INTERNATIONAL BUSINESS

MANAGEMENT(IB)
CHAPTER ONE
INTERNATIONAL BUSINESS(IB)
:OVERVIEW
 Chapter Contents
• 1.1 International Business(IB) : Overview
• 1.2 Domestic vs International Business(IB)
• 1.3 Why study about IB is important?
• 1.4 Globalization
• 1.5 Driving forces of International
Business(IB)
• 1.6 Opportunities and Challenges in IB
 1.1 International Business(IB) :
Overview
• International Businesses
-Refer to set of business activities to be
carried out across national boundaries
-Differ in form and scope from domestic
business.
-Operate in diverse economic, political,
legal, social systems and environments that
present new potentials and challenges.
 IB :OVERVIEW
• Embraces the idea of producing, pricing,
promoting ,placing and selling
products/services around the world.
• Is all about finding and fulfilling
requirements of local and foreign–based
customers.
-Is to be carried out by Multi National
Corporations(MNCs)
 IB :OVERVIEW
• Can be carried out by a government or
/and individuals
• Is all about doing business in different
countries while taking in to account
cultural, social, legal, demographic, etc..
differences
• 1.2. Domestic vs International business

• Just from the nature /area of a market to

be served points of view, business will fall
in to domestic and international and here
is their differences.
 Domestic vs International business

Criteria to differentiate Domestic business International business

Customers to be served Almost homogeneous Unrelated
Nature of product Same/related/standard Needs adaptaion
Pricing method and Related Quite different
amount
Promotional method Makes use of local Makes use of local
language language
Distribution methods Can be direct or indirect Can be direct or indirect
/export
Degree of risk Limited Too much
Cost of production Depends up on cost of Depends up on cost of
raw materials available raw materials available
locally locally
 Domestic vs International business

Rules and regulations Almost the same Quite different

set by government
Culture Quite related Unrelated
Economic system Is one type Can be free, command
or mixed
Attitude towards a Related Unrelated
product
 1.3 Why Study International
Business Management?
Significant differences exist in countries such as:
-Consumer tastes and preferences
-Distribution channels
-Culturally embedded value systems
-Business systems
-Legal systems
These differences require that product features, product
mix, marketing strategies and operating practices are
customized to match conditions of a particular country
• The global economic shift
-The world economic system is changing from a
protectionist system into a more liberal economic system
-National economies were separated from each other by
regulations that created barriers to cross-border trades
and investments.
-Barriers were in the form of high tariffs on imported
manufactured goods
-Domestic industries enjoyed subsidies, tax freedom and
minimum competition leading to growth.
 1.4 Globalization
• Globalization
• Refers to free movement of labor, capital,
information, product between/among
nations
• Is a case when a given local co is to
operate business globally
• Is closely related to the idea of running
business globally while making use of one
or more foreign market entry modes/
strategies
• Is one means that facilitates the conduct of
international business.
• Is able to come in to existences because
of a number of factors like: adoption of
free economic systems by many nations,
desire to reduce cost of production, the
need to build better image, the desire to
get cheaper labor and exploit more
opportunities.
• Globalisation refers to the shift toward a more integrated
and interdependent world economy.
• Globalisation may be classified as:
The globalisation of markets, and
The globalisation of production
The globalisation of markets refers to the merging of
historically distinct and separate national markets into
one global marketplace (Hill, C. W. L, 2004).
The globalisation of production refers to the sourcing of
goods and services from locations around the world to
take advantage of national differences in the costs and
quality of factors of production such as labour, energy,
etc…
 GLOBALISATION
• Globalisation of markets
- Falling barriers to cross border trade.
- Low-cost jet travel has reduced cultural distance between
countries leading to convergence of tastes and
preferences eg. Coca Cola soft drink.
- Low- cost global communications networks (internet,
www) creating electronic global marketplace.
- Extensive marketing and commercialization of goods and
services fuelled by advancements in technology
 GLOBALISATION
• Globalisation of production
- National differences in the costs and quality of factors of
production. For example, advanced technology and skills
in USA, and cheap labour in China.
- Economies of scale
- Lower cost of capital
- Improve quality or functionality of product.
- Competitive advantage
- Stimulate economic growth, raises incomes of
consumers, etc…
 GLOBALISATION
• Argument against globalisation
-Falling barriers has destroyed manufacturing jobs in wealthy advanced
countries and reduced wage rate for unskilled labour.
- Differences in economic and political institutions, and the levels of
development of different nations produced a world rich in diversity of
cultures.
• Free trade enables firms to move manufacturing facilities from
developed countries to developing countries that lack adequate
regulations to protect labour and the environment.
• Labour and environmental regulations increases the costs of
manufacturing enterprises.
• National economies shift power to supranational organisations such
as EU etc…
• Argument for globalisation
- Demand for skilled labour raises wages of skilled labour
and challenges society to increase investment in
education or reduce supply of unskilled workers.
- Free trade enables developing countries to increase their
economic growth rates and become richer. As countries
become rich, they enact tougher environmental and
labour laws.
 1.5 Drivers of Globalization/IB
• Factors that drive the flow of IB can be
seen from
Raw materials
Labor/man power
Cost of production
Market
Government rules and regulations and
Other factors points of view
• From raw materials points of
Facts include here the need to
Get raw materials that are not available
locally
Get raw materials that are too cheap
somewhere
Reserve local raw materials and make use
of other nations resources
• From labor points of view, facts include
here the need to get
Man power missing in the local market
Cheap lab our force abroad
Competent man power abroad
Be free from domestication risks
Be free from citizenship criteria
New employee/skill from abroad and inject
it to existing working method
• From cost of production points of view,
• Factors include here the desire to
Produce more and get economies of scale
advantage
Produce products in nations where cost is
low
Serve different foreign markets and lower
production, pricing promotion and
distribution costs
• From market points of view, drivers of IB
include idea like the ambition to
Penetrate, join and serve many more
markets
Serve local and foreign based customers
Reduce, if possible , eliminate, market
related risks arising out of inflation, entry/exit
barriers, purchasing power, harsh
competition, etc…
• From rules and regulation points of view,
• Facts include here the desire to make use
of liberal –free economic –investment
policies, set of incentives being given by
government, etc…
• Other factors i.e drivers of IB include idea
like:
• Rapid increment in the population size
• Building positive image
• Getting exposure to foreign markets
• Discharging more missions
• Reduce, if possible, eliminate, market
related risks
• Emergence of latest technology
 DRIVERS OF IB/ GLOBALISATION cont’d

