Topic 1.1 Introduction to International Business and Trade class.
These individuals will be interested in cheap transportation options in
 
INTRO TO TOPIC
International Business and Trade as a course provides students with a
balanced perspective on business in a global environment, exploring
implications for multinational companies in developed and emerging markets.
It emphasizes strategic decision making as the cornerstone of its approach
while focusing on emerging markets.
Topics like foreign exchange markets and global competition are contrasted
with emerging operations, like Chinese market intervention and Islamic
finance, to provide students with an understanding of successful business
strategy.
This course aims for its students to develop and implement these strategies
across cultures, and across economic, legal, and religious institutions in order
to cope with competitive players in the global landscape.  With in-depth
analyses and recommended strategies, this course equips students of
international business with the skills they need for success on the global
stage. 
Hence, the first Module will discuss the foundation concepts by knowing
what is International Business, the different theories of international
investment and trade. Further, the participants that make the international
business will clearly be presented. At the end of the module, a topic on culture
and ethics in international business will be explored.  Why?
Module Objectives
 Define international business.
 Understand the nature of an MNC.
 Understand the key forces that drive globalization and the current
global economy.
 Know the basic types of economies that make up the world’s
competitive landscape.
 Appreciate the importance of sustainability in the new global
environment.
 
Topic 1 : Intro to International Business and Trade
International Business Preview IB Emerging Market Strategic Insight Preview
 Emerging Markets: The Wave of the Future The popular business
press abounds with stories of emerging markets and emerging market
multinationals.
 Emerging markets is an umbrella term referring to countries that have
traditionally been seen as less developed but have markets that have
grown rapidly recently. Prominent examples of emerging markets
include the BRIC countries or Brazil, Russia, India, and China. Despite
an economic slowdown recently, emerging markets continue to present
tremendous potential.
Within these emerging markets, new multinationals have emerged and they
are taking the business world by storm. Such emerging market multinationals
are rewriting the rules of the game. Consider the emerging market
multinationals such as Bimbo from Mexico, Tata from India, and Orascom
from Egypt and how they are all rewriting the rules of business. These
emerging market multinationals shy away from long-term planning typical of
multinationals based in more developed economies.
 
Rather, they strive on chaos and have an insatiable hunger for global
expansion. Such multinationals have undeniable advantages based on their
knowledge of extremely volatile local environments and their ability to deal
with chaos.
Many factors have impacted the development of such emerging market
multinationals. Emerging markets have typically faced markets for labor,
capital, goods, and services that are imperfect or incomplete. Additionally,
emerging markets have also included governments that have been ready to
have heavy intervention.
Some emerging markets also have unstable currencies. Despite such
challenges, emerging market multinationals have experienced success and
have achieved tremendous learning in the process. They have been able to
imitate developed world multinationals in some areas such as strategy and
organizational structure.
However, they have also developed their own innovative capabilities based on
the unique characteristics of the markets they operate in. Such local
challenges and chaotic environments have enabled emerging market
multinationals to develop uniquely innovative products that can potentially
help in developed markets.
Consider, for instance, the case of the Tata Nano, the Indian giant’s effort to
develop a very low-cost car. Such advances are helping Tata develop products
for low-income countries that will soon have more individuals in the middle
the future.
As the Preview IB Emerging Market Strategic Insight shows, emerging
markets and emerging market multinationals will continue playing a critical
role in the international business arena. Often, in today’s competitive world,
the only opportunity to grow a business and its profitability is when a
company leaves its home country.
Established multinationals have traditionally looked to developed market
economies for such opportunities. However, as the above examples show,
emerging markets present significant opportunities. Nevertheless, with these
opportunities come the challenges of running a multinational operation in an
emerging market.
To help you understand and meet the challenges of international business, the
objective of this module is to show you how companies such as Shoprite
succeed in the global marketplace and how they cope with the many
complexities of running an international operation.
Whether a business is large or small or located in whatever continent, the
pressures to think global continue to grow. Consider just a few examples: if
you look at the clothes you wear, the cars you drive, or the computers that sit
on your desk, or keep track of your money in the bank, all have some
components produced or sold by companies engaged in international business.
The major reason is the unrelenting pressures of globalization. Globalization
is the worldwide trend of the economies of the world becoming borderless
and interlinked—companies are no longer limited by their domestic
boundaries and may conduct any business activity anywhere in the world.
Globalization means that companies are more globalization the worldwide
trend of economic integration across borders allowing businesses to expand
beyond their domestic boundaries
Topic 1.2 Competing in the Global Marketplace
INTRO TO TOPIC
This second topic of Module 1 is entitled Competing in the Global
Marketplace where students should be able to identify the key forces that
drive globalization and the current global economy. The discussion of the
basic types of economies that make up the world’s competitive landscape will
follow. Further, the role that low-cost countries and rapidly emerging
economies play in today’s world will be discussed and last but not the
least, the importance of sustainability in the new global environment shall be
lengthily be looked into.
 
 Companies likely to compete anywhere. Many companies now sell
anywhere, source their raw materials or conduct research and development
(R&D) anywhere, and produce anywhere.
 Trade barriers are falling, and world trade among countries in goods and
services is growing faster than domestic production. Money is flowing more
freely across national borders as companies seek the best rates for financing
anywhere in the world, and investors look for the best returns anywhere in the
world.
 The Internet crosses national boundaries with the click of a mouse,
allowing even the smallest of businesses to go global immediately.
Consequently, companies can no longer afford the luxury of assuming that
success in their home market equates to long-term profitability—or even
survival. Globalization is perhaps the major reason why you should study
international business. In today’s Internet-connected world, you may have
little choice.
 With companies increasingly looking at global rather than domestic
markets, managers must become international in outlook and strategies. Your
suppliers, your research and development, your manufacturing facilities, your
strategic alliance partners, and your customers increasingly come from
beyond your national borders.
 Foreign competition and doing business in foreign markets are daily facts
of life for today’s managers. Successful managers must become international
in outlook. These are executives with the ability and motivation to meet and
beat the challenges of international business. The study of international
business helps prepare you to deal with this evolving global economy and to
develop the skills necessary to succeed in business in a globalizing world.
 
The Nature of International Business
A company engages in international business when it conducts any business
functions beyond its domestic borders. What kinds of business activities
might make a company international? The most apparent activity, of course,
is international sales. When a company produces in its own country and sells
in another, it engages in the simplest level of international activity. However,
as you will see in much more detail later in the book, crossing national
borders opens up more international options than simply selling
internationally.
Globalization: A Dynamic Context for International
 globalization the worldwide trend of economic integration Business
across borders allowing businesses to expand beyond their domestic
boundaries
 multinational company (MNC) any company that engages in business
functions beyond its domestic borders
 international business when a company conducts any business functions
beyond its domestic borders
 emerging market multinationals are influential multinationals from
emerging markets that are changing the traditional rules of competition
and establishing new business models
Types of Economies in the Global Marketplace:
The Arrived, the Coming, and the Struggling
 developed economies - mature economies with substantial per capita GDPs
and international trade and investments
 developing economies - economies that have grown extensively over the
past two decades
 transition economies - countries in the process of changing from
government-controlled economic systems to capitalistic systems
 least developed countries (LDCs) - the poorest nations, often plagued with
unstable political regimes, high unemployment, and low
Potential of Emerging Markets
 Although growth in most emerging markets has either slowed down or
even contracted, most experts agree that emerging markets will continue to
remain critical for multinationals worldwide. Reasons for such importance
include: Although economic growth has slowed down, experts predict that
emerging markets will grow around 2.2 percent points faster than developed
economies in 2016. Most industries in such countries will continue growing.
 Despite the slowdown, economic growth in emerging markets accounted
for 68 percent of global growth. This growth will continue to remain strong in
the future.
 In terms of infrastructure, demand for investment will be around $25
trillion through 2025. This will also mean that multinationals in such areas
will have significant potential.
 Incomes will continue rising substantially in emerging markets. For
example, 37 percent of the 60 million households will enter the middle class
in Brazil by 2020 compared to only 20 percent now. Middle-class consumers
in India and China will represent $1.2 trillion in buying power. Additionally,
around 300 million households will enter the consuming class.
 Population of emerging markets is growing four times faster than
populations in developed economies. This also signals tremendous
opportunities.
 By 2020, 6.4 billion people (out of 7.5 billion people worldwide) or 85
percent of the world’s population will be living in emerging markets.
Globalization Drivers
 Lowering the Barriers of National Borders: Making Trade and Cross-
border Investment Easier
 General Agreement on Tariffs and Trade (GATT) tariff negotiations
between several nations that reduced the average worldwide tariff on
manufactured goods.
 Locate and Sell Anywhere to Anybody: It’s No Longer Only for
Manufacturing but Services as Well
 The Rise of Emerging Markets and Emerging Market Multinationals
 Information Technology and the Internet: A Necessary Tool for Globally
Dispersed Companies
 Increasing Global Products, Services, and Customers
 Can I Buy it in Germany and Use it in India? The Need for Global
Standards
 
Business Ethics and Environmental Sustainability
 Business Ethics refers to the approach used by companies when they face
ethical dilemmas
 Despite the huge potential offered by emerging markets, they also pose
immense challenges. Established multinationals have found that they often
have to deal with local officials who require illegal payments to ‘resolve’
regulatory obstacles. Because of unclear regulations or other obscure laws, a
multinational manager at the negotiating table may find that such issues have
to be resolved before business can proceed. Paying a local official such bribes
may allow the multinational to be able to start operations much faster, thereby
gaining in revenues. Consider the case of Walmart in Mexico and the bribery
scandal where they paid local officials to change zoning to allow them to
build a store close to a major city. In fact, it has been claimed that Walmart
was involved in numerous bribery scandals around Mexico. Such bribery
scandals end up costing multinationals millions of dollars in fines. In fact, as
you will see in Chapter 16, most countries are becoming stricter about
correcting ethical violations. Many governments have implemented more
strict regulations and are also more likely to go after multinationals Involved
in ethical violations. While the above shows that developed world
multinationals are not unlikely to engage in unethical behavior, such activities
also affect emerging market multinationals. Consider the case of Alexkor, the
South African stated-owned diamond miner. Despite mining in areas with
huge reserves, Alexkor has more than often experienced losses than profits. A
big problem is that many of the diamonds that are mined do not make it to the
income statement. Some have claimed that around half of the mined diamonds
are stolen. Those involved in such activities sometimes use pigeons that are
smuggled in the mines and are then sent home with rough diamonds. Many of
the South African stateowned multinationals are plagued by losses resulting
from corruption and incompetent management. Such behaviors end up costing
the South African economy significantly through frequent bailouts and lost
revenues because of corruption.
Source: D. Currell and T. D. Bradley, 2013, “Greased palms, giant
headaches,” Harvard Business Review, September, 21–23; The Economist,
2015, “Commanding plights,” August 29, www.economist.com
 
SUMMARY
 The last 2 sections has provided you with key background information that
supports the study of international management. Definition of international
management and the MNC were provided. Because we exist in a globalizing
world, considerable attention has been devoted to the forces that drive
globalization. These are key environmental issues that affect every MNC and
its managers. World trade and investments are growing rapidly but not always
consistently, making all economies more linked and creating both
opportunities and threats for both domestic and multinational companies. New
competitors, strong and motivated, are coming from emerging markets in
Asia, the Americas, and Eastern Europe. Customers, products, and standards
are becoming more global. The increasing sophistication and lower cost of
information technology fuel the development of global companies that can
more easily manage worldwide operation. Multinational managers of the next
generation will need skills not always considered necessary for domestic-only
managers. Perhaps the most encompassing characteristic is the global
mindset. Managers with a global mindset understand the rapidly changing
business and economic environment. They can see the world as an integrated
market, yet appreciate and understand the wide array of differences in the
world cultures and social institutions. After reading this section, you should
have the foundation for understanding the latest challenges and practices of
international business. However, the world is dynamic and your learning will
never be complete, as the challenges of international business will continue to
the distant future. Additionally, you should get a good understanding of the
potential but challenges presented by emerging markets.
Topic 1.3 Strategy and the MNC
INTRO TO TOPIC
The third topic in module 1 is entitled Strategy and the MNCs where
understanding the benefits MNCs can achieve using global integration or
local adaptation will be explored in the beginning.  The conflicting pressures
of the global–local dilemma faced by international managers in MNCs will be
discussed and the content of the basic multinational strategies: transnational,
international, multi domestic, and regional will be clearly defined.  Further, a
multinational strategy by using the diagnostic questions that help MNCs to
cope with the global–local dilemma will be explored. It is expected that at the
end of the required reading, students should be able to understand the unique
challenges faced by emerging market MNCs when executing multinational
strategies and the  the unique challenges faced by MNCs when executing
multinational strategies in emerging markets.
Topic Objectives
 Understand the benefits MNCs can achieve using global integration or
local adaptation.
 Understand the conflicting pressures of the global–local dilemma faced
by international managers in MNCs.
 Know the content of the basic multinational strategies: transnational,
international, multidomestic, and regional.
 Understand the unique challenges faced by MNCs when executing
multinational strategies in emerging markets.
Topic 3: Strategy and the Multi National Companies
 Beyond the traditional strategic questions facing all managers, the
international manager, in both large and small companies, must confront the
global–local dilemma. Markets, costs, governments, and the competition drive The first Module of INBUTRA course is all about the introduction
the choice of a solution. to the study of International Business and Trade. The first part is more on how
a company should prepare to compete in the global market place while the
 As the world becomes more globalized , we are seeing more companies second part is all about the different strategies that a multinational company
choosing transnational or international strategies to compete with low cost could make use of when competing in the international market
and high quality. However, cultural and other national differences remain, and
these will continue to provide opportunities to companies with more local or
regional orientations.
 As a form of differentiation—meeting unique customer needs—there are
benefits to favoring the more local responsiveness-oriented strategies.
 That is, the multi domestic or regional strategy tailors the product or
service to meet the unique needs of customers in a country or region. Because
you deliver unique products or services for each country, the pure multi
domestic strategy is the most costly.
 However, it allows an MNC the most latitude to handle differences in
culture, language, and political and legal systems. The regional strategy is less
costly as it is only a partial adaptation to local differences, allowing the use of
more similar products and lower-cost or higher-quality production within the
region.
 In this way, adaptation to regional differences is balanced against the
efficiencies of doing things similarly within the region.
 
 The goal for international and transnational strategists is to produce high-
quality products as efficiently as possible.
 Typically, MNCs using these strategies or a mix of the two try to have
global products with global marketing. Differing from the international
strategist, the MNC with a more transnational strategy uses worldwide
locations or platforms for its value-chain activities to maximize efficiency and
quality.
 That is, the more transnational strategies will look to do anything anywhere
if it makes good business sense. They are particularly attracted to offshoring
activities to the low-cost countries. The complexities of choosing
multinational
 The complexities of choosing multinational strategies in an everglobalizing
economy represent considerable challenges to international managers.
 To name only a few issues, for example, in choosing a multinational
strategy the international manager must consider the type of the product or
service (e.g. can it be global?), the government and political systems where
the MNC has units (e.g. how safe are the assets?), the financial risk of the
investment (e.g. what are the expected returns?), and the needs of the
company to control operations (e.g. can we really do it right 2,000 miles
away?). The IB Emerging Market Strategic Insight in this section have shown
you several examples of how practicing international managers in real
companies faced and responded to the challenges of formulating multinational
strategies.
 The complexities of choosing multinational strategies in an everglobalizing
economy represent considerable challenges to international managers. To
name only a few issues, for example, in choosing a multinational strategy the
international manager must consider the type of the product or service (e.g.
can it be global?), the government and political systems where the MNC has
units (e.g. how safe are the assets?), the financial risk of the investment (e.g.
what are the expected returns?), and the needs of the company to control
operations (e.g. can we really do it right 2,000 miles away?).
 MNCs execute multinational strategies in a dynamic global context related
to relationships among governments, patterns of trade and investments,
foreign exchange markets, and global capital markets.

The Value Chain and Competitive Advantage for the MNC

 value chain a way of identifying all the areas where a firm can create
value for customers
 outsourcing = contracting with other companies to perform certain
activities in the value chain offshoring outsourcing to a foreign company
or using foreign direct investment to move company operations to a
foreign country

Strategic choices for MNCs

 local responsiveness strategy = responding to differences in the markets
in all the countries in which a company operates
 global integration strategy = conducting business similarly throughout
the world, and locating company units wherever there is high quality
and low cost
 global–local dilemma = choice between a local responsiveness or global
approach to a multinational’s strategies
 

MODULE 1 SUMMARY