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1. International BusinessInternational Business
Session 1

2. What is InternationalWhat is International
Business?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

3. Why Study InternationalWhy Study International
Business?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?

4. Key ObjectivesKey Objectives
Learn 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 integration
6. Understand the EU’s role in the global
marketplace

7. International vs. DomesticInternational vs. Domestic
OPPORTUNITIESOPPORTUNITIES
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

8. International vs. Domestic
OPPORTUNITIES
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

9. International vs. DomesticInternational vs. Domestic
RISKSRISKS
1. 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

10. Basic Indicators of InternationalBasic Indicators of International
BusinessBusiness
 Balance of Payments
◦ http://www.cnb.cz/en/statistics/bop_stat/b
op_q/bop_usd_en.htm
 Indices
◦ Demographic
◦ Economic
◦ Business
◦ Social and Technological

11. Balance of Payments (BOP)Balance of Payments (BOP)
Accounting SystemAccounting 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
7-11
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

12. Major Components of the BOPMajor Components of the BOP
Accounting SystemAccounting System
7-12
Current Account
Capital Account
Official Reserves
Errors and Omissions
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

13. Table 7.6. U.S. Balance of Payments in 2007Table 7.6. U.S. Balance of Payments in 2007
7-13
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

14. Population vs. GDPPopulation vs. GDP
as percentage of world totalas percentage of world total

15. World Population 2010World Population 2010

16. DemographicsDemographics
16

17. Population PyramidsPopulation Pyramids
China India

18. Purchasing Power ParityPurchasing Power Parity
(PPP)(PPP)

19. World GDP 2008World GDP 2008

20. Per Capita GDPPer Capita GDP

21. Doing BusinessDoing Business
 Produced by World Bank
 Evaluates business regulations and
enforcement
 180+ countries
 10 categories of data
www.doingbusiness.org

22. National BusinessNational Business
EnvironmentEnvironment
1. 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.

23. National BusinessNational Business
EnvironmentEnvironment
4. 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.

24. National BusinessNational Business
EnvironmentEnvironment
8. 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

25. Web ResourcesWeb Resources
Country 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

26. Why do nations trade?Why do nations trade?
Protectionism Free Trade
◦ Mercantilism
◦ Jobs
◦ Defense
◦ Infant Industry
◦ Comparative
Advantage
◦ Competitive
Advantage

27. Perspectives of the Nation and the FirmPerspectives of the Nation and the Firm
Comparative advantage
Is the concept that helps answer the
question of all nations can gain and
sustain national economic superiority
Competitive advantage
Is the concept that helps explain how
individual firms can gain and sustain
distinctive competence vis-à-vis
competitors

28. Examples of National Comparative AdvantageExamples 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

29. Examples of Firm Competitive AdvantageExamples 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)

32. Limitations of Early Trade TheoriesLimitations 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

33. Michael Porter’s Diamond Model:Michael Porter’s Diamond Model:
Sources of National Competitive AdvantageSources of National Competitive Advantage
1. 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

34. Porter’s Diamond ofPorter’s Diamond of
National Competitive AdvantageNational Competitive Advantage
Firm Strategy,
Structure,
and Rivalry
Related and
Supporting
Industries
Factor
Conditions
Demand
Conditions

35. National Industrial PolicyNational 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 incentives
 Monetary and fiscal policies
 Rigorous educational systems
 Investment in national infrastructure
 Strong legal and regulatory systems

37. “the growing interdependence of“the growing interdependence of
countries worldcountries world--wide through thewide through the
increasing volume and variety ofincreasing volume and variety of
crosscross--border transactions in goodsborder transactions in goods
and services and of internationaland services and of international
capital flows, and also through thecapital flows, and also through the
more rapid and widespread diffusionmore rapid and widespread diffusion
of technology.”of technology.”
–– IMFIMF
37
Globalization

38. Growth of relations between nationsGrowth of relations between nations
and cultures or between institutionsand cultures or between institutions
situated in different nations orsituated in different nations or
cultures.cultures.
38
Internationalization

39. What’s the difference?What’s the difference?
Globalization Internationalization
 Growing world systems
 Transnational,
Subnational and
Supranational actors
 Driven by free markets
and technology
 Relations between
nations
 Nation state is central
actor
 Driven by national
interests
39

40. Comparing the Growth Rates of World GDPComparing the Growth Rates of World GDP
and World Exportsand World Exports

41. Productivity levelsProductivity levels

42. “The World is Flat”“The World is Flat”
Thomas FriedmanThomas 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 Curve
3. Opening of Countries (3 billion people)
 USSR, Central Europe, China, India, South
America
 Market economies and integrated financial
system

43. Top Global Brands (selectTop Global Brands (select
industries)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

44. Major Companies in NonMajor Companies in Non--TriadTriad
MarketsMarkets
 Mahindra & Mahindra
 Orascom
 Lenovo
 Infosys
 Wipro
 SABMiller
 Embraer
 Ranbaxy
 Haier
 Tata

45. Major Companies in NonMajor Companies in Non--TriadTriad
MarketsMarkets
 Mahindra &
Mahindra
 Orascom
 Lenovo
 Infosys
 Wipro
 SABMiller
 Embraer
 Ranbaxy
 Haier
 Tata
India Automotive
Egypt Cellular
China Computers
India Software
India Tech Services
South Africa Brewing
Brazil Aircraft
India Pharmaceuticals
China Appliances
India Automotive

46. Negative ConsequencesNegative Consequences
of Market Globalizationof 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

47. How Globalized is the World?How Globalized is the World?

49. OnlyOnly semiglobalizedsemiglobalized??
 http://www.ft.com/intl/businesseducati
on/iese