International business | Wikipedia audio article
International. Business refers, to the trade of goods services, technology, capital. And/or, knowledge across national borders, and, at a global level it. Involves, cross-border, transactions. Of goods and services between, two, or more countries. Transactions. Of economic, resources, include, capital skills. And people for the purpose of the international, production, of physical goods and services, such as finance, banking, insurance and, construction. International. Business is also known as globalization. To. Conduct business overseas, multinational. Companies, need to bridge separate, national markets, into one global marketplace, there. Are two macro scale, factors, that underline the trend of greater globalization. The. First consists, of eliminating, barriers to, make cross-border, trade easier eg, free flow of goods and services and, capital referred, to as free, trade the. Second, is technological. Change particularly, developments. In communication. Information. Processing, and transportation, technologies. Topic. Overview. International. Business is, also. Defined as the study of the internationalization. Process, of multinational. Enterprises, a, multinational. Enterprise. MN II is a company, that has a worldwide approach, to markets production, and/or operations, in several countries. Well-known. MN EES include, fast food companies such as McDonald's, MCD. Yum-yum. Starbucks, Coffee Company SBU. X Microsoft MSFT. Etc. Other. Industrial. Emani's, leaders, include, vehicle, manufacturers. Such as Ford Motor Company, and General, Motors GMC. Some. Consumer, electronics. Producers, such as Samsung, LG and, Sony and energy, companies, such as Exxon, Mobil and British Petroleum BP. Are also multinational. Enterprises. Multinational. Enterprises, range from any kind of business activity, or market, from consumer, goods to machinery manufacturer. A company, can become an international, business. Therefore. To conduct business overseas companies. Should be aware of all the factors that might affect any business, activities, including, but not limited to, difference, in legal systems, political systems, economic policy. Language Accounting. Standards Labor Standards living, standards, environmental. Standards, local cultures corporate, cultures foreign, exchange markets, tariffs, import, and export regulations, trade, agreements, climate, and education, each. Of these factors may require changes in how companies operate, from one country to another each. Factor, makes a difference in a connection, one. Of the first scholars to engage in developing, a theory of multinational. Companies was Canadian economist, Stephen heimer throughout. His academic, life he developed, theories that sought to explain, foreign, direct investment, FDI and. Why firms become multinational. There. Were three phases of internationalization. According, to high Murs work the, first phase of high Murs work was his dissertation, in 1960. Called the international, operations, of national, firms in this. Thesis the author departs, from neoclassical. Theory, and opens up a new area of international, production, at. First himer started, analyzing, neoclassical. Theory and financial, investment, where the main reason for little movement as the difference in interest rates after. This analysis, heimer analyzed, the characteristics. Of foreign investment, by large companies for production, and direct business purposes. Calling this foreign direct investment, FDI, by. Analyzing, the two types of investments, heimer distinguished, financial, investment, from direct investment, the. Main distinguishing, feature, was control, portfolio. Investment. As a more passive approach and the main purpose as financial, gain whereas, in foreign direct investment. A firm has control over the operations, abroad so. The traditional, theory of investment, based on differential, interest rates does not explain the motivations, for FDI.
