1. A Generalized Survey of International Business
January 25,2010

2. The Scoop on International Business
International business is the performance of trade and investment activities by firms across geographic borders
In 1960, international trade was valued at $100 billion per year. By 2008, it was $10 trillion.
International trade utilizes a broad range of units of commerce:
Physical products
Services
Capital
Technology
Know-how
Labor
International trade became important as a result of the globalization of markets
Economic forces result in the direction of resources to the markets where they are most highly valued and most efficiently consumed
The Scoop on International Business

3. Key International Business Concepts
International business activities can take one or more of several forms.
Exporting
Importing
Global sourcing
International investment
Portfolio investment
Foreign direct investment (FDI)
All of these businesses involve some level of risk
Cross cultural risk – Any error puts human value at stake
Country risk – political, legal, or economic changes affect the profitability of transactions or company survival
Currency risk – fluctuations in monetary value (exchange worth) affects the profitability of transactions
Commercial risk – poor execution of strategies or tactics affect the profitability of transactions or company survival
Key International Business Concepts

4. Who Are the Players and Why are They Here?
Participants in international business
Multinational enterprises (MNE)
Operate through affiliates and subsidiaries in multiple companies, usually developed through DFI or acquisition/merger activities
Small and medium enterprises (SME)
Companies with fewer than 500 employees that generally engage in international commerce through import and export activities
Born global firm
Entrepreneurial firms that expand rapidly into foreign markets
Internationalization drivers
Growth through diversification
Seek greater profits
Find new products or business ideas or methods
Better service global customers
Closer access to supply and suppliers
Attain lower cost factors of production
Land, capital, technology, and labor
Attain greater economies of scale
Confront international competition
Establish relationships with foreign partners
Who Are the Players and Why are They Here?

5. International Business Developments
Millions have joined the world economy .... as producers
Cheap labor draws investment/production away from industrial nations
Markets are overcrowded with goods
Exports from developing nations are rapidly growing
Downsizing continues
Boost productivity
Cut costs
cost cutting is (can be) a powerful survival tool
cost cutting IS NOT a growth strategy
New products, new ideas, new technologies drive sales and revenues
International Business Developments

6. Politics and Foreign Direct Investment
Radical
View
Pragmatic
Nationalism
Free
Market
Politics and Foreign Direct Investment

7. Marxist view: MNE’s exploit less-developed host countries
Extract profits
Give nothing of value in exchange
Instrument of domination, not development
Keep less-developed countries relatively backward and dependent on capitalist nations for investment, jobs, and technology
By the end of the 1980s radical view was in retreat
Collapse of communism
Bad economic performance of countries that embraced the radical view
Strong economic performance of countries who embraced capitalism rather than the radical view
The Radical View

8. Pragmatic Nationalism
FDI has benefits and costs
Allow FDI if benefits outweigh costs
Block FDI that harms indigenous industry
Court FDI that is in national interest
Tax breaks
Subsidies
Many of the most successful developing countries – past and present – followed a pragmatic nationalistic stance
Japan
South Korea
China
Economists note that Hong Kong, which followed the free market approach, was even more successful
Pragmatic Nationalism

9. The Benefits of FDI to Host Countries
Four main benefits of FDI for a host country
Resource-transfer effect
Employment effect
Balance-of-Payments effect
Effect on competition and economic growth
In a free market view
Many economists argue that the benefits of FDI so outweigh the costs associated with pragmatic nationalism that it is misguided
The best policy would be for countries to forgo all intervention in an MNE’s investment decisions
The Benefits of FDI to Host Countries

10. Costs of FDI to the Home Country
Can drive out local competitors or prevent their development
Profits brought home ‘hurt’ (debit) a host’s capital account
Parts imported for assembly hurt trade balance
Can affect sovereignty and national defense
Costs of FDI to the Home Country

11. Nations specialize in goods and services that they can produce most efficiently
Resource transfers benefit and strengthen the host country
Positive changes in laws and growth of bilateral agreements attest to strength of free market view
All countries impose some restrictions on FDI
The Free Market View

12. Concepts of Economic Freedom
Economic Freedom means that people are free to trade with others, compete in markets, buy what they want, earn a living in a job they choose, keep what they earn, and own things privately.
Creative Destruction
An economy undergoes continuous change
– some industries fail, others are born
Capitalism critically relies on entrepreneurship and the profit and loss system to direct this process
This process cannot be centrally planned or directed effectively - it must be discovered within the marketplace
Concepts of Economic Freedom

13. Countries with the highest levels of economic freedom have the highest standard of living
- trade policy - taxation
- govt. intervention - monetary policy
- capital flows - banking policy
- foreign investment - property rights
- wage/price controls - black market
- regulation
Wealthy countries tend to reintroduce economic restrictions over time
Freedom and Growth

14. Economic Freedom Economic freedom is on the rise
Poverty is still with us
A majority of the world’s economies are not free
Some formerly Communist countries have policies that have achieved some level of economic freedom
European Monetary Union; same standards for all members
Success of capitalism in promoting economic freedom
Most Free
1. Hong Kong
2. Singapore
3. New Zealand
4. Bahrain
Luxembourg
U.S.
Least Free
161. North Korea
160. Iraq
159. Libya
158. Somalia
157. Cuba
Economic Freedom

15. North Korea vs. South Korea
Per Capita Income
= $1,800
Per Capita Income
= $24,200
North Korea vs. South Korea

16. Map of Economic Freedom

17. Zimbabwe (in Africa)

18. Life in Zimbabwe (Africa)

19. Life in Zimbabwe (Africa)

20. Romania (in Europe)

21. Life in Romania (Europe)

22. Life in Romania (Europe)

23. Life in Romania (Europe)

24. Life in Romania (Europe)

25. Life in Romania (Europe)

26. Life in Romania (Europe)

27. Life in Romania (Europe)

28. Life in Romania (Europe)

29. Life in Romania (Europe)

30. India (in Asia)

31. Life in India

32. Life in India

33. Mexico (in North America)

34. Life in Mexico

35. Life in Mexico

36. Hong Kong (in Asia)

37. Life in Hong Kong

38. Life in Hong Kong

39. Life in Hong Kong

40. United States (in North America)

41. United States (in North America)