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NATURE OF INTERNATIONAL BUSINESS

A B R IEF H IS TO RY O F INTERNATIONAL BUSINESS  Well before the time of Christ. The saying that “all roads lead to China” had relevance within the international trade system. a vast expansion of agricultural and industrial production in China stimulated the emergence of an internationally integrated trading system. until it was replaced by Britain in about 1840. as China was the world’s leading manufacturing country for about 1.800 years. . Phoenician and Greek merchants were sending representatives abroad to sell their goods. Subsequently.

Called the Black Death in Europe and repeated in waves from the mid-1300s through the 1500s. caused widespread hysteria.” was international trade’s association with the spread of the plague. Believed to have originated in Asia. one of the worst natural disasters in history. such as severe acute respiratory syndrome (SARS) and the so-called “swine flu. carried by oriental rat fleas that lived on rodents that stowed away on ships and caravans.aged cities. and killed one-quarter of China’s people and one-third of the population of Europe. the plague moved west with traders and soldiers. the plague rav.A BR IEF HISTORY OF INTERNATIONAL BUSINESS  An interesting precursor to contemporary concerns about global health epidemics. .

the Dutch East India Company was formed to carry out colonial activities in Asia and to open ocean trade routes to the East.A BR IEF HISTORY OF INTERNATIONAL BUSINESS  In 1600. it is also frequently identified as the world’s first multinational corporation. began to establish foreign branches throughout Asia. an action soon followed by many of the other European nations intent on exploiting trade opportunities for national advantage. The first company to issue stock. In 1602. . a newly formed trading firm. Great Britain’s British East India Company. including Portugal. and France. the Netherlands.

A BR IEF HISTORY OF INTERNATIONAL BUSINESS  A number of multinational companies existed in the late 1800s. and by 1914. Other firms. One of the first American companies to own foreign production facilities. by 1880. have worldwide distribution networks. and quite a contrast to today ’s situation.standing international sales organization and several overseas manufacturing plants. . soon followed. such as J&P Coats (United Kingdom) and Ford Motor Company. it built a factory in Scotland and.6 Interestingly. and market its products under global brands was Singer Sewing Machine. in the 1920s all cars sold in Japan were made in the United States by Ford and General Motors and sent to Japan in knocked-down kits to be assembled locally. the company had become a global organization with an out. In 1868. at least 37 American companies had production facilities in two or more overseas locations.

it is a necessity. complex international transactions were the domain of diplomats and international policy and business experts. have that kind of global fluency.edge of the world is no longer a luxury. Today a converging set of powerful economic.”  —Nicholas Platt. technological. not just the elite. In the past. president emeritus of the Asia Society . Knowl.zens. demographic and geopolitical trends will demand that all citi.

This definition includes not only international trade and foreign manufacturing but also the growing service industry in areas such as transportation.WHAT IS INTERNATIONAL BUSINESS?  1. . International business is business whose activities are carried out across national borders. wholesaling. construction. retailing. advertising. and mass communications. tourism.

Foreign business denotes the operations of a company outside its home or domestic market.changeably with international business by some writers. 2. . many refer to this as business conducted within a foreign country. This term sometimes is used inter.

each of which formulates its own business strategy based on perceived market differences.  A global company (GC) is an organization that attempts to standardize and integrate operations worldwide in most or all functional areas.  An international company (IC) is a global or multi. . A multidomestic company (MDC) is an organization with multicountry affiliates.domestic company.

the United Nations and the governments of many developing nations use transnational instead of multinational to describe any firm doing business in more than one country. Although one may find multinational corporation to be synonymous with multinational enterprise and transnational corporation. the United Nations Conference on Trade and Development (UNCTAD). . The specialized agency. employs the following definition: “A transnational corporation is generally regarded as an enterprise comprising entities in more than one country which operate under a system of decision making that permits coherent policies and a common strategy. for example.

national for a company that combines the characteristics of global and multinational firms: (1) trying to achieve economies of scale through global integration of its func.tional areas and at the same time (2) being highly respon.sive to different local environments (a newer name is multicultural multinational). More recently. . some academic writers have employed the term trans.

why and how international business differs from d o m es t ic b us in es s. and international. . foreign.  International business differs from domestic business in that a firm operating across borders must deal with the forces of three kinds of environments—domestic.

the government may place restrictions on overseas investment to reduce its outflow. As a result. managers of multinationals find that they cannot expand overseas facilities as they would like to do. For example. however. these are the forces with which managers are most familiar. if the home country is suffering from a shortage of foreign currency. . Being domestic forces. does not preclude their affecting foreign operations.The Domestic Environment The domestic environment is all the uncontrollable forces originating in the home country that influence the life and development of the firm. Obviously.

However.T he For eign Envir onment The forces in the foreign environment are the same as those in the domestic environment except that they occur outside the firm’s home country. they operate differently for several reasons. .

Barriers to the free movement of a nation’s people.sive. .F O R C E S H AV E D I F F E R E N T VA L U E S  Even though the kinds of forces in the two environments are identical. and at times they are completely opposed to each other. management will frequently choose the latter when faced with high interest rates and a large pool of available workers. Another example is the interaction between physical and sociocultural forces. such as mountain ranges and deserts. and this has an effect on decision making. help maintain pockets of distinct cultures within a country. their values often differ widely.ized machinery needing few workers and installing less expen. general-purpose machinery requiring a larger labor force. A classic example given a choice between installing costly. special.

This agrees with the definition of international business: business that involves the crossing of national borders. .THE INTERNATIONAL ENVIRONMENT  consists of the interactions (1) between the domestic environmental forces and the foreign environmental forces and (2) between the foreign environmental forces of two countries when an affiliate in one country does business with customers in another.

 For examples. a sales manager of Nokia’s China operations does not work in the international environment if he or she sells cellular phones only in China.fore is working in the international environment. . If Nokia’s China operations export cell phones to Thailand. then the sales manager is affected by forces of both the domestic environment of China and the foreign environment of Thailand and there.

chances are it will have to offer a similar settlement at another subsidiary because of the tendency of unions to exchange information across borders. Consider managers in a home office who must make decisions affecting subsidiaries  For example. if management agrees to labor’s demands at one foreign subsidiary.DECISION MAKING IS MORE COMPLEX  Those who work in the international environment find that decision making is more complex than it is in a purely domestic environment. .

the manager is perplexed: “Back home they always want to earn more money. When they fail to show up. may offer her workers extra pay for overtime.” This manager has failed to under. a foreign production manager. facing a backlog of orders. To make matters worse. . Successful managers are careful to examine a problem in terms of the local cultural traits as well as their own. called the self-reference criterion.SELF-REFERENCE CRITERION  Another common cause of the added complexity of foreign environments is managers’ unfamiliarity with other cultures. Thus. This unconscious reference to the manager’s own cultural values. is probably the biggest cause of international business blunders. some managers will ascribe to others their own preferences and reactions.stand that the workers prefer time off to more money.