University Of Finance & Administration INTERNATIONAL BUSINESS [N_IB]

INTERNATIONAL BUSINESS Full-time course = 12 lectures Summer term 2013) 1-2What is international business. Comparative advantage. Protectionism x Liberalism. 3-4 Internationalisation and Globalisation. Foreign expansion. Entry modes. 5-6Culture and its role in IB. Culture differences. Negotiation and presentation of business results. 7-8 Presentations on selected TOPICS elaborated in teams (2 – 3 members) 9-10 Czech IB. European Union. International market research (analysis). Data collection International trade barriers. Economic integration. Personal preconditions for working in IB. SWOT of Czech companies. Within each lecture: - practical discussions on topical economical issues 2.

CREDIT conditions N_IB Full-time course = 12 sessions (summer term 2012) CONDITIONS: PRESENCE at IB lectures: 75% TEAM PRESENTATION - preparation at home: up to 30 min. presentation on the selected IB topics active PARTICIPATION during the course + Qs and Ans session with the lecturer incl.written test if requested. 3.

TEAM PRESENTATION Up to 30 mins. team (normally in ppt, each team member talks/presents, preparation at home necessary) Following topics: Date : TBD Market entry for selected product/service into selected market 4.

Common session STRUCTURE  IB NEWS - small talk / discussion - topical business issues  LECTURE  READING - analyzing - interpretation of an article (team work) / Presentation of the materials prepared at home if relevant.  Team PRESENTATION + audience discussion 5. INTERNATIONAL BUSINESS [E_IB] PhDr. Karel Eliáš, CSc.

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 6.

How IB differs from DOMESTIC business?  currencies - conversions, risks, rates securing  often legal system - laws  culture - behavior, business practice  resources  technology - way of producing 8.

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 9.

Principle of COMPARATIVE ADVANTAGE  Absolute advantage = a country has an absolute advantage over it trading partners if it is able to produce more of a good or service with the same amount of resources or the same amount of a good or service with fewer resources (copper, oil)  Comparative advantage (David Ricardo ) = a country has a comparative advantage in the production of a good or service that it produces at a lower opportunity cost than its trading partners (relativity). = units of production (people/machines) will be employed in those processes in which they are relatively more productive (productivity)  Opportunity cost (John Stuart Mill) = is the value of the next-best choice available to someone who has picked between several mutually exclusive choices - opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, swag, pleasure or any other benefit 10.

International ENVIRONMENT GLOBAL MACRO MICRO 11. INTERNATIONAL BUSINESS [E_IB] PhDr. Karel Eliáš, CSc.

Why to study IB?  interaction inevitable (business abroad, multinational teams etc.)  success in larger arena  need for understanding principles of IB (time of globalization)  work opportunities  to stay abreast of the latest business techniques 12.

Basic IB terminology Abbreviations: Inc. = incorporated [USA] Fin. liability of owner’s limited to the extent of investment if company fails Ltd. / Plc.[UK] Ltd. = Limited, private(Allmakes Ltd.) PLC = Publicly held limited-liability AG / KGaA / GmbH [Germany] 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) SpA [Italy] / SA [France] SpA [la societa per azioni] (Fiat SpA) SA [societe anonyme] (Carrefour SA)= analogy to „a.s.“ in CZ 13.

IB importance + influences 1. ECONOMICAL 2. POLITICAL 3. CULTURAL  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.) 14.

International business - THREATS Weak self-Dependence sufficiency (the smaller and (in case of war orecon.developed political systemcountry => the change)more important IB is for the country) 15.

IB INDICATORS [basic]  BALANCE OF TRADE = review of export & import volume in certain period of time A) ACTIVE = export > import B) PASSIVE = export < import  BALANCE OF PAYMENTS = review of currency / exchange receipts and expenditures A) ACTIVE = payments abroad < receipts from abroad B) PASSIVE = payments abroad > receipts from abroad 16.

IB indicators - details  Balance of Trade = EXPORT - IMPORT, the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored. A nation is said to have a trade DEFICIT = if it is importing more than it exports.  Balance of Payments = difference between the money coming into a country and the money leaving the same country -In economics, the balance of payments (BOP) measures the payments that flow between any individual country and all other countries - It is used to summarize all international economic transactions for that country during a specific time period, usually a year. - the BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers 17.

