Business in a

Borderless World
Learning Objectives
3-1 Explore some of the factors within the international trade environment that influence
business.
3-2 Investigate some of the economic, legal, political, social, cultural, and technological
barriers to international business.
3-3 Specify some of the agreements, alliances, and organizations that may encourage trade
across international boundaries.
3-4 Summarize the different levels of organizational involvement in international trade.
3-5 Contrast two basic strategies used in international business.
3-6 Assess the opportunities and problems facing a small business that is considering
expanding into international markets.
Kenapa Perlu melakukan
Ekspansi Bisnis ke Luar
Negeri?

Bagaimana Kita menentukan

Negara mana yang tepat
untuk berinvestasi?
Market Development : selecting countries ?
Michael Porter’s Diamond Model
Sources of National Competitive Advantage

1. Factor conditions
Human, technology,
entrepreneurship, capital, natural
resources, and know how
2. Demand conditions at home
The strengths and sophistication of
customer demand
3. Firm strategy, structure, and rivalry
The presence of strong competitors
at home serves as a national
competitive advantage
4. Related and supporting industries
Availability of clusters of suppliers
and complementary firms with
distinctive competences
The Role of International Business
• International Business
• Buying, selling, and trading of goods and services across national boundaries
• Why Nations Trade
• Absolute advantage
• Comparative advantage
• Outsourcing
 Outsourcing

• Many companies choose to outsource manufacturing to factories in Asia due to lower costs of labor.
• ©Roberto Westbrook/Blend Images
The Role of International Business
• Trade between Countries
• Exporting
• Importing
• Balance of Trade
• Trade deficit
• Balance of payments
 Table 3.1 U.S. Trade Deficit
(in billions of dollars)
1990 2000 2010 2011 2012 2013 2014 2015 2016 2017

Exports 535.2 1,075.3 1,853.6 2,127.0 2,219.0 2,279.9 2,343.2 2,230.3 2,212.1 2,427

Imports 616.1 1,447.8 2,348.3 2,675.6 2,755.8 2,758.3 2,851.5 2,712.6 2,712.6 2,900

Trade
surplus/ −80.9 −372.5 −494.7 −548.6 −536.8 −478.4 −508.3 −500.6 −500.6 −568
deficit

• Source: U.S. Bureau of the Census, Foreign Trade Division, “U.S. Trade in Goods and Services—Balance of Payments (BOP)
Basis,” March 7, 2018 www.census.gov/foreigntrade/statistics/historical/gands.pdf (accessed April 1, 2018).
International Trade Barriers
• Economic Barriers
• Economic development
• Industrialized nations
• Less-developed countries
• Infrastructure
• Physical facilities that support that support activities such as:
• Railroads, highways, ports, airfields, utilities, power plants, schools, hospitals, communication
systems, and commercial distribution systems
International Trade Barriers
• Economic Barriers continued
• Exchange rates
• Vary daily and affect the cost of imports and exports
• U.S. dollar is most frequently used in international trade, with 81% of all trade financed
in U.S. dollars
• Governments may intentionally alter the value of their currencies through fiscal policy
International Trade Barriers
Ethical, Legal, and Political Barriers
• Laws and regulations
• Differ in other countries
• Restrictions on currency
• Copyright and patent laws
• Some countries fail to honor U.S. laws may be less strict than the U.S.
International Trade Barriers 4
• Ethical, Legal, and Political Barriers continued
• Tariffs and trade restrictions
• Import tariffs
• Exchange controls
• Quota
• Embargo
• Dumping
International Trade Barriers
• Ethical, Legal, and Political Barriers continued
• Political barriers
• Seldom in writing
• Change rapidly
• Cartels
 Political Barriers

• Political instability in many nations has led to an influx of refugees. The

potential for political turmoil is a substantial risk businesses face when
expanding overseas.

• ©Sk Hasan Ali/Shutterstock

International Trade Barriers
• Social and Cultural Barriers
• Differences in spoken and written language
• Differences in body language and personal space
• Family roles differ in different societies
• Perceptions of time differ in other nations
• National and religious holidays and customs must be respected
• Most nations use the metric system
International Trade Barriers 7
• Technological Barriers
• Lack of technological infrastructure can create opportunities for business
• Technological advances also create global marketing opportunities
• Changing technologies also create new challenges and competition
Trade Agreements, Alliances, and Organizations 1
• General Agreement on Tariffs and Trade (GATT)
• Signed by 23 nations in 1947
• Provided a forum for tariff negotiations and a place where international trade
problems could be discussed and resolved
• The World Trade Organization (WTO)
• Created in 1995 by the Uruguay Round
• International organization dealing with rules of trade between nations
Getting Involved in International Business
• Exporting and Importing
• Countertrade agreements
• Trading Companies
• Buys goods in one country and sells them to buyers in another country
• Licensing and Franchising
• Enable a company to enter international marketplace without spending large
sums of money or hiring or transferring personnel
 Figure 3.2 Top Exporting Countries
(in billions of $)

• Source: Central Intelligence Agency, “Country Comparison: Exports,” https://www.cia.gov/library/ publications/the-world-

factbook/ rankorder/2078rank.html (accessed April 2, 2017).

