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Chapter 1: Intro to international business - Coggle Diagram
Chapter 1: Intro to international business
International business refers to "all value-adding activities-including sourcing, manufacturing and marketing the can be performed internationally"
international trade involves products, services, capital and tech, know how and labour
firms internationalize through various strategies such,
.ie. investment and direct ex sporting doe by big exporting firms
1. Cross-Culture Risk;
A situation or event in which a cultural misunderstanding puts human value at stake
Culture Differences;
Risk arising from differences in a language, lifestyle, attitudes, customs and religion where a cultural miscommunication jeopardizes a culturally-valued mindset or behaviour.
Negotiation patterns;
negotiations are required in many types of business transactions, e.g. where Mexicans are friendly and emphasize social relation, were as Americans are assertive and get down to business quickly
Decision-making styles
.
Managers make decision continually on the operations and future direction of the firm .i.e Japs are methodical were as Canadians, are gunners
Ethical Practices.
Standards of right and wrong vary considerably around the world, i.e. bribery is relatively accept in some countries in Africa, but is generally unacceptable in Sweden
.
Ethical Connections;
In the fashion industry, hundreds of factory workers die annually for dangerous working conditions.
In the production of faded denims, thousands of garment workers develop deadly lung diseases from constant exposure to crystalline silica used to to blast jeans to give them the worn, vintage look.
Illegal in Europe and the United States, such production methods are still widely used in low-income from where the jeans are then distributed affluent consumers worldwide.
Country(Political risk)
Potentially adverse effects on company operations and profitability caused by developments in the political, legal and economic environment in a foreign country
Government intervention, perfectionism, and barriers to trade and investment. U.S. Imposing tariffs on imports of sugar and other agricultural products.
Bureaucracy, red tape administrative delays corruption lack of legal safeguards for intellectual property rights. i.e. Doing business in Russia often requires paying bribes to government.
Lack of legal safeguards for intellectual property rights. i.e. Venezuela's government has interfered much with operations of foreign firms
Legislation unfavourable to foreign firms.
Economic failures and mismanagement
Social and political unrest and instability
Currency Risk,
Risk of adverse fluctuations in exchange rates
Currency exposure
; General risk of unfavourable exchange rate fluctuations.
Asset Valuation;
Risk that exchange rate fluctuations will adversely affect the value of the firm's assets and liabilities.
Foreign taxation;
Income, sales and other taxes vary widely worldwide, with implications for company performance and profitability.(US and their relatively high corporate income taxes)
Inflation
, High inflation, common to many countries, complicates business planning and pricing or inputs and finished goods.(Japanese yen since 2000, Brazil and Turkey)
Commercial Risk
;
the firm's potential loss or failure from poorly conceived or executed biz strats, tactics, or procedures
Weak partner, partners, the company can domestically, terminate poor performing distributors, with advance notice,
internationally, they are regulations protecting local business.
operational problems
commercial risks are linked to Currency risks
Providing poor quality products and/or customer service will hurt the company's brand image.
competitive intensity
Timing of entry
General commercial risks such as these lead to sub-optimal formulation and implementation of the firm's international value-chain activities.
Cyber risk, the likelihood of being hacked and information being leaked, due to weak Info Sys
Social media risk, generating bad publicity(buzz)
How to combat(3):
Always present but manageable
Managers need to understand, anticipate and take proactive action to reduce their effects
Challenging risks
International vs. Domestic Business;
international business, is conducted across national borders
Uses distinctive business methods
Is in contact with countries that differ in terms of culture, language, political system, legal system, economic situation, infrastructure and other factors
when the go international they receive 4 major types of risk.
Who participates in international business(4);
Multinational Enterprises
Small and Medium Enterprises
Born Global firms
state-owned enterprise's
Focal firms,
initiators of an international business transaction, which conceives, designs and produces offerings intended for consumption by customers worldwide, mainly MNEs and SME
Facilitator
a firm/indie with a special set of skills in banking, legal advice, customer clearance or related support services that help focal firms in the performance of international business transactions
Freight forwarder;
a specialized logs service provider that arranges international shipment on behalf of firms,
Distribution channel intermediary,
a specialist firm that provides various logs and marketing services for focal firms as part of international supply chains, both in the home country and abroad
aim their services at focal firms on a contractual basis.
