BUS 305

1. Chapter 01
The Challenging World of
International Business
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 1-2
What is an
International Business (IB)?
• International Business –
A business that buys, sells or invests cross national
borders
• Foreign Business –
A company operating outside its home country
• Multidomestic Company (MDC) –
A firm with multicountry affiliates, each with its
own business strategy based on perceived market
differences
• International Business –
A business that buys, sells or invests cross national
borders
• Foreign Business –
A company operating outside its home country
• Multidomestic Company (MDC) –
A firm with multicountry affiliates, each with its
own business strategy based on perceived market
differences
LO1

3. 1-3
What is an IB?
• Global Company (GC) –
A firm that standardizes and integrates
functional operations worldwide
• International Company (IC) –
A global or multinational company
• Global Company (GC) –
A firm that standardizes and integrates
functional operations worldwide
• International Company (IC) –
A global or multinational company
LO1

4. 1-4
What is Different about IB?
• International
Business deals with
3 environmental
forces:
1. Domestic
2. Foreign
3. International
• International
Business deals with
3 environmental
forces:
1. Domestic
2. Foreign
3. International
• Domestic Business
deals with the
domestic market
environment
• But…may face
foreign competition
in domestic markets
• Domestic Business
deals with the
domestic market
environment
• But…may face
foreign competition
in domestic markets
LO2

5. 1-5
Influence of External and
Internal Environmental Forces
• Three relevant terms:
1. Environment
All forces surrounding and influencing the life and
development of the firm
1. Uncontrollable Forces
External forces over which management has no direct
control, although it can exert an influence
1. Controllable Forces
Internal forces that management administers to adapt to
changes in the uncontrollable forces
• Three relevant terms:
1. Environment
All forces surrounding and influencing the life and
development of the firm
1. Uncontrollable Forces
External forces over which management has no direct
control, although it can exert an influence
1. Controllable Forces
Internal forces that management administers to adapt to
changes in the uncontrollable forces
LO2

6. 1-6
External Forces
1. Competitive – competitors, their number, locations, activities
2. Distributive – agencies available for distributing goods & services
3. Economic – GNP, GDP, unit labor cost, personal consumption variables that
impact a firm’s ability to do business
4. Socioeconomic – characteristics & distribution of populations
5. Financial – interest & inflation rates, taxation, etc.
6. Legal – laws governing international operations of MNCs
7. Physical – topography, climate, natural resources
8. Political – local political climate, government structure, international
organizations
9. Sociocultural – attitudes, values, beliefs, etc., of the local culture
10. Labor – composition, skills, and attitudes of local labor
11. Technological – technical skills & w equipment converting resources into
product
1. Competitive – competitors, their number, locations, activities
2. Distributive – agencies available for distributing goods & services
3. Economic – GNP, GDP, unit labor cost, personal consumption variables that
impact a firm’s ability to do business
4. Socioeconomic – characteristics & distribution of populations
5. Financial – interest & inflation rates, taxation, etc.
6. Legal – laws governing international operations of MNCs
7. Physical – topography, climate, natural resources
8. Political – local political climate, government structure, international
organizations
9. Sociocultural – attitudes, values, beliefs, etc., of the local culture
10. Labor – composition, skills, and attitudes of local labor
11. Technological – technical skills & w equipment converting resources into
product
LO2

7. 1-7
Environments
• Domestic Environment
All uncontrollable forces originating in the home country that
surround and influence the firm’s life and development
• Foreign Environment
All uncontrollable forces originating outside the home country
that surround and influence the firm
• International Environment
Interaction between domestic and foreign environmental forces
or between sets of foreign environmental forces
• Domestic Environment
All uncontrollable forces originating in the home country that
surround and influence the firm’s life and development
• Foreign Environment
All uncontrollable forces originating outside the home country
that surround and influence the firm
• International Environment
Interaction between domestic and foreign environmental forces
or between sets of foreign environmental forces
LO2

8. 1-8
The Foreign Environment
• Forces are the same
in all environments
but occur and
operate differently
outside the home
country.
• Forces are the same
in all environments
but occur and
operate differently
outside the home
country.
• Forces:
have different values
can be difficult to
assess
are interrelational
• Forces:
have different values
can be difficult to
assess
are interrelational
LO2

9. 1-9
The International Environment
Consists of Interactions
Between:
• Domestic and foreign
environmental forces
• Between the foreign
environmental forces of
2 countries when 1 does
business with customers
in another by crossing
national borders
• Domestic and foreign
environmental forces
• Between the foreign
environmental forces of
2 countries when 1 does
business with customers
in another by crossing
national borders
Affect of International
Organizations
• Worldwide Bodies –
World Bank, WTO
• Regional Economic
Groupings – NAFTA,
EU
• Organizations Bound by
Industry Agreements -
OPEC
• Worldwide Bodies –
World Bank, WTO
• Regional Economic
Groupings – NAFTA,
EU
• Organizations Bound by
Industry Agreements -
OPEC
LO2

10. 1-10
Other Factors
Complexity of Decision
Making
• Managers must consider
the effect of EACH
country they deal with
and how their decisions
might affect interactions
between countries.
• Managers must consider
the effect of EACH
country they deal with
and how their decisions
might affect interactions
between countries.
Self-Reference
Criterion
• Managers tend to
ascribe their own
cultural values,
preferences, taste,
opinions to the host
country.
• Managers tend to
ascribe their own
cultural values,
preferences, taste,
opinions to the host
country.
LO2

