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What is International Business?

International Business is all business transactions that involve two or more countries International Business comprises a large and growing portion of the world’s total business. International Business usually takes place within a more diverse external environment.

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Forces Changing Global Markets

1. Massive deregulation2. Collapse of communism3. Privatizations of state-owned industries4. Revolution in information technology5. Wave of Mergers and Acquisitions (M&A)6. Emergence of free market policies7. Rise of Big Emerging Markets (BEMs)/

Economic Blocs8. Prime Transmitter of Competitive Forces in the

Global Economy

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1. Different currency & Foreign Exchange Risk

2. Economic and legal ramifications.

3. Language differences.

4. Cultural differences.

5. Role of governments.

6. Political risk.

7. Market Imperfection

8. Expanded Opportunity set

International v.s. Domestic Business Management

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Why Companies Engage in International Business

1. To Expand Sales: companie’s sales are dependent on two factors: the consumers’ interest in their product or services and the consumers’ ability and willingness to buy them.

2. Acquire Resources: Raw Materials, products, services, technology, and information

3. Diversify Sources of Sales and Supplies

4. Minimize Competitive Risk: companies move internationally for defensive reasons. Profits from one market can be used to expand operations in other markets.

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Reasons for Recent International Business Growth

1. Expansion of Technology:

a) Transportation & telecommunications is quicker

b) Transportation and telecommunications costs are more conducive for international operations.

2. Liberalization of Cross-Border Movements:

– goods, services, labour, Capital

3. Development of Supporting Institutional Arrangements: development by business and governments of institutions that enable us to effectively apply that technology.

4. Consumer Pressures: Demand and awareness for quaity product with reasonable price

5. Increase in Global Competition: new products become global; Globalization of production

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Modes of International Business...

1. Merchandise Exports and Imports: visibles and invisibles

2. Services Exports and Imports: Some form of service exports and imports are:

• Tourism and Transportation: Bangladesh Parjotan Corporation etc

• Performance of Services: Fees Taker- Banking, insurance, engineering, management services etc.

• Use of Assets: licensing agreements; royalties; franchising

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Modes of International Business...

03. Investments: a. Foreign Direct Investment: gives the investor

a controlling Interest in a foreign company. It gives access to:

• foreign markets• foreign resources• higher profits than exporting• partial ownership

b. Portfolio Investment: stock in a company or loans to a company or country in the form of bonds, bills, or notes that the investor purchases.

c. Other Operational Definitions - Strategic Alliances

d. MNCs, MNEs, TNCs, Global Company, Multidomestic Company

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What is a multinational corporation (MNC)?

A corporation that operates in two or more countries.

• A company with production and distribution facilities in more than one country - Shapiro

• Some times multinational corporations are called MNEs.

• The Multinational Enterprise is defined as one that has operating subsidiaries, branches, or affiliates located in foreign countries. In also includes firms in service activities such as consulting, accounting, construction, legal, advertising, entertainment, banking, telecommunications and lodging.

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British Affiliate Indian AffiliateGerman Affiliate

Bangladeshi Parent

What is an MNC?...

• The MNC is a firm engaged in producing and selling goods or services in more than one country.

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External Influences on International Business

1. Company’s Physical and Societal Environment: Managers need a working knowledge of business operations, a working Knowledge of political sciences, law, anthropoly, sociology, economics, and geography

2. The Competitive Environment

Please Analyze the Figure 1.5 & 1.6

Page # 13 & 15From Text Book at At your home!!

Please Analyze the Figure 1.5 & 1.6

Page # 13 & 15From Text Book at At your home!!

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Political-Societal & Competitive Environment’s Influence on International Business

PHYSICAL & SOCIETAL FACTORS• Political policies and legal practices•Cultural factors•Economic forces•Geographical influences

MeansCompetitive Environment• Major advantage in price, marketing,

innovation, or other factors• Number and comparative capabilities of

competitors• Competitive differences by Country

External Influence

Strategy

Operations

Objectives

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Evolution of Strategy in the Internationalization Process

• Patterns of Expansion: – passive to Active; – external to internal handling of the business; limited

to extensive modes of operations

• Deepening mode of Commitment• Geographic Diversification (similar cultural

background)• Leapfrogging of Expansion: companies are

starting with a global focus.

Please Draw and analyze the Figure 1.7The Usual Pattern of Internationalization