INTRODUCTION OF INTERNATIONAL

BUSINESS AND TRADE

Course Description
A study of foreign markets, domestic
capabilities, competition, shipping
alternatives, raw material supply situation,
incentive plans, credit availability and
imports to support export development and
diversification.
Although trading across boarders has been
Course Outline around for centuries, international
business has gained much momentum and
• Foundation and Concepts complexity over the past four decades.
• International Business Environment
• Strategy and Opportunity Globalization Markets
Assessment
Ongoing economic integration and growing
• Entering and Working in International interdependencyof countries worldwide.
Markets
• Functional Area Excellence Macro-trend of intense economic
interconnectednessamong the nations of the
INTRODUCTION: WHAT IS world
INTERNATIONAL BUSINESS?
✓ -Vodafone
CHAPTER 1 ✓ Facebook
INTERNATIONAL BUSINESS ✓ Amazon
✓ Instagram
- Refers to firms’ performance of trade
and investment activities across Internationalization
national boarders (cross boarder Refers to the tendency of companies to
business). deepen their international business activities
International Business is characterized systematically
by six (6) Major Dimensions It has led to widespread diffusion of products,
1. GLOBALIZATION OF MARKETS technology and the knowledge worldwide.
2. FOREIGN MARKET ENTRY What are the Key Concepts of
STRATEGIES International Business?
3. PARTICIPANTS: FIRMS, International Trade describes the exchange
INTERMEDIARIES, of products (merchandise) and service
FACILATATORS, GOVERNMENT (intangibles) across national boarders.
4. INTERNATIONAL BUSINESS
RISKS ✓ Exporting, the sale of products or
5. INTERNATIONAL INVESTMENT services to customers located abroad
6. INTERNATIONAL TRADE from a base in the home country or a
third country.
 ✓ Importing or Global Sourcing, the Leading Countries in International
procurement of products or services Services Trade
from suppliers located abroad in the
home country or third country.

International Investment refers to the

transfer of assets to another country or the
acquisition of assets in that country.
International Portfolio Investment,
Passive ownership of foreign securities such
as stocks and bonds to generate financial
returns.
Foreign Direct Investment
(FDI). The internationalization strategy in
which the firm establishes a physical
presence abroad through acquisition of
productive assets such as capital,
technology, labor, land, plant and equipment. Although services trade is growing rapidly,
the value merchandise trade is still much
larger.
MODULE 1- INTERNATIONAL Industries in the services sector with strong
BUSINESS potential for internationalization:

Services as Well as Products • Giant Internet Retailer: eBay

• By history international trade & investment

were mainly the domain of companies that
make and sell products. (clothing, computer,
motor vehicles, etc..)
• Today, firms that produce services are the
key international business players as well.
(banks, consulting firms, hotels, construction
companies, retailers and countless other
firms in the service sector).

