International Business

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International Business
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Contact Details

• Lecturer Mr. Shane Kartabil
• Email prof.shane_at_gucb.com

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Overview of Course

• Text
• Mahoney, D., Trigg, M., Griffin, R. Pustay, M.
  2001, International Business A Managerial
  Perspective, 2nd edn, Pearson Education,
  Australia.
• Materials will be
• predominantly from your text
• examples from my own experience
• other materials when cited
• Each week
• we will discuss a hot topic in international
  business (discussion board)
• you will given a case to have a look at (mostly
  from the text) and this will also be used for
  discussion

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Brief Outline of Course
(First few weeks requires solid reading)

• Introduction to International Business
• International Cooperation
• Legal Political Forces
• The Role of Culture

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Brief Outline of Course (cont)

• International Strategic Management
• Analyzing Entering Foreign Markets
• International Strategic Alliances
• Organizational Design for International Business
• Managing Behavior and Interpersonal Relations
• Controlling the International Business Course
  Review

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Course Aim Objectives

• Aim To put you in the shoes of the
  International Manager
• A manager facing the changes and vagaries of the
  rapidly e-Globalizing international marketplace
• Objectives
• introduce a conceptual framework to critically
  analyse issues re international business and
  globalisation.
• investigate differences in political,
  technological, economic, social, and cultural
  environment
• develop skills for critically appraising and
  analysing on-line data sources.
• look at strategies and structures of contemporary
  international businesses
• develop your ability on a theoretical and
  practical level for international business

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Introduction to International Business (Ch1
Ch2)

• After studying chapters 1 2 students should be
  able to
• Discuss the meaning and importance of
  international business.
• Identify and describe the basic forms of
  international business.
• Discuss the evolution of international business.
• Describe the value of economic geography to
  international business people.
• Appreciate the uses of national income data in
  making business decisions.
• Have a more sophisticated understanding of the
  following potential business destinations
• North America, Western Europe, Eastern and
  Central Europe, Asia, Australia, New Zealand and
  the Pacific, North and South Africa, The Middle
  East and South America.

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A few questions for you to ponder before
beginning

• 1. What is the relative impact of international
  business on your daily lives?
• 2. If you had to combine a list of the ten most
  common products you use, how many would relate to
  IB?
• Best to think also in Brand names
• Your decisions will most likely change as we
  progress through this subject

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What is International Business?

• International business involves any business
  transaction between parties from more than one
  country.
• It includes such activities as
• buying and selling raw materials,
• taking finished products across borders,
• operating plants in other countries to take
  advantage of local resources,
• and borrowing money in one country to finance
  operations in a second country.
• International business is different from domestic
  business in that it necessarily involves
  transactions that cross national borders while
  domestic business does not.

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Why study international business?

• This question is posed to you
• Answer
• For you to stay competitive in this marketplace
  you need to be aware of the IB game
• A student of business is naturally (in this
  global village) a student of IB
• Most students will almost certainly work for a
  company that is
• either foreign owned
• domestically owned, but has some foreign
  operations,
• or domestically owned, but is affected by the
  global economy.
• It is important for you as future managers to
  have a cultural business literacy

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International Business Activity

• Five key forms of IB activity
• Most common form of IB activity is
• Exporting Importing
• Exporting involves the selling of goods or
  services made in one's own country for use in
  other countries.
• Importing is the buying of goods or services made
  in other countries for use in one's own country.
• Goods refers to trade in goods (visible trade)
  while services refers to trade in intangible
  products (invisible trade).
• Why export or import?
• the risk involved is minimal
• opportunity often knocks particularly in the
  third industrial revolution (knowledge economy)

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Figure 1.3 The growth of export of goods since
1969 Source International Monetary Fund,
International Financial Statistics Yearbook 1999,
p. 7.
Refer to page 23
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Figure 1.2 Export of goods as a percentage of
GDP for selected countriesSource Economist
Intelligence Unit, Fact SheetGlobal Economy, EIU
Country.
Refer to page 14
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IB Activity (cont)

• International investments -residents of one
  country supply capital to those of a second
  country
• Foreign direct investments (FDI)
• investments in property, assets, or companies
  located in foreign host countries
• Portfolio investments
• purchases of foreign financial assets such as
  shares bonds (not for a takeover)
• Licensing agreements - allows a firm in one
  country to use all or some of the intellectual
  property of a firm in a second country
• Franchising - use the brand names, logos, and
  operating techniques of a firm in a second
  country
• Management contracts - an agreement in which a
  firm in one country agrees to operate a business
  for a fee in another

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Words of caution

• Texts are notorious for favoring the Big End of
  Town (this one is an exception)
• Big is not always beautiful
• Most Australian business is based around SMEs
• SMEs are the largest employers in Australia
• SMEs or TVEs are growing rapidly in China
• Text also often ignores the role of services (eg
  consulting, communications, transportation, and
  tourism)
• Services largest portion of our GDP
• 23.0 per cent of all Australian exports

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The extent of internationalization

• There are several ways to describe the extent of
  a firm's international orientation
• The international business is the broadest
• an organization involved in commercial
  transactions with individuals, private firms, or
  public sector organisations across borders.
• The multinational corporation (MNC)
• engages in foreign direct investment and owns or
  controls value-adding activities in more than one
  country
• buys resources, create goods and/or services, and
  then sell those goods and services in a variety
  of countries
• most often coordinates from headquarters with
  subsidiaries making adjustments as necessary

