International Business Part 1

Free Trade

absences of restrictions to the flow of goods and services btw nations

Competitive Advantage /Firm Specific Advantage

asset and capabilities that a company has that is difficult for other companies to obtain

Mercantilism

run a trade surplus, export more goods than they import

• not good

• goal was to maximized a nation wealth

• limited imports by imposing a high tax

Absolute Advantage Principle - Adam Smith

a country benefits by producing only products that it has an absolute advantage in where they can use fewer resources to produce it

China= iphone

Comparative Advantage Principle - david Ricado

2 countries should trade with each other as long as one is relatively more effcient at producing goods and services than the other one

basically focusing on what you are good at and exporting everything else

Factor Proportions Theory

• export products that country has in abundant (florida-organges) and import good that that the country is scare in

• that nations specialize in the production of goods whose factors of production they hold in abundance

Leontief Paradox- Wassily Leontief

international trade is complex and one theory doesn’t work for all

International Product Life Cycle Theory- Raymond Vernon

Introduction, maturity, standardization

• how the US used to make tv’s but now they are made aboard- how a country has a competive advantage for a while and then it was taken away bc other countries figured out how to make it

New Trade Theory

?

Comparative vs Competitive Advantage

comparative - natural resources, land, location, low cost labor, climate

competitive - specific knowledge, certain skills, strong networks

Contemporary Theories

1. competitive advantages of nations

2. determinants of national competitiveness

3. national industrial policy

Determinants of Competitive Advantage Of nations- porter

• demand conditions

• firm strategy

• structure

• rivalry

• factor conditons

• related and supporting industries

Porters diamond Model

strategic economic model that attempts to explain the reason why some nations are more successful than other for a particular industry

1- Factor Conditions- Porter

labor, natural resources, capital, technology

2- Demand Conditions-Porter

-nature of home market demand for a specific products or services

• products can be driven by a great demand, us- sick and old ppl

Industrail Cluster

businesses, suppliers, and firms all in the same location

• gain an competitive advantage

National Industrail Policy

educational system, infrastucture,

• government effort to direct national resources to develop expertise in a specific area

• New Zealand government -transformed to free market econmy

Why and How Firms Internationalize?

• Internationlization process model - how business gradually progressing from simple exporting to FDI

• take a both risk and control

FDI- foreign direct investment

internationlizaton strategy in which firms establish a physical presence aboard

2 Reason to do Born global firms

• made international business easier

• have reduced cost

Monopolistic Advantage

how companies succeed internationally bc few firms can copy what they do

Eclectic Paradigm

ownership specific, location, internalization

Chapter 6

Country/political risk

• unstable political system

• laws and regulations

• bureacracy

• corruption

• failure of the national economy

Political System

process for making official government decisions

compared to legal system

• government

• political parties

• trade unions

• political instirtutions

Legal System

interpreting and enforcing laws

• ensure order in commerical activies

• resolve disputes

3 Types of political system

1. socialism

2. democracy

3. authoritrainsim

Authoritarinism

wants to regulate public and private behavior

“centralizes power in the government”

ex: china, soviet union

Socialism

• “social democracy”

• collectvist ideology

• believe in collective welfare

• government controls basic means of production , distribution, commerial activity

Democracy

choose government by voting

government by the people

private property rights

limited government which allows for open market

“openess”

Political Freedom

free and fair elections

right to form political parties

self determination

Rule of law

legal system in which laws are clear, public, and fair

4 Basic Legal Systems

common law, civil law, religious law

Common Law

judges have the power to interpret laws

flexible

Civil Law

?

