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

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