What is international business

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University Of Finance & Administration
INTERNATIONAL BUSINESS
[B_IB]
Ing. Pavla Břečková, Ph.D.
Pavla.Breckova@vsfs.cz
INTERNATIONAL BUSINESS
Full-time course = 12 sessions á 90 mins. (summer term 2011)
1-2/
What is international business (IB). IB basic indicators - balance of trade / payment.
Territorial / commodity structure of IB. Comparative advantage, free trade / economy.
Protectionism x Liberalism. (14.2.2011)
3-4/
Internationalization, drivers. Entry modes and business activities in IB.
International market research (PEST/STEEP), and linkage to Competition analysis (Porter)
and SWOT. Data collection and their selection in the international environment. (28.2.2011)
5-6/
Guest lecture prof. Eric Severin (Lille University, France)
Individual TEAM work on the MARKET STUDY. (14.3.2011)
7-8/
Culture and its role in international business. Cultural elements and multi-culture
communication. Social stratification and mobility. Role of religion in IB.
Hofstede’s five dimensions of culture differences.
TEAM work presentations: foreign market study. (28.3.2011)
9-10/
Globalization – microeconomic and macroeconomic view. Drivers of globalization,
pros & cons. International trade barriers. Forms of economic integration. EXPORT microeconomic and macroeconomic view. Export risks and their elimination / securing.
TEAM work presentations: foreign market study. (11.4.2011)
11-12/
EASTER (25.4.2011)
2.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / pavla.breckova@vsfs.cz
CREDIT conditions B_IB
CONDITIONS:
 PRESENCE at IB lectures: 60%
 TEAM PRESENTATION – (market study)
preparation at home: 15 min. presentation of
team work – chosen MARKET STUDY
 lecture marks based on active
PARTICIPATION: communication, reading and
discussing topical economic issues / team
knowledge COMPETITION
If unfulfilled: 1. knowledge test / 2. semester elaborated paper + test
3.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / pavla.breckova@vsfs.cz
TRADE BARRIERS
Trade barrier = a general term that describes any
government policy or regulation that restricts IB
AIM:
 to limit imports
 to protect domestic producers from foreign competition
Anti-dumping Action against dumped imports
Anti-dumping measures counter dumping practices
occurring when non-EU manufacturers sell their goods in
the EU below the normal value (usually the sales price)
on their domestic market.
Anti-subsidy Action against imports of subsidized
4.
products
INTERNATIONAL
BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
International Business BARRIERS
 TARIFFs (duties) = is a tax on imported goods
 NON-TARIFF barriers – including
1.
QUOTAs = is a limit on the amount of goods that may be imported
2.
Lack of intellectual property protection;
3.
Testing, labeling, and certification with an unnecessarily restrictive
application of standards;
4.
Export subsidies that offer export financing on preferential terms
and displace your exports in third-country markets;
5.
Investment barriers;
6.
REGULATIONS regarding product content or quality
Both tariffs and quotas raise the price of and lower the demand for the
goods to which they apply
5.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
Effect of IB BARRIERS
The EFFECT of tariffs and quotas is the same: to limit
imports and protect domestic producers from foreign
competition.
A tariff raises the price of the foreign good beyond the market
equilibrium price, which decreases the demand for and,
eventually, the supply of the foreign good.
A quota limits the supply to a certain QUANTITY, which raises
the price beyond the market equilibrium level and thus
decreases demand
6.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
Tariff & Non-tariff measures
 have important effects on consumption, production &
structure of a domestic economy
 reason for imposing = e.g. protect infant industries
TARIFF
NON-TARIFF
- Fiscal
- Protective
- Retributive
- Prohibitive
QUOTA = qty
restriction
OTHER non-tariff
7.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
ANTI: dumping and subsidy
ANTI-DUMPING = action against dumped imports
-Anti-dumping measures counter dumping practices
occurring when non-EU manufacturers sell their goods in
the EU below the normal value (usually the sales price)
on their domestic market.
ANTI-SUBSIDY = action against imports of subsidized
products
- Anti-subsidy measures counteract trade distortive
subsidies which make subsidised goods artificially
competitive (e.g. cheaper) compared to non-subsidised
goods
8.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
Summary of basic IB BARRIERS
Prohibitive
TARIFFS
Nationalization
Dual use /
‘use
conditional’
QUOTAS
WEAK
IB
IMPORT
DUTIES
Other
Sanctions &
Embargo
PROTECTIONIST
measures
9.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
POLITICAL IB barriers





Sanctions
Embargo
Exchange rate manipulation
Dual-use
Nationalization
o expropriation
o confiscation
 Privatization
10.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
Forms of integration
Economic (monetary) & Political
union
Common market
Customs union
Free trade area
11.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
ECONOMIC INTEGRATION
Description I.
