Course Code and Title: FINE 6 – Global Finance with Electronic Banking

Professor: Dave Kieth J. Lappay

Lesson Number: 2
Topic: Introduction to International Business (2)

Learning Objectives:

At the end of this lesson, the student should be able to:

1. discuss the concept of international business,
2. identify the key components of economics in international business, and
3. explain the importance of international trade.

Pre-Assessment
Direction: Read the questions carefully. Provide the answers in the separate sheet of paper/s.

1. What are the approaches to international business?

2. What is the difference between banks and insurance companies?
3. How do countries enter international trading?

Lesson Presentation:

International business is the exchange

of
goods, services, resources, knowledge,
and skills among individuals and
businesses in two or more countries. It
comes up with private and government
transactions, sales, investments,
logistics and transportations.
International business includes any type
of business activity that crosses national
borders. Though a number of definitions
in the business literature can be found
but no simple or universally accepted
definition exists for the term international
business. At one end of the definitional
spectrum, international business is defined as across two or more national boundaries, even if
organization that buys and/or sells goods and services Photo Credit: By Metamorworks, Global Communication Network Concept.
Link: https://www.istockphoto.com/photo/global-communication-network-concept-video-conference-
telemeeting flash-news-gm1223790400-359601916

management is located in a single country. At the other end of the spectrum, international business is equated
only with those big enterprises, which have operating units outside their own country (International business
concept, 2021).

The global financial system is the worldwide framework of legal agreements, institutions, and both formal and
informal economic actors that together facilitate international flows of financial capital for purposes of
investment and trade financing. Since emerging in the late 19th century during the first modern wave of
economic globalization, its evolution is marked by the establishment of central banks, multilateral treaties, and
intergovernmental organizations aimed at improving the transparency, regulation, and effectiveness of
international markets.

Global finance refers to the financial system consisting of regulators and various financial institutions that
conduct their business on an international level. As a result of this definition, global finance does not constitute
any financial businesses or regulators that act on a national or regional level.
The primary components of global finance are the enormous international institutions, such as the bank for
International Settlements or the International monetary Fund, as well as various national agencies and
government departments, such as various central banks, finance ministries, and those private companies who
act on a global scale (6 types of global finance, 2019).
 13120523.html Approaches of International

Business

Types of Private Participants in Global

Finance: To be considered a participant in global
finance a company or organization must possess
international clients or conduct business
transactions overseas. The following types of
institutions also play a prominent role within global
finance:
o Commercial Banks
o Insurance Companies
Photo Credit: By PhotoEstelar, International Trade Concept. o Sovereign Wealth Funds
Link: https://www.canstockphoto.com/international-trade-concept-
o Mutual Funds
o Pension Funds
o Private Equity Firms and Hedge Funds

• Ethnocentric where target market is own country. Excessive production will export due to change in
customer taste and preferences.
• Polycentric approach where the companies customize the marketing mix to meet the taste, performance
and needs of the customers of each international market.
• Regiocentric approach where the company operating successfully in a foreign country thinks of exporting
other neighboring countries of the host country. At this stage, the concerned subsidiary considers the
regional environment (such as laws, culture, policies, etc.) for formulating the policies and strategies.
• Geocentric approach where the company analyses the tastes, preferences and needs of the customers in
all foreign markets and then adopts a standardized marketing mix for all the foreign markets.

Reasons for Recent Growth in International Business

1. Expansion of technology
2. Business is becoming more global because
a. Transportation is quicker
b. Communications enable control from afar.
c. Transportation and communications costs are more conducive for international operations.
3. Liberalization of cross-border movements
a. Lower government barriers to the movements of goods, services, and resources enable
companies to take better advantage of international opportunities.
4. General Agreement on Tariff and Trade (GATT)
a. An international organization formed to reduce or eliminate tariff and other barrier to international
trade.
5. International Monetary Fund (IMF)
a. An international financial organization that lends money to countries in conducting international
trade.
6. World Bank
a. An international financial organization that lends money to underdeveloped and developing
countries for development.
7. Economic Communities
a. World Trade Organization (WTO)
b. European Community (EC)
c. Asian Free Trade Agreement (AFTA)

