1. Globalization and International Business

2. Chapter Objectives
To define globalization and international business and show how they affect each other
Why should we study international business
To understand why companies engage in international business
Factors/reasons contributing to the growth of IB
International companies or extent of international organization

3. Meaning of Globalization
The broadening set of interdependent relationships among people from different parts of a world that happens to be divided into nations.
It is the process of growing interdependence among countries.

4. Because of globalization people have altered the way they live, they have more deeply affected by the conditions outside their immediate domain.
Globalization has expanded the resources, products, services and markets available to people.
People get more variety, better quality or lower prices because of globalization.
However, these connections between supplies and markets would not happen without international business.

5. Meaning of International Business
All commercial transactions—including sales, investments, and transportation—that take place between two or more countries.
International business means any cross border transactions; any business transaction that cross the boundary, that is, transaction between two enterprises or two countries.
Transaction may happen between governments or individuals.

6. Why should we study international business?
Most companies either are international or compete with international companies.
Modes of operation may differ from those used domestically.
The best way of conducting business may differ by country.
An understanding helps to make better career decision.
An understanding helps to decide what governmental policies to support.

7. Factors in Increased Globalization/ Reasons contributing to the growth of IB
Increase in and expansion of technology
Liberalization of cross-border trade and resource movements
Development of services that support international business
Growing consumer pressures
Increased global competition
Changing political situations
Expanded cross-national cooperation

8. Reasons That Firms Engage in International Business
Expanding sales
Acquiring resources
Minimizing risk

9. Modes of Operation in International Business
Exports and Imports
Merchandise Export and Import
Service Export and Import

10. Merchandise Exports and Imports
Merchandise exports and imports usually are a country’s most common international economic transaction.
Merchandise exports are tangible products that is, goods, sent out of a country.
Merchandise imports are goods brought into a country.

11. Service Exports and Imports
Service exports and imports generate nonproduct international earnings and payments through international nonproduct sales and purchases.
The company or individual receiving payment is making service export.
The company or individual paying is making service import.
Service exports and imports can take many forms-
Tourism and transportation
Performance of services
Use of assets.

12. Service Exports and Imports
Tourism and Transportation
International tourism and transportation are important sources of revenue for airlines, shipping companies, travel agencies, and hotels.
Performance of Services
Some services- banking, insurance, rentals, engineering, management services etc.- companies earn in the form of fees.
Performance of services takes two forms-
Turnkey project or operation
Management contract

13. Service Exports and Imports
Turn Key Project or operation
Companies pay fees for engineering services that are often handled by turnkey operations such as construction.
It is a project which is constructed by a foreign authority in exchange of fees and is handed over to the local authority when they are ready to begin operation.
Management contract
It is a contract based on which firms in one country render management expertise to the firms of another.
It is an arrangement in which one company provides personnel to perform general or specialized management function for another.

14. Service Exports and Imports
Use of Assets
When companies allow others to use their assets, such as trademarks, patents, copyrights, they receive earnings called royalties.
Licensing is an agreement between two parties- licensor and licensee, by which the licensor (owner) permits the licensee( user) to use its intellectual property like- patent, trademark etc for production or distribution of goods in return of a fee or commission.
Franchising is an agreement between two parties- franchisor and franchisee by which the franchisor allows the franchisee to operate an enterprise using an intellectual

15. Service Exports and Imports
property like-patent, trademark in return for a fee and keeping a reasonable amount of control in the hands of franchisor.

16. Investments
Foreign investments means ownership of foreign property in exchange for a financial return, such as interest and dividends.
Foreign investment takes two forms: direct and portfolio.
Foreign direct investment refers to the transfer of capital by the nationals or citizens of one country into another to start a business under its ownership and control.
Objective of FDI is to earn profit by managing and controlling.

17. Investments
Portfolio investment refers to transfer of capital by nationals or citizens of one country into another in the form of buying stocks and bonds and giving loans to company.
Objective of portfolio investment is to earn interest or dividend.

18. International companies and terms to describe them
Multinational Corporation (MNC)
A multinational corporation is a firm that engages in foreign direct investment and owns and controls value adding activities in more than one country.
A multinational corporation (MNC) or enterprise (MNE),is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation.

19. International companies and terms to describe them
The International Labour Organization (ILO) has defined an MNC as -“a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries.”
MNCs typically buy resources from a variety of countries, create goods and services in a variety of countries and then sell those goods and services in a variety of countries.

20. International companies and terms to describe them
Multinational Organization (MNO)
MNO is a not- for- profit organization. That means, activities of the multinational organization is not aimed at earning profit.
Example- International Red Cross, UNO, Oxfam etc.

21. Types of MNCs based on Approaches of Operation
Multidomestic Corporation
A multidomestic corporation is one that views itself as a collection of independent operating subsidiaries, each of which focuses on a specific domestic market, is free to customize its products, marketing campaigns, and production techniques to serve the needs of local customers.
Global Corporation
A global corporation views the world as a single homogeneous market place and strives to create globally standardized goods and services that will meet the needs of customers worldwide.

22. Types of MNCs based on Approaches of Operation
Transnational Corporation
A transnational corporation seeks to combine the earlier two approaches: global-scale- efficiencies ( global corporation) and local responsiveness ( multidomestic approach).
World Company
A world company is a firm that transcends national boundaries and in so doing loses its national identity. No company has actually reached this level, although some are moving toward it.