What is International Business? Business transactions between parties from more than one country –Buying & selling raw materials, finished goods, or.
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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 Business Differ 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 GermanSwissScandinavianU.S./ CanadianBritainItalianSpanishGreekArabVietnameseJapaneseKoreanChinese Low Context High Context
Hofstede’s Five Dimensions Social Orientation Power Orientation Uncertainty Orientation Goal Orientation Time Orientation
Social Orientation IndividualismCollectivism Relative importance of the interests 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 response to uncertainty and change
Goal Orientation Aggressive Goal Behavior Passive Goal Behavior What motivates people to achieve different goals
Time Orientation Long-term OutlookShort-term Outlook The extent to which members of a culture adopt a long-term or a short-term outlook on work and life
Spectrum of Effects Free TradeNo 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 Strategy The firm views the world as single marketplace. Primary goal is to create standardized products Home Replication The firm uses the core com- petency or firm-specific advantage it developed at home Multidomestic Strategy The firm operates as a collection of relatively independent Subsidiaries focusing on domestic market Transnational Strategy The firm attempts to combine the benefits of global scale efficiencies with the benefits of local responsiveness Low High Pressures for Local Responsiveness and Flexibility Pressures for Global Efficiencies High Low
Choosing a Mode of Entry Exporting International Licensing International Franchising Specialized Modes Foreign Direct Investment Decision Factors: Ownership advantages Location advantages Internalization advantages Other factors Need for control Resource availability Global 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 ProductPlacePromotionPricing 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 Abilities Necessary to Do The Job Technical Functional Managerial Skills and Abilities Necessary to Work In a Foreign Location Adaptability Location-specific skills Personal characteristics Improved Chances of Succeeding in An International Job Assignment
Phases in Acculturation Honeymoon Disillusionment Adaptation Biculturalism