According. To heimer there are two main determinants of FDI where an imperfect, market structure, is the key element the. First is the firm specific advantages. Which are developed, at the specific, company's home country, and profitably, used in the foreign country, the. Second determinant, is the removal of control wareheimer, wrote when, firms are interconnected, they compete in selling, in the same market, or one of the firm's may sell to the other and, because. Of this it, may be profitable to substitute. Centralized, decision-making, for, decentralized, decision-making. Hi MERS second, phase is his neoclassical. Article, in 1968. That includes, a theory of internationalization. And explains, the direction, of growth of the international, expansion of firms in a. Later stage heimer went to a more Marxist, approach where, he explains, that MNC, as agents, of an international, capitalist, system, causing, conflict in contradictions. Causing, among other things inequality. And poverty in the world heimer, is the father, of the theory of MNEs, and explains. The motivations, for companies, doing direct business abroad, among. Modern, economic, theories of multinationals. And foreign direct investment. Our internalization, theory, and John Dunning Zahle paradigm, standing, for ownership location. And internationalization. Dunning. Was widely known for his research in economics of, international. Direct investment, in the multinational. Enterprise, his. Olli paradigm, in particular. Remains, as the predominant theoretical. Contribution. To study international business topics. Heimer, and Dunning are considered, founders, of international, business as a specialist, field of study. Topic. Physical. And social, factors of competitive, business, and social, environment. The, conduct, of international, operations, depends, on the company's, objectives, and the means with which they carry them out the. Operations. Affect and are affected by, the physical, and societal factors in, the competitive, environment. Topic. Operations. All, firms, that want to go international have, one goal in common, the desire to increase their respective, economic values when engaging in international.
Trade Transactions. To. Accomplish, this goal each firm must develop its individual, strategy, and approach to maximize, value lower, costs, and increase profits, a firm's. Value creation, as the difference between V the value of the product, being sold and, C the cost of production per each product, sold value, creation can be categorized, as primary, activities, research, and development, production, marketing. And sales customer. Service and as support activities, information, systems, logistics, human resources all. Of these activities must, be managed effectively and, be consistent with the firm strategy, however. The, success of firms that extend, internationally. Depends, on the goods or services sold, and on the firm's core competencies. Skills within the firm that competitors, cannot easily match or imitate, for. A firm to be successful, the firm's strategy must, be consistent with the environment in which the firm operates. Therefore. The firm needs to change its organizational. Structure to reflect changes in the setting in which they are operating in, the strategy they are pursuing. Once. A firm decides, to enter a foreign market it must decide on a mode of entry there. Are six different modes to enter a foreign market and each mode has pros, and cons that are associated, with it the. Firm must decide which mode is most appropriately, aligned with the company's goals and objectives, the. Six different modes of entry are exporting, turnkey, projects, licensing. Franchising. Establishing. Joint ventures with a host country firm, or setting, up a new wholly owned subsidiary. In the host country, the first entry mode is exporting. Exporting. As the sale of a product in a different national. Market than a centralized, hub of manufacturing. In this. Way a firm may realize a substantial. Scale of economies, from its global sales revenue, as an. Example many Japanese, automakers, made inroads into, the US market through, exporting, there. Are two primary advantages, to exporting, avoiding, high costs, of establishing manufacturing. In a host country when these are higher and gaining an experience, curve some. Possible, disadvantages. To exporting, are high transport. Sin-hye tariff, barriers, ii entry mode as a turnkey project, in a. Turnkey project, an independent, contractor, is hired by the company to oversee all of the preparation, for entering a foreign market once. The preparation, is complete and, the end of the contract is reached the plant is turned over to the company fully ready for operation, licensing, and franchising. Are two additional, entry modes that are similar in operation. Licensing. Allows a licensure, to grant the rights to an intangible property. To the licensee, for a specified, period of time for a royalty, fee. Franchising. On the other hand is a specialized. Form of Licensing in, which the franchisor. Sells. The intangible property. To the franchisee, and also, requires the franchisee, operate, as dictated, by the franchisor, lastly, a joint venture and wholly owned subsidiary, are two more entry modes in international. Business a joint. Venture is when a firm created as jointly, owned by two or more companies most, joint venture are 50 to 50 partnerships, this. Is in contrast, with a wholly owned subsidiary, when, a firm owns 100%, of, the stock of a company in a foreign country because it has either set up a new operation, or acquires an established, firm in that country. Topic. Types, of operations. Exports. And imports of, merchandise. Merchandise. Exports, goods, exported, not, including, services. Merchandise. Imports, the physical, good or product, that is imported, into the respective, country, countries. Import products, or goods that their country lacks in an example. Of this is that Colombia, must import cars since there is no Colombian, car company. Service. Exports, as of 2018. The fastest growing export sector, the. Majority, of the companies create a product that requires installation. Repairs, and troubleshooting. Service, exports, is simply a resident, of one country, providing, a service to another country, a cloud. Software platform. Used by people or companies outside the home country. Tourism. And transportation. Service, performance, asset, use. Exports. And imports of, products, goods or services, are usually a country's, most important, international economic. Transactions. Topic. Top, imports, and exports in, the world. Data, is from the CIA world factbook compiled, in 2017. Topic. Choice, of entry mode in international. Business. You. Strategic. Variables, affect the choice of entry mode for multinational.
