International Business

International Business: The Challenge of Global

Competition,
by Donald A. Ball, J. Michael Geringer, Michael S.
Minor and Jeanne M McNett,
12th Edition, 2010, publisher: McGraw - Hill/Irwin.
 Learning Objectives
⦿ 101 Understand the five kinds of drivers, all based
on change, that are leading firms to internationalize
their operations.
⦿ 102 Appreciate the dramatic internationalization of
markets.
⦿ 103 Comprehend why international business differs
from domestic business.
⦿ 104 Describe the three environments—domestic,
foreign, and international- in which an international
⦿ company operates.
⦿What is TNC
⦿What is MNC
⦿What is MNE
⦿What is MDC
⦿What is GC
⦿What is IC
 Multinational Local Enterprises
Enterprises (MNEs)
Operating subsi-
diary located in Foreign countries Within the country
Headquarters All over the world In the country
Owned by Domestic and foreign Domestic shareholders
shareholders
Managed from Global perspective Perspective of a single country
International MNEs Local firms (export and import)
Activities
International risks Yes Yes
Faces major risks Foreign exchange Foreign exchange risk, credit risks
risks and political
risks
Other risks Like domestic but Cost of capital sourcing debt and
with complexities equity, capital budgeting, working
capital, taxation, credit analysis
 Definitions
⦿International business
is business whose activities are carried out
across national borders. This definition
includes not only international trade and
foreign manufacturing but also the growing
service industry in areas such as transportation,
tourism, advertising, construction, retailing,
wholesaling, and mass communications.
 Foreign Business
⦿Foreign business
denotes the operations of a company outside its
home or domestic market; many refer to this as
business conducted within a foreign country.
This term sometimes is used interchangeably
with international business by some writers.
 MDC, GC and IC
⦿A multi-domestic company (MDC)
is an organization with multi-country
affiliates, 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-domestic company

⦿Multinational enterprise (MNE)

⦿Multinational company (MNC)
⦿Have the same meaning as international
company (IC)
 What is Globalization?
⦿Globalization is:
⮚ The tendency toward an international integration of
goods, technology, information, labor, and capital, or
the process of making this integration happen.

The term globalization was first coined by Theodore Levitt in a

Harvard Business Review article predicting that technology-based
“proletarianization” would lead to global standardization of
consumer products at lower prices.
 Globalization
⦿Globalization is discussed everywhere
⦿It has no widely accepted definition.
⦿Definition continues to broaden.
⦿Implications of globalization are many --
political, social, environmental, historical,
geographic, cultural.
⦿Some speak of technological globalization,
political globalization, and the like.
 Globalization
⦿Globalization is a tendency toward an
international integration
⦿Of the goods, technology, information, labor,
and capital, or the process of making this
integration happen
 Views On Globalization
ARGUMENTS SUPPORTING CONCERNS WITH
GLOBALIZATION GLOBALIZATION

⦿ Enhances socioeconomic ⦿ Uneven results across nations and

development
⦿ Promotes more and better jobs
people
⦿ Deleterious effects on labor and
labor standards
⦿ Decline in environmental and
health conditions
 GLOBAL DEBATE
⦿What are the potential benefits of
⦿The Pros globalization?
and Cons ⦿What are the potential drawbacks of
globalization?
of ⦿After examining the arguments of
Globalization supporters and opponents of
globalization, are you convinced one
way or the other?
⦿Could we better manage globalization
in order to enhance the welfare of the
world and its inhabitants? How?

1-13
Motives why a Company becomes International

⦿Strategic motives drive the decision to invest

abroad. They can be summarized as seeking
the following:

⦿Markets
⦿Raw Materials
⦿Production Efficiency
⦿Knowledge
⦿Political Safety.
 Rationale Contd.
⦿Market seekers produce in foreign markets either to satisfy
local demand or to export to markets other than their home
market. US automobile firms manufacturing in Europe for local
consumption are an example of market-seeking motivation.

⦿Raw material seekers extract raw materials whatever they can

be found, either for export or for further processing and sale in
the host country. Firms in the oil, mining, plantation and forest
industries fall into this category.
 Rationale Contd.
⦿Production efficiency seekers produce in countries where
one or more of the factors of production are under priced
relative to their productivity. Labor-intensive production of
electronic components in Taiwan Malaysia and Mexico
illustrates this motivation

⦿Knowledge seekers operate in foreign countries to gain

access to technology or managerial expertise. For example,
Germany, Dutch and Japanese firms have purchased US
located electronics firms for their technology.
 Rationale Contd.
⦿Political safety seekers acquire or establish new operations in
countries that are considered unlikely to expropriate or
interfere with private enterprise. For example, Hong Kong
firms invested heavily in manufacturing, services and real
estate in the United States, Canada and Australia in
anticipation of the consequences of China's 1997 takeover of
the British colony.