Chapter 1

Course Title: INTERNATIONAL BUSINESS
Instructor
Fuad Hasan
MBA & Ph.D. (USA)
Professor of Marketing
University of Chittagong
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Copyright © 2011 Pearson Education
Chapter 1
Globalization
and International
Business
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Chapter Objectives
• To define globalization and international

business and show how they affect each other
• To understand why companies engage in
international business and why international
business growth has accelerated
• To discuss globalization’s future and the major
criticisms of globalization
• To become familiar with different ways in which a
company can accomplish its global objectives
• To apply social science disciplines to
understanding the differences between
international and domestic business
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Globalization
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Introduction
Globalization is the ongoing process

that deepens and broadens the
relationships and interdependence
among countries. International
Business is a mechanism to bring
about globalization.
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International Business
International business consists of all

commercial transactions—including
sales, investments, and transportation
—that take place between two or more
countries.
Increasingly foreign countries are a

source of both production and sales for
domestic companies.
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International business activities include:
• Import & Export of commodities

• Investment of capital in manufacturing transport,
agricultural & commercial assets
• Supervision of employees in different countries
• Investment in international services
• Transactions involving intellectual properties.
All of these activities can take place between individual firms,

and other public and private bodies.
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Studying International Business is
Important
• Most companies are either international or
compete with international companies
• Modes of operations may differ from those
used domestically
• The best way of conducting business may differ
by country
• An understanding helps you make better
career decisions
• An understanding helps you decide what
government policies to support
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International Business:
Operations and Influences
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Forces Driving Globalization
1. Increase in and expansion of technology

2. Liberalization of cross-border trade and
resource movements
3. Development of services that support
international business
4. Growing consumer pressures
5. Increased global competition
6. Changing political situations
7. Expanded cross-national cooperation
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What’s Wrong with Globalization?
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What’s Wrong with Globalization?
• Threats to national sovereignty

• Economic growth and environmental stress
• Growing income inequality and personal
stress
• Offshoring – the transferring of production
abroad – is controversial in terms of who
benefits when costs are reduced and whether
the process exchanges good jobs for bad ones.
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Why Companies Engage in
International Business?
• To Expand Sales: pursuing international sales
increases the potential market and potential
profits
• To Acquire Resources: may give companies
lower costs, new and better products,
additional operating knowledge
• To Diversify or Reduce Risks: international
operations may reduce operating risk by
smoothing sales and profits, preventing
competitors from gaining advantage
1
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Modes of Operations in International
Business
• Merchandise exports and imports

• Service exports and imports
 Tourism and Transportation
 Licensing and franchising
 Turnkey operations
 Management Contracts
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Modes of Operations in International Business
• Investments: Foreign investment means ownership of foreign
property in exchange for financial return, such as interest and
dividends. It is found in two forms:
1) Direct Investment (FDI): It gives the investor a controlling interest
in a foreign company. Ex. FDI.
Benefits of direct investment:

- Control - Access to foreign markets
- Access to foreign resources - Partial ownership for some times
- Higher foreign sales then exporting (often)
 Two forms of direct investment:
• Joint venture: Two or more companies share ownership of an FDI.
• Mixed venture: A government joins a company in an FDI.
2) Portfolio Investment: It refers to a non controlling interest in a

company or ownership of a loan to another party. It usually takes one of two forms:
•
a) Stock in a company b)Loan to a company or a country.
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Multinational Enterprises
Multinational Enterprises (MNEs) take a

global approach to markets and
production. Sometimes they are referred
to as multinational corporations or
companies (MNCs) or transnational
companies (TNCs).
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Difference Between International and
Domestic Business
Foreign conditions often dictate a more
suitable method, and the operating modes
used for international business differ from
those used on a domestic level.
Factors causing this difference:

1. Physical and social factors
2. Competitive factors
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Physical and Social Factors Affecting
International Business Operations
To operate within a company’s external

environment, its managers must have
knowledge of business operations and a
working knowledge of social sciences,
and how they affect all functional
business fields.
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Physical and Social Factors Affecting
International Business Operations
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Competitive Factors Affecting
• A company’s competitive strategy

influences how and where it can best
operate.
• A company’s competitive situation may

differ in terms of its relative strength and
which competitors it faces.
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Competitive Factors Affecting
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Future of International Business and
Globalization
• Further globalization is inevitable.

• International business will grow primarily
along regional rather than global lines.
• Forces working against further globalization and
international business will slow down both
trends.
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Course Title: INTERNATIONAL BUSINESS

• To define globalization and international

Globalization is the ongoing process

International business consists of all

Increasingly foreign countries are a

• Import & Export of commodities

All of these activities can take place between individual firms,

1. Increase in and expansion of technology

• Threats to national sovereignty

• Merchandise exports and imports

Benefits of direct investment:

2) Portfolio Investment: It refers to a non controlling interest in a

Multinational Enterprises (MNEs) take a

Factors causing this difference:

To operate within a company’s external

• A company’s competitive strategy

• A company’s competitive situation may

• Further globalization is inevitable.

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