Chapter 01
The Challenging World of
International Business
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
LO1
What is an
International Business (IB)?
• International Business –
 A business that buys, sells or invests cross national
borders
• Foreign Business –
 A company operating outside its home country
• Multidomestic Company (MDC) –
 A firm with multicountry affiliates, each with its
own business strategy based on perceived market
differences
1-2
LO1
What is an IB?
• Global Company (GC) –
A firm that standardizes and integrates
functional operations worldwide
• International Company (IC) –
A global or multinational company
1-3
LO2
What is Different about IB?
• International
Business deals with
3 environmental
forces:
1. Domestic
2. Foreign
3. International
• Domestic Business
deals with the
domestic market
environment
• But…may face
foreign competition
in domestic markets
1-4
LO2
Influence of External and
Internal Environmental Forces
• Three relevant terms:
1. Environment
All forces surrounding and influencing the life and
development of the firm
2. Uncontrollable Forces
External forces over which management has no direct
control, although it can exert an influence
3. Controllable Forces
Internal forces that management administers to adapt to
changes in the uncontrollable forces
1-5
LO2
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
External Forces
Competitive – competitors, their number, locations, activities
Distributive – agencies available for distributing goods & services
Economic – GNP, GDP, unit labor cost, personal consumption variables that
impact a firm’s ability to do business
Socioeconomic – characteristics & distribution of populations
Financial – interest & inflation rates, taxation, etc.
Legal – laws governing international operations of MNCs
Physical – topography, climate, natural resources
Political – local political climate, government structure, international
organizations
Sociocultural – attitudes, values, beliefs, etc., of the local culture
Labor – composition, skills, and attitudes of local labor
Technological – technical skills & w equipment converting resources into
product
1-6
LO2
Environments
• Domestic Environment
All uncontrollable forces originating in the home country that
surround and influence the firm’s life and development
• Foreign Environment
All uncontrollable forces originating outside the home country
that surround and influence the firm
• International Environment
Interaction between domestic and foreign environmental forces
or between sets of foreign environmental forces
1-7
LO2
The Foreign Environment
• Forces are the same
in all environments
but occur and
operate differently
outside the home
country.
• Forces:
 have different values
 can be difficult to
assess
 are interrelational
1-8
LO2
The International Environment
Consists of Interactions
Between:
Affect of International
Organizations
• Domestic and foreign
environmental forces
• Between the foreign
environmental forces of
2 countries when 1 does
business with customers
in another by crossing
national borders
• Worldwide Bodies –
World Bank, WTO
• Regional Economic
Groupings – NAFTA,
EU
• Organizations Bound by
Industry Agreements OPEC
1-9
LO2
Other Factors
Complexity of Decision
Making
Self-Reference
Criterion
• Managers must consider
the effect of EACH
country they deal with
and how their decisions
might affect interactions
between countries.
• Managers tend to
ascribe their own
cultural values,
preferences, taste,
opinions to the host
country.
1-10
LO3
A Very Brief History of IB
• Greek and Phoenician merchants traded before
Christ
• China world’s leading manufacturer for 1,800 years,
replaced by Britain, 1844
• Ottoman Empire trade routes <1300, Middle East,
Europe, North Africa
• East India Company 1600, branches throughout Asia;
Dutch East India Company
• The 17th and 18th centuries the “age of mercantilism”
• Significant multinationals in late 1800s: Singer
Sewing Machine, J&P Coates, Ford Motor Company
1-11
LO4
3 Key Terms
• Foreign Direct Investment (FDI)
Direct investments of any type into a foreign
country
Exporting
Transportation of any domestic good/service
to a foreign country
Importing
Transportation of a foreign good/service into
a country
1-12
LO4
Growth of International Firms and IB
International Companies
• 64,000 transnational corps.
account for:
• 25% of global output
• 66.6% of world trade
• 866,000 foreign
affiliates
• 53,000,000 employed,
IB
• 700% sales growth
>1990
(UNCTAD estimates)
FDI and Export Growth
– World stock of outward FDI
$16.2 trillion in 2008
– Growth of world merchandise
exports:
• $2.0 trillion in 1980
• $3.45 trillion in 1990
• $16.1 trillion in 2008
• $12.5 trillion in 2009
(Global recession)
– Growth of world service exports
• $365 billion in 1980
• $781 billion in 1990
• $1.483 trillion in 2000
1-13
LO5
What is Globalization?
• Globalization is:
The tendency toward an international
integration of goods, technology,
information, labor and capital, or the
process of making this integration happen.
1-14
LO5
Drivers of Globalization
• Political Drivers
• Technological Drivers
• Market Drivers
• Cost Drivers
• Competitive Drivers
The details
are on
pages 12 &
13 in the
text.
1-15
LO6
Views On Globalization
Arguments Supporting
Globalization
• Free Trade:
– enhances socioeconomic
development
– promotes more and
better jobs
Concerns with
Globalization
• Globalization has:
– produced uneven results
across nations and
people
– deleterious effects on
labor and labor
standards
– contributed to a decline
in environment and
health
1-16
LO7
Motives for
Entering Foreign Markets
• Increase Profits & Sales:
The details
are on
pages 16 19 in the
text.
 Enter New Markets
 Create New Markets
 Availability of Faster-Growing Markets
 Improved Communications
 Obtain Greater Profits
 Generate Greater Revenue
 Lower Cost of Goods Sold
 Higher Overseas Profits as an Investment Motive
1-17
LO8
1.
2.
3.
4.
5.
6.
7.
The 7 Dimensions for
Globalizing A Business
Product
Markets
Promotion
Value-Added
Competitive Strategy
Use of Non-Home-Country Personnel
Firm’s Extent of Global Ownership
1-18