The Environment of International Business

REVIEW OF PREVIOUS SESSION

  • Key Term Recall: What is the key term from the last session?

    • International Business

INTRODUCTION TO INTERNATIONAL BUSINESS

General Definition of International Business

  • Definition: International business is the study of transactions (business dealings) taking place across national borders (worldwide) to satisfy the needs and wants of individuals and organizations.

  • Examples of needs and wants:

    • Basic needs: Water to survive

    • Desires: Coffee for pleasure

  • Various forms of international business transactions exist.

GLOBALIZATION

General Definition of Globalization

  • Definition: Globalization refers to the shift toward a more integrated and interdependent world economy. (Hill, 2023, p.6)

  • Quote: “…the widening set of interdependent relationships among people from different parts of a world that happens to be divided into nations.” (Daniels, Radebaugh & Sullivan, 2013, p.49)

  • Controversy: Globalization is often a vague concept and can be divisive; many social, political, and economic issues are attributed to its negative effects, while others view it as a force for positive change. (Collinson, 2020, p.6)

Global Institutions

  • Key global institutions involved in international business:

    • GATT: General Agreement on Tariffs and Trade

    • WTO: World Trade Organization

    • IMF: International Monetary Fund

    • World Bank

    • United Nations

    • Group of Twenty (G20)

PRESENTATIONS: WORLD ECONOMY

Key Performance Indicators (KPIs)

  • Definition: KPIs are a set of quantifiable measurements used to gauge a company’s overall long-term performance.

  • KPIs can be financial or non-financial and related to any department across a company or the entire business performance.

  • Importance: These indicators help governments, businesses, and investors make decisions and assess global economic trends.

  • Uses of KPIs:

    • Judging performance against benchmarks

    • Comparing with industry competitors

    • Evaluating business performance over time

Global Economic Indicators Sources

  • Where to find KPIs:

    • OECD Global Economic Outlook

    • Worldometer

    • Statista

    • International Monetary Fund

    • World Bank Data Bank

    • United Nations

    • Etc.

GROSS DOMESTIC PRODUCT (GDP)

Definition of GDP

  • Nominal GDP: Total value of all goods and services produced in a given time period, typically quarterly or annually.

  • Real GDP: Nominal GDP adjusted for inflation; measures actual growth of production without distortions from inflation.

  • Importance of Real GDP:

    • Useful for setting public policy, analyzing inflation, making business decisions.

    • Accurate measure of growth compared to nominal GDP, which gauges consumer purchasing power.

GDP Calculations

  • Example cases:

    • 2022 Example:

      • Production: 1000 widgets at $10/widget.

      • Nominal GDP = 1000 × $10 = $10,000.

    • 2023 Example:

      • Production: 1200 widgets at $12/widget due to inflation.

      • Nominal GDP = 1200 × $12 = $14,400.

Real GDP Calculation

  • Using a hypothetical price index (GDP deflator):

    • GDP deflator for 2022: 100; for 2023: 120.

    • Real GDP for 2022:
      extRealGDP=racextNominalGDPextGDPDeflatorfor2022=rac10,000100=10,000ext{Real GDP} = rac{ ext{Nominal GDP}}{ ext{GDP Deflator for 2022}} = rac{10,000}{100} = 10,000

    • Real GDP for 2023:
      extRealGDP=racextNominalGDPextGDPDeflatorfor2023=rac14,400120=12,000ext{Real GDP} = rac{ ext{Nominal GDP}}{ ext{GDP Deflator for 2023}} = rac{14,400}{120} = 12,000

Analyzing GDP Growth Rate

  • A higher real GDP growth rate indicates increased production of goods and services, leading to:

    • Economic expansion

    • Improved living standards

    • Increased job opportunities

Limitations of Real GDP as an Economic Indicator

  • Real GDP does not account for:

    • Income distribution

    • Environmental impacts

    • Quality of life

    • Non-market activities

    • Improvements in product quality

INFLATION AND DEFLATION

Definition of Inflation

  • Definition: Inflation is a quantitative measure of how quickly prices of goods in an economy are increasing.

  • Causes: High demand leads to a decrease in supply, raising prices.

  • Measure used: Consumer Price Index (CPI), tracking changes in a theoretical basket of goods.

Is Inflation Always Bad?

  • Moderate Inflation:

    • Controlled inflation does not hinder consumer spending.

  • Problematic Inflation:

    • Overwhelming price increases can hamper economic activities.

Definition of Deflation

  • Definition: Deflation occurs when pricing drops due to excess supply or insufficient currency circulation.

  • Example: Surplus of a popular car model lowers prices as companies try to clear inventory.

Effects of Deflation

  • Consequences:

    • Decreased demand resulting in lower prices

    • Economic slowdown, layoffs, declining wages

UNEMPLOYMENT RATE

Definition and Considerations

  • Definition: Unemployment rate measures those actively seeking work but does not consider discouraged workers who give up searching.

  • Example: An unemployment rate of 5% means 5 out of 100 workers are without jobs, excluding those not searching.

GLOBAL TRADE

Definition and Importance

  • Definition: Global trade involves the purchase and sale of goods and services by companies across international borders.

  • Benefits of International Trade for Businesses:

    • Access to larger customer bases

    • Possibility of less competition

    • Risk diversification

    • Currency exchange advantages

INTEREST RATE

Definition

  • Definition: The interest rate is the fee charged by lenders to borrowers for asset use or the earnings gained from deposit accounts.

  • Types:

    • Simple interest (used by mortgages)

    • Compound interest (applied to principal and accumulated interest)

    • APY (Annual Percentage Yield) for savings accounts and CDs

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Definition

  • Corporate Social Responsibility (CSR): A management concept integrating social and environmental concerns into business operations.

  • Dimensions of CSR:

    • Environmental impacts

    • Ethical responsibility

    • Philanthropic endeavors

    • Financial responsibilities

Importance and Implementation of CSR

  • Why CSR Matters:

    • To protect the public and environment

    • To support employees and ensure economic viability

    • To act as a motivator for employees

UN Sustainability Goals

  • Overview of sustainability goals discussed in relation to CSR:

    • No poverty, zero hunger, good health and well-being, quality education, gender equality, sustainable cities, and more.

    • Companies like IKEA, Nestlé, Google, and Tesla exemplify responsible practices aligned with sustainability goals.

DISCUSSION & SUMMARY

Individual Reflection

  • Prompt: Reflect on a topic learned during the session and write it down.

Group Work

  • Activity: Discuss key terms from the session with peers and prepare to explain chosen terms in the next session.

REFERENCES AND LITERATURE

  • Collinson, S., Narula, R. & Rugman, A. (2020). International Business (8th ed.). Pearson

  • Hill, C.W.L. (2023). International Business (14th ed.). McGrawHill

  • Steers, R.M., Osland, J.S., Szkudlarek, B. (2024). Management Across Cultures (5th ed.). Cambridge University Press.