International Business Management (MGT 520) VU
Lecture 3
International Business: An Overview
Learning Objectives
z To define international business and describe how it differs from domestic business
z To explain why companies engage in international business and why its growth has
accelerated
z To introduce different modes a company can use to accomplish its global objectives
z To illustrate the role social science disciplines play in understanding the environment of
international business
z To provide an overview of the primary patterns for companies’ international expansion
z To describe the major countervailing forces that affect international business
Lecture Overview
The first part of the chapter is designed to give a brief overview of international business in
terms of why companies get involved, why there has been a recent growth in international
business, the major modes of international business activities, the relationship to other
disciplines, and the need to adjust operations to different operating environments. The second
part of the chapter introduces features that will be covered in other chapters as well. These
include the internationalization process, countervailing forces, ethical dilemmas, and looking to
the future.
Detailed Outline
1. Patterns of Expansion
2. Firms tend to follow a pattern of increasing international involvement. Companies
usually are initially reluctant to undertake international activity, but that reluctance
diminishes as they become more experienced.
3. Passive to Active Expansion. Initially, firms simply respond to international demand
for their product. Later, they start planning how to best expand internationally.
4. External to Internal Handling of Operations. Initially, firms use freight forwarders,
customs brokers, and other external companies to help handle the details of
international business. Later, once the firm has learned more about international
operations, it will often perform these functions itself.
5. Deepening Mode of Commitment. Firms usually begin international activities by
either importing or exporting. These activities require no overseas investment and
minimal commitment to international opportunities. As the rewards of international
business become more apparent and foreign markets become more familiar, the firm
may expand its international commitment and begin even producing some of its
products abroad.
6. Geographic Diversification. At first, companies will do business only in one or two
other countries (usually countries nearby and with cultural similarities to the company’s
home country). As time goes by and the company learns more, it will tend to expand its
operations into more distant and varied location
Leapfrogging of Expansion
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International Business Management (MGT 520) VU
Despite the common patterns of expansion discussed above, technological and political
changes have made it possible for firms to bypass the common expansion patterns. The World
Wide Web, for example, allows firms to seek out global markets for their products with ease.
COUNTERVAILING FORCES
A. Globally Standardized versus Nationally Responsive Practices
On the one hand, offering a globally standardized product enables the firm to engage in mass
production and mass marketing which can generate economies of scale giving the firm a big
cost advantage over competitors. On the other hand, being nationally responsive and tailoring
your product to consumers in each country where you operate can make your product more
desirable than something mass-produced for a global market. (See “Going Global” Exercise 1.2
at end of chapter.)
B. Country versus Company Competitiveness
Sometimes the interests of a firm coincide with the interests of the firm’s home country (e.g.,
“What’s good for General Motors is good for the U.S.”). However, sometimes what is good for
the firm may be bad for the firm’s home country (e.g., shipping jobs from the home country to
cheaper foreign locations). Businesses need to understand the complex ways in which their
operations affect their home and host countries in order to make the most prudent economic
and political decisions.
C. Sovereign versus Cross-National Relationships
Countries may collaborate with each other or compete. Collaboration often involves a country
giving up some of its sovereignty (for example, making treaties may limit a country’s ability to
act autonomously). Though countries normally prefer to maintain their sovereignty, they will
often collaborate to gain reciprocal advantages (e.g., through trade agreements), to attack
problems that a single country acting alone cannot solve (e.g., environmental agreements), or to
deal with areas of concern that lie outside the territory of all countries (e.g., Antarctic
exploration).
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