STRUCTURE of IB TERRITORIAL COMMODITY 18.

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 19.

PROTECTIONISM = economic policy of RESTRAINING trade between states This policy is closely aligned with anti-globalization, and contrasts with free trade, where government barriers to trade and movement of capital are kept to a minimum. The term is mostly used in the context, where protectionism refers to policies which protect businesses and workers within a country by restricting or regulating trade with foreign nations. 20.

PROTECTIONISM - history = economic policy of restraining trade between states Historically, protectionism was associated with economic theories such as MERCANTILISM (that believed that it is beneficial to maintain a positive trade balance), and import substitution. During that time, ADAM SMITH famously warned against the 'interested sophistry' of industry, seeking to gain advantage at the cost of the consumers Most modern economists agree that protectionism is harmful in that its costs outweigh the benefits, and that it impedes economic growth 21.

PROTECTIONISM - methods Tariffs on imported goods restrictive Quotas - to reduce the quantity and therefore increase the market price of imported goods Administrative Barriers: using various administrative rules (eg. regarding food safety, environmental standards, electrical safety, etc.) Exchange Rate manipulation: government may intervene in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market. … and a variety of other government regulations designed to discourage imports, and prevent foreign take-over of native markets and companies. 22.

PROTECTIONISM - arguments FOR = economic policy of restraining trade between states 1) Saving jobs for citizens of country 2) Promoting / Protecting infant industries 3) Promoting / Protecting domestic & economic development 4) Offsetting economic distortions 23.

PROTECTIONISM - arguments AGAINST = economic policy of restraining trade between states Harming the freedom and free market 1. Gains from free trade outweigh any losses; as free trade creates more jobs than it destroys because it allows countries to specialize in the production of goods and services in which they have a comparative advantage. 2. Free trade helps third world workers, even though they are not subject to the strict health and labour standards of developed countries 3. Protectionism has also been accused of being one of the major causes of war. 24. INTERNATIONAL BUSINESS [E_IB PhDr. Karel Eliáš, CSc.

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 26.

LIBERALISM = economic policy that opposes government intervention in the FREE MARKET, and supports the maximum of free trade and competition = is an economic philosophy that supports and promotes laissez-faire capitalism (= to let create/be) - it contrasts with mercantilism, Keynesianism and socialism - ADAM SMITH (1776) Wealth of Nations - advocates minimal interference of government in a market economy 27.

LIBERALISM - arguments FOR 1. Higher economic freedom has a strong correlation with higher LIVING STANDARDS 2. Higher economic freedom leads to INCREASED INVESTMENTS, TECHNOLOGY TRANSFER, INNOVATION and a responsiveness to consumer demand 3. Many government attempts to micro-manage their economies using things like tariffs, public investment, etc. were often misdirected, poorly timed, poorly implemented and brought undesirable consequences = government is incapable of managing a social system as huge as a national economy 4. Government-owned enterprises and public entitlements were losing a lot of citizens' money 28.

LIBERALISM - arguments FOR 5. During the 1970s, state-controlled economies proved unresponsive to economic shocks, and much of the world endured a sustained, high- inflation recession until markets were liberalized (though proponents still note that liberalization itself is only one of several factors in the recent return to prosperity; other factors include technological developments and the end of the Cold War) 29.

LIBERALISM - arguments AGAINST  Globalization and liberalization spoils nations' ability for self-determination  Exploitation: critics consider capitalist economics to be exploitive  Environmental costs: critics argue that neoliberalism leads to more transportation, and unregulated markets lead to more industrial production  Increase in corporate power: some anti-corporate organizations believe neoliberalism changes economic and government policies to increase the power of corporations and large business 30.

KEY terms - International Business = Int. trade / Int. investment / Other business activities - Reasons for IB, advantages x disadvantages - Free trade - Comparative advantage / Absolute advantage / Opportunity cost - Balance of trade, Balance of payments - Liberalism x Protectionism - Convertibility, trade barriers, free price creation - Structure of IB (territory, commodity) - Corporation abbreviations / Financial liability - FDI / Portfolio investment - Home x Host country - Economies of Scale 31.