INTERNATIONAL BUSINESS MANAGEMENT

Tamiru Kumsa( MA,MBA, Assistance

professor, Ph.D candidate at Punjabi
university )
 WHY IBM?
 To Understand why countries and businesses engage in
international business.
 To Understand the economic, legal, political and
cultural aspects of the environments in which
multinational businesses operate.

 To Become familiar with regional economic

organizations / agreements
 CHAPTER ONE

INTERNATIONAL
BUSINESS(IB) :OVERVIEW
1.1 International Business : Overview
 IB business carried on across the national borders between two
or more nations.
 The expansion of business functions to various countries with
an objectives of fulfilling the needs & wants of international
customers.
 It refers to firms that engage in international trade and
investments.
o Can be carried out by a government or individuals
o Embraces the idea of marketing mix & selling
products/services around the world.
 International Business : Overview Business…
E.g.
Midroc global business operations, which employ more than 70,000
people
oconstruction, petroleum, mining, manufacturing, tourism, real estate,
industrial services and trade.
Salini Construction, Italian,
 more than 67 Chinese enterprises E.
Total, Petroleum product, French,
Heineken, Holland, Available in 170 countries
Japanese luxury car makers such as Honda and Toyota have moved
some production to America.
The German Mercedes is building its assembly plant in American.
 The Need For IB
 It causes the flow of ideas, services, and capital across the world.
 Manufacturing firms, as well as service companies/ banks, airline,
insurance/,consulting firms have extensive global operations.
 Necessary b/c economic isolation has become impossible
 Offers companies new markets.
 Innovations can be developed and disseminated more rapidly, human
capital can be used better, financing can take place more quickly.
 Offers consumers new choices.
 Facilitates the mobility of factors of production except land &
provides employment opportunities to individuals.
Going International business
1.2. Domestic vs. International Business

 Just from the nature /area of a market to be served points of view,

business will fall in to domestic and international.
 The differences arise from the simple fact that countries are
different.

E.g. Marketing a product in Ethiopia may require a different

approach from marketing the product in Italy.
Domestic vs International business
Criteria to Domestic business International business
differentiate
Customers to be served Almost homogeneous Unrelated
Nature of product Same/related/standard Needs adaptaion
Pricing method and Related Quite different
amount
Promotional method Makes use of local Different
language
Distribution methods Can be direct or Can be direct or
indirect indirect /export
Degree of risk Limited Too much
Cost of production Depends up on cost of Depends up on cost of
raw materials available raw materials available
locally locally/international
Domestic vs International business…
Rules and Almost the same Quite different
regulations set by
government
Culture Quite related Unrelated
Economic system Is one type Can be free,
command or
mixed
Attitude towards a Related Unrelated
product
Political system Related Unrelated
1.3 Why Study International Business Management?

Significant differences exist in countries such as:

 Consumer tastes and preferences
 Distribution channels/intermediaries
 Culturally embedded value systems
 Economic systems
 Legal systems
 These differences require that product features, product mix,
marketing strategies and operating practices are customized to
match conditions of a particular country.
What is Globalization?
1.4 Globalization
 It is the increased mobility/movement of goods, services, labor,
technology, and capital throughout the world.
 It refers to the shift toward a more integrated and interdependent
world economy
 Is a case when a given local company is to operate business globally.
while making use of one or more foreign market entry strategies.
 It reflects the trend of firms buying, selling and distributing products
and services in most countries and regions of the world.
Globalisation/key facets may be classified
as:

1) The Globalisation of Markets, and

2) The Globalisation of Production

1) The Globalisation of Markets

It refers to the merging of historically distinct and separate national
markets into one global marketplace.
The lowering of barriers to international trade enables firms to view the
world, rather than a single country, as their market.
2)Globalisation of Production
It refers to the sourcing of goods and services from locations
around the globe to take advantage of national differences in the
cost and quality of factors of production(labor, energy, land &
capital).
The lowering of trade and investment barriers allows firms to
base production at the optimal location for that activity.

A firm might design a product in one country, produce

component parts in other countries, assemble the product in yet
another country, and then export the finished product around the
world.
2)Globalisation of Production…

o Companies hope to lower their overall cost structure

o Improve the quality or functionality of their product offering,
o Allowing them to compete more effectively.
 Example: Boeing’s 777, 30 percent of it, by value, is built by
foreign companies by outsourcing.

Eight Japanese suppliers, three suppliers in Italy & a supplier in

Singapore.
Example: Lenovo, a Chinese company.
oThinkPad design work & the microprocessor in the USA
oKeyboard & hard drive are made in Thailand,
oThe display screen and memory in South Korea
oBuilt-in wireless card in Malaysia
oComponents are then shipped to a plant in Mexico b/c of low labor
costs where the product is assembled before being shipped to the
United States for final sale.
1.5 Drivers of Globalization/IB
Two macro factors:
1.The decline in barriers to the free flow of goods, services, and
capital after World war II. Such as:
 Foreign direct investment
 Foreign Trade
2. The Emergence of Global Institutions. such as:
 World Trade Organization (WTO)

 International Monetary Fund (IMF)

 World Bank, United Nations, etc

Others

Rapid-Technological change

Transportation technology change

Drivers of Globalization/IB…

1.The decline in barriers to the free flow of goods,

services, and capital after World war II.
a. Foreign direct investment (FDI): occurs when a firm invests
resources in business activities outside its home country. E.g. Ford
builds a car factory in Russia, in 2003.
The main benefits of inward FDI for a host country arise from
resource-transfer effects, employment effects, balance-of-payments
effects, and effects on competition and economic growth.
Con…
b. Foreign Trade:
 occurs when a firm exports goods or services to consumers in
another country
Can be seen from:
 Raw materials

 Labour/man power

 Cost of production

 Market

 Government rules and regulations

o Other factors points of view (eg.rapid increment in the population size,

 Declining Trade And
Investment Barriers
Average Tariff Rates on Manufactured Products as Percent of Value

1-31
DRIVERS OF IB/ GLOBALISATION …

2. The Emergence of Global Institutions

Why Do We Need Global Institutions?
Global institutions
 manage, regulate, and police the global marketplace

 promote the establishment of multinational treaties to govern the global

business system. such as:

General Agreement on Tariffs and Trade (GATT)

World Trade Organization (WTO)
International Monetary Fund (IMF)
World Bank
United Nations (UN)
G20
1.6 Opportunities and Challenges in IB

Opportunities
 Increment in the population size
 Adoption of free-liberal investment policies by many nations
 Packages of incentives given by government of many nations
 Packages of guarantee given by government of many nations
 Falling interest rates to borrow
 Opportunities…

 Emergence of latest IT-technology

 Emergences of many more international agreements
 Emergences of many more regional integration activities
 Multilateral institutions
 International economic integration
 Mover towards free marketing system
 Rising research and development costs
Threats
 Entry barriers :are factors that make it costly for potential
competitors to enter an industry.
 Exit barriers: the fixed costs of closing down capacity, lay off
differences in legal, economic, cultural, environment
 Foreign Exchange Risks.
 Political/economic instabilities
 Natural catastrophe
 Possibility of facing business risks
 Differences in employment recruitment, selection etc.
 Rising interest rates to borrow
 War and civil disturbances
 employees, government regulations etc.
 Domestication requirements
 Citizen requirements
Argument Against Globalisation

Many experts believe that globalization is promoting

greater prosperity in the global economy, more jobs, and
lower prices for goods and services.
Others agree that globalization has done more harm than
good.
 END

Chapter –One

Thanks!
Case analysis
Globalization of Health Care
(Charles 9thed ,pp-42)