International business landscape

International Business (IB)

A firm engaging in cross border economic activities and doing business abroad.

Unified Framework

Global success is explained by the institution based view and the resource based view.

Institution based view

Success is determined by the formal and informal rules of the game in a country.

Formal institutions

Laws, regulations, and government policies.

Informal institutions

Culture, norms, ethics, and values.

Resource based view

Success is determined by a firm’s internal resources and capabilities.

Liability of outsidership

The inherent disadvantage that foreign firms experience in host countries because of their non native status.

Globalization

A process leading to greater interdependence and mutual awareness among economic, political, and social units in the world.

Semiglobalization

The world is neither fully isolated nor fully integrated; barriers still exist.

Pendulum view of globalization

Globalization swings between integration and isolation over time.

Barter

Direct exchange of goods.

Gold standard

Currencies pegged to gold.

Fiat money

Money whose value is based on trust, not gold.

MNE (Multinational Enterprise)

A firm that engages in FDI and operates in multiple countries.

SME (Small and Medium sized Enterprise)

Smaller companies, usually under 250 employees in the EU.

Global value chains

Splitting production so different parts are made in different countries to maximize efficiency.

International trade

Exchange of goods and services across national borders.

Merchandise trade

Buying and selling tangible products.

Service trade

Buying and selling intangible services.

Trade surplus

Exports exceed imports.

Trade deficit

Imports exceed exports.

Mercantilism

Wealth measured by gold and silver; maximize exports and minimize imports; trade as zero sum.

Absolute advantage

Produce what you are most efficient at and trade for the rest.

Comparative advantage

Specialize in what you produce relatively best, meaning lowest opportunity cost.

Product life cycle theory

As products mature and standardize, production moves from the innovative country to other wealthy nations and then to developing nations.

Strategic trade theory

Governments help domestic industries compete internationally through strategic support like subsidies.

Porter Diamond theory

Industry success in a nation depends on firm strategy, factor conditions, demand conditions, and related industries.

Tariff barriers

Taxes on imported goods to make foreign goods more expensive.

Non tariff barriers

Non tax methods to restrict imports.

Subsidies

Government payments to domestic producers to help them compete.

Import quotas

Strict limits on the quantity that can be imported.

Local content requirements

Rules requiring a percentage of a product to be made locally.

Administrative policies

Bureaucratic rules that make importing difficult.

Antidumping duties

Penalties on foreign firms selling below cost to drive out competition.

Democracy

Citizens elect representatives to govern.

Totalitarianism

One person or party has absolute control.

Civil law

Based on written codes and statutes; judges apply the law.

Common law

Based on tradition and precedent; judges interpret the law.

Theocratic law

Legal system based on religious teachings.

Property rights

Legal right to use an economic resource and keep the income from it.

Intellectual property (IP)

Rights associated with intangible property.

Patents

Protect inventions.

Copyrights

Protect artistic works like books, music, and software.

Trademarks

Protect brand names and logos.

Market economy

Prices and production set by supply and demand with minimal government intervention.

Command economy

Government plans what to produce, how much, and the price.

Mixed economy

Combination of market and command elements.

Low context communication

Communication should be precise, simple, and clear.

High context communication

Communication is nuanced and indirect; you read between the lines.

Direct negative feedback

Feedback is frank and blunt, not meant personally.

Indirect negative feedback

Feedback is softened, wrapped in positives, or given privately.

Egalitarian leading

The boss is a facilitator among equals.

Hierarchical leading

The boss is a strong director who leads from the front.

Consensual deciding

Everyone agrees before a decision; slow decision, fast implementation.

Top down deciding

The boss decides; fast decision, implementation may be slower if buy in is missing.

Task based trust

Trust built through doing good work together.

Relationship based trust

Trust built through personal connections and socializing.

Confrontational disagreeing

Debate and disagreement are positive and needed for best ideas.

Avoids confrontation

Open disagreement breaks harmony and is considered rude.

Linear time scheduling

Focus on deadlines and sticking to schedules.

Flexible time scheduling

Focus on adaptability and relationships; interruptions accepted.

Ethics

Accepted principles of right or wrong that govern conduct.

Ethical systems

A set of moral principles or values used to guide behavior.

Corruption

Abuse of public power for private benefit, usually bribery.

Ethical relativism

You adapt your ethics entirely to the local culture, meaning “when in Rome”.

Entrepreneurship

Identifying and exploiting previously unexplored opportunities.

International entrepreneurship

Innovative, proactive, risk seeking behavior that crosses national borders.

Family, friends, and fools

Earliest funding from your own savings and people who trust you personally.

Angel investors

Wealthy individuals investing their own money early in exchange for equity.

Venture capital

Professional firms investing pooled money into high potential startups, aiming for control and an exit.

IPO (Initial Public Offering)

First time a company sells stock to the public on a stock exchange.

Born global firms

Startups that try to do business abroad from the very beginning.

Microfinance

Lending small sums to start small businesses, mainly in developing economies.

Strategy

Actions managers take to attain the goals of the firm and achieve competitive advantage.

Competitive advantage

Superior performance relative to competitors.

Strategy tripod

Industry based view, resource based view, institution based view.

VRIO framework

Test if a resource gives sustained advantage using value, rarity, imitability, organization.

Value chain

Series of activities used to produce goods and services.

Outsourcing

Turning an activity over to an outside supplier.

Offshoring

Moving an activity to a foreign location.

Integration responsiveness framework

Choose global strategy based on cost reduction pressure and local responsiveness pressure.

Home replication strategy

Duplicate what you do at home abroad with minimal adaptation.

Localization strategy

Treat each country as unique and customize heavily.

Global standardization strategy

Sell a standardized product worldwide for maximum efficiency.

Transnational strategy

Be cost efficient and locally adaptive at the same time.

International division structure

Structure used for home replication; a separate unit handles international activities.

Geographic area structure

Structure used for localization; world divided into regions led by country or region managers.

Global product division structure

Structure used for global standardization; divisions by product type worldwide.

Global matrix structure

Structure used for transnational strategy; employees report to two bosses.

Explicit knowledge

Knowledge that can be written down and transferred easily.

Tacit knowledge

Knowledge in people’s heads that is hard to write down or transfer.

SWOT analysis

Strengths and weaknesses are internal; opportunities and threats are external.