INTERNATIONAL BUSINESS IBN 312 Topic 1

INTERNATIONAL BUSINESS IBN 312 Topic 1. LECTURER: MR ELISA EBIYAMU.

GLOBALISATION AND INTERNATIONAL BUSINESS. INB 312: Topic 1 @ MCA.

Meaning of International Business. International business consists of all commercial transactions between two or more countries. The transactions may be by government or private business. The goal of private business transactions is to make profits while the government business may or may not be motivated by profit. Studying international business is important because Most companies either are international or compete with international companies. Modes of operations may differ from those used domestically. The best way of conducting business may differ by country. An understanding helps you make better career decisions. An understanding helps you decide what governmental policies to support..

Meaning of Globalisation. Globalization refers to the widening set of interdependent relationships among people from different parts of a world that happens to be divided into nations. Globalization refers to the shift toward a more integrated and interdependent world economy. This term sometimes refers to the elimination of barriers to international movements of goods, services, capital, technology, and people that influence the integration of world economies. As people, firms, and other organizations have expanded their access to resources, goods, services, and markets across wider geographical areas, they have also become more deeply affected (positively and negatively) by conditions outside their home countries..

Forces Behind Globalisation. What factors have contributed to the growth of globalization in recent decades? Most analysts cite the following seven factors: Increase in and application of technology Liberalization of cross-border trade and resource movements Development of services that support international business Growth of consumer pressures Increase in global competition Changes in political situations and government policies Expansion of cross-national cooperation.

Forces Behind Globalisation. Increase in and Expansion of Technology Vast improvements in transportation and communications technology—including the development of the Internet—have significantly increased the effectiveness and efficiency of international business operations. Liberalization of Cross-Border Trade and Resource Movements Over time most governments have lowered restrictions on trade and foreign investment in response to the expressed desires of their citizens and producers. In addition, the General Agreement on Tariffs and Trade, the development of economic blocs such as the European Union, and other such facilitating mechanisms have provided increased access to many foreign markets..

Forces Behind Globalisation. Development of Services That Support International Business Services provided by government, banks, transportation companies, and other businesses greatly facilitate the conduct and reduce the risks of doing business internationally. Growing Consumer Pressures Because of innovations in transportation and communications technology, consumers are well-informed about and often able to access foreign products. Thus competitors the world over have been forced to respond to consumers’ demand for increasingly higher quality, more cost-competitive offerings..

Forces Behind Globalisation. Increased Global Competition The pressures of increased foreign competition often persuade firms to expand internationally in order to gain access to foreign opportunities and to improve their overall operational flexibility and competitiveness. Changing Political Situations The transformation of the political and economic policies of the former Soviet Union and the People’s Republic of China has led to vast increases in trade between those countries and the rest of the world. In addition, the improvements in national infrastructure and the provision of trade-related services by governments the world over have further led to substantial increases in foreign trade and investment levels..

Forces Behind Globalisation. Expanded Cross-National Cooperation Governments have increasingly entered into cross-national treaties and agreements in order to gain reciprocal advantages for their own firms, to attack problems jointly that one country cannot solve alone, and to deal with areas of concern that lie outside the territory of all countries. Often, such cooperation occurs within the framework of international organizations such as the United Nations, the International Monetary Fund, the World Trade Organization, and the International Bank for Reconstruction and Development (World Bank)..

Criticisms of Globalisation. These include Threats to National Sovereignty Problematic Economic Growth Growing Income Inequality.

Criticisms of Globalisation. Threats to National Sovereignty Many citizens fear that a country’s participation in multilateral agreements will diminish its sovereignty and freedom from external control and curtail its ability to act in its own best interests. In particular, people in small countries. In addition, people the world over are concerned that globalization will bring the homogenization of products and traditional ways of life including language and social structure. Problematic Economic Growth Unless the positive consequences of globalization keep pace with the negative costs of economic growth, the sustainability of economic improvement on a worldwide basis will, at best, be problematic..

Criticisms of Globalisation. Growing Income Inequality Offshoring, the process of shifting domestic production to a foreign country for the purpose of serving the home market at a reduced cost, speeds up the process of altering the relative economic discrepancies between the two countries involved. Thus, even if the overall global gains from globalization are positive, there remains a continuing challenge to bring about the positive gains in ways that minimize costs to the losers..

