International Business

“An Introduction”
Lecture 1 – 25th Oct 2022
International Business
• International business: Performance of trade and investment activities by
firms across national borders.
• Firms organize, source, manufacture, market and conduct other value-adding
activities on an international scale.
• Firms and nations exchange many physical and intellectual assets: products,
services, capital, technology, know-how and labor.
• Exchange can be through exporting (outbound) or importing (inbound).
Leading Countries in International Merchandise Trade
by Total Annual Value
Leading Countries in International Services Trade by
Total Annual Value
Key Concepts in International Business
Globalization of
Markets

Foreign
International
Market Entry
Trade
Strategy

International
Business

Participants
in Interna- International
tional Busi- Investment
ness

International
Business
Risks
Key Concepts of International Business
1. Globalization of markets: Ongoing economic integration and growing
interdependency of countries worldwide.

2. International trade: Exchange of products and services across national

borders, typically through exporting and importing.
• Exporting: Sale of products or services to customers located abroad, from a
base in the home country or a third country.
• Importing (or global sourcing): Procurement of products or services from
suppliers located abroad for consumption in the home country or a third
country.
5 International Business Examples to Learn From (hbs.edu)
Definition of Globalization
Globalization is the process of integrating the economy of the country with the world economy. Through the globalization
process, organizations develop influences at the international level and operate on an international scale.

The following different globalization example gives an understanding of the most common type of areas where
globalization exists. As there are multiple areas where globalization took place in the past, it is not possible to provide all
types of examples. So, some of the examples of globalization are given below showing the different situations.

Examples of Globalization

Below are the different examples of Globalization:

Example 1 – Cultural Globalization

Cultures are also being spread without confining to political boundaries. Like, the Greek culture is being spread over Africa, Asia, and Eu-
rope which can be seen in the cities having the name of Alexander in Africa, Turkey, and Egypt.
The Silk Road which was made to encourage trade between China and the countries around the Mediterranean Sea will not only flourish
the trade between these countries but at the same time also allow the exchange of culture and knowledge. Satellite television also helps in
spreading the cultures globally as the shows of the one country will also be broadcasted in many other countries of the world.
Example 2 – Diplomatic Globalization
Globalization not only took place in different industries but there also exists diplomatic globalization. Many international organizations
have been established in the past for different reasons considering many of the countries of the world. For the settlement of the disputes
and providing the guidelines on the international matters World trade organization was established, for the governance of global health and
disease world health organization (WHO)  was established,  World Meteorological Organization was established as the specialized agency
of the United Nations (UN) for collecting the information and monitoring the trends of the Earth’s atmosphere and its interaction with
lands and ocean and the European Union (EU) was established with the motive of promotion of human rights, trade, humanitarian aid, and
development, etc. The diplomatic organization also consists of things like treaties and cooperation between two or more countries on dif-
ferent issues. For example the cooperation between the US and China for combating the piracy off Somalia’s coast.

Example 3 – Economic Globalization

MNC’s are operating on a global scale with satellite offices and branches in numerous locations. Like KPMG is operating its office world-
wide with its head office in Switzerland. They might outsource their job to be done by a person residing in struggling countries resulting in
bringing much-needed jobs for the person and cost-saving for the MNCs. This would be a win-win situation for both the company and the
employee as he was struggling to get the job. Also, one shirt sold in the United States could have been made using the Chinese cotton by
the workers in a factory in Thailand which would be shipped after getting manufactured on a French freighter ran by a Spanish crew. This
shows that due to the globalization, production of even a single product might use the work from many countries to complete the work in
an efficient and cost-effective manner.
Example 4 – Automotive Industry Globalization
Exports of automotive products have grown tremendously because of globalization as co-operation among countries provides better 
economies of scale. In America, USA in the past the Big 3; GM, Ford, and Chrysler; all have invested heavily in Mexico for car manufac-
turing. The point is that there is a low cost of production in Mexico, so these companies manufacture cars in Mexico by investing there and
then ship back to the US once it gets manufactured. Following this, they were able to become the price maker. We can see some automobile
industry using the parts manufactured in other countries for cost-saving, as in a car being assembled in the United States and their parts
coming from Japan, Germany, or Korea.

Example 5 – Food Industry Globalization

Consider the adapting edge of McDonald’s. They have the edge of adopting global demand. They are having a presence in more than 100
countries. They focus on appealing to different cultures over different regions. Their success lies in attention to what will work in any coun-
try and what won’t. It has a long tradition of adapting the needs of the global market. Their cultural adapting quality can be apparently seen
from their decision of launching only vegetarian burgers at outlets opened in some religious places of India. Food is also one of the impor-
tant factors of globalization. It can be seen in people eating sushi in Peru and Indian food in Europe.