The International Financial Service Sector

• International banking and financial service
are among the most internationally active
service industries.
• Explosive growth of investment and
financial flows has led to the emergence of
capital markets worldwide.
How Does International Business Differ caused by developments in the political,
from Domestic Business legal and economic environment in a foreign
country,
• Firms operate in countries characterized by
distinctive economic, cultural and political • Includes the possibility of foreign
conditions. government intervention in firms’ business
activities.
• Not only does the firm find itself in unfamiliar
surroundings, in encounters uncontrollable 3. Currency Risk (also known as Financial
variable's. Risk)
• These factors introduce new or elevated • Refers to the risk of adverse fluctuation in
business risks. exchange rates.
The Four (4) Risks in Internationalization • Fluctuation is common for exchange rates
– the value of one currency in terms of
Globalization is not without risks. When
another.
companies undertake international business,
they are routinely exposed to four major • It arises because international transactions
types of risks: are often conducted in more than one
currency.
4. Commercial Risk
• Refers to the firm’s potential loss or failure
from poorly developed or executed business
strategies, tactics or procedures.
• It arises because international transactions
are often conducted in more than one
currency.
• Managers may make poor choices in such
1. Cross Cultural Risk. areas such as the selection of business
• Occurs when a cultural misunderstanding partners, timing of market entry, pricing,
puts some human value at stake. creation of product features and promotional
themes.
• Arises from differences in language,
lifestyles, mind-sets, customs and religion. Who Participates in International
Business?
• Values influence the mind-set and work
styles of employees and the shopping International business requires
pattern of buyers. organizations, with varying motives, to work
together as a coordinated team, contributing
2. Country Risk (also known as different types of expertise and inputs.
Political Risk)
• Refers to the potentially adverse effect on
company operations and profitability
FOCAL FIRM SUPPLY- Focal Firms, Intermediaries and
facilitators
• is the initiator of international business
DEMAND
transactions;
Customers consist of:
• It conceives, designs, and produces
offerings intended for consumption by • Individual consumers and households.
customers worldwide.
• Retailers – businesses that purchase
• They are primarily large multinational finished goods for the purpose of resale
enterprises (MNEs also known as
• Organizational Buyers – business,
multinational corporations, or MNCs)`and
institutions and government that purchase
small and medium-sized enterprises (SMEs)
goods and services as inputs to a production
DISTRIBUTION CHANNEL process or as supplies needed to run a
INTERMEDIARY business or organization.
• Specialist firm that provides various
logistics and marketing services for focal
firms as part of international supply chains, MODULE 2- GLOBALIZATIONS
both in the focal firm’s home country and OF MARKETS AND THE
abroad. INTERNATIONALIZATION OF
• Includes independent distributors and sales THE FIRM
representatives.
A FACILITATOR
• A firm or an individual with special expertise
in banking, legal advice customs clearance
or related support services that helps focal
firms perform international business
transactions.
GOVERNMENTS or the Public Sector
• Also active in international business Globalization of Markets refers to the
suppliers, buyers and regulators. gradual integration and growing
• The activities of firms, intermediaries and interdependence of national economies.
facilitators in international business overlap GLOBALIZATION
to some degree.
• allows companies to outsource value-chain
• The focal firms performs certain activities activities to the most favorable locations
internally and delegates other functions to worldwide. It has also made it easier for
intermediaries and facilitators when their companies to sell their offerings worldwide
special expertise is needed.
• It evolved out of a common desire of
• The focal firms becomes a client of civilizations to reach out and touch one
intermediaries and facilitators who provide another. It is a culmination of people’s
services on a contractual basis. recognition, thousands of years ago, of the
wonders of difference and discovery.
PHASES OF GLOBALIZATION • Falling trade barriers are facilitated by the
WTO.
• The decrease in trade barriers is also
associated with the emergence of regional
economic integration blocs.
• Market liberalization and adoption of free
markets.
✓ Market liberalization and adoption
of free markets.
• In the past three decades, free-market
reforms in China and the former Soviet Union
smoothed the integration of former command
economies into the global economy.
• Privatization of previously state-owned
industries in these countries has encouraged
economic efficiency and attracted massive
foreign capital to their national economies.
✓ Industrialization, economic
WORLD TRADE BANK - aims to regulate development, and modernization
and ensure fairness and efficiency in global
trade and investment. • Many emerging markets— rapidly
developing economies in Asia, Latin
Market Globalization: Organizing America, and Eastern Europe—have now
Framework moved from being low value-adding
commodity producers to sophisticated,
competitive
• producers and exporters of premium
products such as electronics, computers,
and aircraft. Economic development results
in increased incomes and living standards,
an important measurement of which is gross
national income (GNI) per person.
✓ Integration of world financial
markets.
1. DRIVERS OF MARKET
• Financial market integration makes it
GLOBALIZATION
possible for internationally active firms to
✓ Worldwide reduction in barriers to
raise capital, borrow funds, and engage in
trade and investment.
foreign currency transactions.
• The tendency of national governments to
• Financial services firms follow their
reduce trade and investment barriers has
customers to foreign markets.
accelerated global economic integration.
• Cross-border transactions are made easier ✓ Convergence of consumer
because of the ease with which funds can be lifestyles and preferences
transferred between buyers and sellers.
• Consumers around the world increasingly
✓ Advances in technology. spend their money and time in similar ways.
• Technological advances are a remarkable • Many aspects of lifestyles and preferences
facilitator of cross-border trade and are converging.
investment.
✓ Globalization of production
• An important megatrend that requires
• Intense global competition is forcing firms
greater elaboration.
to reduce their costs of production.
2. DIMENSIONS OF MARKET
• Companies cut their costs and selling
GLOBALIZATIONS
prices through economies of scale,
✓ Integration and interdependence
standardization of finished products, and
of national economies
shifting manufacturing and procurement to
• Internationally active firms develop multi- foreign locations with less expensive labor
country operations through trade,
✓ Globalization of services
investment, geographic dispersal of
company resources, and integration and • The services sector—banking, hospitality,
coordination of value chain activities. retailing, and other service industries—is
undergoing widespread internationalization.
• Value chain - the sequence of value-adding
activities the firm performs in the course of • Firms increasingly outsource business
developing, producing, marketing, and processes and other services in the value
servicing a product. chain to vendors located abroad.
✓ Rise of regional economic 3. 3A. FIRM-LEVEL
integration blocs CONSEQUENCES OF MARKET
GLOBALIZATION:
• Regional economic integration blocks
INTERNATIONALIZATION OF THE
consist of groups of countries that facilitate
FIRM’S VALUE CHAIN.
reduced trade and investment barriers
among themselves. • Globalization compels firms to organize
their sourcing, manufacturing, marketing,
✓ Growth of global investment and
and other value-adding activities on a global
financial flows
scale to achieve cost advantages and time
• In the process of conducting international efficiencies.
transactions, firms and governments buy and
• In a typical value chain, the firm conducts
sell large volumes of national currencies
research and product development (R&D),
(such as dollars, euros, and yen).
purchases production inputs, and assembles
• The bond market has gained worldwide or manufactures a product or service.
scope, with foreign bonds representing a
• Next, the firm performs marketing activities
major source of debt financing for
such as pricing, promotion, and selling,
governments and firms.
followed by distribution of the product in
targeted markets and after-sales service.
• The value-chain concept is useful in • Economic recovery beginning in 2012
international business because it helps helped drive economic growth in much of the
clarify what activities are performed where in world. However, numerous economies
the world. remain sluggish.

