MGT520 Official Handouts

Unit 1

Learning Objectives:

z To define international business and describe how it differs from domestic business. z To explain why companies engage in international business and why its growth has accelerated. z To introduce different modes a company can use to accomplish its global objectives. z To illustrate the role social science disciplines play in understanding the environment of international business. z To provide an overview of the primary patterns for companies’ international expansion. z To describe the major countervailing forces that affect international business.

Lesson Overview:

The first part of the chapter is designed to give a brief overview of international business in terms of why companies get involved, why there has been a recent growth in international business, the major modes of international business activities, the relationship to other disciplines, and the need to adjust operations to different operating environments. The second part of the chapter introduces features that will be covered in other chapters as well. These include the internationalization process, countervailing forces, ethical dilemmas, and looking to the future.

Lesson 01 INTRODUCTION TO THE FIELD OF INTERNATIONAL BUSINESS

International business is all commercial transactions (private and governmental) between two countries. A.

Why Companies Engage in International Business

1. Expand Sales. Going international allows companies to increase the size of the market to which they offer their products.
2. Acquire Resources. Foreign capital, technology, labor, components all can help a firm become more competitive.
3. Diversify Sources of Sales and Supplies. By operating in multiple countries, firms help protect themselves from economic downturns in any single country. In the same way, having suppliers in multiple countries helps protect the firm from shortages due to economic, social, or political disruptions in any single country.

Q4. Minimize Competitive Risk. Companies expand internationally to competitors’ home markets in order to maintain a competitive balance across markets.

1. Reasons for Recent International Business Growth—From Carrier Pigeons to the Internet.

1. Expansion of Technology. Air travel, the internet, e-mail, e-commerce, direct dial international phone calls, fax, and other technologies have brought down the cost and increased the efficiency of doing business internationally.
2. Liberalization of Cross-Border Movements. The World Trade Organization (WTO, discussed in Chapter 6) and other international trade agreements have reduced barriers to the movement of goods and services across national boundaries.
3. Development of Supporting Services. International banking, international document delivery, and other services have tremendously simplified the conduct of international business.
4. Increase in Global Competition. It is becoming increasingly important that firms have international operations in order to be able to shift production across countries and take advantage of new production location and marketing opportunities to stay ahead of other international competitors.
5. Exports are goods and services produced in one country and then sent to another country. Imports are goods and services produced in one country and then brought in by another country. Information about exports and imports helps us to explain the impact of international business on the economy.
6. Foreign direct investment (FDI) is equity funds invested in other nations. Industrialized countries have invested large amounts of money in other industrialized nations and smaller amounts in less developed countries (LDCs), such as those in Eastern Europe, or in newly industrialized countries (NICs), such as Hong Kong, South Korea, and Singapore. Most of the world’s FDI is in the US, the European Union (EU), and Japan. As nations have become more affluent, they have pursued FDI in geographic areas that have economic growth potential. The Japanese, for example, have been investing heavily in the EU in recent years.
7. Over 50 per cent of world trade and over 80 per cent of foreign direct investment is conducted by three regional economic hubs: the US, the EU and Japan. Collectively, these areas are referred to as the “triad”. The triad is a group of three major trading and investment blocs in the international arena.