1. Copyright Pearson Education Inc. publishing as Prentice Hall
chapter 1
An Overview of
International
Business
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

2. Copyright Pearson Education Inc. publishing as Prentice Hall
Chapter Objectives
Discuss the meaning of international business
Explain the importance of understanding international business
Identify and describe the basic forms of international business activities
Discuss the causes of globalization
Comprehend the growing role of emerging markets in the global economy
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

3. The Business of the Olympics
The website of the International Olympics Committee explains the sources of revenue generated by the Olympics. More information on the business of the Olympics is on the next slide.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

4. The Business of the Olympics (continued)
Intense reflection of international business
Government of games by IOC
Competition for hosting
Revenue sources for the Olympics
Broadcast rights
Corporate sponsorships
The chapter opens with a discussion of the business behind the Olympic Games. Cities worldwide compete to host the games. The decision is made by the International Olympic Committee (IOC). The cities want to host the games because of the economic growth that can be generated.
The Olympics generates revenue from television coverage and corporate sponsors. The highest level of corporate sponsorship for the Olympics costs $60-80 million. Companies are willing to pay these high fees for the opportunity to market their products to consumers worldwide.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

5. What Is International Business?
Business transactions between parties from more than one country
Parties may include:
Private individuals
Individual companies
Groups of companies
Governmental agencies
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

6. How Does International Business Differ from Domestic?
Currency conversion
Legal systems
Culture
Availability of resources
Domestic business involves transactions occurring within the boundaries of a single country, while international business transactions cross national boundaries. In addition, the countries may use different currencies, forcing at least one party to convert its currency for another. The legal systems may vary or even be incompatible. The cultures may differ and the resources may vary. For example, one country may be rich in natural resources, but poor in skilled labor. Still, the basic skills and knowledge needed to be successful are generally similar whether one is doing business domestically or internationally.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

7. Why Study International Business?
Large organizations
Foreign-owned subsidiaries
Small businesses
Competitors
Business techniques and tools
Cultural literacy
Large organizations are likely to have international operations or at least be affected by the global economy.
Student may work for a company that is owned by a foreign subsidiary.
Small businesses are growing their businesses by selling in foreign markets, using foreign-made materials, and competing with foreign firms.
Studying international business helps students to compete with students from other countries.
It is also important for staying abreast of the latest business techniques and tools, such as JIT systems.
Lastly, studying international business helps students to become culturally literate, meaning that they can better understand and appreciate the similarities and differences of the world’s people.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

8. International Business Activities
Exporting and Importing
International Investments
Licensing, Franchising, and Management Contracts
These three international business activities will be presented on the following slides.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

9. Exporting and Importing
Exporting: selling of products made in one’s own country for use or resale in other countries
Importing: buying of products made in other countries for use or resale in one’s own country
International business activity historically first took the form of exporting and importing.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

10. Visible and Invisible Trade
Trade in Goods
Merchandise exports and imports
Visible trade
Trade in Services
Service exports and imports
Invisible trade
Exporting and importing activities are often divided into two groups: trade in goods and trade in services. The British call trade in goods visible trade. It is trade in tangible products such as clothing.
Trade in services is known as invisible trade and it includes intangible products like banking and travel.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

11. International Investments
Capital supplied by residents of one country to residents of another
Two categories:
Foreign direct investments
Portfolio investments
The second major form of international business activity is international investments.
Foreign direct investments (FDI) are investments made for the purpose of actively controlling property, assets, or companies located in host countries. For example, Ford’s investment in Sweden’s Volvo Corporation is a foreign direct investment.
Portfolio investments are purchases of foreign financial assets (stocks, bonds, cds) for a purpose other than control. For example, a Danish pension fund purchased 1,000 shares of Sony common stock.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

12. Figure 1.1 Exports as a % of GDP
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

13. Other Forms of International Business Activity
Management
contracts
Franchising
Licensing
In addition to exporting, importing, and investments, there are also other forms of international business activity. These include management contracts, licensing, and franchising.
Licensing is a contractual arrangement in which a firm in one country licenses the use of its intellectual property to a firm in another country in exchange for a royalty payment.
Franchising is a specialized form of licensing which occurs when a firm in one country authorizes a firm in another to utilize its operating systems as well as its brand names, trademarks, and logos for a royalty payment.
A management contract is an arrangement wherein 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. Examples include Marriott and Hilton which do not own all of the hotels that bear their brand names.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

14. Variations of Organizations
Multinational Corporation
Multinational Enterprise
Multinational Organization
There are different types of international organizations. The term multinational corporation (MNC) is used to identify firms that have extensive involvement in international business. MNCs typically own and control foreign assets, buy resources in a variety of countries, create goods or services, and then sell those goods and services in a variety of countries.
Some international organizations are not true MNCs and they may be termed multinational enterprises (MNEs). The term multinational organization (MNO) may be used to describe any international organization, whether for-profit or not-for-profit.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

15. Multinational Corporations (MNCs)
Engage in foreign direct investment
Own and control foreign assets
Buy resources in multiple countries
Create goods and services in multiple countries
Sell goods and services in multiple countries
This slide describes the characteristics of MNCs.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

16. Table 1.1 The World’s Largest MNCs
Wal-Mart
Exxon Mobil
Royal Dutch Shell BP
Toyota Motor
Chevron
ING Group
Total
General Motors
ConocoPhillips
This table includes the world’s largest MNCs as of July 2006.
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

17. The Era of Globalization
Globalization: the inexorable integration of markets, nation-states, and technologies…in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

18. Figure 1.2 World Exports as a % of World GDP
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

19. Figure 1.3 Foreign Direct Investment Relative to World GDP
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

20. Contemporary Causes of Globalization
Strategic Imperatives
To leverage core competencies
To acquire resources and supplies
To seek new markets
To better compete with rivals
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

21. Environmental Change and Globalization
Changes in
Political
Environments
Technological
Changes
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

22. Globalization and Emerging Markets
BRIC
Brazil / Argentina
Russia
India
China
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

23. Globalization and Emerging Markets (continued)
Big Ten
Argentina Brazil China
South Korea Indonesia Mexico
Poland Turkey India
South Africa
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

24. Framework of Book The World’s Marketplaces International Environment
Managing International Business
Managing International Business Operations
Copyright Pearson Education Inc. publishing as Prentice Hall
Copyright Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

25. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall