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Chapter 1: What is International Business
- International Business the Performance of
trade and investment activities across
national boarders. International business is
cross-border business where firms organise,
source, manufacture, market and conduct
value adding activities on a international
level
- Foreign Direct Investment is an
internationalization strategy in which the
firms establish a physical presence
abroad through the acquisition of
productive assets such as
capital,technologhy,labour, land, plant
and equipment
- International Portfolio Investment is
the passive ownership of foreign
securities such as stock and bonds
for the purpose of generating
financial returns
- Globalisation of markets is the ongoing economic
intergration and growing interdependency of
countries worldwide. Systematically increasing the
international dimension of their business activities
- Differentiate between
International Business and
domestic business
- International business operates in an environment
characterized by unique economic conditions. national
culture, legal and political systems. Uncontrollable variables
that introduce new business risk.
- International business operates in an environment
characterized by unique economic conditions. national
culture, legal and political systems. Uncontrollable variables
that introduce new business risk.
- Explain the reasons why firms
internationalise
- 1) Seek opportunities for growth through market diversification:
Substantial market potential exists abroad.New target market,
Geographical bases of segmentation provides new
opportunities to offer new products to a new market
- 2) Earn Higher margins of profit: Many types of
product and service , market growth in mature
economies is stagnate due to competition and slim
profit margins
- 3) Gain new Ideas about products ab services
and business methods: International markets
are chracterized by tough competitors and
demanding consumers needs,unique foreign
enviroments expose new ideas , acquire new
knowledge for improving organisational
efficiency and effectiveness. eg Toyota
established manufacturing world wide.
- 4) Better serve the customers that
have relocated abroad: Better serve
the clients that have moved into
foreign markets. eg Nissan opened
new factories and the suppliers
followed.
- 5) Be closer to the supply sources, benefit from global sourcing advantages or gain flexiblity in product sourcing: Establish
cost advantages and economies of scale by sourcing low cost labour, resource acquisitions, national policy incentives (
income tax benefits, intellectual property protection)
- 6) Gain access to lower cost of better valued production:
Managerial talent, Technology, cheap labour costs, higher quality.
JMNE relocating for better labour quality and lower costs, India.
- 7) Develope economies of scale in sourceing production and R&D and
marketing: Sourcing cheaper inputs for higher quality out puts
- 8) Confront International competitors
more effectively: Establishing the
organisation in the competitors home
market prevent the competition from
gaining the international market share
- 9) Investing in a potential rewarding relationship with a foreign marter:
establishing a partnership or a joint venture with companies in the home
market is beneficial , understanding the needs, culture, trade restrictions are
important when entering the Host country.
- 1) Seek opportunities for growth through market diversification:
Substantial market potential exists abroad.New target market,
Geographical bases of segmentation provides new
opportunities to offer new products to a new market
- The participants in International Business:
- MNE: A large company with substantial resources
that perform various business activities through a
network of subsideries and allocated in multiple
countries manufacturing, marketing ,R&D activities
wherever the world can reap most advantage.
- SME: A company with less than 500 employees tends to be limited in resources and
managerial talent. Primarily uses exporting to expand internationally. ( technologies
and limited resources) They succeed because 1. Innovative and adapt quicker
response times 2. Able to better serve the Niche markets 3. Advid users of internet
and information. 4. Minimized overhead, fixed investments and use bootstrapping
- Born Global Firm: Young entrepreneurial company that initiates international business activities
very early in it evolution moving rapidly into foreign markets. Found in advanced and emerging
economies
- Non-Government organisations: pursue specific causes serves as an advocate for arts,education, politics, religion
operates internationally to conduct activities or raise funds and awareness.
- MNE: A large company with substantial resources
that perform various business activities through a
network of subsideries and allocated in multiple
countries manufacturing, marketing ,R&D activities
wherever the world can reap most advantage.
- Four types of risks in internationalisation:
- 1)Country risk:potential loss adverse
effects on a company operations and
profitablity caused by the development
in a countries political and legal
enviroment. government intervention
- 2) Currency risk: Potential harm that arises
from changes in the price and currency
relative to another currency, exposure to
foreign taxation, asset valuation, contagion,
inflation
- 3) Commercial risk: Firms potential loss and
failure due to poorly developed strategies,
tactics, poor partners, entry timing and
execution
- 4) Cross-Cultural risk: culural difference in decison
making,negotiation styles, ethical practices. A situation or
event where a cultural misunderstanding may put the human
value at stake. eg language, value systems, living conditions
- 1)Country risk:potential loss adverse
effects on a company operations and
profitablity caused by the development
in a countries political and legal
enviroment. government intervention
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