University Of Finance & Administration INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D.

2.2. INTERNATIONAL BUSINESS Part-time course = 3 guided consultations (summer term 2011)  Framework of IB, it’s importance in national economy  Reasons for Exchange  Ways of controlling IB, Economic Integration  Role of CULTURE, cultural differences and their impact on mastering business  CZECH accession in the EU structures: opportunity or threat?  Internationalisation  Entering foreign markets, entry modes (characteristics, risks, sources fixture) Within each consultation: practical discussions on topical economical issues INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

3.3. CREDIT conditions B_IB Part-time course = 3 guided consultations (summer term 2011) INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. / CONDITIONS: PRESENCE at IB lectures (2/3) active PARTICIPATION = communication, reading and discussing topical economic issues Individual quick knowledge EXAM before crediting PLEASE NOTE: advanced preparation at home needed If unfulfilled, quality written credit paper will be required.

4.4. INTERNATIONAL BUSINESS  What is international business? = exchange of goods and services undertaken by business bodies across the national border with the foreign business bodies = cross-border commercial transactions INT business = EXCHANGE across border INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

Import / Export International TRADE FDI / Portfolio inv. // JV / WOS / MNO etc. International INVESTMENT Barter, Switch trading, Offset, Buyback etc. Other forms of int. business ACTIVITY (counter-trades) 5.5. INTERNATIONAL BUSINESS CONSISTS IN: INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

6.6. International INVESTMENTS - generally FDI = Foreign Direct Investment investments made for the purpose of ACTIVELY CONTROLLING PROPERTY, assets, or companies located in host countries home x host country Portfolio Investment purchases of foreign financial assets (stock, bonds, certificates, deposits) for a purpose OTHER than CONTROL INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

7.7. INTERNATIONAL BUSINESS  Reasons for participation in IB? = the fact that almost no country is able to SATISFY its’ needs by own goods and base materials -> countries concentrate on manufacturing products which are effective under given conditions (= theory of comparative advantage)  Free economy = stage of involvement in the international trade INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

8.8. International ENVIRONMENT INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. / GLOBAL MACRO MICRO

Fin. liability of owner’s limited to the extent of investment if company fails Inc. = incorporated [USA] Ltd. = Limited, private (Allmakes Ltd.) PLC = Publicly held limited-liability Ltd. / Plc. [UK] AG [Aktiengesellschaft] = publicly held (Volkswagen AG) KGaA [Kommanditgesellschaft] = limited partners + min. 1 unlimited (Henkel KGaA) GmbH [Gesellschaft mit bescharankter Haftung] – private, analogy to Inc., Ltd. (or „s.r.o.“ in CZ) AG / KGaA / GmbH [Germany] SpA [la societa per azioni] (Fiat SpA) SA [societe anonyme] (Carrefour SA) = analogy to „a.s.“ in CZ SpA [Italy] / SA [France] 9.9. Basic IB terminology Abbreviations: INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

1. ECONOMICAL 2. POLITICAL 3. CULTURAL 10. IB importance + influences  FREE TRADE (international exchange) = is a system of TRADE POLICY that allows traders to act and transact without interference from government. According to the law of COMPARATIVE ADVANTAGE the policy permits trading partners mutual GAINS from trade of goods and services. = it is an AIM of all the trade economies and consists in:  convertibility (possibility to exchange currency)  free price creation  economical and political barriers elimination (duties, quotas, admin. barriers etc.) INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

11. International business - THREATS Weak self- sufficiency (in case of war or political system change) Dependence (the smaller and econ.developed country => the more important IB is for the country) INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

12. IB INDICATORS [basic]  BALANCE OF TRADE = review of export & import volume in certain period of time A) ACTIVE = export > import B) PASSIVE = export < import (Trade Deficit)  BALANCE OF PAYMENTS = review of currency / exchange receipts and expenditures A) ACTIVE = payments abroad receipts from abroad INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

13. STRUCTURE of IB TERRITORIAL COMMODITY INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

14. Ways of controlling IB  PROTECTIONISM – state intervenes in IB - protects the inner market against foreign competition - supports own products at the foreign markets  LIBERALISM – state limits the interventions in IB - export & import without restrictions - currency convertibility enables access to foreign currency purchases for free trade / exchange INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

15. Forms of integration Economic (monetary) & Political union Common marketCustoms unionFree trade area INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

27 countries, eurozone, free movement of goods, services, capital & labor EU – European Union since 1992, (Mexico, Canada, USA) Agreement on reduction of duties and further barriers (import licenses and import taxes) NAFTA Other Latin-American countries – free trade area (members: Columbia, Mexico and Venezuela) FTAA – Free Trade Area of Americas Trade union of 10 nations South-East Asia (Laos, Myanmar, Thailand, Cambodia, Vietnam, Brunei, Malai, Singapur, Indonesia) South-East Asia = the most growing economy of the world -> important to create alliance to compete with NAFTA or EU ASEAN 16. International unions & agreements INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

