INTERNATIONAL

BUSINESS
Dr. Muhammad Zeshan
 CHAPTER 1: WHAT IS
INTERNATIONAL BUSINESS
INTERNATIONAL BUSINESS: (TRADE AND INVESTMENT ACROSS
BORDERS)
ELEMENTS OF INTERNATIONAL BUSINESS
• GLOBALIZATION(INTEGRATION)
• INTERNATIONAL TRADE
• INTERNATIONAL INVESTMENT
• INTERNATIONAL BUSINESS RISK
• PARTICIPANTS (firms, intermediaries, facilitators, governments)
• FOREIGN MARKET ENTRY STRATEGIES
 CHAPTER 1: WHAT IS
INTERNATIONAL BUSINESS
KEY CONCEPTS IN INTERNATIONAL BUSINESS: International trade,
international investment(Portfolio investment and FDI)
1. THE NATURE OF INTERNATIONAL TRADE: Increase in trade due to
(a)emerging markets with strong middle class (b) sourcing from
cheap locations (c) Information and transportation technologies
2. THE NATURE OF INTERNATIONAL INVESTMENT: increase in FDI and
Portfolio Investment
3. SERVICES AND PRODUCTS
4. INTERNATIONAL FINANCIAL SECTOR
 CHAPTER 1: WHAT IS
INTERNATIONAL BUSINESS
DIFFERENCE BETWEEN INTERNAL AND DOMESTIC BUSINESS
FOUR RISKS IN INTERNATIONALIZATION
1. CROSS-CULTURAL
2. COMMERCIAL (WRONG STRATEGY, ENTRY TIME, OR FAULTY
PROCEDURES)
3. COUNTRY OR POLITICAL RISK
4. CURRENCY
 CHAPTER 1: WHAT IS
INTERNATIONAL BUSINESS
PARTICIPANTS IN INTERNATIONAL BUSINESS
• FOCAL FIRMS: (MNE OR MNC, SMEs, BORN GLOBAL FIRMS
• DISTRIBUTION CHANNEL INTERMEDIARY (LOGISTICS AND MARKETING
SERVICES)
• FACILITATORS: BANKING, CUSTOMER CLEARANCE ETC
• GOVERNMENTS (SOEs) AND NGOs
 CHAPTER 1: WHAT IS
INTERNATIONAL BUSINESS
WHY DO FIRMS INTERNATIONALIZE
1. GROWTH THROUGH MARKET DIVERSIFICATION
2. LOW GROWTH IN MATURE ECONOMIES
3. UP-TO-DATE KNOWLEDGE BY COMPETING INTERNATIONALLY
4. SERVING THE CUSTOMERS INTERNATIONALLY (NISSAN AND SUPPLIERS)
5. FOR BEING CLOSE TO SUPPLIERS
6. CHEAP FACTORS OF PRODUCTION
7. ECONOMIES OF SCALE
8. CONFRONT INTERNATIONAL COMPETITORS
 CHAPTER 1: WHAT IS
INTERNATIONAL BUSINESS
WHY STUDY INTERNATIONAL BUSINESS
• INTERNATIONAL ECONOMY
• NATTIONAL ECONOMY
• COMPETITIVE ADVANTAGE FOR THE FIRM
CHAPTER 2: GLOBALIZATION OF
MARKETS AND
INTERNATIONALIZATION OF THE
FIRM
 CHAPTER 2: GLOBALIZATION OF MARKETS
AND INTERNATIONALIZATION OF THE FIRM
MARKET GLOBALIZATION FRAMEWORK
(A)FORCE DRIVING GLOBALIZATION :
1. REDUCTION IN TRADE BARRIERS
2. FREE MARKET AND MARKET LIBERALIZATION
3. INDUSTRIALIZATION, ECONOMIC DEVELOPMENT, AND
MODERNIZATION
4. INTEGRATION OF WORK FINANCIAL MARKET
5. TECHNOLOGICAL ADVANCES
 CHAPTER 2: GLOBALIZATION OF MARKETS
AND INTERNATIONALIZATION OF THE FIRM
(B) DIMENSIONS OF MARKET GLOBALIZATION
• INTEGRATION AND INTERDEPENDENCE OF NATIONAL ECONOMIES
• REGIONAL ECONOMIC INTEGRATION BLOCS
• GROWTH OF GLOBAL INVESTMENT AND FINANCIAL FIRMS
• CONVERGENCE OF CONSUMER LIFESTYLE AND PREFERENCES
• GLOBALIZATION OF PRODUCTION
• GLOBALIZATION OF SERVICES
 CHAPTER 2: GLOBALIZATION OF MARKETS
AND INTERNATIONALIZATION OF THE FIRM
(C) FIRM-LEVEL CONSEQUENCES OF GLOBALIZATION
INTERNATIONALIZATION OF FIRM VALUE-CHAIN
 CHAPTER 2: GLOBALIZATION OF MARKETS
AND INTERNATIONALIZATION OF THE FIRM
(D) SOCIETAL CONSEQUENCES OF GLOBALIZATION
• CONTAGION
• LOSS OF SOVEREIGNTY
• OFF SHORING
• RESHORING
• EFFECT ON THE POOR
• EFFECT ON SUSTAINABILITY AND THE NATURAL ENVIRONMENT
• EFFECT ON NATIONAL CULTURE
 FILL IN THE BLANKS PART 1

