International Business: An Overview  Jashim Uddin Senior Lecturer, East West University, Bangladesh

I nternational Business (IB) is all about commercial transactions-private and governmental-between two or more countries. These transactions include sales, investments, and transportation. W hy to study IB? Continuously increasing portion of international trade and investments Wider impact of global events and competition G lobalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world.

W hy Companies Engage in IB  To expand sales: A country’s market size always have a limit and reduction of AFC (average fixed cost) require increased production volume  To acquire resources: Natural resources and locations, products, services, components, technologies, information from another country can not be usable without IB  To minimize risk: Taking the advantage of business cycle situations-recessions to expansions-in different countries

R easons for recent international growth  Expansion of technology  Liberalization of cross-border movements  Development of institutions that support and facilitate international trade  Consumer pressures  Increase in global competition

General Influences Physical and Social Factors Political policies and legal practices Cultural factors Economic factors Geographical Influences Competitive Environments Major advantages in price, marketing, innovation, or other factors Number and comparative capabilities of competitors Competitive differences by country Operations Objectives Sales Expansion Resource acquisition Risk minimization Strategy Modes Importing and Exporting Tourism and transportation Licensing and Franchising Turnkey operations Management contracts Direct and portfolio investment Functions Marketing Global manufacturing and supply-chain management Accounting Finance Human resources Overlaying Alternatives Choice of countries Organization and control mechanisms Means

M odes of IB  Merchandise Imports & Exports  Service Imports & Exports ǿ Tourism & Transportation ǿ Performance & Services ǿ Use of assets  Investments ǿ Direct investment ǿ Portfolio investment

T erms to Describe International Companies  Multinational Enterprise (MNE) and Multinational Corporation (MNC) are used synonymously to express their international involvement, all the internationally involved companies are not organized as corporations. Thus MNE is more preferred term.  Another interchangeable term Transnational Company (TNC), mostly used by UN, can be explained as, “an organization in which capabilities and contributions are may differ by country but are developed and integrated into its worldwide operations”  Companies international operations can be globally integrated or multidomestic/ locally responsive.  International operations through joint venture, licensing agreements, management contracts, minority ownership in each other’s company, long term contractual agreements are been followed by MNEs as collaborative arrangements, in addition to wholly owned subsidiaries.

P olitical and Societal Factors  Political policies and legal practices: Decisions related to IB are taken by politicians. Domestic and international laws are shaping up the do’s and don’ts for businesses.  Cultural factors: Culture explains people’s social and mental development, behavior and interpersonal activities.  Economic forces: Economics explains the need for exchanging goods & services, economic opportunity and capital flow, changes in currency value, cost of production etc.  Geographical influences: Geographical attributes affect on communication and distribution channels. Probability of natural disasters and reserves of minerals have international considerations for trade and investment.

T he Competitive Environment  Major advantage in price, marketing, innovation, or other factors  Number and comparative capabilities of competitors  Competitive differences by country E valuation of Strategy in the Internationalization process  Passive to active Expansion  External to internal handling of operations  Deepening mode of commitment  Geographic Diversification  Leapfrogging Expansion

T he Usual Pattern of Internationalization Domestic business Low Medium High Active search for opportunities Passive response to proposals Degree of similarity Number of foreign countries to operate Mode of operations Internal Vs external handling of foreign operations A B C D E

C ountervailing Forces  Globally standardized versus nationally responsive practices Standardized production and development ensures reduced cost but always one size does not fit all. In several cases multidomestic approach can be better than global approach.  Country versus company competitiveness Global operations can generate gain for companies but it may not express the same for their home country’s competitiveness and home country government also can limit business activities to increase country competitiveness.  Sovereign versus cross-national relationship Cooperation among countries generally arise for reciprocal advantage, jointly attacking problems, solving problems of the areas that lie outside the territory of all countries.