University Of Finance & Administration INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. 2.2. INTERNATIONAL BUSINESS Full-time course = 12 sessions 90 mins. (winter term 2010) 1-2/ What is international business (IB). IB basic indicators - balance of trade / payment. Territorial / commodity structure of IB. Comparative advantage, free trade / economy. Protectionism x Liberalism. 3-4/ Culture and its role in international business. Cultural elements and multi-culture communication. Hofstedes five dimensions of culture differences. Entry modes and business activities in IB. Foreign market analyses. 5-6/ Individual TEAM work on the MARKET STUDY. The individual consultations on the chosen topic of the foreign market study, preparation of the semester presentation of the market study results. 7-8/ Globalization microeconomic and macroeconomic view. Drivers of globalization, pros & cons. International trade barriers. Forms of economic integration. International market research (PEST/STEEP), and linkage to Competition analysis (Porter) and SWOT. Data collection and their selection in the international environment. 9-10/ EXPORT - microeconomic and macroeconomic view. Export risks and their elimination / securing. Emerging markets, prospective territories. Prerequisites and personal preconditions for working in international business, recruitment ) TEAM work presentations: foreign market study. Summary of the IB knowledge, review. INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 3.3. COMPLETION conditions E_IB CONDITIONS: PRESENCE at IB lectures: min. 60% TEAM PRESENTATION (market study) preparation at home: min. presentation on international business issue lecture marks based on active PARTICIPATION: communication, reading and discussing topical economic issues If unfulfilled: knowledge test will be undertaken INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 4.4. Session content INTRODUCTION of each participant Name & professional interest (aiming) Experience with IB What youd like to LEARN in this subject here Completion conditions specification Lecture Reading and analyzing IB articles Within each session: - practical discussions on topical economical issues - lecture - article: reading + analyses INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 5.5. Common session STRUCTURE IB NEWS small talk / discussion topical business issues LECTURE READING analyzing interpretation of an article (team work) / Prezentation of the materials prepared at home INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 6.6. INTERNATIONAL BUSINESS What is international business? = exchange of goods and services undertaken by business bodies across the national border with the foreign business bodies = cross-border commercial transactions includes PURCHASE and SALES INT business = EXCHANGE across border INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / Barter / Import / Export International TRADE FDI / WOS / Portfolio investment etc. International INVESTMENT Licensing / Franchising / Management contracts etc. Other forms of int. business ACTIVITY 7.7. INTERNATIONAL BUSINESS CONSISTS IN: INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 8.8. How IB differs from DOMESTIC business? currencies conversions, risks, rates securing often legal system laws culture behavior, business practice resources technology way of producing INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 9.9. INTERNATIONAL BUSINESS Reasons for participation in IB? = the fact that almost no country is able to SATISFY its needs by own goods and base materials -> countries concentrate on manufacturing products which are effective under given conditions (= theory of comparative advantage) Free economy = stage of involvement in the international trade INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 10. Principle of COMPARATIVE ADVANTAGE Absolute advantage = a country has an absolute advantage over it trading partners if it is able to produce more of a good or service with the same amount of resources or the same amount of a good or service with fewer resources (copper, oil) Comparative advantage (David Ricardo ) = a country has a comparative advantage in the production of a good or service that it produces at a lower opportunity cost than its trading partners (relativity). = units of production (people/machines) will be employed in those processes in which they are relatively more productive (productivity) Opportunity cost (John Stuart Mill) = is the value of the next-best choice available to someone who has picked between several mutually exclusive choices - opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, swag, pleasure or any other benefitreal costoutput forgone INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 11. International ENVIRONMENT GLOBAL MACRO MICRO INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 12. Why to study IB? interaction inevitable (business abroad, multinational teams etc.) success in larger arena need for understanding principles of IB (time of globalization) work opportunities to stay abreast of the latest business techniques INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / Fin. liability of owners limited to the extent of investment if company fails Inc. = incorporated [USA] Ltd. = Limited, private (Allmakes Ltd.) PLC = Publicly held limited-liability Ltd. / Plc. [UK] AG [Aktiengesellschaft] = publicly held (Volkswagen AG) KGaA [Kommanditgesellschaft] = limited partners + min. 1 unlimited (Henkel KGaA) GmbH [Gesellschaft mit bescharankter Haftung] private, analogy to Inc., Ltd. (or s.r.o. in CZ) AG / KGaA / GmbH [Germany] SpA [la societa per azioni] (Fiat SpA) SA [societe anonyme] (Carrefour SA) = analogy to a.s. in CZ SpA [Italy] / SA [France] 13. Basic IB terminology Abbreviations: INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 1. ECONOMICAL 2. POLITICAL 3. CULTURAL 14. IB importance + influences FREE TRADE (international exchange) = is a system of TRADE POLICY that allows traders to act and transact without interference from government. According to the law of COMPARATIVE ADVANTAGE the policy permits trading partners mutual GAINS from trade of goods and services. = it is an AIM of all the trade economies and consists in: convertibility (possibility to exchange currency) free price creation economical and political barriers elimination (duties, quotas, admin. barriers etc.) INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 15. International business - THREATS Weak self- sufficiency (in case of war or political system change) Dependence (the smaller and econ.developed country => the more important IB is for the country) INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 16. IB INDICATORS [basic] BALANCE OF TRADE = review of export & import volume in certain period of time A) ACTIVE = export > import B) PASSIVE = export < import BALANCE OF PAYMENTS = review of currency / exchange receipts and expenditures A) ACTIVE = payments abroad receipts from abroad INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 17. IB indicators - details Balance of Trade = EXPORT IMPORT, the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored. A nation is said to have a trade DEFICIT = if it is importing more than it exports. Balance of Payments = difference between the money coming into a country and