Corporation, Expansion, beyond their domestic, markets these. Variables, are global, concentration. Global synergies, and global, strategic, motivations, of MNC. Global. Concentration. Many mm E's share and overlap markets, with a limited, number of other corporations. In the same industry. Global. Synergies, the reuse or sharing of resources by, a corporation, and may include marketing, departments, or other inputs, that can be used in multiple markets, this. Includes among other things brand, name recognition. Global. Strategic, motivations, other factors, beyond entry mode that are the basic reasons for corporate expansion, into an additional, market these. Are strategic reasons. That may include establishing, a foreign outpost for expansion, developing. Sourcing, sites among other strategic reasons. Topic. Means, of businesses. Entry. Modes Export, Import wholly, owned subsidiary. Merger, or acquisition, alliances. And joint ventures, licensing. Modes. Importing. And exporting tourism. And transportation. Licensing, and franchising. Turnkey, operations, management, contracts, direct, investment, and portfolio, investments. Functions. Marketing, global, manufacturing. And supply chain management accounting. Finance, Human, Resources. Overlaying. Alternatives. Choice of countries, organization. And control mechanisms. Topic. Physical. And social, factors. Geographical. Influences. There are many different, geographic, factors that affect international, business these. Factors, are the geographical. Size the climatic challenges. Happening, throughout the world the natural resources available, on a specific, territory, the population, distribution in, a country, etc, social. Factors, political, policies, political, disputes, particularly. Those that result, in the military, confrontation. Can disrupt trade and investment. Legal. Policies, domestic, and international laws, play a big role in determining, how a company, can operate overseas. Behavioral. Factors in a foreign environment the related disciplines, such as anthropology. Psychology and. Sociology are, helpful for managers, to get a better understanding, of values attitudes and, beliefs. Economic. Forces economics. Explains, country, differences, in costs, currency, values, and market, size. Topic. Risks. Faulty. Planning to achieve success in penetrating, a foreign market and remaining profitable. Efforts must be directed, towards the planning and execution of phase one the use of conventional SWOT analysis, market, research and cultural, research will give a firm appropriate, tools to reduce risk of failure abroad, risks. That arise from poor planning, include large expenses. In marketing, administration. And product development, with no sales, disadvantages. Derived from local, or federal laws, of a foreign country lack of popularity, because of a saturated market vandalism. Of physical, property, due to instability of country, etc, there. Are also cultural risks, when entering a foreign market lack. Of research and understanding, of local customs can lead to alienation, of locals and brand Association. Strategic. Risks can be defined as the uncertainties. And untapped opportunities. Embedded, in your strategic intent, and how well they are executed, as such. They are key matters for the board and impinge on the whole business rather than just an isolated unit.
