International Business

The Challenging World of

International Business

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES | FACULTY OF BUSINESS STUDIES | WWW.FH-AACHEN.DE

Contents

> International business and its importance

> IB terminology
> Difference between international and domestic
business
> History of international business
> 5 kinds of drivers to internationalisation
> Arguments for and against the globalisation of
business
> Reasons for entering foreign markets
> 7 dimensions of globalising a company

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 2

Why do you need international business expertise?

ALL managers need to have a basic knowledge of

international business!
> Companies are increasingly involved in IB
> CEOs want employees to have a global
business perspective
> IB skills are important for both senior
executive and entry level positions

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 3

Terminology

> International business terms

> Foreign business
> Multi-domestic company
> Global company
> International company
> Used synonymously
> But, for our purposes…

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 4

International Business terminology

> International Business

> Business whose activities are carried out across
national borders
> Includes international trade and foreign
manufacturing
> Also includes a growing service industry
> transportation, tourism, advertising,
construction, retailing, wholesaling and mass
communication

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 5

International Business terminology

> Foreign business

> Domestic operations within a foreign country
> Multi-Domestic Company
> Has multi-country affiliates, each with its own
business strategy based on perceived market
differences
> Global Company
> Attempts to standardise and integrate
operations worldwide in all functional areas
> International Company
> Includes both, global and multi-domestic
companies
© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 6
What is different about International Business?

International Domestic business

Business deals with the
deals with 3 domestic market
environmental forces:
… But may face
1. Domestic foreign competition in
2. Foreign domestic market
3. International

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 7

 Influence of external and internal
environmental forces

Three relevant terms:

1. Environment
 all forces surrounding and influencing the life and
development of the company

2. Uncontrollable forces
 external forces over which management has no
direct control, although it can exert an influence

3. Controllable forces
 internal forces that management administers to
adapt to changes in the uncontrollable forces

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 8

External (uncontrollable) forces

> Competitive
> Competitors: kinds, number, locations,
activities
> Distributive
> National and international agencies that
distribute goods and services
> Economic
> GDP, unit labour cost, personal consumption
expenditures – factors that matter to business
and vary among countries

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 9

External (uncontrollable) forces

> Socioeconomic
> Characteristics and distribution of human
population
> Financial
> Interest rates, inflation rates, taxation
> Legal
> Foreign, domestic and international laws
governing a company’s IB operations
> Physical
> Natural elements: natural resources (i.e.
factors of production), topography, climate

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 10

External (uncontrollable) forces

> Political
> Government forms and stability, international
organisations
> Socio-cultural
> National culture similarities or differences that
affect international managers
> Labour
> Composition, skills, attitudes of labour
> Technological
> Technical skills and equipment that affect how
resources are converted to products

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 11

Internal forces
that managers can influence across borders

> Factors of production

> Capital, raw materials, people
> Activities of the organisation
> Personnel management,
finance, production,
marketing

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 12

Environments

Domestic environment
> all uncontrollable forces originating in the home country
that surround and influence the company’s life and
development

Foreign environment
> all uncontrollable forces originating outside the home
country that surround and influence the company

International environment
> interaction between domestic and foreign environmental
forces or between sets of foreign environmental forces

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 13

The foreign environment

Forces are the same as in the domestic

environment - but occur outside the home country
and operate differently:

> Forces have different values

> Forces can be difficult to assess

> Forces are interrelated

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 14

The international environment

International
Consists of interactions organisations that
between: affect international
environment:
> Domestic and foreign
environmental forces > Worldwide bodies –
> Between the foreign World Bank, WTO
environmental forces of > Regional economic
2 countries when the groupings – USMCA, EU
affiliate of 1 country > Organisations bound by
does business with industry agreements -
customers in another OPEC
country

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 15

Other factors

Complexity of decision Self-reference criterion

making
> Managers must > Managers ascribe their
consider each force own cultural values,
individually and preferences, taste,
collectively, how opinions to the host
decisions might affect country
interactions between
each country