1. ………………………..is the ongoing economic integration and growing interdependency of

national economies.

2. …………………………is the sequence of value-adding activities the firm performs in the

course of developing, producing, marketing, and servicing a product.

3. Steam power was associated with the …………………. phase of globalization.

4. The trigger for the second phase of globalization was ……………...

5. GATT stands for……………………………………...

 FILL IN THE BLANKS PART 2

1. The fifth phase of globalization was triggered by ……………………………..

2. NAFTA stands for the …………………………….

3. …………………… is the tendency of a financial or monetary crisis in one country to spread

rapidly to other countries due to the ongoing integration of national economies.

4. ……………..is the return of manufacturing and services back to the home country.

5. …………...is the relocation of value-chain activities to foreign locations where they can be

performed at less cost by subsidiaries or independent suppliers.

 CHAPTER 3:THE CULTURAL
ENVIRONMENT OF INTERNATIONAL
BUSINESS
• CULTURAL AND CROSS-CULTURAL RISK
• DIMENSIONS OF CULTURE
• ROLE OF LANGUAGE AND RELIGION IN CULTURE
• CULTURE’S EFFECTS IN INTERNATIONAL BUSINESS
• MODELS AND EXPLANATIONS OF CULTURE
• MANAGERIAL IMPLICATIONS OF CULTUE
 CHAPTER 3:THE CULTURAL
ENVIRONMENT OF INTERNATIONAL
BUSINESS
CROSS-CULTURAL RISK
A situation or event in which a cultural misunderstanding puts some human value at stake.
CULTURE
The values, beliefs, customs, arts, and other products of human thought and work that characterize the people of a given
society.
WHAT CULTURE IS NOT
• Not right or wrong cultural
• Not about individual behavior
• Not inherited
SOCIALIZATION
The process of learning the rules and behavioral patterns appropriate for living in one’s own society.
ACCULTURATION
The process of adjusting and adapting to a culture other than one’s own.
 CHAPTER 3:THE CULTURAL
ENVIRONMENT OF INTERNATIONAL
BUSINESS
DIMENSIONS OF CULTURE
• VALUES AND ATTITUDES
• MANNERS AND CUSTOMS:
• PERCEPTIONS OF TIME: monochronic (rigid), polychronic
• PERCEPTION OF SPACE
• SYMBOLIC PRODUCTIONS: A symbol can be letters, figures, colors, or other characters that communicate a meaning
• MATERIAL PRODUCTIONS(artifacts, objects, and technological systems that people construct to
• function) AND CREATIVE EXPRESSIONS(arts, music, dance)

