Introduction to International Business

David J. Boggs, Ph.D.Introduction

America’s Economic Transformation Personal computers Biotechnology Facsimile Voice mail Wireless cable CD-ROM Quick oil changes Internet

PC software Computer

networking Cellular phones Convenience

foods and services

Superstores such as Home Depot and Staples

Plan for the day To define internal business (IB) and describe

how it differs from domestic business To explain why companies engage in IB and why

its growth has accelerated To introduce different modes a company can use

to accomplish its global objectives To illustrate the role social science disciplines

play in understanding the environment of IB To provide an overview of the primary patterns

for companies’ international expansion To describe the major countervailing forces that

affect IB

Questions What is international business? Name five international companies? Are younger companies typically

more or less likely to be international than older companies?

Are larger companies typically more or less international?

Description of IB IB—all commercial transactions

between two or more countries Involves modes of business that differ

from those at the domestic level Foreign conditions diversify and add

complexity to a company’s external environment

International Business How is international business

different from domestic business?

International versus Domestic Business Language Culture Currency Laws Physical environment Economic development Technology Infrastructure

International Business In comparison with domestic

business, international business is riskier and more difficult, dangerous, and complex. So why not just operate only in the domestic market?

Why Companies Engage in IB Expand sales (Wal-Mart, McDonalds) Acquire resources (Exxon, Nike)

Technology Labor and capital Natural resources

Diversify sources of sales and supplies (General Motors)

Minimize competitive risk (Kodak)

Reasons for IB Growth? International business has grown

rapidly over the past 20 years and continues to grow rapidly. What do you think are possible explanations for this rapid growth?

Reasons for Growth of IB Technological advances

Communications Transportation

Government policy changes Lower taxes Liberalized investment and trade policies

Development of supporting institutions such as agencies, banks, consultants

Increased global competition

International Business Activity Exporting and importing Portfolio and direct investments Strategic alliances and joint

ventures Consortia, research, and information

exchange Government and international

agency contracts

13

DomesticBusiness

The

HIGH

MEDIUM

LOW

C

Mode ofoperations

Limitedforeignfunctions,usuallyexport/import

Extensiveproductionabroad withFDI and allfunctions

Limited foreignproduction andmultiple functions

AImpetus forinternationalbusiness

Active searchfor opportunities

Passiveresponse to

proposals

D

One

Several

Many

Number of foreign countries in which a firm does business

E

Quitesimilar

Verydissimilar

Moderatelysimilar

Degree ofsimilaritybetweenforeign anddomesticcountries

B

Other firmshandle externalcontracts

Company handlesits own foreignoperations

Internal versusexternal handling offoreign operations

Modes of IB Modes of international business refers to

the ways in which companies carry out their business activities.

What are ways that the following companies engage in international business? Boeing Arthur Anderson Nike Ford Disney General Electric

Modes of IB Merchandise exports and imports—

most common, especially for smaller companies

Service exports and imports—nonproduct international earnings Tourism and transportation Performance of services for a fee management contracts

Use of assets by others—licensing agreements, royalties, franchising

Modes of IB Investments—ownership of foreign

property in exchange for financial return Foreign direct investment—investor gains

a controlling interest in foreign company joint venture mixed venture

Portfolio investment—noncontrolling interest

         

International Companies—terminology Strategic alliance—collaborative arrangement of critical

importance to the competitive viability of one or more partners Multinational enterprise (MNE)—company with global

approach to foreign markets and production Globally integrated company—integrates operations located

in different countries Multidomestic company—foreign-country operations act fairly

independently Multinational corporation (MNC)—foreign-country

operations act fairly independently or generic term for international company

Global company—globally coordinated international activities Transnational company (TNC)—emphasizes learning by

companies; UN terminology

International Business All companies are affected by their external

environment. For example, dot-com companies could raise money, make deals, and hire people when the environment was favorable. When it turned unfavorable, however, even good companies struggled to raise money, go public, or retain good employees. International environments are substantially different in terms of politics, economics, social and cultural practices, and technology.

Summary of International Business

Has grown rapidly and continues to grow rapidly

Activities are diverse and taken for many purposes

Different environment and activities than domestic-only competition

More difficult, complex, and risky than domestic business

In many industries it is no longer possible to be just a domestic competitor

Assignment Read chapter 2 Describe USA culture and one

foreign country culture