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 16

A brief history of International Business

> Greek and Phoenician merchants

> China, world’s leading manufacturer for 1,800
years (until 19th century)
> Ottoman Empire trade routes before 1300
> 1600: British and Dutch East India Companies
> The 17th and 18th centuries: mercantilism
> Significant multinationals in early 20th century:
> Singer Sewing Machines
> Ford Motor Company

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Three key terms

> Importing
> The purchasing of goods and/or services from
abroad
> Exporting
> The sale of goods and/or services abroad
> Foreign Direct Investment (FDI)
> Investing (controlled) capital abroad

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 18

Growth of international companies and
International Business
> International companies (2017)

> 60,000 international companies account for

> 50% of global trade
> 500,000 branches worldwide
> employing
> 4% of the workforce in developed countries
> 12% of the workforce in developing
countries
> Typically, 25% or more is sold abroad

Source: https://espace-mondial-atlas.sciencespo.fr/en/topic-strategies-of-transnational-actors/article-3A11-EN-multinational-
corporations.html (12.3.21)

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Growth of international companies and
International Business

FDI and export growth

> World stock of outward FDI $34.6 trillion in 2019
> Growth of world merchandise exports:
> $2.0 trillion in 1980
> $3.5 trillion in 1990
> $12.1 trillion in 2006
> $18.9 trillion in 2019
> Growth of world service exports
> $395 billion in 1980
> $831 billion in 1990
> $2.9 trillion in 2006
> $6.1 trillion in 2019
Sources: https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx;
https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=101;
https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=87010 (13.3.21).
© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 20
What is Globalisation?

 The tendency towards an international integration

of goods, technology, information, labour and
capital, or the process of making this integration
happen

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 21

Globalisation forces

> 5 major kinds of drivers are leading international

companies to the globalisation of their
operations:
> Political
> Technological
> Market
> Cost
> Competitive

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 22

Globalisation forces

> Political forces

> Governments reduce barriers to trade and
foreign investment
> Privatisation of formerly state-owned
companies
> Technological forces
> Inventions support trade (e.g. wheel, steam
engine)
> Today: internet & ICT

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 23

Globalisation forces

> Market forces

> As companies globalise, they also become
global customers
> Companies follow customers abroad
> Saturation of the home market
> Customer tastes and lifestyles are
converging

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 24

Globalisation forces

> Cost forces

> Economies of scale (to reduce unit costs)
> Globalising product lines can reduce
development, production and inventory
costs (and can help achieve economies of
scale)
> Companies can also locate production in
countries where production costs are lower

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 25

Globalisation forces

> Competitive drivers

> Newly industrialised and developing countries
continue to enter markets
> Companies are defending their home markets
from competitors by entering the competitors’
home markets to distract them

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 26

The Globalisation debate

> Supporting (“Pros”):

> Free trade advances socio-economic
development
> Expanded trade creates more and better jobs
> Globalisation concerns (“Cons”):
> Uneven results across nations and people
> Negative effects on labour and labour
standards
> Contributes to a decline in environment and
health conditions

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 27

Motives for entering foreign markets

> Increase profits & sales:

> Enter new markets
> Create new markets
> Access faster-growing markets
> Availability of improved communications
> Obtain greater profits
> Generate greater revenue
> Lower cost of goods sold
> Seek higher profits overseas

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 28

Motives for entering foreign markets

> Protect markets, profits & sales:

> Protect domestic markets by following customers abroad
> Attack in competitor’s home market
> Use foreign production to lower costs
> Protect foreign markets
> Respond to lack of foreign exchange
> Respond to local production by competitors
> Develop downstream markets
> Respond to protectionism
> Guarantee supply of raw materials
> Acquire technology and management know-how
> Diversify geographically
> Satisfy management’s desire for expansion

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 29

The 7 dimensions for globalising a business

There are seven fields in which international

companies can either globalise or “localise” (multi-
domestic approach):
1. Product
2. Markets
3. Promotion
4. Where value is added
5. Competitive strategy
6. Use of non-home-country personnel
7. Extent of global ownership in the company

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 30

In our next session:

> The two main aspects of International Business:

> International trade
> Foreign direct investment

© FH AACHEN UNIVERSITY OF APPLIED SCIENCES 23. März 2022 | 31