Market Entry Strategies

There are a variety of ways in which a company can enter a foreign market. No one market entry strategy
works for all international markets. Direct exporting may be the most appropriate strategy in one market while
in another you may need to set up a joint venture and in another you may well license your manufacturing.
There will be a number of factors that will influence your choice of strategy, including, but not limited to, tariff
rates, the degree of adaptation of your product required, marketing and transportation costs. While these
factors may well increase your costs it is expected the increase in sales will offset these costs. The following
strategies are the main entry options open to you (Market entry strategies, 2020).
1. Direct Exporting
Direct exporting is selling directly into the market you have chosen using in the first instance you own
resources. Many companies, once they have established a sales program turn to agents and/or distributors to
represent them further in that market. Agents and distributors work closely with you in representing your
interests. They become the face of your company and thus it is important that your choice of agents and
distributors is handled in much the same way you would hire a key staff person.
2. Licensing
Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the use of a product or
service to another firm. It is a particularly useful strategy if the purchaser of the license has a relatively large
market share in the market you want to enter. Licenses can be for marketing or production. licensing). 3.
Franchising
Franchising is a typical North American process for rapid market expansion but it is gaining traction in other
parts of the world. Franchising works well for firms that have a repeatable business model (eg. food outlets)
that can be easily transferred into other markets. Two caveats are required when considering using the
franchise model. The first is that your business model should either be very unique or have strong brand
recognition that can be utilized internationally and secondly you may be creating your future competition in
your franchisee.
4. Partnering
Partnering is almost a necessity when entering foreign markets and in some parts of the world (e.g. Asia) it
may be required. Partnering can take a variety of forms from a simple co-marketing arrangement to a
sophisticated strategic alliance for manufacturing. Partnering is a particularly useful strategy in those markets
where the culture, both business and social, is substantively different than your own as local partners bring
local market knowledge, contacts and if chosen wisely customers.
5. Joint Ventures
Joint ventures are a particular form of partnership that involves the creation of a third independently managed
company. It is the 1+1=3 process. Two companies agree to work together in a particular market, either
geographic or product, and create a third company to undertake this. Risks and profits are normally shared
equally. The best example of a joint venture is Sony/Ericsson Cell Phone.
6. Buying a Company
In some markets buying an existing local company may be the most appropriate entry strategy. This may be
because the company has substantial market share, are a direct competitor to you or due to government
regulations this is the only option for your firm to enter the market. It is certainly the most costly and determining
the true value of a firm in a foreign market will require substantial due diligence. On the plus side this entry
strategy will immediately provide you the status of being a local company and you will receive the benefits of
local market knowledge, an established customer base and be treated by the local government as a local firm.
7. Piggybacking
Piggybacking is a particularly unique way of entering the international arena. If you have a particularly
interesting and unique product or service that you sell to large domestic firms that are currently involved in
foreign markets you may want to approach them to see if your product or service can be included in their
inventory for international markets. This reduces your risk and costs because you are essentially selling
domestically and the larger firm is marketing your product or service for you internationally.
8. Turnkey Projects
Turnkey projects are particular to companies that provide services such as environmental consulting,
architecture, construction and engineering. A turnkey project is where the facility is built from the ground up and
turned over to the client ready to go – turn the key and the plant is operational. This is a very good way to enter
foreign markets as the client is normally a government and often the project is being financed by an
international financial agency such as the World Bank so the risk of not being paid is eliminated.
9. Greenfield Investments
Greenfield investments require the greatest involvement in international business. A greenfield investment is
where you buy the land, build the facility and operate the business on an ongoing basis in a foreign market. It is
certainly the costliest and holds the highest risk but some markets may require you to undertake the cost and
risk due to government regulations, transportation costs, and the ability to access technology or skilled labor.
Application:

Direction: Read the questions carefully. Provide the answers in the separate sheet of
paper/s. 1. What would be the result if the Philippines did not enter international trading?

Evaluation:

Direction: Read the questions carefully. Provide the answers in the separate sheet of paper/s. 1. What
information would you use to support the facts that international trading plays a huge role in economic
development?

Generalization:

At this point, the learners are informed that International Business focuses on the overview of the unique
problems faced by firms engaging in international activities; the importance of understanding the foreign
economic, social, political, cultural, and legal environment; the mechanics of importing and exporting; joint
venture, franchising, and subsidiaries, international dimensions of management, marketing and accounting,
and international financial management. The concentration will also explore the special problems of
multinational corporations; recent problems of the international economic system, as well as country-risk
analysis. In addition, the learers will understand about Micro and Macro level of economic analysis and its
application as a useful tool in international business operations.

Reinforcement:
Direction: Read the questions carefully. Provide the answers in the separate sheet of paper/s.

1. What are the proposed amendments in the Philippines when it comes to international business
transactions?

References:

Online:

6 types of global finance. (2019, December 23). Retrieved from Finance laws: https://finance.laws.com/global
finance
International business concept. (2021). Retrieved from international relations education:
https://www.internationalrelationsedu.org/what-is-international-business/
Market entry strategies. (2020). Retrieved from Tradestart: http://www.tradestart.ca/market-entry-strategies

Books:

Madura, J (2008). International Financial Management, Ninth Edition. U.S.: Thomson South-Western

Brigham, E (2007). Financial Management: Theory and Practice, 10th Edition. Florida, U.S.: The Dryden Press,
Hardcourt Brace College Publishers.

Brigham, E (2007). Fundamentals of Financial Management, Concise Edition. U.S.: The Dryden Press,
Hardcourt Brace College Publishers.

Gitman, L (2007). Principles of Managerial Finance. Pearson Education, Inc.