Overview of International Business

By
Dr. Nadia Farhana
Assistant Professor
Department of Business Administration
Stamford University Bangladesh
International Business
International Business
Business that engages in cross border commercial
transactions with individuals, private firms and public
sector organizations.
It is the study of transactions taking place across national
borders for the purpose of satisfying the needs of
individuals and organizations.
In its broadest sense, Globalization refers to the broadening set of
interdependent relationships among people from different parts of
a world that happens to be divided into nations. It also refer the
integration of world economies through the reduction of barriers
to the movement of trade, capital, technology and people.
Basis for Studying International Business

Assess better career opportunity and interact

effectively
Become a business man or working as an
executive in a MNC
To keep pace with competitive world
To know the latest business techniques and tools
To obtain cultural literacy
Factors in Increased Globalization
 Increased in and expansion of technology
 Liberalization of cross border trade and recourse
movements
 Growing consumer pressure
 Increased global competition
 Changing political situations
 Expand cross national cooperation
 Gain reciprocal advantage
 Multinational problem solving
What’s wrong with Globalization?
 Threats to National Sovereignty
 The question of local objectives and policies
 The question of small economies overdependence
 The question of cultural homogeneity
 Economic growth and environmental stress

 Growing income inequality and personal stress

 Is Offshoring Good Strategy?

Growth of IB/Reason for Doing IB

 Market Expansion : Productive capacities made Nestle to

ship milk in 16 different countries in 1875
 Resources acquisition : Resource scarceness and
unavailability make US firm to buy coffee, bananas from
SA, Japan buy forest product from Canada, oil from
Middle East, Africa. Sony assemble plants in Malaysia,
Firms in many countries buy communication equipment
from Northern Telecom (Canadian)
 Competitive force : Because of economies of scale and
financial strength that comes with larger organizational
size, small firm like Mazda struggle for years of its largest
domestic competitors because of lack of resources –
Toyota, Nissan
 Technological changes : Exxon relies on computer
 Social changes : Kellogg
 Government trade and investment polices change
Activities/ Modes of International Business

1. Export and Import-

Exporting can be direct and indirect.
 Direct exporting – the company sells products to a
customer in another country.
 Example-Boeing is the largest exporter in America.
 Indirect exporting – the company sells to a buyer
(importer or distributor) in the home country who in
turn exports the product.
a) Merchandise exports and imports/visible trade
b) Service export and import/invisible trade
2. International Investment
a) FDI : the company that invests within a foreign country to
capitalize on low cost labor, to avoid high import taxes, to
reduce the high costs of transportation to market, to gain
access to raw materials or as a means of gaining market
entry.
Example –
 Korea’s Samsung invested $500 to build television tube
plants in Tijuana.
 Nestle built a new milk factory in Thailand.

b) Portfolio Investment : purchase of foreign financial assets

Like stocks, bonds certificate of deposit- 1000 shares of
Sony’s common stock by a Danish pension fund
Other Operational activities
1. Licensing : It is an agreement whereby a licenser grants
the rights to intangible property to another entity for a
specified period in return the licensor receives a loyalty
fee from licensee.
 Example -Walt Disney Company may permit a German
clothing manufacturer to market children pajamas
2. Franchising : A firm in one country authorizes a firm in a
second country to utilizes its brand names, logos,
operating techniques in return for a royalty payment.
 Example-McDonald’s Corporation franchises its fast
food restaurant worldwide.
3. Merger : Two companies come in together and agree to
combine the entity into one.
Alternative Strategies: Stages of
Development Model
1. Domestic
2. International
3. Multinational
4. Global
5. Transnational
Domestic Firm-Firm that engages in investment in
domestic market and owns or controls value adding
activities in a country.
 Example – Aftab Group.
International Company -Firm that engages in investment
in domestic market mainly and owns or controls value
adding activities in a country but sometime or regularly
sells product in foreign market.
 Example – Shah Cement
Different Forms of MNC
a. MNC : Firm that engage in foreign direct investment and owns or controls
value adding activities in more than one country.
 Example-Standard Chartered Bank
b. MNE : Company that is headquartered in one country but having operation in
other countries.
 Example-Wimpy
c. MNO : Company which engage in profit and non profit seeking business
operations
 Example- Brac, UN, Save the Children
d. Multi-domestic corporation : It views itself as a collection of relatively
independent operating subsidiaries, each of which is focused on a specific
domestic market and free to customized its products, marketing campaign and
production techniques to best serve the needs of the local customers. The
multi-domestic approach is particularly useful when distinct differences exist
among national markets; economics of scale in production, distribution ,and
marketing are low; and coordination cost between the parent corporation and
its foreign subsidiaries are high. Because each subsidiary needs to be
responsive to local market, the parent typically delegates much power and
authority to mangers of its subsidiaries in host countries.
 Example – Unilever, Proctor and Gamble
 Global corporation : Global companies produce for the
world market. Production takes place where it can be done
cheapest. The company is not organized according to
country, like a MNC, but according to products.
Management is highly centralized. The products are not
designed to cater for specific local tastes. The attractive
feature of the products of global companies is their price,
since the standardized and high volume production
method make it possible to produce cheaply. The product
division managers have the power in a global company.
 Transnational corporation : TNC try to combine the
market specific approach of MNCs and the standardized
production methods of the global companies. The
management is therefore organized along country
management and product management. The organization
structure of a TNC resembles an international matrix or
network, in which the efforts of country managers (to cater
for local tastes) and product managers (to increase
efficiency) are coordinated
Why international business differs
from domestic business?
 Physical and social factors
 Geographic influences
 Political policies
 Behavioral factors
 Economic forces
 The competitive environment
 Competitive strategy for products
 Company resources and experience
 Competitors faced in each market