International Business Notes

International Business Concepts

International Business Definitions

  • Domestic Business: A business operating within a single country.
  • International Business: A business based in a single country deriving resources or revenue from other countries.
  • Multinational Business: A business with a worldwide presence for buying, borrowing, manufacturing, and selling.
  • Global Business: A business that transcends national boundaries, not tied to a single home country.

Levels of International Business Activity

  • Domestic Business (Lowest) -> International Business -> Multinational Business -> Global Business (Highest)

Globalization Processes

  • Exporting: Selling domestically made products in another country.
  • Importing: Bringing goods, services, or capital into the home country from abroad.
  • Licensing: Granting another company the right to use brand name, trademark, technology, etc., for a royalty.
  • Strategic Alliance: A cooperative arrangement between firms for mutual gain.
  • Joint Venture: A strategic alliance where partners share ownership of a new enterprise.
  • Direct Investment: Building or purchasing operating facilities or subsidiaries in a foreign country.
  • Maquiladoras: Light assembly plants in northern Mexico with special tax breaks.

Advantages/Disadvantages of Internationalization Approaches

  • Importing/Exporting:
    • Advantages: Small cash outlay, little risk, no adaptation necessary.
    • Disadvantages: Tariffs, high transportation costs, government restrictions.
  • Licensing:
    • Advantages: Increased profitability, extended profitability.
    • Disadvantages: Inflexibility, creates competitors.
  • Strategic Alliances/Joint Ventures:
    • Advantages: Quick market entry, access to materials and technology.
    • Disadvantages: Shared ownership limits control and profits.
  • Direct Investment:
    • Advantages: Enhanced control, existing infrastructure.
    • Disadvantages: Complexity, greater economic and political risk, uncertainty.

Global Economy Elements

  • Market Economy: Based on private ownership; supply and demand determine strategy.
  • Market Systems: Clusters of countries with high trade levels.
  • **High potential/high growth economies: Weak industry.
  • Other economies: Exporting countries with property ownership, infrastructure development and are import players.

Environmental Challenges of International Management

  • Economic System: Shift towards market economies.
  • Natural Resources: Varying availability across countries.
  • Infrastructure: Essential support systems (schools, hospitals, transportation, communication).

Trade Agreements/Systems

  • NAFTA: North American Free Trade Agreement (U.S., Canada, Mexico).
  • European Union (EU): Key international market system.
  • Pacific Asia: Market system in Southeast Asia.

Political/Legal Environment

  • Government stability avoids investment loss via nationalization or unrest.
  • Nationalized: Government takeover.

Controls on International Trade

  • Tariff: Tax on goods crossing national borders.
  • Quota: Limits on the quantity/value of traded goods.
  • Export Restraint Agreements: Governments voluntarily limit trade volume/value.

Cultural Environment: Individual Differences

  • Social Orientation: Beliefs on individual vs. group importance.
  • Power Orientation: Beliefs on appropriateness of power/authority differences.
  • Uncertainty Orientation: Tolerance for uncertain situations.
  • Goal Orientation: Motivation toward different goals.
  • Time Orientation: Long-term vs. short-term outlook.

Globalization and Organizations

  • Multinational Corporations: Transfer resources between markets for expansion.
  • Medium-size Organizations: Trade internationally and compete with foreign businesses.
  • Small Organizations: Serve as local suppliers or trade products/services abroad.