globalizing A Business
Product
Markets
Promotion
Value-Added
Competitive Strategy
Use of Non-Home-Country Personnel
Firm’s Extent of Global Ownership