the money leaving the same country -In economics, the balance of payments (BOP) measures the payments that flow between any individual country and all other countries - It is used to summarize all international economic transactions for that country during a specific time period, usually a year. - the BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfersexportsimportsgoods servicesfinancial capitalfinancial transfers INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 18. STRUCTURE of IB TERRITORIAL COMMODITY INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 19. Ways of controlling IB PROTECTIONISM state intervenes in IB - protects the inner market against foreign competition - supports own products at the foreign markets LIBERALISM state limits the interventions in IB - export & import without restrictions - currency convertibility enables access to foreign currency purchases for free trade / exchange INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 20. PROTECTIONISM = economic policy of RESTRAINING trade between states This policy is closely aligned with anti-globalization, and contrasts with free trade, where government barriers to trade and movement of capital are kept to a minimum.anti-globalizationfree trade The term is mostly used in the context, where protectionism refers to policies which protect businesses and workers within a country by restricting or regulating trade with foreign nations. No policy has failed as often, or been as widely applied and enthusiastically believed, as economic protectionism. (Bob McTeer, Federal Reserve Bank of Dallas) INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 21. PROTECTIONISM - history = economic policy of restraining trade between states Historically, protectionism was associated with economic theories such as MERCANTILISM (that believed that it is beneficial to maintain a positive trade balance), and import substitution.import substitution During that time, ADAM SMITH famously warned against the 'interested sophistry' of industry, seeking to gain advantage at the cost of the consumers Most modern economists agree that protectionism is harmful in that its costs outweigh the benefits, and that it impedes economic growth INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 22. PROTECTIONISM - methods Tariffs on imported goods restrictive Quotas - to reduce the quantity and therefore increase the market price of imported goods Administrative Barriers: using various administrative rules (eg. regarding food safety, environmental standards, electrical safety, etc.) Exchange Rate manipulation: government may intervene in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market. and a variety of other government regulations designed to discourage imports, and prevent foreign take-over of native markets and companies. INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 23. PROTECTIONISM arguments FOR = economic policy of restraining trade between states 1) Saving jobs for citizens of country 2) Promoting / Protecting infant industries 3) Promoting / Protecting domestic & economic development 4) Offsetting economic distortions INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 24. PROTECTIONISM arguments AGAINST = economic policy of restraining trade between states Harming the freedom and free market 1.Gains from free trade outweigh any losses; as free trade creates more jobs than it destroys because it allows countries to specialize in the production of goods and services in which they have a comparative advantage. 2.Free trade helps third world workers, even though they are not subject to the strict health and labour standards of developed countries 3. Protectionism has also been accused of being one of the major causes of war. INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 25. PROTECTIONISM conclusion Let me just be blunt. Protectionism is the crack cocaine of economics. It may provide a high. It's addictive and it leads to economic death. Richard Fisher President of Dallas Federal Reserve Bank INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 26. Ways of controlling IB PROTECTIONISM state intervenes in IB - protects the inner market against foreign competition - supports own products at the foreign markets LIBERALISM state limits the interventions in IB - export & import without restrictions - currency convertibility enables access to foreign currency purchases for free trade / exchange INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 27. LIBERALISM = economic policy that opposes government intervention in the FREE MARKET, and supports the maximum of free trade and competition = is an economic philosophy that supports and promotes laissez-faire capitalism (= to let create/be) laissez-faire -it contrasts with mercantilism, Keynesianism and socialism - ADAM SMITH (1776) Wealth of Nations - advocates minimal interference of government in a market economy INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 28. LIBERALISM arguments FOR 1.Higher economic freedom has a strong correlation with higher LIVING STANDARDS 2. Higher economic freedom leads to INCREASED INVESTMENTS, TECHNOLOGY TRANSFER, INNOVATION and a responsiveness to consumer demand 3. Many government attempts to micro-manage their economies using things like tariffs, public investment, etc. were often misdirected, poorly timed, poorly implemented and brought undesirable consequences = government is incapable of managing a social system as huge as a national economy 4. Government-owned enterprises and public entitlements were losing a lot of citizens' money INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 29. LIBERALISM arguments FOR 5. During the 1970s, state-controlled economies proved unresponsive to economic shocks, and much of the world endured a sustained, high- inflation recession until markets were liberalized (though proponents still note that liberalization itself is only one of several factors in the recent return to prosperity; other factors include technological developments and the end of the Cold War) INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / 30. LIBERALISM arguments AGAINST Globalization and liberalization spoils nations' ability for self-determination Exploitation: critics consider capitalist economics to be exploitive Environmental costs: critics argue that neoliberalism leads to more transportation, and unregulated markets lead to more industrial production Increase in corporate power: some anti-corporate organizations believe neoliberalism changes economic and government policies to increase the power of corporations and large business INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. / -International Business = Int. trade / Int. investment / Other business activities -Reasons for IB, advantages x disadvantages -Free trade -Comparative advantage / Absolute advantage / Opportunity cost -Balance of trade, Balance of payments -Liberalism x Protectionism -Convertibility, trade barriers, free price creation -Structure of IB (territory, commodity) -Corporation abbreviations / Financial liability -FDI / Portfolio investment -Home x Host country -Economies of Scale 31. KEY terms INTERNATIONAL BUSINESS [E_IB] Ing. Pavla Bekov, Ph.D. / 32. Thank you for your attention Dr. Pavla Breckova INTERNATIONAL BUSINESS [B_IB] Ing. Pavla Bekov, Ph.D. /