Overview Of International Business Dr. Nadia Farhana Assistant Professor Department Of Business Administration Stamford University Bangladesh

Overview of International Business By

Dr. Nadia Farhana Assistant Professor Department of Business Administration Stamford University Bangladesh

International Business

International Business Business that engages in cross border commercial transactions with individuals, private firms and public sector organizations. It is the study of transactions taking place across national borders for the purpose of satisfying the needs of individuals and organizations. In its broadest sense, Globalization refers to the broadening set of interdependent relationships among people from different parts of a world that happens to be divided into nations. It also refer the integration of world economies through the reduction of barriers to the movement of trade, capital, technology and people.

Basis for Studying International Business

Assess better career opportunity and interact effectively Become a business man or working as an executive in a MNC To keep pace with competitive world To know the latest business techniques and tools To obtain cultural literacy

Factors in Increased Globalization  Increased in and expansion of technology  Liberalization of cross border trade and recourse movements

 Growing consumer pressure  Increased global competition  Changing political situations

 Expand cross national cooperation  

Gain reciprocal advantage Multinational problem solving

What’s wrong with Globalization?  Threats to National Sovereignty   

The question of local objectives and policies The question of small economies overdependence The question of cultural homogeneity

 Economic growth and environmental stress  Growing income inequality and personal stress  Is Offshoring Good Strategy?

Growth of IB/Reason for Doing IB  Market Expansion : Productive capacities made Nestle to

ship milk in 16 different countries in 1875  Resources acquisition : Resource scarceness and unavailability make US firm to buy coffee, bananas from SA, Japan buy forest product from Canada, oil from Middle East, Africa. Sony assemble plants in Malaysia, Firms in many countries buy communication equipment from Northern Telecom (Canadian)

 Competitive force : Because of economies of scale and

financial strength that comes with larger organizational size, small firm like Mazda struggle for years of its largest domestic competitors because of lack of resources – Toyota, Nissan  Technological changes : Exxon relies on computer  Social changes : Kellogg  Government trade and investment polices change

Activities/ Modes of International Business

Export and ImportExporting can be direct and indirect.  Direct exporting – the company sells products to a customer in another country.  Example-Boeing is the largest exporter in America.  Indirect exporting – the company sells to a buyer (importer or distributor) in the home country who in turn exports the product. a) Merchandise exports and imports/visible trade b) Service export and import/invisible trade 1.

2. International Investment a) FDI : the company that invests within a foreign country to capitalize on low cost labor, to avoid high import taxes, to reduce the high costs of transportation to market, to gain access to raw materials or as a means of gaining market entry. Example –  Korea’s Samsung invested $500 to build television tube plants in Tijuana.  Nestle built a new milk factory in Thailand. b) Portfolio Investment : purchase of foreign financial assets Like stocks, bonds certificate of deposit- 1000 shares of Sony’s common stock by a Danish pension fund

Other Operational activities 1. Licensing : It is an agreement whereby a licenser grants the rights to intangible property to another entity for a specified period in return the licensor receives a loyalty fee from licensee.  Example -Walt Disney Company may permit a German clothing manufacturer to market children pajamas

Franchising : A firm in one country authorizes a firm in a second country to utilizes its brand names, logos, operating techniques in return for a royalty payment.  Example-McDonald’s Corporation franchises its fast food restaurant worldwide. 3. Merger : Two companies come in together and agree to combine the entity into one. 2.

Alternative Strategies: Stages of Development Model 1. 2. 3. 4. 5.

Domestic International Multinational Global Transnational

Domestic Firm-Firm that engages in investment in domestic market and owns or controls value adding activities in a country.  Example – Aftab Group. International Company -Firm that engages in investment in domestic market mainly and owns or controls value adding activities in a country but sometime or regularly sells product in foreign market.  Example – Shah Cement

Different Forms of MNC MNC : Firm that engage in foreign direct investment and owns or controls value adding activities in more than one country.  Example-Standard Chartered Bank b. MNE : Company that is headquartered in one country but having operation in other countries.  Example-Wimpy c. MNO : Company which engage in profit and non profit seeking business operations  Example- Brac, UN, Save the Children d. Multi-domestic corporation : It views itself as a collection of relatively independent operating subsidiaries, each of which is focused on a specific domestic market and free to customized its products, marketing campaign and production techniques to best serve the needs of the local customers. The multi-domestic approach is particularly useful when distinct differences exist among national markets; economics of scale in production, distribution ,and marketing are low; and coordination cost between the parent corporation and its foreign subsidiaries are high. Because each subsidiary needs to be responsive to local market, the parent typically delegates much power and authority to mangers of its subsidiaries in host countries. a.

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Example – Unilever, Proctor and Gamble

 Global corporation : Global companies produce for the

world market. Production takes place where it can be done cheapest. The company is not organized according to country, like a MNC, but according to products. Management is highly centralized. The products are not designed to cater for specific local tastes. The attractive feature of the products of global companies is their price, since the standardized and high volume production method make it possible to produce cheaply. The product division managers have the power in a global company.

 Transnational corporation : TNC try to combine the

market specific approach of MNCs and the standardized production methods of the global companies. The management is therefore organized along country management and product management. The organization structure of a TNC resembles an international matrix or network, in which the efforts of country managers (to cater for local tastes) and product managers (to increase efficiency) are coordinated

Why international business differs from domestic business?  Physical and social factors  Geographic influences  Political policies  Behavioral factors  Economic forces

 The competitive environment  Competitive strategy for products  Company resources and experience  Competitors faced in each market