Non-Governmental orgs:
Many of these non-profit org conduct cross-border activities. They pursue special causes and serve as advocates for social issues, education, politics and research. GlaxoSmithKline(GSK) deal with pharmaceuticals in Canada, France, Italy
1. Multinational enterprise(MNE):
A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries.(I.e. Samsung, Unilever and Disney)
2. Small and medium-sized enterprise(SME);
Typically, companies with 500 or fewer employees, comprising over 90% of all firms in most countries. SMEs increasingly engage in international business.
Struggle making a big enough splash for MNEs, resulting in limited resources that can be shared
3. Born Global firms,
A young, entrepreneurial SME that undertakes substantial international business at or near its founding, i.e. Logitech
Why Firms internationalize;
seek opportunities for growth through market diversification.
Earn higher margins and profits, often foreign markets are more profitable.
Gain new ideas about products, services and business methods
Why firms participate in IB(international Business
)
Serve key customers
that have relocated, i.e. Toyota moved overseas thus did their suppliers
Be closer to supply sources
, benefit from global sourcing advantages, or gain flexibility in the sourcing of products; for example, Apple sources their parts from best suppliers
Gain access to lower-cost
or better-value factors of production, SONY manufacturing in China
-
Develop economies of scale
in sourcing, production, marketing and R&D. Airbus.inc lowers its over cost by sourcing and manufacturing, and selling aircraft worldwide.
Confront international competitors
more effectively or stop the growth of competition in the home markets.
Invest in a potentially rewarding relationship
with a foreign partner. French computer company partners with Toshiba to gain insights on developing IT
Consequences of globalization.
Contagion
, tendency of a fin or monetary crisis in 1 country to spread rapidly to other countries due to the ongoing integration of national economies.
Excessive borrowing can give rise to instability or overheating national economies, usually caused by poor regulations in the financial/banking sector.
Fin/econ crises may weaken consumer confidence and reduce on consumer goods, service and other consumables.
Loss of National Sovereignty
Sovereignty, the abilities of a nation to govern its own affairs, 1's country laws cannot be applied or enforced in another country.
MNE activities can interfere with a government's ability to controls its own economy, social structure and political system.
Large Multinational Firms(LMF) can apply much pressure on governments through lobbying or campaign contributions and can frequently influence the legislative process.
The largest firms are constrained by market forces, they cant force buyers to buy their products or suppliers to supply them, consumers are entitled to their choices
To minimize globalization, harm and reap its benefits,
governments should ensure freedom to enter and compete in markets rather than through political process.
Banks and fin insti's should be regulated appropriately.
Transparency in the affairs of business and regulatory agencies is crit
3. Offshoring,
For example Ford and GM laid of US workers due to pressures posed by carmakers from Europe, Japan. So Ford and GM have transferred their jobs to workers in Germany and in Eastern Europe
Reshoring(the return of manufacturing and services back to the home country.)
companies do this to rise wages and other business costs in emerging market countries as
well as the desire to manage operation more effectively and locate the VC activities closer to customers
Effect on the poor,
mainly affects income distribution and worker exploitation by MNE's.
Income distri refers to allocation of GDP and national income among populas.
Effect on Sustainability and the Natural Environment;
Globalization promotes manufacturing and economic activity that result in increased population, habitat destruction and deterioration of the ozone layer.
Japan in the early decades of its manufacturing, endured smog and polluted water, till early WW2, where japan then passed tougher environmental standards to restore their natural environment.
Effects on national culture,
globalization exerts strong pressures on national culture because market liberalization exposes local consumer to global brands, unfamiliar products, and different values.
The influence of a cultures attitude and products flows both ways, Café spice( Indian companies)