Operational. Risk a company has to be conscious about the production costs, to not waste time and money if the. Expenditures, and costs are controlled, it will create an efficient, production, and help the internationalization. Operational. Risk is the prospect of loss resulting, from inadequate, or failed procedures, systems, or policies, employee, errors systems, failure, fraud or other criminal, activity, or any event that disrupts, business, processes. Political. Risk how a government governs, a country governance, can affect the operations, of a firm the. Government, might be corrupt hostile, or totalitarian and, may have a negative image around the globe a firm's. Reputation can, change if it operates, in a country controlled by that type of government also. An unstable, political, situation can. Be a risk for multinational. Firms. Elections. Or any unexpected, political. Event can change a country's, situation and, put a firm in an awkward position. Political. Risks are the likelihood, that political, forces will cause drastic, changes in a country's, business environment. That hurt the profit, and other goals of a business enterprise. Political. Risk tends to be greater in country, experiencing. Social unrest, when, political risk is high there is a high probability that, a change will occur in the country's political environment. That will endanger foreign, firms they're, corrupt. Foreign, governments, may also take over the company without warning as seen in Venezuela. Technological. Risk technological. Improvements, bring many benefits but, some disadvantages. As well some. Of these risks, include lack, of security, and electronic. Transactions. The cost of developing, new technology. The. Fact that this new technology may, fail and when all of these are coupled, with the outdated, existing. Technology. The fact that the result may create a dangerous, effect in doing business in the international. Arena. Environmental. Risk companies that establish, a subsidiary, or factory abroad need to be conscious about the externalization, x' they will produce as some may have negative effects such as noise or pollution this. May cause aggravation. To the people living there which in turn can lead to a conflict. People. Want to live in a clean and quiet environment without, pollution, or unnecessary, noise if a. Conflict arises this, may lead to a negative change in customers, perception, of the company, actual. Or potential threat, of adverse effects, on living organisms, and environment, by effluence, emissions, wastes, resource, depletion etc. Arising, out of an organization's. Activities is, considered, to be risks of the environment, as new. Business, leaders come to fruition in their careers it will be increasingly, important, to curb business, activities, and externalization. X' that may hurt the environment. Economic. Risk these are the economic, risks explained, by Professor, o Cola this, comes from the inability of a country, to meet its financial, obligations. The. Changing, of foreign investment. Or in domestic, fiscal, or monetary, policies. The. Affect of exchange, rate and interest rate make it difficult to conduct international, business. Moreover. It can be a risk for a company, to operate in a country, and they may experience an unexpected economic, crisis. After establishing the, subsidiary.
Economic. Risks as the likelihood that economic, management will cause drastic, changes in a country's, business environment. That hurt the profit, and other goals of a business enterprise in, practice. The biggest problem, arising, from economic, mismanagement has. Been inflation. Historically. Many governments, have expanded, their domestic, money supply misguided. Attempts, to stimulate, economic activity. Financial. Risk according to Professor O Cola this, area, is affected by, the currency, exchange rate government, flexibility. In allowing the firm's to repatriate profits. Or funds outside the country, the. Devaluation. And inflation. Will also affect the firm's ability to operate at an efficient, capacity, and still be stable. Furthermore. The taxes that a company, has to pay might be advantageous or, not it. Might be higher or lower in the host countries. Then the, risk that a government, will indiscriminately. Change the laws regulations. Or contracts. Governing an investment, or, will, fail to enforce, them in a, way that reduces an investor's, financial, returns, as what we call policy, risk. Terrorism. Terrorism is a voluntary, act of violence towards, a groups of people in most. Cases acts of terrorism is derived from hatred of religious, political and cultural beliefs, an example. Was the infamous 9/11. Attacks labeled, as terrorism due to the massive damages, inflicted on, American, society and the global economy stemming. From the animosity, towards Western culture by some radical, Islamic, groups. Terrorism. Not only affects civilians, but it also damages, corporations. And other businesses, these. Effects, may include physical. Vandalism, or destruction, of property sales, declining, due to frightened consumers, and governments, issuing public safety restrictions, firms. Engaging, in international, business will, find it difficult to operate in a country that has an uncertain, assurance, of safety from these attacks. Bribery. Bribery is the act of receiving or soliciting, of any items, or services of value to influence, the actions of a party with public, or legal obligations. This. Is considered to an unethical form, of practicing, business, and can have legal repercussions. Firm. That want to operate legally should, instruct employees, to not involve themselves or the company in such