Why Companies Engage in International Business. Three of the reasons are as follows; Expanding sales Acquiring resources Reducing risk.

Why Companies Engage in International Business. Expanding sales A company’s sales depend on the desire and ability of consumers to buy its goods or services. Obviously, there are more potential consumers in the world than found in any single country. Pursuing international sales usually increases the potential market and potential profits. Acquiring resources Foreign sources may give companies extra resources, lower costs, new or better products or additional operating knowledge..

Why Companies Engage in International Business. Reducing Risk International operations may reduce operating risk by Smoothing sales and profits by obtaining supplies of products or components both domestically and internationally, Preventing competitors from gaining advantages by slowing their amassment of resources needed to enter into other international markets.

Modes of Operations in International Business. There are three modes Merchandise Exports and Imports Service Exports and Imports Investments.

Merchandise Exports and Imports. Exporting and importing are the most popular modes of international business, especially among smaller companies. Merchandise exports are tangible products that are sent out of a country while merchandise imports are goods brought into a country. Because we can actually see these goods as they leave and enter the country, we sometimes call them visible exports and imports. For most countries, the export and import of goods are the major sources of international revenues and expenditures..

Service Exports and Imports. The terms export and import often apply only to merchandise. For non-merchandise international earnings, we use the terms service exports and service imports and are referred to as invisibles. The provider and receiver of payment makes a service export; the recipient and payer makes a service import. The most important one are; Tourism and transportation Service performance Asset use.

Investments. The investments themselves, however, are treated in national statistics as separate forms of service exports and imports. Note that foreign investment means ownership of foreign property in exchange for a financial return, such as interest and dividends. It may take two forms direct investment portfolio investment..

Investments. Foreign Direct Investment (FDI) FDI is sometimes referred to simply as direct investment, the investor takes a controlling interest in a foreign company. Sole ownership represents 100% ownership of an operation. However, effective control can be realized with just a minority stake if the remaining ownership is widely dispersed. A joint venture represents a direct investment in which two or more parties share ownership..

Investments. Portfolio Investment A portfolio investment is a noncontrolling financial interest in another entity. It usually takes one of two forms: stock in a company loans to a company (or country) in the form of bonds, bills, or notes purchased by the investor. Often, firms use portfolio investment as part of their short-term financial strategy. They’re important for most companies with extensive international operations, which routinely move funds from country to country for short-term financial gain..

Why International Business Differs from Domestic Business.

INB 312: Topic 1 @ MCA. [image] Basis I. Meaning X Participants in Business 3. Mobility of Factor of Production 4. Nature of Consumers Domestic Business Domestic business refers to business transactions transacted within the geographical boundaries of a coun People / organizations within the country participate in business activities The factors of production I.e. labour„ capital. technology, material. etc., move freely within thc boundaries of the coun Consumers are relatively homogenous in nature in terms of culture, behavior .taste, preferences, legal system, customs and practices, etc., International Business International business refers to the business transactions transacted in beyond the boundaries ofa coun People/organizations outside the country participate in business activities Thc factors of production i.e. labour„ capital, technology, rnaterial, etc., move across the boundaries of the countrv. Consumers are relatively heterogeneous in nature in terms of culture, behavior ,taste, preferences, legal system, customs and practices, etc. prevailing across the countries,.

INB 312: Topic 1 @ MCA. [image] 5. Business System 6. Currency Used 7. Mode of Transport 8. Risk Exposure 9. Scope of Market 10. Paymcnt of Excise duty Domestic business is governed by the rules, laws, policies taxation system of a single country Domestic business transactions are settled by local currency of a country. The goods Involved in domestic business are mainly transported hy roadways and railways. 'I'hc risks involved in domestic busmess are relatively less. The scope of market is limited to national boundaries of a country. Paymcnt of cxcusc duty Involves sunple procedures and it is relatively low in domestic tr ade International business is governed by rules, laws and policies ,tariffs and quotas etc., of multiple countries International business transactions arc settled by foreign currencies. The goods involved international business is mainly transportcd by water and airways. Thc risks involved in international business are more due to distance, difference in socio-economic and political conditions. changc in foreign exchanges value, etc., The scope of international business is very wide and extends d the frontiers ofa count Thc proccss of paymcnt of cxclsc is complicated in international business and the rate of excise dut is relativel hi h..

