Sitkin and Bowen

International Business
Chapter 1: Introduction
Section I. The international context
- Terminology and useful concepts
- Key statistics

The International Business framework

- Strategic drivers
- Challenges and choices

Oxford University Press, 2013. All rights reserved.

Basic principles
Globalization and international business (IB) are based
on two different paradigms (worldviews):
- Seeing world as a whole (stressing similarities), vs.
- Focusing on differences between home and host
countries (stressing differences)
IB acknowledges difficulties of operating cross-border:
- Psychic distance between home and host country
- Insiderization strategies to overcome home bias
- There is no one right way of doing IB
Sitkin & Bowen: International Business, 2nd edition

Companies doing international business

Corporate actors
- Multinational enterprises (MNEs)
- Can include small and medium sized enterprises (SMEs)

Non-corporate actors
- Governments and intergovernmental organizations
- Other stakeholders
IB focuses on both categories and is therefore broader than
International Management, which highlights the former

Sitkin & Bowen: International Business, 2nd edition

MNE configurations
Head office vs. international subsidiaries: centre/periphery
Firms trade into host country and/or create a physical
presence there = Foreign Direct Investment (FDI)
Different MNE units often fulfil different functions,
depending on where they operate along value chain:
- Upstream (production) side
- Downstream (marketing side)

Sitkin & Bowen: International Business, 2nd edition

Accumulation of value in value chains

Value chain starts with raw materials; includes intermediate
stages of transformation; ends with finished products
Advantage for a company to control the activity where value
accumulates most intensively
Same applies to countries. International business economics
often compares terms of trade in older industrialized world
(OECD/Triad countries, Global North) vs. newer industrialized
countries (developing countries/LDCs, Global South)
Sitkin & Bowen: International Business, 2nd edition

Key statistics
With few exceptions, international trade has experienced higher
annual growth than GDP as a whole for more than a decade
Thus cross-border business = larger share of all business
The geography of trade has also shifted since the 1990s:
- relative fall in share of N. America, W. Europe
- rise in ex-USSR, Africa, Mideast (commodities) and Asia (manufacturing)
- Influenced by changes in goods relative pricing
IMBALANCES IN NATIONAL PERFORMANCE:
TRADE SURPLUSES/DEFICITS
Sitkin & Bowen: International Business, 2nd edition

Key statistics (cont.)

Strong long-term rise in FDI matching rise in trade

But sharp fall-off after 2008 financial crisis, with volumes much lower
than previous highs: sign of protectionism? deglobalization?

FDI breakdown between inflows and outflows

OECD countries (esp. EU) main source of net outflows
China currently largest recipient of net inflows

Sitkin & Bowen: International Business, 2nd edition

Internal drivers of IB activity

Expanding sales
- Leverage existing competencies
- Activities that are international by their very nature(commodities)
- Achieve critical mass

Spreading risk
- Country risk
- Product life cycle risk
- Foreign exchange risk

Acquiring inputs
- Physical resources
- Human capital

Sitkin & Bowen: International Business, 2nd edition

External drivers of IB activity

Technology
Regulatory framework
- Legalities
- Barriers to entry

Global competition
International finance

Sitkin & Bowen: International Business, 2nd edition

Challenges and choices

IB is not a science but a human activity
People act in accordance with their vision of the world:
- National and corporate culture
- Corporate strategies/structures
- Personal values and ambitions
- Xenophobia (in the sense of fear of foreignness)

IB IS THE RESULT OF MANAGERIAL DECISION-MAKING

SECOND-GUESSING MANAGERS IS USEFUL TO LEARNING

Sitkin & Bowen: International Business, 2nd edition