Example 6 – Technological Globalization

The internet is the major contributor to globalization and that too not confining to technologically but to other areas as well as it helps in
the cultural exchange of arts easily. CNN which is the global news network is able to spread and telecasting its news globally by using the
technology. The cell phone connects peoples of all over the world and that too at a multimedia level.
Example 7 – Banking Industry Globalization
Hongkong and Shanghai Banking Corporation Limited are also known as HSBC founded in the year 1865 is one of the top banks operating
in the world. It is holding operations in 85 countries globally with its headquarters located in London. This shows that globalization has a
good presence in the banking industry.
Trade across the world has got increased because of the concept of a Letter of credit issued for a person by the bank and acts as a represen-
tative for him for a defined level of credit. Now people don’t have the risk of bad debt for a trade done with a person in other countries who
is stranger to him if it is backed up with the instrument provided by the bank.

Conclusion – Globalization Example

Thus the globalization is the process of expanding the system from the regional or national level to encompass the entire planet. This trend
can be seen in the Trade, Immigration, Communication, Media, Entertainment, Culture, etc. Generally, globalization could be Financial
Globalization, Economic Globalization, Technological Globalization, Political Globalization, Cultural Globalization, Ecological Globaliza-
tion, and Sociological Globalization, etc. the above-mentioned example are some of the examples of globalization in the different indus-
tries. There are various other examples as well which shows that globalization exists in various different areas.
3. International investment: Transfer of assets to another country or the acquisition
of assets in that country.
• International portfolio investment: Passive ownership of foreign securities such
as shares and bonds for the purpose of generating financial returns.
• Foreign direct investment (FDI): An internationalization strategy in which the
firm establishes a physical presence abroad through the acquisition of
productive assets.

Foreign investment contracts 29% (tribune.com.pk)

• Of the two types of investment flows between nations, FDI is the ultimate
stage of internationalization and encompasses the widest range of
international business involvement.
• Firms undertake FDI for a variety of strategic reasons, including:
1. to set up manufacturing or assembly operations, or other physical facilities;
2. to open a sales or representative office or other facility to conduct marketing
or distribution activities;
3. to establish a regional headquarters.

FDI increases 2.6pc to reach $1.87bn in FY22 - Pr

ofit by Pakistan Today
International and Domestic Business: How They Differ
1. International businesses operate in environments characterized by:
● unique economic conditions;
● national culture;
● legal and political systems.

2. International businesses are in unfamiliar surroundings, encountering

uncontrollable variables that introduce new or elevated risks.

The major international risks for businesses include foreign exchange

and political risks. Foreign exchange risk is the risk of currency value
fluctuations, usually related to an appreciation of the domestic cur-
rency relative to a foreign currency
Risks in International Business
Who Participates in International Business?
• Multinational enterprise (MNE): A large company with substantial resources
that performs various business activities through a network of subsidiaries and
affiliates located in multiple countries (e.g., Caterpillar, Samsung, Unilever,
Vodafone, Disney)
• Small and Medium-Sized Enterprise (SME):
• Pakistani and US SMEs – 500 employees or fewer
• Born-global firm: A young, entrepreneurial SME that undertakes substantial
international business at or near its founding.
• Non-governmental organization (NGO): Many non-profit organizations
conduct cross-border activities. They pursue special causes and serve as
advocates for social issues, education, politics and research.
Why Do Firms Pursue Internationalization Strategies?
• Seek opportunities for growth through market diversification (e.g., Gillette,
Siemens, Sony, Biogen).

• Earn higher margins and profits. Often, foreign markets can deliver higher
margins.

• Gain new ideas about products, services and business methods(e.g.Toyota

refined just-in-time inventory techniques adopted by global manufacturers).

• Better serve key customers that have relocated abroad (e.g., when Toyota
launched its operations in Britain, many of its suppliers followed suit).
• Be closer to supply sources, benefit from global sourcing advantages or
gain flexibility in the sourcing of products (e.g., Dell has assembly facilities
in multiple countries allowing for flexibility in production).

• Gain access to lower-cost or better-value factors of production(e.g.,Canon

relocated production to China for their inexpensive, productive workforce).

• Develop economies of scale in sourcing, production, marketing and R&D

(e.g., manufacturing the 100000th unit is cheaper than manufacturing the first
one).
• Confront international competitors more effectively or thwart the growth of
competition in the home market. Caterpillar established operations in Japan,
partly to hinder the growth of its main competitor, Komatsu.

• Invest in a potentially rewarding relationship with a foreign partner. French

computer firm Groupe Bull partnered with Toshiba in Japan to gain insights for
developing information technology.
Benefits of Studying IB
 Facilitator of the global economy and interconnectedness. Emerging
markets and advances in technology fuel global economic transformation and
dramatically reduce the cost of doing business.

 Contributor to national economic wellbeing. IB contributes to economic

prosperity and higher living standards.

 A competitive advantage for the firm. IB provides companies with many

opportunities to increase revenue and compete more effectively.
 An opportunity for global corporate citizenship. Internationally active
firms operate in environments characterized by limited resources, vulnerable
human conditions and stakeholder consciousness on issues that affect all of
society. Corporate citizenship must be embedded into their strategic
decisions, as well as their ongoing processes and practices.
Thank you