International Business Environment

International Business Environment

What is IB? IB

is the business between borders IB has been in existence throughout history Today no country can claim it can prosper without IB

When did International Business Start?  IB

is not a new idea.  Evidence suggests China, India, and Japan were trading products throughout the world 15,000 years ago.  Africans also traded with South Americans several thousand years ago.

IB through Globalization Trade and investment barriers are disappearing.  Perceived distances are shrinking due to advances in transportation and telecommunications.  Material culture is beginning to look similar.  National economies merging into an interdependent global economic system. 

The Shrinking Globe 1500-1840

Best average speed of horse-drawn coaches and sailing ships, 10mph.

1850-1930

Steam locomotives average 65mph. Steamships average 36mph.

1950s

Propeller aircraft 300-400 mph.

1960s

Jet passenger aircraft 500-700mph.

Today with the emergence of Internet and low cost telephony, time to reach anybody any place in the world is less than 1second.

GEOGRAPHY  location  climate  terrain  waterways  natural resources

ECONOMICS  technology  education  inflation  exchange rate  infrastructure

THE INTERNATIONAL BUSINESS ENVIRONMENT CULTURE  language  family  religion  customs  traditions  food

POLITICAL–LEGAL FACTORS  government system  political stability  trade barriers

Globalization of Marketsthe driving force of IB ● ●

National markets are merging into one huge global market. Standardized products facilitate the trend towards a global market. These products fulfill a universal need- The taste, fashion, and style is evolving into one.

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Until recently industrial goods have experienced the greatest degree of globalization.

Firms are merging or acquiring other firms expanding into foreign markets at an unprecedented pace.

What’s Driving Globalization?

Two factors underlie the trend toward globalization and increased IB: 1. Declining trade and investment barriers 2. Technological change

Reverse- globalization- In the late 19th century there were relatively few restrictions on cross-border movement, however, during the 1920s and 1930s many nations established tariffs (duties) on imported manufactured goods; why? ●Primarily to protect domestic industries from foreign competition. ●However,

this encouraged retaliatory trade policies by other ■Bringing great economic and social disruption countries. throughout the world The rise of fascist governments (Germany, Italy, Spain)

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World demand decreased, contributing to the “Great Depression”.

What’s the difference between TRADE & INVESTMENT with foreign countries?

Trends in trade & investment  World

trade has grown 20x since 1950 while Global production has increased about 6.5x

 Between

’90 and ’00 FDI increased 5x, trade by 2x and world output by 0.2x

 Outflows

of FDI have grown faster than trade in recent years

INTERNATIONAL INVESTMENT Types of Int. Investment - FDI (foreign direct investment) Investor retains control over the investment. Eg. Subsidiary, JVs, Acquisitions etc. - FPI (foreign portfolio Investment) Investor only gets a return on investment but has no control of capital eg. Stocks, bonds etc.

 Foreign

direct investment (FDI), has grown more rapidly than trade and domestic production.

 In

the early 1980s, world FDI flows amounted to some $40 billion; in 1995, FDI flows to developing countries alone amounted to $100 billion, with world flows reaching $315 billion.

 If

$5 trillion of exports is compared with the $6 trillion of sales by foreign affiliates, it becomes obvious that FDI has become more important than trade in terms of delivering goods and services to foreign markets and, thereby, linking markets internationally.

 In

the case of the U.S., in fact, three-quarters of all goods and services delivered to foreign markets are actually delivered by foreign affiliates. This is a situation that is strikingly different from that which prevailed immediately after World War II, when trade alone reigned supreme when it came to international economic transactions.