activities. Companies. Should avoid doing business, in countries where unstable, forms of government exist, as it could bring unfair, advantages, against domestic business, and/or harm the social fabric of the citizens. Topic. Factors, towards, globalization. There, has been growth in globalization in recent decades due, to the following factors. Technology. Is expanding, especially. In transportation. And communications. Governments. Are removing international, business restrictions. Institutions. Provide services, to ease the conduct, of international, business. Consumers. Want to know about foreign goods and services. Competition. Has become more global, political. Relationships. Have improved among some major economic powers. Countries. Cooperate, more on transnational, issues. Cross. National cooperation. And agreements, have increased. Topic. Importance. Of international business education. Most, companies are either international. Companies, or compete with other international. Companies. Modes. Of operation, may differ from those used domestically. The. Best way of conducting business may, differ by country an. Understanding. Helps one make better career decisions, an. Understanding. Helps one decide what governmental, policies, to support managers. In international, business must, understand, social science disciplines and how they affect different functional, business fields. To. Maintain and achieve successful. Business, operations, in foreign nations persons, must understand, how variations in culture, and traditions, across nations affect, business practices, this. Idea is known as cultural, literacy without. Knowledge of a host country's, culture, corporate, strategizing. Is more difficult and error-prone when, entering foreign markets, compared, with the home country's market and culture this. Can create a blind. Spot during. The decision-making, process, and result in ethnocentrism. Education. About international. Business introduces. The student to new concepts, that can be applicable in international, strategy and topics, such as marketing, and operations. Topic. Importance. Of language and cultural, studies.
A Considerable. Advantage, in international. Business has, gained through the knowledge and use of language thereby, mitigating a language barrier. Advantages. Of being an international business. Person, who is fluent in the local language include, the following. Having. The ability to directly, communicate, with employees, and customers. Understanding. The manner of speaking, within business in the local area, to improve overall productivity. Gaining. Respect, of customers, and employees from speaking with them in their native tongue in many cases, it plays a crucial role it, is, truly, impossible to, gain an understanding of, a cultures buying habits without, first taking the time to understand, the culture. Examples. Of the benefit, of understanding. Local culture, include the following, being. Able to provide marketing, techniques, that are specifically, tailored, to the local market, knowing. How other businesses, operate, and what might or might not be social, taboos. Understanding. The time structure, of an area some. Societies, are more focused on timeliness being. On time while. Others focus on doing business at the, right time. Associating. With people who do not know several languages. Language. Barriers, can affect transaction. Costs, linguistic. Distance is defined as the amount of variation, one language has from another for. Example French and Spanish are, both languages, derived from Latin when. Evaluating, dialogue, in these languages, you will discover many similarities. However. Languages. Such as English, and Chinese or, English and Arabic very, much more strongly and contain far fewer similarities, the. Writing systems, of these languages, are also different, the larger the linguistic, distance there the wider language, barriers, to cross these. Differences, can reflect on transaction. Costs, and make foreign business operations, more expensive. Topic. Importance. Of studying, international. Business. The, international, business standards, focus on the following. Raising. Awareness of the interrelatedness. Of one country's, political policies. And economic practices, on another. Learning. To improve international. Business relations, through appropriate, communication, strategies. Understanding. The global business environment that. Has the interconnections. Of cultural, political legal, economic and, ethical systems. Exploring. Basic concepts, underlying international. Finance, management, marketing and, trade relations and. Identifying. Forms, of business ownership and international. Business opportunities by. Focusing, on these students, will gain a better understanding, of political economy. These. Are tools that would help future businesspeople, bridge the economic, and political gap, between countries. There. Is an increasing, amount of demand for businesspeople, with an education, in international, business a survey. Conducted by Thomas, Patrick from University, of Notre Dame concluded, that bachelor's, degree and master's degree holders felt that the training received through education, were very practical, in the working environment.
Increasingly. Companies, are sourcing, their human resource requirement, globally, for, example, at Sony Corporation only, 50% of its employees, are Japanese. Business. People with an education in international, business also, had a significantly. Higher chance of being sent abroad to work under the International, operations, of a firm. The, following table provides descriptions, of, higher education. In international, business and its benefits.