• Global Institutions
• Institutions that emerged as a result of globalisation
promoted the establishment of multi national treaties to
govern the global business system.
-They help manage, police and regulate the global market
place and to promote the establishment of multinational
treaties to govern the global business systems.
1. The General Agreement on Tariffs and Trade (GATT)
2. World Trade Organization (WTO)
3. The International Monetary Fund (IMF)
4. United Nations (UN)
• GATT
-Policing the world trade system to ensure that
member nations adhere to the rules laid down in
trade treaties.
-Promote lowering of barriers to cross-border trade
and investment
IMF (1944)
-Lender of last resort to nations whose economies
are in crisis and currencies are losing value
against other international currencies.
 Global institutions (cont’d)
-IMF loans usually require governments to undergo
structural economic policies and reforms.
-Policies may include free trade, stringent fiscal and
monetary policies and promotion of private enterprises.
• The World Bank
-Promotes economic developments by making low interest
rate loans to cash strapped nations especially in poor
countries that want to undertake infrastructural
investments.
 Global institutions (cont’d)
• UN (1945)
Committed to preserving peace through international
cooperation and collective security. The UN Charter
sets out basic principles of international relations:
1. To maintain international peace and security
2. Develop friendly relations among nations
3. Cooperate in solving international problems
4. Promote respect for human rights, higher standards of
living, full employment and economic developments in
member nations.
• Deregulation and declining trade and
investment barriers.
-The advanced industrial nations of the West increased
efforts to remove barriers to the free flow of goods and
services after World War 2.

- The upsurge of international trade and foreign direct

investment.
- Increased competition
• Rapid technological change
Advances in telecommunication (internet and the world
wide web), information processing (microprocessor), and
transportation (containerization and development of
commercial jet flights) have resulted in lowering cost of
doing business.
-The manufacturing of the microprocessor enabled
developments in high-powered, low-cost computing.
-Increase in the amount and quality of information that can
be processed in the shortest possible time.
 Rapid technological change
(cont’d)
-The low cost of global communication
lowers the cost of coordinating and
controlling a global organisation.
-Firms look at different locations around the
world instead of domestic locations for
factors of production.
-Growing intensity of competition leading to
customisation of products, low pricing and
increased quality of goods and services.
 Rapid technological change
(cont’d)
-The ubiquitousness of the internet and the WWW and the rapid
advancements in wireless internet communications makes space,
time and distance of no regard. Firms are able to link their world-
wide operations into sophisticated information networks.
• Transportation technology
-Manufacturing of commercial jet aircraft and super freighters reduced
time and cost for travelling, resulting in mass movement of people. It
has also reduced cultural distance between countries, and
standardized taste and preferences.
-Containerization reduces cost of shipping goods from one country to
another
-Geographical widespread locations has become very economical to
operate thereby encouraging globalisation of markets and
production.
 1.6 Opportunities and Challenges in IB

• Opportunities
• Increment in the population size
• Adoption of free-liberal investment policies
by many nations
• Packages of incentives given by
government of many nations
• Packages of guarantee given by
government of many nations
• Emergence of latest IT-technology
• Emergences of many more international
agreements
• Emergences of many more regional
integration activties
 Threats
• Entry/exit barriers
• Domestication requirements
• Citizen requirements
• Differences in legal, economic, cultural,
environment
• Political/economic instabilities
• Natural catastrophe
• Possibility of facing business risks
• Differences in employment recruitment,
selection, compensation decisions etc…