• EDUCATION
• SOCIAL STRUCTURE: social status based on individual, family, the reference group, social stratification and mobility
 CHAPTER 3:THE CULTURAL
ENVIRONMENT OF INTERNATIONAL
BUSINESS
ROLE OF LANGUAGE AND RELIGION IN CULTURE
• VERBAL LANGUAGE
• NON-VERBAL COMMUNICATION
• RELIGION
 CHAPTER 3:THE CULTURAL
ENVIRONMENT OF INTERNATIONAL
BUSINESS
CULTURE’S EFFECT ON INTERNATIONAL BUSINESS
Managing employees
Communicating and interacting with foreign business partners
Negotiating and structuring international business ventures
Developing products and services
Preparing advertising and promotional materials
 CHAPTER 3:THE CULTURAL
ENVIRONMENT OF INTERNATIONAL
BUSINESS
MODELS AND EXPLANATIONS OF CULTURE
• CULTURAL METAPHORS
• HIGH AND LOW CONTEXT CULTURE
• HOFSTEDE’S RESEARCH ON NATIONAL CULTURE
1. Individualism vs collectivism
2. Power distance
3. Uncertainty avoidance
4. Masculinity vs femininity
5. Long term vs short term orientation
6. Indulgence vs restraint
• DEAL VERSUS RELATIONSHIP ORIENTATION
 CHAPTER 3:THE CULTURAL
ENVIRONMENT OF INTERNATIONAL
CULTURAL ORIENTATIONS:
BUSINESS
Ethnocentric (home country culture is superior)
Polycentric (Host country is superior)
geocentric (global mindset)
ACQUIRING CROSS CULTURAL COMPETENCE:
1. ATTAINING FACTUAL KNOWLEDGE AND LANGUAGE
2. REMOVING CULTURAL BIAS BY AVOING SELF REFERENCE ORIENTATION
3. DEVELOP CROSS CULTURAL SKILLS OR PROFICIENCY:
• TOLERENCE FOR AMBIGUITY
• PERCEPTIVENESS
• VALUING PERSONAL RELATIONSHIPS
• ADAPTABILITY
 Quiz 3: Define and differentiate the
following
1. Individualism vs collectivism
2. Power distance
3. Uncertainty avoidance
4. Masculinity vs femininity
5. Long term vs short-term orientation
6. Indulgence vs restraint
7. High and low context culture
8. Mono and polychronic perception of time
9. Ethnocentric vs polycentric orientation regarding culture
10. Social mobility
 CHAPTER4: ETHICS, CSR,
SUSTAINABILITY, AND
GOVERNANCE IN INTERNATIONAL
• ETHICAL BEHAVIOR AND BUSINESS
ITS IMPORTANCE IN INTERNATIONAL
BUSINESS
• ETHICAL CHALLENGES IN INTERNATIONAL BUSINESS
• COROPORATE SOCIAL RESPONSIBILITY
• SUSTAINABILITY
• THE ROLE OF CORPORATE GOVERNANCE
 CHAPTER4: ETHICS, CSR,
SUSTAINABILITY, AND
GOVERNANCE IN INTERNATIONAL
BUSINESS
ETHICAL BEHAVIOR AND ITS IMPORTANCE IN INTERNATIONAL BUSINESS
COMPONENTS OF ETHICAL BEHAVIOR:
1. Ethics: moral principles and values
2. CSR: operating business in a manner to meet expectations
3. Sustainability: resources for future generations
4. Corporate governance
VALUE OF ETHICAL BEHAVIOR:
• It protects human rights
• It saves from the legal consequences
• Unethical behavior brings unwanted attention
• It enhances corporate image
REASONS FOR UNETHICAL BEHAVIOR:
• TOP MANAGEMENT ENCOURAGES WHILE SETTING GOALS
• PEER PRESSURE
• MANAGERS TOLERATE SUPPLIERS SUCH AS FOOTBALLS FROM PAKISTAN
• MEANS ARE JUSTIFIED BY GOOD ENDS
 CHAPTER 4: ETHICS, CSR,
SUSTAINABILITY, AND
GOVERNANCE IN INTERNATIONAL
BUSINESS
ETHICAL STANDARDS AROUND THE WORLD (DILEMMAS) REASON FOR BEING UNETHICAL?
• PIRATED BOOKS IN CHINA
• EXPENSIVE GIFTS FROM SUPPLIERS ARE ACCEPTABLE IN AFRICA
• HIGH COMPENSATION FOR CEOs IN US
• BAN IN ADVERTISING DIRECTED AT CHILDREN
• RELATIVISM AND NORMATIVISM
ETHICAL CHALLENGES IN INTERNATIONAL BUSINESS
• CORRUPTION: OBTAINING POWER, PERSONAL GAINS THROUGH ILLEGITIMATE MEANS
• BRIBERY
• HARMFUL WORK ENVIRONMENT: SWEAT SHOPS, SEXUAL HARRASMENT
• UNETHICAL BUSINESS PRACTICES
• HARMFUL GLOBAL SOURCING
• ILLICIT PRODUCT AND MARKETING
• INTELLECTUAL PROPERTY INFRINGEMENT
 CHAPTER 4: ETHICS, CSR,
SUSTAINABILITY, AND
GOVERNANCE IN INTERNATIONAL
SETTING FOR CORPORATE BUSINESS
SOCIAL RESPONSIBILITY
 CHAPTER 4: ETHICS, CSR,
SUSTAINABILITY, AND
GOVERNANCE IN INTERNATIONAL
SUSTAINABILITY: BUSINESS
• BENEFICIAL AGRICULTURAL PRACTICES
• WATER CONSERVATION
• AIR QUALITY PROTECION
• REDUCED FUEL CONSUMPTION
• INCREASED USE OF SOLAR AND WIND ENERGY
 CHAPTER 4: ETHICS, CSR,
SUSTAINABILITY, AND
GOVERNANCE IN INTERNATIONAL
THE ROLE OF CORPORATE BUSINESS
GOVERNANCE
Governance is done by creating
(a) a set of values (b) a set of rules in (1) a code of ethics and then (2) a code of conduct