17. INTERNATIONAL BUSINESS – 2 nd lecture Part-time course = 3 guided consultations (summer term 2011)  Framework of IB, it’s importance in national economy  Reasons for Exchange  Ways of controlling IB, Economic Integration  Role of CULTURE, cultural differences and their impact on mastering business  CZECH accession in the EU structures: opportunity or threat?  Internationalisation  Entering foreign markets, entry modes (characteristics, risks, sources fixture) Within each consultation: practical discussions on topical economical issues INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

18. CULTURE DIFFERENCES = impact of culture on relationship, employees approach to work, business management and negotiations -> this impact is much > than differences coming out from: o race o sex o specialization [profession] o position INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

19. CULTURE and it’s elements Culture = characteristic way of living = based on ACQUIRED models of behaviour (i.e. not inborn) Culture ELEMENTS  ABSTRACT (values, approaches, opinions, religion – from generation to generation)  MATERIAL (stage of development and types of: technology, structure of consumption in a country / society ) INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

20. Basic elements of Culture INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. / CULTURE Language Communi -cation Religion Values & Attitudes Social structure

21. SOCIAL structure = determines the roles of individuals within the society, indiv.mobility within society, stratification of the society  Individuals, Families, Groups Social attitudes influence / Business: US descourage nepotism Arab countries: family ties crucial Importance of INDIVIDUAL to the group: Europe culture promotes individualism (PAY = merit based) group focused societies = the IND role is to SERVE the group (PAY = seniority-oriented, group success) Social STRATIFICATION Social MOBILITY ability of IND to MOVE within stratums of society INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

22. LANGUAGE = identified > languages worldwide Business language Form of language Competitive weapon Translations Meaning YES / NO INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

23. COMMUNICATION = VERBAL x NON-VERBAL Contact zone Gestures & their impact on business Role of silence Role of eyes Gift giving & hospitality Business practice Role of education in a society INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

24. ŘÍZENÍ OBCHODU [ROb] Ing. Pavla Břečková, Ph.D. / RELIGION Christianity European traditions Hinduismus way of living (life style): castes (privileged groups of society), common household of a few families, worship (cult) of cow Islam men preference in business

25. ŘÍZENÍ OBCHODU [ROb] Ing. Pavla Břečková, Ph.D. / VALUES & ATTITUDES MASCULINITY x FEMININITY (Hofstede’s 1 of 5 dimensions): = is manner in which people are motivated to work toward different kinds of goals Masculinity People tend to place a high premium on material possessions, money & assertiveness The cultures that are more masculine, such as Japan, value competitiveness, assertiveness, ambition, and the accumulation of wealth. Femininity People place a higher value on social relationships, quality of life and concern for others On the other hand, feminine cultures, such as Sweden, place more emphasis on relationships, compassion, and the general quality of life.

26. CZ – joining EU CZ member of EU since (in the wave of 10 countries – the biggest enlargement in the EU history) Further enlargement (BG and RO) Today 27 countries Negotiations about another countries accession INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

27. History of Czech IB  Before 2 nd World War: orientation on western markets Czechoslovakia =10 th most industrially developed country with cooperation and trade relations in western countries  After 2 nd World War (communist period): CZ „manufactury“ of the communist bloc with over 70 % of export into these countries  1989 fall of socialism: CZ’s IB shift to the western partners again (Questionable move today)  2004 CZ joins EU: Elimination of trade barriers (duties, quotas and other restrictions) Solid business climate in CZ => inflow of FDI (often based on governmental INCENTIVES) MEZINÁRODNÍ OBCHODNÍ VZTAHY [MOV] Ing. Pavla Břečková, Ph.D. /

28. EU business principles  single market  non-existence of tariffs (custom duty), quotas and administrative restrictions of import & export  prohibition of EU companies discrimination (tenders, market operations) – ADMIN barriers applied (eg. regarding food safety, environmental standards, electrical safety, etc.)  no duty checks on the borders within EU members  single business rules - duty & immigration approach (policy) towards third parties  strict regulations – environment  single currency (EUR) – monetary zone INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

29. Business Advantages & Disadvantages of Czech accession of EU DISADVANTAGES - stronger competition - less freedom in some of state economical decisions INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. / ADVANTAGES - duties elimination - free movement of goods / partly free mov.of labor - larger market (single market)

Elimination / removal of business restrictions Cut of bureaucratic cost Custom duties No need for additional certification Mutual approval of norms low labour cost lower input cost easy access to financial & insurance services release of public orders / commissions Allocation of production units where more effective 30. OPPORTUNITIES for Czech ent. at EU single market INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

Threat of lowering the competitiveness of Czech companies (necessity to find another competitive advantage) Strong competition Pressure on lowering prices & profits SME more vulnerable in competition with MNE Labour market / different social conditions TAX systems 31. THREATS for Czech ent. at EU single market INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

