Introduction - International Business - Lecture Slides, Slides for International Business. Alagappa University

Introduction - International Business - Lecture Slides, Slides for International Business. Alagappa University

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This lecture is from International Business. Key important points are: Introduction, Malaysia Annual Trade, International Business, Commercial Transactions, Countries, Private, Public, Goods and Services, Physical, Socie...
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International Business

International Business

International Business: An Overview


Malaysia Annual Trade 1995-2006

What is International Business

• All commercial transactions between two or more countries – Private – Public - Over USD16.2 Trillion worth of goods and services cross

border each year • International business adds significant influences to

typical domestic operations – Physical – Societal – Competitive


International Business

Why Engage in International Business

• Expand sales (market motives) – Volkswagen (Germany) – Ericsson (Sweden) – IBM (United States)

• Acquire resources (economic motives) – Better components, services, products – Foreign capital – Technologies – information

• Minimize risk (strategic motives) – Take advantage of the business cycle for products/services – Diversify among international markets


Reasons for Growth in International Business

• Rapid increase in and expansion of technology • Transportation is quicker while costs are lower • Communication enables control from afar • Liberal government policies on trade and resources/

liberalization of cross-border movement • Development of institutions that support

international trade • Consumer pressures • Increased global competition


Examples of Reduction in Trade Barriers

General Agreement on Tariffs and Trade

World Trade Organization (WTO)

North America Free Trade Agreement

European Union (EU)

Asia Pacific Economic Cooperation

Average Tariff Rates on Manufactured Products 1913 1950 1990 2002

France 21 % 18 % 5.9 % 4.0 % Germany 20 % 26 % 5.9 % 4.0 % Italy 18 % 25 % 5.9 % 4.0 % Japan 30 % -- 5.3 % 3.8 % Holland 5 % 1 % 5.9 % 4.0 % Sweden 20 % 9 % 4.4 % 4.0 % Great Britain

-- % 5.9 % 4.0 %

United States

44 % 14 % 4.8 % 4.0 %

Examples of Technological Innovation

Internet, Intranet, and Extranet – Use of World Wide Web, Private Networks

on Internal company Web sites

Activities Occurring After The Production Process – To bypass intermediaries like wholesalers and retailers, companies

can enter global markets, cut postproduction costs, and pass savings on to customers.

Advancement in Technology – Advances in transportation methods are helping to globalize both

markets and production activities. – Advancements in the shipping industry are facilitating globalization

by making shipping more efficient and dependable.

Internet Usage Growth

Figure 1.3: Internet Users per 1000 People, 1990- 2003









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20 00

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Japan United States European Monetary Union World

What is Globalization?

• Trend toward greater economic, cultural, political and technological interdependence among national institutions and economies

• Two components:

– The globalization of markets – The globalization of production

Globalization of Markets • The merging of distinctly separate

national markets into a global marketplace – Falling barriers to cross-border

trade have made it easier to sell internationally

– Tastes and preferences converge onto a global norm

– Firms offer standardized products worldwide creating a world market

Globalization of Markets

• Difficulties that arise from the globalization of markets – Significant differences still exist among

national markets – Country-specific marketing strategies – Varied product mix

Globalization of Markets

• The most global markets are not consumer markets

• The most global markets are for industrial goods and materials that serve a universal need the world over

Globalization of Production

• Refers to sourcing of goods and services from locations around the world to take advantage of – Differences in cost or quality of the factors of

production • Labor • Land • Capital

Globalization of Production

• Historically this has been primarily confined to manufacturing enterprises

• Increasingly companies are taking advantage of modern communications technology, and particularly the Internet, to outsource service activities to low- cost producers in other nations

Globalization of Production • Outsourcing of productive activities to different

suppliers results in the creation of products that are global in nature

• Impediments to the globalization of production include – Formal and informal barriers to trade – Barriers to foreign direct investment – Transportation costs – Issues associated with economic risk – Issues associated with political risk

Benefits of Globalization

Globalization of markets

Globalization of production

Reduces marketing costs

New market opportunities

Levels income stream

Access low-cost labor

Acquire technical expertise

Obtain production inputs

Measuring Globalization

• Political engagement - membership and involvement in international organizations

• Technological connectivity – Internet users, hosts and secured servers

• Personal contact – International connections • Economic integration – trade, FDI, portfolio

capital flows, and investment income

Political Technological

Personal Economic

Top 20 Global Nations

The Globalization Debate

• Pro Factors – Lower prices for goods

and services – Economic growth

stimulation – Increase in consumer

income – Creates jobs – Countries specialize in

production of goods and services that are produced most efficiently

• Con Factors – Destroys manufacturing

jobs in wealthy, advanced countries

– Wage rates of unskilled workers in advanced countries declines

– Companies move to countries with fewer labor and environment regulations

– Loss of sovereignty

International Business Players

Business that has direct investments abroad in multiple


Small companies and individuals becoming increasingly active in

international trade and investment

Takes a global perspective on its

market and engages in international business

from or near its inception

Multinational Corporation

Small Businesses and Entrepreneurs

Born-Global Firm

Levels/Terms of International Companies

• Multinational Enterprise (MNE): global approach to markets and production – Multinational Corporation (MNC) – Transnational Company (TNC)

• Globally integrated company: integrated operations located in different countries

• Multidomestic company: multinational companies that allow local responsiveness


National Operations for International Companies

• Multidomestic strategy: countries operate autonomously

• Global strategy: integrate various country operations into an international headquarters control


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