Overview of

International
Business
 1. Know the definition of
international business
2. Discuss the distinctions
between domestic and
international business
LEARNING 3. Enumerate the theories if
OUTCOMES: international trade and investment
4. Discuss the international
business environment
International Business
It is defined as business transactions that take place across national
borders. This broad definition includes the very small firm that exports a
small quantity to only one country, as well as the very large global firm with
integrated operations and strategic alliances around the world.

Within this broad array, distinctions are often made among different types
of international firms, and these distinctions are helpful in understanding a
firm's strategy, organization, and functional decisions.

One distinction that can be helpful is the distinction between multidomestic

operations, with independent subsidiaries that act essentially as domestic
firms, and global operations, with integrated subsidiaries that are closely
related and interconnected.

These may be thought of as the two ends of a continuum, with many

possibilities in between. Firms are unlikely to be at one end of the
continuum, though, as they often combine aspects of multidomestic
operations with aspects of global operations.
International Business

International business grew over the last half of the

twentieth century and the first decades of the twenty-
first century, partly because of liberalization of both
trade and investment, and partly because doing
business internationally had become easier. In terms
of liberalization, the General Agreement on Tariffs and
Trade (GATT) negotiation rounds resulted in trade
liberalization, and this was continued in 1995 with the
formation of the World Trade Organization (WTO),
which is responsible for the regulation of trade on the
global level. Other regional trade agreements include
the North American Free Trade Agreement (NAFTA)
between the United States, Canada, and Mexico, and
the MERCOSUR between South American countries.
At the same time, most governments liberalized
worldwide capital movements, particularly with the
advent of electronic funds transfers.
International Business
Another proposed trade accord, the
Trans-Pacific Partnership (TPP), was put
together largely during the presidency of
Barack Obama (b. 1961) and would have
included enough member nations to
account for roughly one-third of all world
trade. During the presidential election of
2016, however, the TPP became a
political hot-button issue, with both major
candidates disavowing it, effectively
scuttling the accord, at least for the time
being
 Domestic and international enterprises, in both the public and private sectors,
share the business objectives of functioning successfully to continue
operations. Private enterprises seek to function profitably as well. Why, then, is
international business different from domestic?

The answer lies in the differences across borders. Nation states generally have
Domestic unique government systems, laws and regulations, currencies, taxes and
duties, and so on, as well as different cultures and practices. An individual
traveling from his or her home country to a foreign country needs to have the
versus proper documents, to carry foreign currency, to be able to communicate in the
foreign country, to be dressed appropriately, and so on.
International
Business Doing business in a foreign country involves similar issues and is thus more
complex than doing business at home. The following sections will explore
some of these issues. Specifically, comparative advantage is introduced, the
international business environment is explored, and forms of international entry
are outlined.
• In order to understand
international business, it is
necessary to have a broad
conceptual understanding of why
trade and investment across Theories of
national borders take place. Trade International
and investment can be examined Trade and
in terms of the comparative Investment
advantage of nations.
• Comparative advantage suggests that each
nation is relatively good at producing certain
products or services. This comparative advantage
is based on the nation's abundant factors of
production—land, labor, and capital—and a
country will export those products/services that
Theories of
use its abundant factors of production intensively.
Simply, consider only two factors of production,
International
labor and capital, and two countries, X and Y. If
country X has a relative abundance of labor and
Trade and
country Y a relative abundance of capital, country
X should export products/services that use labor
Investment
intensively, and country Y should export
products/services that use capital intensively.
• International business is different from
domestic business because the environment
changes when a firm crosses international
borders. Typically, a firm understands its The
domestic environment quite well but is less
familiar with the environment in other International
countries and must invest more time and
resources into understanding the new Business
environment. The following considers how
the economic, political, cultural, and
Environment
competitive environment can vary from
nation to nation.
The Economic Environment

• The economic environment can be very different

from one nation to another. Countries are often
divided into three main categories: the developed
countries, the least developed countries, and
developing or emerging economies. Within each
category there are major variations, but overall the
more developed countries are the rich countries, the
less developed the poor ones, and the newly
industrializing those moving from poorer to richer.

• These distinctions are usually made on the basis of

gross domestic product per capita (GDP/capita).
Better education, infrastructure, technology, health
care, and so on are also often associated with
higher levels of economic development.
The Political Environment

• The political environment refers to

the type of government, the
government relationship with
business, and the political risk in a
country. Doing business
internationally thus implies dealing
with different types of governments,
relationships, and levels of risk.
 • There are many different types of political systems, 1)
such as multiparty democracies, 2) one-party states, 3)
constitutional monarchies, 4) and dictatorships (military
and non-military). Also, governments change in different
ways, for example, by regular elections, occasional
elections, death, coups, war. Government-business
relationships also differ from country to country. Business
may be viewed positively as the engine of growth, it may
The Political be viewed negatively as the exploiter of the workers, or
somewhere in between as providing both benefits and
Environment drawbacks. Specific government-business relationships
can also vary from positive to negative depending on the
type of business operations involved and the relationship
between the people of the host country and the people of
the home country. To be effective in a foreign location an
international firm relies on the goodwill of the foreign
government and needs to have a good understanding of
all of these aspects of the political environment.
The Cultural Environment

• The cultural environment is one of the critical

components of the international business
environment and one of the most difficult to
understand. This is because the cultural
environment is essentially unseen. It can be
described as a shared, commonly held body of
general beliefs and values that determine what
is right for one group. National culture is
described as the body of general beliefs and
values that are shared by a nation. Beliefs and
values are generally seen as formed by factors
such as history, language, religion, geographic
location, government, and education; thus,
firms begin a cultural analysis by seeking to
understand these factors.
The Competitive Environment

• The competitive environment can also change from country to

country. This is partly because of
• the economic, political, and cultural environments; these
factors help determine the type and degree of competition that
exists in a given country. Competition can come from a variety
of sources. It can be public or private sector, come from large
or small organizations, be domestic or global, and stem from
traditional or new competitors. For the domestic firm the most
likely sources of competition may be well understood. The
same is not the case when one moves to compete in a new
environment. For example, in the United States most business
is privately owned and competition is among private sector
companies, while in the People's Republic of China some
businesses remain under the direction of the state. Thus, a
U.S. company in the PRC could find itself competing with
organizations owned by state entities. This could change the
nature of competition dramatically.
•
The Competitive
Environment
• The nature of competition can also change from
place to place in a variety of ways: competition may
be encouraged and accepted or discouraged in
favor of cooperation; relations between buyers and
sellers may be friendly or hostile; barriers to entry
and exit may be low or high; regulations may permit
or prohibit certain activities. To be effective
internationally, firms need to understand these
competitive issues and assess their impact. In
addition to trade liberalization, there has been an
effort to negotiate trade facilitation, which focuses
on the cost of trade and customs procedures.
•
The Competitive
Environment
• An important aspect of the competitive
environment is the level, and acceptance, of
technological innovation in different countries.
Technology often is seen as giving firms a
competitive advantage; hence, firms compete
for access to the newest in technology, and
international firms transfer technology to be
globally competitive. It is easier than ever for
even small businesses to have a global
presence thanks to the internet, which greatly
expands their exposure, their market, and their
potential customer base. For economic,
political, and cultural reasons, some countries
are more accepting of technological
innovations, others less accepting.
End of
Presentation.
QUIZ…