11. 1-11
A Very Brief History of IB
• Greek and Phoenician merchants traded before
Christ
• China world’s leading manufacturer for 1,800 years,
replaced by Britain, 1844
• Ottoman Empire trade routes <1300, Middle East,
Europe, North Africa
• East India Company 1600, branches throughout Asia;
Dutch East India Company
• The 17th
and 18th
centuries the “age of mercantilism”
• Significant multinationals in late 1800s: Singer
Sewing Machine, J&P Coates, Ford Motor Company
• Greek and Phoenician merchants traded before
Christ
• China world’s leading manufacturer for 1,800 years,
replaced by Britain, 1844
• Ottoman Empire trade routes <1300, Middle East,
Europe, North Africa
• East India Company 1600, branches throughout Asia;
Dutch East India Company
• The 17th
and 18th
centuries the “age of mercantilism”
• Significant multinationals in late 1800s: Singer
Sewing Machine, J&P Coates, Ford Motor Company
LO3

12. 1-12
3 Key Terms
• Foreign Direct Investment (FDI)
Direct investments of any type into a foreign
country
• Foreign Direct Investment (FDI)
Direct investments of any type into a foreign
country
Importing
Transportation of a foreign good/service into
a country
Importing
Transportation of a foreign good/service into
a country
Exporting
Transportation of any domestic good/service
to a foreign country
Exporting
Transportation of any domestic good/service
to a foreign country
LO4

13. 1-13
Growth of International Firms and IB
International Companies
• 64,000 transnational corps.
account for:
• 25% of global output
• 66.6% of world trade
• 866,000 foreign
affiliates
• 53,000,000 employed,
IB
• 700% sales growth
>1990
(UNCTAD estimates)
International Companies
• 64,000 transnational corps.
account for:
• 25% of global output
• 66.6% of world trade
• 866,000 foreign
affiliates
• 53,000,000 employed,
IB
• 700% sales growth
>1990
(UNCTAD estimates)
FDI and Export Growth
– World stock of outward FDI
$16.2 trillion in 2008
– Growth of world merchandise
exports:
• $2.0 trillion in 1980
• $3.45 trillion in 1990
• $16.1 trillion in 2008
• $12.5 trillion in 2009
(Global recession)
– Growth of world service exports
• $365 billion in 1980
• $781 billion in 1990
• $1.483 trillion in 2000
FDI and Export Growth
– World stock of outward FDI
$16.2 trillion in 2008
– Growth of world merchandise
exports:
• $2.0 trillion in 1980
• $3.45 trillion in 1990
• $16.1 trillion in 2008
• $12.5 trillion in 2009
(Global recession)
– Growth of world service exports
• $365 billion in 1980
• $781 billion in 1990
• $1.483 trillion in 2000
LO4

14. 1-14
What is Globalization?
• Globalization is:
The tendency toward an international
integration of goods, technology,
information, labor and capital, or the
process of making this integration happen.
• Globalization is:
The tendency toward an international
integration of goods, technology,
information, labor and capital, or the
process of making this integration happen.
LO5

15. 1-15
Drivers of Globalization
• Political Drivers
• Technological Drivers
• Market Drivers
• Cost Drivers
• Competitive Drivers
• Political Drivers
• Technological Drivers
• Market Drivers
• Cost Drivers
• Competitive Drivers
LO5
The details
are on
pages 12 &
13 in the
text.

16. 1-16
Views On Globalization
Arguments Supporting
Globalization
• Free Trade:
– enhances socioeconomic
development
– promotes more and
better jobs
• Free Trade:
– enhances socioeconomic
development
– promotes more and
better jobs
Concerns with
Globalization
• Globalization has:
– produced uneven
results across nations
and people
– deleterious effects on
labor and labor
standards
– contributed to a decline
in environment and
health
• Globalization has:
– produced uneven
results across nations
and people
– deleterious effects on
labor and labor
standards
– contributed to a decline
in environment and
health
LO6

17. 1-17
Motives for
Entering Foreign Markets
• Increase Profits & Sales:
Enter New Markets
Create New Markets
Availability of Faster-Growing Markets
Improved Communications
Obtain Greater Profits
Generate Greater Revenue
Lower Cost of Goods Sold
Higher Overseas Profits as an Investment Motive
• Increase Profits & Sales:
Enter New Markets
Create New Markets
Availability of Faster-Growing Markets
Improved Communications
Obtain Greater Profits
Generate Greater Revenue
Lower Cost of Goods Sold
Higher Overseas Profits as an Investment Motive
LO7
The details
are on
pages 16 -
19 in the
text.

18. 1-18
The 7 Dimensions for
Globalizing A Business
1. Product
2. Markets
3. Promotion
4. Value-Added
5. Competitive Strategy
6. Use of Non-Home-Country Personnel
7. Firm’s Extent of Global Ownership
1. Product
2. Markets
3. Promotion
4. Value-Added
5. Competitive Strategy
6. Use of Non-Home-Country Personnel
7. Firm’s Extent of Global Ownership
LO8