BENEFITS OF CORPORATE GOVERNANCE

• Increased employee commitment
• Increased customer loyalty
• Improved reputation and brand image
• Reduced likelihood of government intervention
• Reduced business cost
• Improved financial performance
 CHAPTER 4: ETHICS, CSR,
SUSTAINABILITY, AND
GOVERNANCE IN INTERNATIONAL
BUSINESS
ETHICAL STANDARD APPROACHES FOR CORPORATE GOVERNANCE
• UTILITARIAN APPROACH: MORE GOOD THAN HARM
• RIGHTS APPROACH:
• FAIRNESS APPROACH: JUSTICE
• COMMON GOOD APPROACH: THE WELFARE OF THE ENTIRE
COMMUNITY
• VIRTUE APPROACH: EMPHASIZE VIRTUE LIKE TRUTH, HONESTY
 CHAPTER 5:THEORIES OF
INTERNATIONAL TRADE AND
INVESTMENT
 CHAPTER 5:THEORIES OF
INTERNATIONAL TRADE AND
INVESTMENT
Why is Apple able to conduct international business?
WHY DO NATIONS TRADE?
CLASSICAL THEORIES:
1. Mercantilism: The belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and
minimizing imports.

2. Absolute advantage principle: The idea that a country benefits by producing only those products it can produce using fewer
resources.

3. Comparative advantage principle: It may be beneficial for two countries to trade with each other as long as one is relatively
more efficient at producing a product needed by the other

4. Factor proportions theory: The theory suggests that each country should export products that intensively use relatively abundant
factors of production and import goods that intensively use relatively scarce factors of production.

5. International product life cycle theory:

6. New trade theory: internationalization helps economies of scale.
COMPARATIVE ADVANTAGE AND
PRODUCT LIFE CYCLE THEORY
 CHAPTER 5:THEORIES OF
INTERNATIONAL TRADE AND
INVESTMENT
HOW CAN NATIONS ENHANCE THEIR COMPETITIVE ADVANTAGE:
1. The competitive advantage of nations: Depends upon CA of firms
2. Determinants of national competitiveness: Michael porters
diamond model
3. National industrial policy
 CHAPTER 5:THEORIES OF
INTERNATIONAL TRADE AND
INVESTMENT
WHY AND HOW DO FIRMS INTERNATIONALIZE:
1. Internationalization process of the firm:
2. Born global firms
 CHAPTER 5:THEORIES OF
INTERNATIONAL TRADE AND
INVESTMENT
HOW CAN INTERNATIONALIZING FIRMS GAIN AND SUSTAIN COMPETITIVE
ADVANTAGE
FDI BASED EXPLANATION
1. Monopolistic Advantage Theory: by having a competitive advantage
2. Internationalization Theory: by transferring some operation e.g., manufacturing
3. Dunning’s electric paradigm: Ownership-specific advantages (ownership of R &D), Location-specific
advantages, Internalization advantages foreign-based (manufacturing, distribution, or other value chain activities).

NON-FDI-BASED EXPLANATION
4. International collaborative ventures: Equity-Based, Project Based
5. Network and relational assets
 CHAPTER 5:THEORIES OF
INTERNATIONAL TRADE AND
INVESTMENT