AN OVERVIEW OF INTERNATIONAL BUSINESS

CHAPTER 1: AN OVERVIEW OF INTERNATIONAL BUSINESS To understand the meaning of international business and look at the different types of international business activities To indicate the way international business differs from domestic To understand the importance of studying international business To identify reasons for international growth (globalization) To describe the growth of international business in the last fifty years

DEFINITION: WHAT IS INTERNATIONAL BUSINESS? Any business transaction between parties from more than one country Business activities that cross national boundaries

TYPES OF ACTIVITIES OR TRANSACTIONS Merchandise Exports and Imports (Visible Trade) Service Exports and Imports (Invisible Trade) Foreign Direct Investments International Investment Portofolio Investment Control of assets or companies with active management participation Purchasing of financial assets – for capital gains

OTHER FORMS OF INTERNATIONAL ACTIVITIES LICENCING Getting the right of intellectual property from a company in another country FRANCHISING Getting the right to use a company´s name and logo in another country (more control on the part of the licensor) MGT CONTRACTS Fees paid for providing personnel or management consulting in other countries JOINT VENTURES When companies from two different countries share ownership on a project (Mixed Ventures: ownership between a co. and gove/ment

MORE ON FOREIGN DIRECT INVESTMENT (FDI) Should nations engage in FDI? Benefits and Costs of a Nation as well as the Whole World ADVANTAGESDISADVANTAGES Economic Efficiency worldwide Job creation – Employment Community growth. Higher standard Government tax revenues The whole industry benefits (suppliers, merchandisers…) New technology brought to the country Better quality – lower prices – Competition Natural resources exploited by foreigners Profits might not reinvested Not caring for the long-term future on the country Upper echelons are occupied by foreign mangers Changes in culture observed Foreigners introduce their own ways. Note: For FDI to take place, control must follow the investment: However, even a 100% share does not guarantee control. Governments dictate many times what a company can hire, prices, purchase of raw materials, distribution of earnings… etc.

HOW IS INTERNATIONAL BUSINES DIFFERENT FROM DOMESTIC? LAWS Common, Civil, Religious, Bureaucratic CULTURES The way they do things in other countries RESOURCES Availability and composition of human and nonhuman CURRENCY Exchange rate Risk Taxation changes? Exchange, inflation, interest rates? Political changes: Confiscation Product standards It is the same in terms of the basic managerial and marketing functions and principles, however more knowledge and adaptability is needed in many areas because of differences in….

WHY STUDY INTERNATIONAL BUSINESS? SMEs do business with companies from other countries Most large business and Multinational in character Public policies often relate to international trade, (investment, finance) Update ourselves with techniques abroad Learn about other cultures (customer, employment) Global skills for a successful career

REASONS FOR INTERNATIONAL GROWTH (GLOBALIZATION) MARKET EXPANSION (Customers, Sales, Profits) RESOURCE ACQUISITION (Raw materials, labor components of parts) COMPETITIVE FORCES (Game is played globally – Competition) GOVERNMENT CHANGES (More and more liberal policies regarding trade – GATT) TECHNOLOGIGAL CHANGES (Transportation, Communication)

EXTENT OF INTERNATIONALIZATION GlobalTransnationalMultidomestic INTERNATIONAL BUSINESS: Any business that transacts internationally MULTINATIONAL: Corporation or Enterprise or Organization Extensive involvement in international business (with FDI). Buy, sell and produce in different countries. Have subsidiaries abroad) To include the partnership form To include not-for- profit ones A Multinational Corporation can be (in character)

TRENDS (DATA) IN FDI USA: The largest in FDI involvement. However, it is becoming less of a source (after 1960) GERMANY: Dramatic increase in FDI for the last 40 years JAPAN: Increase in FDI for the last 40 years as a source but not as a destination (not receiving FDI) All developed countries are big destinations the last 20 years Flows of Trade and FDI are explained according to political, technological and economical changes Data and trends are important for decisions of business people as well as Government policies (monetary system and taxation)