• Access the text alternative for these images.

 Table 3.4 Top 10 Global Franchises
Ranking Franchise
1 McDonald’s
2 KFC
3 Burger King
4 Pizza Hut
5 7 Eleven
6 Marriott International
7 RE/MAX
8 Dunkin’ Donuts
9 InterContinental Hotels and Resorts
10 Subway

• Source: “Top 100 Global Franchises – Rankings (2018),” Franchise Direct,

https://www.franchisedirect.com/top100globalfranchises/rankings/ (accessed April 1, 2018).
Getting Involved in International Business
• Contract Manufacturing
• When a firm hires a foreign company to produce a specified volume of the
firm’s product to specification
• Final product carries the domestic firm’s name
• Outsourcing
• Transferring manufacturing or other tasks where labor and supplies are less
expensive
• Insourcing—foreign companies transfer tasks to U.S. companies
Getting Involved in International Business
• Offshoring
• Relocation of a business process by a company, or a subsidiary, to another
country
• Joint Ventures and Alliances
• Joint venture: finding a local partner to share costs and operations of the
business
• Strategic alliance: partnerships formed to create a competitive advantage on
a worldwide basis
Getting Involved in International Business
• Direct Investment
• Ownership of overseas facilities
• Multinational corporation (MNC)
• Operates on a worldwide scale without significant ties to any one nation or region
International Business Strategies
• Developing Strategies
• Multinational strategy
• Global strategy (globalization)
• Managing the Challenges of Global Business
• Managers must meet the challenges of creating and implementing effective
and sensitive business strategies for the global marketplace
OLI : Dunning‘s Eclectic Paradigm
Three conditions determine whether or not a company will internalize via FDI:
1. Ownership-specific advantages
Knowledge, skills, capabilities, relationships, or physical assets that form the basis for the firm’s
competitive advantage
2. Location-specific advantages
Advantages associated with the country in which the MNE is invested, including natural
resources, skilled or low cost labor, and inexpensive capital
3. Internalization advantages
Control derived from internalizing foreign-based manufacturing, distribution, or other value
chain activities
The Decision-Tree of FDI (OLI Paradigm)

Foreign Market
FDI
No ICountract out (licensing, etc)

LNo Produce at home then export

No No international activity

O
Domestic Market
Entry Strategy
Low Control Moderate-Control High-Control
Strategies Strategies Strategies
Exporting/ Global Licensing/ Strategic Joint Wholly
Trade Sourcing Franchise Alliances Venture Owned (FDI)

Minimum Control available to local firm over foreign operations Maximum

Limited Resource Commitment Substantial

Maximum Flexibility Minimum

Low Risk High

Teaching Case : Joint Venture

+
50% Shares 50% Shares

Slide 30
Attractive Motorcycle Industry in Asia
3-A Strategy for Emerging Market
• 3A: Affordability, Availability, Awareness

200 ml = Rp 12000 5 ml = Rp 500

40@5 ml = Rp 20000

Right Pricing Point boost Sales Availability: Massive Point of Sales

The Basic Strategic Postures

Pressure for Global More likely in

Integration (Cross- Global Strategy global industries
Market Coordination)

International More likely in multi

Strategy domestic industries

Multinational
Strategy

Pressure for Local

Responsiveness, Differentation
Solve the Dilemma
Global Expansion or Business as Usual?
Audiotech Electronics operates a 35,000-square-
foot factory with 75 employees
• Produces control consoles for TV and radio stations
and recording studios
• Products used by all major broadcast and cable
networks
• Newest products allow TV correspondents to
simultaneously hear and communicate with their
counterparts in different geographic locations
• Very successful in meeting its customers needs
efficiently
Solve the Dilemma
Global Expansion or Business as Usual? 2

Global expansion?
• Audiotech sales have historically been strong in the
United States
• Recently, growth is stagnating
• Even though Audiotech is a small family-owned firm, it
believes it should evaluate and consider global
expansion
Solve the Dilemma
Global Expansion or Business as Usual? 3
Critical Thinking Questions
1. What are the key issues that need to be considered in
determining global expansion?
2. What are some of the unique problems that a small
business might face in global expansion that larger
firms would not?
3. Should Audiotech consider a joint venture? Should it
hire a sales force of people native to the countries it
enters?