Free Trade Area:
Type of trade bloc, a designated group of countries that have agreed
to eliminate tarrifs, quotas and preferences on most (if not all)
goods and services traded between them.
It can be considered the 1st - 2nd stage of economic integration
(Preferential trading area)
Customs union
Composed of a Free Trade area with a COMMON EXTERNAL
TARIFF. The participants set up common external trade policy,
but in some cases they use different import quotas.
Purposes for establishing a customs union normally include
increasing econ. efficiency + establishing closer political and
cultural ties between members
It is the 3rd stage of economic integration
12.
ECONOMIC INTEGRATION
Description II.
Common / Single market
A single market is a type of trade bloc which is composed of a FTA (for goods)
with common policies on product regulation, and FREEDOM of
MOVEMENTof the FACTORS OF PRODUCTION (capital, labour) and of
enterprise and services.
The physical (borders), technical (standards) and fiscal (taxes) barriers among
the member states are removed to the maximum extent possible. These
barriers obstruct the freedom of movement of the four factors of production.
To remove these barriers the member states need political will and they have
to formulate common economic policies.
A common market is a first stage towards a single market, and may be limited
initially to a free trade area with relatively free movement of capital and of
services, but not so advanced in reduction of the rest of the trade barriers.
Economic union
13.
Type of trade bloc which is composed of a common market with a customs
union.
The participant countries have both common policies on product regulation,
freedom of movement of goods, services and the factors of production
and a common external trade policy.
Impact of Economic Integration on firms
 firms’ viewpoint: integration = two-sided sward
ADVANTAGES
- opens markets
DISADVANTAGES
- capturing
Economies of Scale
(= larger market
=>lowering Ø
production & distrib.
cost)
- exposes a firm’s
home market to
competition
14.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
International unions & agreements
EU – European Union
• 27 countries, eurozone, free movement of goods, services, capital &
labor
NAFTA
• since 1992, (Mexico, Canada, USA)
• Agreement on reduction of duties and further barriers (import
licenses and import taxes)
FTAA – Free Trade Area of Americas
• Other Latin-American countries – free trade area (members:
Columbia, Mexico and Venezuela)
ASEAN
• Trade union of 10 nations South-East Asia (Laos, Myanmar, Thailand,
Cambodia, Vietnam, Brunei, Malai, Singapur, Indonesia)
• South-East Asia = the most growing economy of the world ->
important to create alliance to compete with NAFTA or EU
15.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
TRIAD – NAFTA
NAFTA
member states
• FREE TRADE
AREA
• From 1994
•
Population:
457 million
Density:
25.1/km2
• GDP/capita:
35,490 USD
• Water 7.4%
16.
TRIAD – EUROPEAN UNION
EU member states
•
Economic
UNION
•
GDP / capita:
39.729 USD
•
Population:
- 501 million
- density:
115.9/km2
•
Water 3.08%
17.
TRIAD – ASEAN
ASEAN
•
Free Trade
Area
•
GDP / capita:
5,131 USD
•
Population:
600 million
(8.8% of world
population)
- density:
135/km2
18.
EMERGING MARKETS
What is an emerging market?
–
–
–
–
–
Emerging markets are nations with social or business activity
in the process of rapid GROW and INDURSTRALIZATION.
Currently, there are 28 emerging markets in the world, with the
economies of CHINA and INDIA considered to be by far the two
largest.
The ASEAN–China Free Trade Area, launched on January 1,
2010, is the largest regional emerging market in the world.
An emerging market economy (EME) is defined as an
economy with low to middle per capita income.
• Such countries constitute approximately 80% of the global
population, and represent about 20% of the world's
economies. The term was coined in 1981 by the World Bank.
One key characteristic of the EME is an increase in both local
and foreign investment (portfolio and direct). A growth in
investment in a country often indicates that the country has
been able to build confidence in the local economy
EMERGING MARKETS [EM]
entering
Special problems related to entering EM
–
Lack of information (problematic data
collection)
EM’s market-potential analysis:
–
–
–
–
–
–
–
–
Market SIZE
Market INTENSITY – estimates wealth, buying
power
Market GROWTH rate – GDP, energy
consumption etc.
Market CONSUMPTION CAPACITY – spending
capacity (% of middle class, core of buying power)
Commercial INFRASTRUCTURE – chanels for
com./distrib.
