International Business and Trade- transactions that are devised

and carried out across national borders

Foreign Direct Investment- company’s physical investment (building and facilities)
-cheaper labor costs, tax exemptions, and other privileges in that foreign country.
-long term and involves extensive planning.
- ultimate form of internationalization
Globalization- organizations develop international influence, international scale.
- intense economic interconnectedness
INTERNATIONAL BUSINESS AND ITS ELEMENTS
International business- overall performance of the trade and investment activities
Internationalization- deepen their international business activities

International business is characterized by six major dimensions.

1. International Trade
2. International Investment
3. International Business Risks
4. Participants
5. Foreign Market Strategies
6. Globalization of Markets

WHAT ARE THE KEY CONCEPTS IN INTERNATIONAL BUSINESS

International trade- exchange of products and services
International investment- transfer of assets (factors of production)
(capital, technology, managerial talent, and manufacturing infrastructure.)
The two essential types of cross-border investment:
1. International portfolio investment-- passive ownership (stocks and bonds)
- short-term interest in the ownership of these assets.
2. Foreign Direct Investment (FDI)
THE NATURE OF INTERNATIONAL TRADE
GDP- total value of products and services produced in a country in the course of a
year.
Trade- key factor reducing the impact of the global recession

Three factors have been especially notable in explaining why trade growth
has long outpaced GDP growth:
1. Rise of emerging markets: growing middle-class households
2. Advanced (or developed) economies- low-cost manufacturing locations (China,
India, and Mexico)
3. Advances in information and transportation technologies- decline of trade
barriers
THE NATURE OF INTERNATIONAL INVESTMENT
- FDI

SERVICES AS WELL AS PRODUCTS

Products- tangible merchandise (key international business players)
Services- deeds, performances

THE INTERNATIONAL FINANCIAL SERVICES SECTOR

• International banking and financial services- are among the most internationally
active service industries.
• Banks and other financial institutions have fostered economic activity by:
increasing the availability of local investment capital, which stimulates the
development of financial markets and encourages locals to save money.

• International banking is flourishing in the Middle East.

HOW DOES INTERNATIONAL BUSINESS DIFFER FROM DOMESTIC BUSINESS?
- distinctive economic, cultural, and political conditions.
THE FOUR RISKS IN INTERNATIONALIZATION (omnipresent)
1. Cross-cultural risk- cultural misunderstanding puts some human value at stake.
-Miscommunication due to cultural differences gives rise to inappropriate business
strategies and ineffective relations with customers
- most often occurs in encounters in foreign countries.
2. Country risk (political risk)- political, legal, and economic environment in a
foreign country
- foreign government intervention in firms’ business activities.
- Chinese and Russian governments regularly intervene in business affairs.
- laws and regulations that potentially hinder company operations and performance.
3. Currency risk (financial risk) - adverse fluctuations in exchange rates.
- international transactions are often conducted in more than one national currency
- value of the firm’s earnings can be reduced.
-Inflation and other harmful economic conditions experienced in one country may have
immediate consequences for exchange rates due to the interconnectedness of national
economies.
4. Commercial risk- poorly developed or executed business strategies, tactics, or
procedures.
- consequences are usually more costly
- often affected by currency risk because fluctuating exchange rates can affect various
types of business deals.

WHO PARTICIPATES IN INTERNATIONAL BUSINESS?

1. focal firm- initiator of an international business transaction

- large multinational enterprises, small and medium sized enterprises
2. distribution channel intermediary- specialist firm
- usually located in foreign markets
(Wholesaler, Retailers, Distributor, Agents)
 3. Facilitator- helps focal firms perform international business transactions
-found in both the home country and abroad.
-is a specialized logistics service provider that arranges international shipping (freight
Forwarder)

4. Governments- active in international business as suppliers, buyers, and

regulators.
WHY DO FIRMS INTERNATIONALIZE?

A. Seek opportunities for growth through market diversification.

B. Earn higher margins and profits
C. Gain new ideas about products, services, and business methods.
D. Serve key customers better that have relocated abroad
E. Be closer to supply sources, benefit from global sourcing advantages, or gain
flexibility in product sourcing.
F. Gain access to lower-cost or better-value factors of production.
G. Develop economies of scale in sourcing, production, marketing, and R&D.
H. Confront international competitors more effectively or thwart the growth of
competition in the home market
I. Invest in a potentially rewarding relationship with a foreign partner