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Figure 2.1 Headquarters of the largest 500
corporationsSource Fortune, Fortune Global
500, 24 July 2000, pp. F1-F10.
Refer to page 52
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The extent of internationalization

• Three main types of MNC
• Multidomestic corporation
• A corporation with a collection of relatively
  independent operating subsidiaries, each of which
  is focused on a specific domestic market.
• Global corporation
• A corporation that views the world as a single
  marketplace and striving to create standardised
  goods and services
• Transnational corporation
• A corporation that seeks to combine the benefits
  of global-scale efficiencies with the benefits of
  local responsiveness.
• A new corporation? The World company transcends
  national boundaries and Nationless (Ohmae eg
  Nestle)
• Be careful as some texts vary in their
  interpretation of the above

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The evolution of International Business

• Early origins in a snapshot
• International business has origins as far back as
  2000 B C
• 500 BC Greek purple patch Chinese silk road
• Romans at the turn of AD
• Italy had its moments in the Middle Ages
• 1400s saw the Spanish in good traveling spirit
• British and the Dutch strong in the 1600-1900s
• US has dominated the latter stages with 1945-60 a
  golden age
• Marshall plan instituted post WW2 to aid Europe
• Since the Second World War, international
  business has seen continued growth.
• World exports have grown from about US53 billion
  in 1950 to US5.5 trillion by 1998.
• Similarly, FDI has grown from US105 billion in
  1967 to over US1.2 trillion in 1988.

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The evolution of International Business

• 1960s Strengthening of Europe and Japan
• 1970s OPEC oil crisis small car invasion from
  Japan
• End of the 1970s, manufacturers began to copy the
  Japanese - Theory Z (the participative
  organisational practices), TQM , JIT
• 1980s, Australian and New Zealand introduced
• economic and labour market reforms, and enhanced
  deregulation and privatisation (positive ecomomic
  benefits)
• 1987 stock market crash property boom/bust
• 80-90s Emergence of the four Asian tigers

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Modern IB Globalisation

• Todays market has increasingly gone global
  through transport, communication and the Net
• Three important geographic marketplaces dominate
  the world economy (possibly four with China)
• The United States, the European Union, and Japan.
  
• A key concept you must understand is
  Globalisation
• Has been called many things by many people but
  for our purposes
• Globalisation refers to the production and
  distribution of products and services of a
  homogeneous type and quality on a world wide
  basis to customers whose tastes and preferences
  are similar and converging.
• The most stunning changes to international
  business during the 1990s were developments in
  electronic commerce.
• Electronic commerce is the buying and selling of
  information, products and services via computer
  networks.

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Remember the Game for us is now Global
Refer to page 47
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Reasons for IB growth

• Several reasons international business growth has
  occurred and will continue.
• The desire to increase returns for shareholders
• Leads to market expansion as firms seek new
  markets
• Firms seeking materials, unavailable in their own
  countries must go to foreign sources.  
• The presence of competitive forces also prompts
  foreign investment as firms struggle to keep pace
  with their rivals.
• Changes in technology as discussed have also
  spurred the growth of international business
• Firms have capitalised on computer technology and
  better transportation
• Shift in tastes
• Today's consumers are globe-savvy and aware of
  the products and services offered in other
  countries
• Freer trade has been a major advantage for IB

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How well do you know the IB territory

• Do you know the World IB setting?

• How far apart are Tokyo Singapore

• 5300km

• What is the capital of the Ukraine?

• Kiev

• What is Brazils official language

• Portuguese

• What countries border France?

Andorra, Belgium, Luxembourg, Monaco, Germany,
Switzerland, Italy Spain

• Plenty of mistakes have been made in IB
• The text on page 44-45 shows numerous blunders
• Mercedes tried to roll off its trash
• Energiser Bunny you better make sure the
  wedding ring finger is right

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Structure characteristics of the world economy

• Various factors of economic geography affect
  international trade
• shared borders
• common heritage
• similar income levels
• and ownership of natural resources
• see Jared Diamond (Guns, Germs Steel)
• Your assignment requires you to ponder the
  regions and make specific choices as to what
  region and what countries to select 
• Keep this in mind in this early chapter
• For example a good article on classifying
  countries according to GDP, GNP, Purchase Power
  Parity (pp. 48-49)

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Important Reading

• We cannot cover chapter 2 in detail in the
  lecture
• NAFTA and The EU and other blocs will become
  increasingly important
• You need an understanding of the circumstances of
  the following
• The US
• Canada
• Mexico, Central America The Caribbean
• Western Europe
• Central Eastern Europe
• Russia and the new States
• Japan,Four Tigers, China
• Malaysia, Indonesia, Thailand Vietnam
• India, Pakistan Sri Lanka
• Australia, NZ The Pacific
• Africa, The Middle East South America

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Traps for young IB players

• The closing case on page 85-86 is interesting
• Focuses on the opportunities in China
• Also the down side
• Many have failed
• Do you think you understand China
• Need to snap your myth of a simple homogeneous
  population
• See also India
• Next week we will move on to chapter 3 4