Economic FREEDOM – free market principles
domination
Market RECEPTIVITY – market ‘openness’
Country RISK – of doing business
FAIR TRADE
Fair Trade:
- is an organized SOCIAL MOVEMENT and market-based approach
that aims to help producers in developing countries and promote
sustainability
- The movement advocates the payment of a higher price to
producers as well as social and environmental standards.
- It focuses in particular on exports FROM DEVELOPING countries
to DEVELOPED countries
- typically: handicrafts, coffee, cocoa, sugar, tea, bananas, honey,
cotton, wine, fresh fruit, chocolate and flowers
21.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
GATT – General Agreement on Tariffs & Trade
 set up in 1947 to prevent causes leading to Great
depression (in 1930’s)
AIM:
 to REDUCE barriers to international trade
 to PROMOTE a free & competitive trading
environment
 to ensure the int. trade is conducted on a NONDISCRIMINATORY basis

by MFN principle (Most Favored Nation)
22.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
WTO – World Trade Organization
 created by GATT at Uruguay round in 1995
 development of IB, more powerful non-tariff barriers
 WTO granted more power than GATT
AIM:
 to PROMOTE flows by encouraging nations to adopt
non-discriminatory & predictable trade policies
 to REDUCE remaining trade barriers
(emphasis on
agricultural tariffs & subsidies + relaxing intellectual prop.rights of
Pharmaceuticals in less developed countries)
 establish IMPARTIAL PROCEDURES for resolving
trade disputes
23.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
WTO challenges
Problem SECTORS
• sectors that receive GOV protection in every country:
AGRICULTURE & TEXTILES
• Distortion by SUBSIDIES, import RESTRICTIONS etc.
GATS – General Agreement on Trade in Services
• Reduce barriers to trade in services (= diverse & complicated)
TRIPS – agreement on Trade-Related Aspects of
Intellectual Property Rights
• Inadequate enforcement of laws prohibiting illegal usage or
copying of intellectual property (music, film, SW, pharma)
• Efforts to RELAX int.prop.rights in case of LIFE-SAVING
DRUGS in under-developed countries
TRIMS – Trade-Related Investment Measures Agreement
• Control of FDIs
24.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
Individual TEAM work
Individual TEAM work on the MARKET STUDY (90 min.)
- preparation for the team work results presentation
Presentation 28.3.2011:
TEAM 1
TEAM 2
Presentation 11.4.2011:
TEAM 3
TEAM 4
25.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / pavla.breckova@vsfs.cz
MARKET STUDY - elaboration
Market study on:
PRODUCT PLACEMENT TO A FOREIGN MARKET
Elaboration in the mixed teams per UP TO 9 people (e.g. 2 Germans (D) + 2
Polish (PL) + 4 Czechs (CZ))
Ideally if a product from one country (e.g. D) is being placed to the market of the
other (i.e. PL)
Market study minimum CONTENT:
• Characteristics of the PRODUCT + TARGET group
• Market ASSESMENT (potential of the market, market analysis – e.g. PEST,
STEEP)
• Characteristics of the area of specialization (product branch) + possible specifics
• RISKS identification - connected with the product’s placement at this particular
market
• Typical consumers’ BEHAVIOR / target groups’
• MARKETING tools (how you are going to succeed) and DISTRIBUTION channels
• Typical BUSINESS PRACTICES at both markets (e.g. business meeting,
negotiation, existing business practice, pros & cons, what to put emphasis on, what
to pay attention to, etc.)
26.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / pavla.breckova@vsfs.cz
MARKET STUDY - presentation
Market study on:
PRODUCT PLACEMENT TO A FOREIGN MARKET
Presentation:
PRESENTATION
In the mixed (multinational) teams
• Power Point live prezentation
• Each member of the team will take an active part in the
presentation (i.e.presents a part of it)
• cca 15 min. + 5 min. discussion and evaluation
Presentation essentials:
- Slides brief & comprehensive
- Never read the slides
- Keep eye contact with audience
- Gestures make prezentation lively
- Be interesting & catch the attention
- Speak up
INTERNATIONAL BUSINESS [B_IB]
Presentation
essentials
27.
Ing. Pavla Břečková, Ph.D. / pavla.breckova@vsfs.cz
KEY terms
-
Global environment
International Business: trade / investment / other
GATT
WTO
Fair trade
Economic Integration - forms
Economies of scale
IB barriers
Tariff x Non-tariff measures
Duty x Quota
State IB policy instruments
Emerging markets
28.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / 19063@mail.vsfs.cz
Thank you for your attention
Ing. Pavla Břečková, Ph.D.
pavla.breckova@vsfs.cz
29.
INTERNATIONAL BUSINESS [B_IB]
Ing. Pavla Břečková, Ph.D. / pavla.breckova@vsfs.cz
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