Factors that Affect Operation of international Businesses.

Physical and Societal Factors. Geographical influences The uneven distribution of resources throughout the world helps explain why different products and services are produced in different places. Geographic barriers—mountains, deserts, jungles, and so forth—often affect communications and distribution channels. And the chance of natural disasters and adverse climatic conditions (hurricanes, floods, droughts, earthquakes, volcanic eruptions, tsunamis) can make business riskier in some areas than in others while affecting supplies, prices, and operating conditions in far-off countries. Finally, population distribution and the impact of human activity on the environment may exert strong future influences on international business, particularly if ecological changes or regulations cause companies to move or alter operations.

Physical and Societal Factors. Political Policies Not surprisingly, a nation’s political policies influence how international business takes place within its borders (indeed, whether it will take place). Obviously, political disputes—particularly military confrontations—can disrupt trade and investment. Even conflicts that directly affect only small areas can have far-reaching effects. The 2002 and 2009 terrorist hotel bombings in Indonesia resulted in a decrease in the country’s international tourism revenue and investment capital because individuals and businesses abroad perceived it as too risky..

Physical and Societal Factors. Legal Policies Domestic and international laws play a big role in determining how a company can operate abroad. Domestic law includes both home- and host-country regulations on such matters as taxation, employment, and foreign-exchange transactions. British law, for example, determines how the U.S.-investor-owned Liverpool Football Club is taxed and which nationalities of people it employs in the U.K. Finally, the ways in which laws are enforced also affect a firm’s foreign operations. In the realm of trademarks, patented knowledge, and copyrights, most countries have joined in international treaties and enacted domestic laws dealing with violations. Many, however, do very little to enforce either the agreements or their own laws..

Physical and Societal Factors. Behavioral Factors The related disciplines of anthropology, psychology, and sociology can help managers better understand different values, attitudes, and beliefs for making operational decisions abroad. Although professional sports are spreading internationally, the popularity of specific sports differs among countries, while rules and the customary way of play for the same sport sometimes differ as well. A baseball game in the United States continues until there is a winner, while Japanese games end with a tie if neither team is ahead after 12 innings. Presumably the reason for the baseball difference is that the culture of Japan values harmony more than U.S. culture does, whereas U.S. culture values competitiveness more than the Japanese do..

Physical and Societal Factors. Economic Forces Economics explains why countries exchange goods and services, why capital and people travel among countries in the course of business, and why one country’s currency has a certain value compared to another’s. Economics also helps explain why some countries can produce goods or services for less. And it provides the analytical tools to determine the impact of an international company’s operations on the economies of both host and home countries, as well as the impact of the host country’s economic environment on a foreign firm..

The Competitive Environment. Competitive Strategy for Products Products compete by means of cost or differentiation strategies, the latter usually by: developing a favorable brand image, usually through advertising or from long-term consumer experience with the brand; or developing unique characteristics through R&D efforts or means of distribution. Using either approach, a firm may mass-market a product or sell to a niche market (the latter approach is called a focus strategy). Companies’ competitive situations may differ by The resources they can commit internationally. Their rankings among countries. The competitors they face by country..

The Competitive Environment. Company Resources and Experience Other competitive factors are a company’s size and resources compared to those of its competitors. A market leader, for example—say, Coca-Cola—has resources for much more ambitious international operations than a smaller competitor like Royal Crown. Royal Crown sells in about 60 countries, Coca-Cola in more than 200. In large markets (such as the United States), companies have to invest much more to secure national distribution than in small markets (such as Ireland). Further, they’ll probably face more competitors in large markets than in small ones..

The Competitive Environment. Competitors Faced in Each Market Finally, success in a market (whether domestic or foreign) often depends on whether the competition is also international or local. Large commercial aircraft makers Boeing and Airbus, for example, compete almost only with each other in every market they serve. What they learn about each other in one country is useful in predicting the other’s strategies elsewhere. In contrast, the British grocery chain Tesco faces different competition in almost every foreign market it enters..

THANK YOU. INB 312: Topic 1 @ MCA.