Religious Law

laws based on religion

hindu, jewish, islamic law

Confiscation

seizure of corportat assets withing compensation

with compnsation is - expropiration

seizure of an entire industry with or without compensation - nationlization

Embargoes and Sanctions

embargo- ban on exports or imports from a Particular country

sanction- type of trade penalty imposed on one or more countries by one of more other countries

-tarriffs, trade barriers, import duties

Boycotting

voluntary refusal to buy from that nation or company

Extraterritoriality

application of home country laws to outside national boarders

Transparency

reveal information about their financial conditons and accounting practices

Chapter 9

Exchange rate

price of one currency expressed in terms of another

Foreign Exchange

all forms of money that are traded internationally

(fx, forex)

largest financial market in the world

Hedging

firm protecting itself from currency risk

How Exchange rates are determined

• economic growth

• inflation

• market psychology

• government intervention

Market Psychology

unpredictable behavior of investors

-herding -mimic behaviors

- momentum trading - investors buy stocks whose prices have been rising

International Monetary System

Institutional framework, prodcedures by which national currencies are exhanged for each other

Bretton Woods Argeement of 1944

wanted to stabilize exchange rates worldwide

us dollar was pegged to gold

system collapsed

Today currency values are determined in some countires by

floating exchange rate system

International Monetary Fund (IMF)

agency aims to stabilize currencies by monitoring the foreign exhchange systems

and giving money to developing places

World Bank

international agency provides loans and assitance to low and middle income countries with goal of reducing poverty

International Monetary System

instituional framework, rules and procedures followed by the national currencies

Global Financial System

Collective Financial instituions facilatate and regulate investment and capital flows

do the finances

Central Bank

monetary authority that regulate the money supply and credit issues currency, anges the rate of exchang and acts as lender for strullgers

Chapter 11

Strategy In International Business

Strategy

set of actions that managers employ to make best use of firm’s resources and gain competitive advantage

• examining strengths and weakness

3 Strategic Objectives

• Efficiency - lowering the cost of the firms operations and actitives on a global scale

• flexibility- good at tapping local resources and expoiting local opporrtuntities in the market where they do business

• learning - be willing to learn new cultures, improved research and devolopment, anything new

Visionary Leadership

quality of senior management provides guidance and motivation to people

• leading the firm to do better

4 Traits of Visionary Leaders

• International mind set and cosmopotilitian values

• willingness to commit resources

• strategic vision

• willingness to invest in human assets

Organizational Culture

“corporate culture”

= behavioral norms that employees learn and adopt

chick fil a

Organizational Processes

• series of actions that are taken to get to a particular objective

Global Teams

work team where members come from two or more national or cultural backgrounds

Multidomestic Industry

competitition takes places on a country by country basic

• coca cola - have different flavors in japan

Global Industry

competition is on a regional or worldwide scale

ex: aerospace, computers, checimals

Integration Responsiveness Framework

describes how firms seek global integration and local responsiveness

Global Integration

managing value chain activities in order to achieve worldwide efficiency, sysnergy, cross fertization to make max. advantages of similarities across countries

• sell standardized products or services

• compete regional or worldwide and seek to minimize operating cost by centralizing value chain

Local Responsiveness

managing firms value chain on a country by country basis

adressing diverse opportunities and risk

adapt to customers needs

4 IR Framework Strategies

1. home replication

2. multidomestic

3. global

4. transnational

Home Replication Strategy

firm replicates what it does at home country

doesn’t adapt them to local customers

Multi domestic Strategy

products and services are adapted to suit the needs and wants of buyers in each country

Global Strategy

Why not make the same thing, the same way, everywhere?

central cooridination

one big marketplace

Transnational Strategy

combination of multidomestic and global stategies

“standardize where we can, and adapt where needed”

combination of local responsivness and global integration

Organizational Structure

manage international operations

reports relationships in the firm between people, functions and processes that carry out international operations

Export Department

simplest organizational structure

unit within firm manages all export operations

“export department”

International Division Structure

centralized in one organizational unit, separted domestic units

Geographic Area Structure

puts the control and the decisison making separated by geographic regions

Product Structure

highly centralized

organized by product line

Functional Structure

divided by their functional activity

Global Matrix Structure

blends the geographic location, product, and function all in one in order to leverage the benefits