32. INTERNATIONAL BUSINESS – 3 rd lecture Part-time course = 3 guided consultations (summer term 2011)  Framework of IB, it’s importance in national economy  Reasons for Exchange  Ways of controlling IB, Economic Integration  Role of CULTURE, cultural differences and their impact on mastering business  CZECH accession in the EU structures: opportunity or threat?  Internationalisation  Entering foreign markets, entry modes (characteristics, risks, sources fixture) Within each consultation: practical discussions on topical economical issues INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

process of increasing involvement of enterprises in international markets, although there is no agreed definition of internationalization or international entrepreneurship INTERNACIONALIZATION the decision to establish foreign direct investment (FDI) production units abroad MULTINACIONALIZATION an ongoing process by which regional economies, societies, and cultures have become integrated through a globe-spanning network of communication and trade integration of national economies into the international economy through trade, FDI, capital flows, migration, and the spread of technology GLOBALIZATION 33. INTERNATIONALIZATION - various research approaches INT = cover for international operations INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

34. Dimensions of INTERNACIONALIZATION Material purchase / components / technology / goods FDI in a company (impact on competition at a domestic market) INTERNAL dimension (active IB in external flow) Export Ownership of production unit abroad Licence / Contracts EXTERNAL dimension INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

35. MOTIVES for foreign expansion PROACTIVE motivesProfit advantageUnique product Technological advantage Exclusive informationTax advantageEconomy of scaleREACTIVE motivesStrong competitionOver-productionDomestic revenues declineCapacity (surpluses)Saturated domestic market Customer distance / logistic point distance INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

36. Entry modes & business activities in IB ENTRY MODES EXPORTING Direct export Indirect export CONTRACTUAL Licence & Franchise AlianceOther INVESTMENT Joint venture Major / Minor / 50-50% Wholly Owned Subsidiary Greenfield Acquisition INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

37. Import & Export EXPORT Quantity of goods and services exported abroad DIRECT x INDIRECT IMPORT Quantity of goods and services imported from abroad Internal dimension of internationalisation INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

38. Contractual international business activities LICENCE licensor provides its patents, trademarks, manuf.processes, know-how, trade secrets x royalty beer breweries, Skoda avoiding restrictions – investment / testing market FRANCHISE Provision of right to make business in a certain – in advance agreed way (brand, mktg tech) unique product, unique conditions high level of standardization (LR, Starbucks, McD. – colour, space solution) ALIANCES Cooperation (customers – purch. strength / compet. – cartel, capacity, research, anti-red-tape administration) OTHER agreements Technological / Managerial INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

39. INVESTMENT entry modes JOINT VENTURE Major [> 50%] Minor [< 50%] 50 / 50 WOS [Wholly Owned Subsidiary] GREENFIELD ACQUISITION INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

40. Further IB operations / countertrades INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. / Counter trade = is exchanging goods or services that are paid for, in whole or part, with other goods or services BARTER Exchange of goods or services directly for other goods or services no money is involved (as means of purchase or payment) SWITCH trading 3 parties involved, partly barter + partly money involved or in FIN: Practice in which one company sells to another its obligation to make a purchase in a given country. Counter PURCHASE Sale of goods and services to a country by a company that promises to make a future purchase of a specific product from the country BUYBACK occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or other services to the country and agrees to take a certain percentage of the plant's output as partial payment for the contract OFFSET Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future.

41. Basic business analysis Analysis of external environm. (market) PEST / STEEP / STEEPLE COMPETITION analysis Analysis of inner environm. (company) SWOT Factors: political, economical, social, technological (PEST), ecological (STEEP), legal and European (STEEPLE) Barriers to entry Threat of substitutes Buyer power Supplier power Rivalry / degree of rivalry of present competitors Strengths Weakness Opportunities Threats INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

42. Decision making – foreign market evaluation  PEST / STEEP / STEEPLE analysis  Competition analysis (Porter)  SWOT analysis  BENCHMARKING  Emerging market trends DATA collection:  Secondary data = was collected already  Primary data = necessary to obtain it INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

43. Data collection SECONDARY / desk analysing of secondary data low cost quick execution PRIMARY / terrain collection & analysis of primary d. relatively high cost time-consuming INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

44. Summary of basic TRADE BARRIERS WEAK IB Prohibitive TARIFFS QUOTAS IMPORT DUTIES Other PROTECTI- ONIST measures Sanctions & Embargo Dual use / ‘use conditional’ Nationali- zation INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

-International business: int. trade, investments, special IB operations -Reasons for IB, advantages x disadvantages -Free trade / economy -IB influences and IB indicators -History of Czech international business -Balance of trade, Balance of payment -Liberalism vs. Protectionism -Convertibility, trade barriers, free price creation -Structure of IB (territory, commodity) -FDI, Portfolio investment / incentives -Counter-trade (barter, switch..) -Entry modes (import, export, licence, franchise, alliance, JV, greenfield, acquisition) 45. KEY terms INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /

46. Thank you for your attention Ing. Pavla Břečková, Ph.D. INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Břečková, Ph.D. /