INTRODUCTION TO INTERNATIONAL BUSINESS ENVIRONMENT

By Dr. Archana Singh

OBJECTIVE
To define globalization and international business and show how they affect each other To understand why companies engage in international business and why international business growth has accelerated To discuss the major criticisms of globalization To become familiar with different ways in which a company can accomplish its global objectives To apply social science disciplines to understanding the differences between international and domestic business

WHAT IS INTERNATIONAL BUSINESS?

International business involves all commercial transactionsprivate and governmentalbetween parties of two or more countries. Global events and competition affect almost all firmslarge or small. However, the international environment is more complex and diverse than a firms domestic environment.

 Two

mega trends are underscored that have altered the international business landscape:

the globalization of markets or economies and technological advances.

PHASES OF GLOBALISATION

THE FORCES DRIVING GLOBALIZATION

Increase in and Expansion of Technology Liberalization of Cross-Border Trade and Resource Movement Development of Services That Support International Business Growing Consumer Pressures Increased Global Competition Changing Political Situations Expanded Cross-National Cooperation

WHATS WRONG WITH GLOBALIZATION?

Threats to National Sovereignty Economic Growth and Environmental Stress Growing Income Inequality

WHY DO FIRMS INTERNATIONALIZE?

1.

Seek opportunities for growth through market diversification higher margins and profits

2.Earn

3.Gain new ideas about products, services, and business methods 4.Better serve customers that have relocated abroad

5.Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products

CONTD
6.

Gain access to lower-cost or better-value factors of production Develop economies of scale in sourcing, production, marketing, and R&D Confront international competitors more effectively or thwart the growth of competition in the home market Invest in a potentially relationships with foreign partners rewarding

7.

8.

9.

WHY STUDY INTERNATIONAL BUSINESS?

A

facilitator of the global economy and interconnectedness A contributor to national economic well-being A competitive advantage for the firm An activity with societal implications A source of competitive advantage for you

CONTRIBUTOR TO NATIONAL ECONOMIC WELL-BEING

International trade is a critical engine for job creation. It is estimated that every $1 billion increase in exports creates more than 20,000 new jobs. One of every seven dollars of U.S. sales is made abroad. International business is both a cause and a result of increasing national prosperity. Prosperity is accompanied by literacy rate gains, nutrition and health care improvements, with some tendencies towards freedom and democracy.

A COMPETITIVE ADVANTAGE FOR THE FIRM

Increase sales

Maximize returns: Foreign markets often generate returns far superior to those in domestic markets.
Global scale economies: International players can maximize their efficiencies by securing costeffective factor inputs from around the world. Resource acquisition: Access to otherwise unavailable critical resources

AN ACTIVITY WITH SOCIETAL IMPLICATIONS

As firms increase their international activities, so does responsibility to society to be a good corporate citizen. Large corporations like Wal-Mart, Unilever, and Sony have annual revenues larger than the GDPs of many of the nations they operate. The internationalization of thousands of firms negatively impacts the natural environment, e.g. pollution (Royal Dutch Shells refining operations in Nigeria). Large banks and international investment brokers have disrupted the economies of nations with aggressive currency trading or by manipulating stock markets. Some MNEs ignore human rights and basic labor standards by establishing factories in countries that pay low wages with substandard working conditions, e.g. Nike in Asia. Building factories abroad often leads to job losses at home.

A COMPETITIVE ADVANTAGE FOR YOU

Working across national cultures exposes managers to a diversity of experiences, new knowledge, novel ways of seeing the world, and unusual challenges. Internationally-experienced managers are typically more self-confident, cosmopolitan, and have positioned themselves for unique professional opportunities.

MODES OF OPERATION IN INTERNATIONAL BUSINESS

Merchandise Exports and Imports Service Exports and Imports Investments Direct Investment. Foreign direct investment (FDI) occurs when an investor gains a controlling interest in a foreign operation. A joint venture represents a direct investment in which two or more parties share ownership of an FDI. Portfolio Investment. Portfolio investment is a non controlling interest in a venture made in the form of either debt or equity. Often, firms use portfolio investment as part of their short-term financial strategy.

TYPES OF INTERNATIONAL ORGANIZATIONS

There are numerous forms of collaborative arrangements through which companies work together internationally, such as minority ownership, licensing agreements, management contracts, or other long-term contractual arrangements.