PART 1: WHAT IS
INTERNATIONAL BUSINESS?
Not for citation. For classroom discussion purposes only.
Learning Objectives
Describe the nature of International Business.
Enumerate and discuss the main dimensions of
International Business.
Describe why firms Internationalize.
International Business & Its Elements
International Business refers to firms’ performance of
Trade & Investment activities across national
borders.
Also termed as cross-border business.
It is characterized by six dimensions, namely:
Globalization of Market
International Trade
International Investment
International Business Risks
International Business & Its Elements
It is characterized by six dimensions, namely:
Participants involved
Firms
Intermediaries
Facilitators
Governments
Foreign Market Entry Strategies
GLOBALIZATION
Is a macro trend of intense economic interconnected
-ness among the nations of the world.
Volume of cross-border transactions in goods,
services, and capital flows are being
internationalized.
Internationalization is the tendency of companies to
deepen their international business systematically.
INTERNATIONAL TRADE
International Trade describes the exchange of
products and services. The said exchange occurs
through:
Exportation
Importation
TOP EXPORTING COUNTRIES
Source: [Link]
TOP IMPORTING COUNTRIES
Source: [Link]
Philippines Exports by Country
Base on United Nations COMTRADE database on international trade
Retrieved from: [Link]
Philippines Imports by Country
Base on United Nations COMTRADE database on international trade
Retrieved from: [Link]
INTERNATIONAL INVESTMENT
International Investment refers to transfer of assets to
another country or the acquisition of assets in that
country. It has two essential types, namely:
International Portfolio Investment
Ownership of foreign securities
Foreign Direct Investment
Greenfield Investment, Acquisition, Vertical Integration,
Horizontal Integration, Merging
INTERNATIONAL BUSINESS RISKS
Cross-Cultural Risks occurs when a cultural
misunderstanding puts some human value at stake.
It arises from differences in:
Values
Language
Lifestyle
Mind-sets
Customs
Religion
INTERNATIONAL BUSINESS RISKS
Country Risk refers to the potential adverse effects
on company operations and profitability caused by
developments in the political, legal, and economic
environment in a foreign country. This includes:
Creeping Expropriation
Sanction and Embargo
Extraterritoriality
INTERNATIONAL BUSINESS RISKS
Currency Risk refers to the risk of adverse
fluctuations in exchange rates.
Capital Flight
Currency Block
Financial and monetary crises (currency, banking, foreign
debt crises)
INTERNATIONAL BUSINESS RISKS
Commercial Risk refers to the firms’ potential loss or
failure from poorly developed or executed business
strategies , tactics, or procedures.
Global Market Segment
Global Positioning Strategy
Product Adaptation and Standardization
Global Account Management
PARTICIPANTS IN INTERNATIONAL
BUSINESS
Focal Firm
Multinational
Enterprises (MNE’s or MNC’s)
Small & Medium Sized Enterprises (SME’s)
Distributor or Channel Intermediary
Facilitator
Government
Customers
Individual
Consumer or Household, Retailers, &
Organizational Buyers
FOREIGN MARKET ENTRY STRATEGIES
A planned set of action in order to gain competitive
advantage in entering a foreign market.
Could be in a form of:
Trade of products & services (export and import) or
countertrade
Equity or ownership based (FDI or IPI) or collaborative
ventures
Contractual relationships (licensing and franchising)
Why Do Firms Internationalize?
Seek opportunities for growth through market
diversification.
Earn higher margins and profits.
Gain new ideas about products, services, and business
methods.
Serve key customers better that have relocated
abroad.
Be closer to supply sources, benefit from global
sourcing advantages, or gain flexibility in product
sourcing.
Why Do Firms Internationalize?
Gain access to lower-cost or better-valued factors of
production.
Develop economies of scale in sourcing, production,
marketing, and R&D
Confront international competitors more effectively or
thwart the growth of competition in the home market.
Invest in a potentially rewarding relationship with
foreign partner.