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This document outlines the fundamentals of international business, including its definition, components, and significance in the global economy. It covers topics such as exporting, importing, foreign direct investment, licensing, franchising, joint ventures, and multinational corporations, highlighting their benefits and challenges. Additionally, it encourages students to analyze the impact of globalization on local businesses in the Philippines.

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2 views

Module-1 (1)

This document outlines the fundamentals of international business, including its definition, components, and significance in the global economy. It covers topics such as exporting, importing, foreign direct investment, licensing, franchising, joint ventures, and multinational corporations, highlighting their benefits and challenges. Additionally, it encourages students to analyze the impact of globalization on local businesses in the Philippines.

Uploaded by

aldriennesummergayanes.naag24
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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INTERNATIONAL BUSINESS AND TRADE

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Module 1: Introduction to International Business

Overview

This module introduces students to the fundamentals of international


business, focusing on its definition and scope, the role of globalization, and
the distinctions between domestic and international business. By
understanding these topics, students will gain insights into the complexities
and opportunities of operating in the global business environment.

Learning Objectives

At the end of this module, students will be able to:

1. Define international business and explain its components and


significance in the global economy.

2. Analyze the impact of globalization on international trade and business


operations.

3. Compare and contrast domestic and international business


environments.

Module Topics

Definition and Scope of International Business

Definition of International Business: International business refers to all


commercial transactions (private and governmental) that involve two or
more countries. These include trade, investments, and collaborations.

Components of International Business:

1. Exporting and importing goods and services.

Exporting- The process of selling goods or services produced in


one country to another country.

Importing- The process of buying goods or services produced


in another country for use or resale in the domestic market.

Significance in International Business:

Exporting
1. Provides access to new markets, leading to increased sales and revenue.
2. Helps businesses achieve economies of scale in production.
3. Reduces dependence on the domestic market.

Importing

1. Allows countries to obtain goods and services unavailable locally.


2. Encourages innovation by introducing new products and technologies.
3. Reduces production costs through access to cheaper raw materials.

Challenges
1. Compliance with trade regulations and tariffs.
2. Currency exchange rate fluctuations.
3. Cultural and linguistic barriers in international transactions.

Example
The United States exports agricultural products (e.g., soybeans and
corn) and imports electronics and automobiles from countries like
China and Japan.

2. Foreign Direct Investment (FDI)

Definition:

FDI occurs when a company or individual from one country invests in a


business in another country, establishing operations or acquiring
tangible assets, such as factories or machinery.

Types of FDI

1. Horizontal FDI - Investing in the same business activity in a


foreign country (e.g., Coca-Cola setting up bottling plants abroad).
2. Vertical FDI - Investing in different stages of production (e.g., a
U.S. company owning a factory in China and a distribution center in
Europe).
3. Greenfield Investment - Establishing a new operation in a foreign
country.
4. Mergers and Acquisitions - Acquiring or merging with an existing
foreign business.

Benefits of FDI

1. Boosts the host country's economy by creating jobs and introducing


technology.
2. Offers investors access to new markets and reduces production
costs.
3. Promotes international collaboration and business expansion.

Challenges:

1. Navigating political and economic instability.


2. Adhering to foreign laws and regulations.
3. Managing cultural and operational differences.

Example:

Toyota's investment in manufacturing plants in the U.S. is an example


of FDI aimed at accessing the North American market.

3. Licensing and Franchising

Licensing - A contractual agreement where a company (licensor)


allows another company (licensee) to use its intellectual property (e.g.,
patents, trademarks, technology) for a fee.

Franchising - A form of licensing where a franchisee operates a


business under the franchisor's brand and business model, paying
royalties or fees.

Advantages of Licensing and Franchising

Licensing

1. Enables companies to enter foreign markets without direct


investment.
2. Provides a steady revenue stream through royalties.

Franchising

1. Rapid business expansion with minimal capital investment.


2. Local franchisees bring market-specific expertise.

Challenges

1.Loss of control over how the product or brand is represented.


2.Potential misuse of intellectual property.
3.Dependence on the licensee or franchisee for success.
Example:

McDonald's operates globally through franchising, allowing local


entrepreneurs to run restaurants under its established brand.

4. Joint Ventures and Strategic Alliances


Joint Venture (JV)- A business arrangement where two or more
parties form a separate legal entity to achieve a specific objective,
sharing profits, risks, and resources.

Strategic Alliance - A partnership between companies to pursue


mutual goals without forming a separate legal entity.

Advantages of JV and SA

1. Access to new markets and shared risks.


2. Combines resources, expertise, and technology from both parties.
3. Helps companies navigate foreign regulations and cultural barriers.

Challenges

1. Potential for conflicts due to differences in goals or management


styles.
2. Complexities in dividing profits and decision-making responsibilities.
3. Risk of knowledge sharing leading to competition in the future.

Example

Sony and Ericsson formed a joint venture (Sony Ericsson) to produce


mobile phones, combining Sony's technology with Ericsson's
telecommunication expertise.

5. Multinational Corporations (MNCs)

An MNC is a company that operates in multiple countries, with


facilities, assets, or production in more than one nation. Examples
include Apple, Nestl\u00e9, and Samsung.

Characteristics

1. Operates in multiple countries with centralized management.


2. Engages in global production, supply chain management, and
marketing strategies.
3. Contributes to economic integration and globalization.

Benefits

4. Access to diverse markets and revenue streams.


5. Economies of scale through global operations.
6. Transfer of technology and knowledge between countries.
Challenges

1. Managing cultural diversity and local regulations.


2. Criticism for exploiting resources or labor in developing countries.
3. Complexity in tax compliance and profit repatriation.

Example:

Nestle operates in 190 countries, tailoring products to local


preferences while leveraging global supply chains and marketing
strategies.

Learning Activity: Pros and Cons of Globalization for Philippine


Businesses

Objective:
To encourage students to critically analyze the advantages and
disadvantages of globalization for local businesses in the Philippines.

Instruction. Answer the question

1. What are the pros and cons of globalization for Philippine


businesses?

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