Examples of how Firms’ Value-Chain

Activities Can be internationalized

✓ Loss of National Sovereignty

Sovereignty - the ability of a nation to
govern its own affairs; normally one
country’s laws cannot be applied or
3B. SOCIETAL CONSEQUENCES OF enforced in another country
MARKET GLOBALIZATION
• MNE activities can interfere with a
✓ Contagion: Rapid Spread of government’s ability to control its own
Monetary or Financial Crisis economy, social structure, and political
system.
• Starting in 2008, the world economy
experienced a severe financial crisis and • The largest firms are constrained by market
global recession that was triggered by forces.
unsustainably high prices in housing and
commodities. • In reality, market forces generally dominate
companies.
• The crisis began in the United States and,
like a contagious disease, spread around the • To minimize globalization’s harm and reap
world. its benefits, governments should ensure the
freedom to enter and compete in markets,
CONTAGION - refers to the tendency for a protect private property, enforce the law, and
financial or monetary crisis in one country to support voluntary exchange through markets
spread rapidly to other countries due to rather than through political processes.
integrated national economies.
• Consumer confidence dwindled, triggering
substantial declines in spending on cars,
consumer electronics, home appliances,
luxury goods, gasoline, bank loans, and new
homes.
• During 2009 and 2010, global growth
declined sharply to levels not seen since
World War II.
 ✓ Offshoring • Work conditions and salaries tend to
improve, over time, in many developing
• Globalization has created countless new
countries.
jobs and opportunities worldwide, but it also
has cost many people their jobs. ✓ Effect on Sustainability & the
Natural Environment
• The first wave of offshoring began in the
1960 s and 1970 s with the shift of US and • Globalization promotes manufacturing and
European manufacturing of cars, shoes, economic activity that results in increased
electronics, and textiles to cheap- labor pollution, habitat destruction, and
locations such as Mexico and Southeast deterioration of the ozone layer.
Asia.
• Globalization stimulates rising living
• High-profile plant closures and standards, concerned citizens focus on
manufacturing relocation have received improving their environment.
much media attention.
• Evolving company values and concern for
• Simultaneously, however, MNEs create corporate reputations have led many firms to
millions of jobs abroad, which help raise reduce or eliminate practices that harm the
living standards. environment.
✓ Reshoring ✓ Effect on National Culture
- the return of manufacturing and services • Globalization exerts strong pressures on
back to the home country. national culture because market
liberalization exposes local consumers to
• MNEs sometimes engage in reshoring
global brands, unfamiliar products, and
• Reshoring arises for various reasons, different values.
including the rise of wages and other costs in
• People worldwide are exposed to movies,
emerging markets and the desire to locate
television, the Internet, and other information
closer to key customers in the advanced
sources that promote lifestyles of people in
economies.
the United States and other advanced
✓ Effect on the Poor economies.

• Some MNEs have been criticized for paying • Cultural imperialism is offset by the
low wages, exploiting workers, and countertrend of local nationalism. Although
employing child labor. many products and services have become
largely universal, people’s behaviors and
• Child labor is particularly troubling because attitudes remain relatively stable over time.
it denies children educational opportunities.
• Religious differences are as strong as ever.
• It is estimated that there are more than 200
million children aged 5 to 14 at work around • Language differences are steadfast across
the world. national borders.

• Labor exploitation and sweatshop • As globalization standardizes superficial

conditions are major concerns in many aspects of life across national cultures,
developing economies. people resist these forces by insisting on
their national identity and taking steps to
protect it