1 An Overview of International Business BFMA 6043 MBA PHMSB KOTA KINABALU

2 Discussion Questions 1. Differences between international business and domestic business? a. b. c. d. e.

3 Need for International Business More and more firms around the world are going global, including: Manufacturing firms Service companies (i.e. banks, insurance, consulting firms) Art, film, and music companies

4 Need for International Business International business: causes the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level

5 International Business is……. any business transaction between parties from more than one country Buying and selling raw materials, inputs or finished products across borders Operating plants in other countries Borrowing money in one country to finance operations in a second country Any organization that engages in cross-border commercial transaction Parties involved may include private individuals, individual companies, and/or government agencies

6 International versus Domestic Businesses IB versus domestic business? IB transactions cross national boundaries Different currencies are used, forcing at least one party to convert its currency into another Different legal systems, forcing one or more parties to adjust their practices to comply with local law Different cultures, forcing each party to adjust its behavior to meet expectations of the other

7 Why Is International Business Difficult? Domestic Environment All the uncontrollable forces in the home country that surround and influence the firm’s life and development Foreign Environment All the uncontrollable forces originating outside the home country that surround and influence the firm different values difficult to assess interrelated

8 Why Is International Business Different? cont’d. International Environment Interaction between domestic and foreign environmental forces or between sets of foreign environmental forces Increased complexity for decision-making Decision making more complex

9 Environments of International Business Environment All the forces influencing the life and development of the firm Forces External Forces (Uncontrollable) – Forces over which management has no direct control Internal Forces (Controllable) – Forces that management can use to adapt to external forces

10 External Forces Competitive Kind, number, location Distributive For distributing goods and services Economic GNP, unit labor cost, personal consumption expenditure Socioeconomic Characteristics of human population Financial Interest rates, inflation rates, taxation

11 External Forces, cont’d. Legal Laws governing how international firms must operate Physical Topography, climate, and natural resources Political Forms of government, and international organizations Sociocultural Attitudes, beliefs, and opinions Labor Skills, attitudes of labor Technological Equipment and skills that affect how resources are converted to products

12 Internal Environmental Forces Factors of Production Capital, raw materials, and people Activities of the organization Personnel, finance, production, and marketing

13 Why Study International Business? Career opportunity :- any large organization will have int’l operations or affected by global economy Small companies are also becoming more involved in international business To keep pace with your future competitors To stay abreast of the latest business techniques and tools To obtain cultural literacy

14 Types of International Business Export-import trade Foreign direct investment Licensing Franchising Management contracts

15 Modes of International Business Exporting and importing The selling of products made in one’s own country for use or resale in other countries The buying of products made in other countries for use or resale in one’s own country MMerchandise exports and imports SService exports and imports International investments Capital supplied by residents of one country to residents of another

16 Modes of International Business Two types of international investments: Foreign direct investments (FDI) Portfolio investments FDI – investments made for the purpose of actively controlling property, assets, or companies located in host countries Portfolio investments – purchases of foreign financial assets (stocks, bonds, or certificates of deposits) for a purpose other than control

17 Modes of International Business Licensing Legal arrangement whereby a 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 A specialized form of licensing, occurs when a firm in one country (the franchisor) authorizes a firm in a second country (the franchisee) to utilize its operating systems as well as its brand names, trademarks, and logos in return for a royalty payment.

18 Modes of International Business Management contract 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.

19 Key Players in International Business Multinational Enterprises (MNEs) MNE is a business entity that has direct investments (in the form of marketing or manufacturing subsidiaries) abroad in multiple countries Large economic and political muscle Generate significant jobs, investment, and tax revenue Entrepreneurs and Small Businesses

20 The Growth of International Business 2 broad reasons: Strategic Imperatives and Environmental Changes i. Seek opportunities for growth through market diversification ii. Earn higher margins and profits iii.Better serve key customers that have relocated abroad iv. To leverage core competencies – to increase revenues and profits v. To acquire resources and supplies vi. Develop economies of scale in sourcing, production, marketing, and R&D

21 The Growth of International Business To seek new markets To better compete with rivals Environmental Change and Globalization Changes in political environment The roles of GATT and WTO Agreements among trading nations Technological changes Improvements in technology – communications, transportation, and information processing