International Business SW1/Chapter 1 HS16

4. Developing from a national to a an international company --> world today and the links to international business

A key participant in international business is the multinational enterprise (MNE), a large company with many resources whose business activities are performed by a network of subsidiaries located in multiple countries. Also active in international business are small and mediumsized enterprises (SMEs), companies with 500 or fewer employees. Born global firms are entrepreneurial firms that initiate international business from or near their founding. Nongovernmental organizations (NGOs) are nonprofit organizations that pursue special causes and serve as an advocate for the arts, education, politics, religion, and research.

2. The nature of international investement

FDI is the ultimate form of internationalization and encompasses the widest range of internatinal business involvement.

1. Key concepts/elements in international business: - foreign market entry strategies

combination of investemnt and trade how to enter in a market

4. Developing from a national to a an international company Int. Enterpreneurship (Born global)

conduct int. business at or near the founding of the firm. Example GoPro

3. Why firms internationalize --> explain the interntionalization process

- Export of Technology - Cost reduction - Profit/Revenues - Increase competiveness - International mobility - Sourcing - Customers - Seek opportunities for growth through market diversification - Earning higher margins and profits - Gaining new ideas about products, services and business methods - To better serve key customers that have relocated abroad - Being closer to supply sources, benefit from global sources advantages, or gain flexibility in product sourcing - Gaining access to lower-cost or better-value factors od production - To develop economies of scale in sourcing, production, marketing and R&D - To confront international competitors more effectively or thwart the growth of competition in the home market - To invest in a potentially rewarding relationship with a foreign partner

International Business Introduction Chapter 1 SW1

- understand how the international business environment impacts on the operations of an international firm - understand differences in business systems and what they mean to international firms - anayze a firm's strategic position and recognize internatinal opportunities and threats - develop international strategies and the necessary organizational structures and processes

1. Key concepts/elements in international business: - Paricipants

--> A focal firm is the initiator of an international business transaction; it conceives, designs, and produces offerings intended for consumption by customers worldwide. Focal firms take center stage in international business. They are primarily large multinational enterprises (MNEs; also known as multinational corporations, or MNCs) and small and medium-sized enterprises (SMEs). Some are privately owned companies, others are public, stock-held firms, and still others are state enterprises owned by governments. Some focal firms are manufacturing businesses; others are in the service sector. -->A distribution channel intermediary is a specialist firm that provides various logistics and marketing services for focal firms as part of international supply chains, both in the focal firm's home country and abroad. Typical intermediaries include independent distributors and sales representatives, usually located in foreign markets where they provide distribution and marketing services to focal firms on a contractual basis. -->A facilitator is a firm or an individual with special expertise in banking, legal advice, customs clearance, or related support services that helps focal firms perform international business transactions. Facilitators include logistics service providers, freight forwarders, banks, and other support firms that assist focal firms in performing specific functions. --> Governments, or the public sector, are also active in international business as suppliers, buyers, and regulators. State-owned enterprises account for a substantial portion of economic value added in many countries, even rapidly liberalizing emerging markets such as Russia, China, and Brazil. Governments in advanced economies such as France, Australia, and Sweden have significant ownership of companies in telecommunications, banking, and natural resources. The recent global financial crisis led governments to step up their involvement in business, especially as regulators.

1. Internatinal risks: Commercial risk

Commercial risk refers to the firm's potential loss or failure from poorly developed or executed business strategies, tactics, or procedures.

1. Internatinal risks: country risk

Country risk (also known as political risk) refers to the potentially adverse effects on company operations and profitability caused by developments in the political, legal, and economic environment in a foreign country.

1. Internatinal risks: cross-cultural risk

Cross-cultural risk occurs when a cultural misunderstanding puts some human value at stake. Cross-cultural risk arises from differences in language, lifestyles, mind-sets, customs, and religion. Values unique to a culture tend to be long lasting and transmitted from one generation to the next. Values influence the mind-set and work style of employees and the shopping patterns of buyers. Foreign customer characteristics can differ significantly from those of buyers in the home market.

1. Internatinal risks: currency risk

Currency risk (also known as financial risk) refers to the risk of adverse fluctuations in exchange rates.

1. Key concepts in international business --> Understand the classic components of international business

Elements of international business: -Globalizaiton of markets -International trade - international investment - int. business risks - Participants (extrernal) - foreign market entry strategies --> International business refers to the performance and investment activities by firms across national borders. It`s also called cross-boarder business.

6. Having a successful strategy to go international --> charcteristics of multinational enterprises

Focal firms are the most prominent international players. They include well-known multinational enterprises and small and medium-sized exporting firms as well as contemporary organizations such as the born global firms. Let's learn more about each of these key actors in international business. A multinational enterprise (MNE) is a large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries. Leading MNEs are listed in the Fortune Global 500 (www.fortune. com). Examples include well-known companies such as Nestlé, Sony, Citibank, Unilever, Nokia, Ford, Barclays, DHL, Four Seasons Hotels, and Shell Oil. In recent years, the largest MNEs have been firms in the oil industry (such as Exxon-Mobil and Royal Dutch Shell) and the automotive industry (General Motors and Honda) as well as in retailing (Walmart). Although MNEs employ a range of foreign market entry strategies, they are best known for their foreign direct investment (FDI) activities. They operate in multiple countries, especially in Asia, Europe, and North America, by setting up production plants, marketing subsidiaries, and regional headquarters. MNEs such as Exxon, Honda, and Coca-Cola derive much of their total sales and profits, often more than half, from cross-border operations. SMEs: Due to their smaller size, SMEs often target specialized products to market niches too small to interest large MNEs. SMEs owe much of their international success to support provided by intermediaries and facilitators in foreign markets and to globe-spanning logistics specialists such as FedEx and DHL.

5. Being competitive in an international busniess environment --> understand the strategic management frame to international business

Framework for international business: - Macroeconomic Context & Global business Systems --> International law and business ethics --> cultural differences Global trends --> Host-Home country interaction - Internationalization and market entry strategies --> Effects on value chain & functional strategies --> Financial risk --> Management of internatinal operations

1. Key concepts/elements in international business: - International risks

Globalization is not without risks. When companies undertake international business, they are routinely exposed to four major types of risk. These are cross-cultural risk, country risk, currency risk, and commercial risk. The firm must manage these risks to avoid financial loss or product failures.

2. How international business differs from domestic business --> role of MNE's in the worldwide FDI and trade

Globalization is not without risks. When companies undertake international business, they are routinely exposed to four major types of risk. These are cross-cultural risk, country risk, currency risk, and commercial risk. The firm must manage these risks to avoid financial loss or product failures.

1. Key concepts/elements in international business: - International investment

International investment refers to the transfer of assets to another country or the acquisition of assets in that country. Economists refer to such assets as factors of production; they include capital, technology, managerial talent, and manufacturing infrastructure. Trade implies that products and services cross national borders. By contrast, investment implies that the firm itself crosses borders to secure ownership of assets located abroad. The two essential types of cross-border investment are international portfolio investment and foreign direct investment. International portfolio investment refers to the passive ownership of foreign securities such as stocks and bonds to gain financial returns. It does not entail active management or control over these assets. The foreign investor has a relatively short-term interest in the ownership of these assets. Foreign direct investment (FDI) is an internationalization strategy in which the firm establishes a physical presence abroad through acquisition of productive assets such as land, plant, equipment, capital, and technology. It is a foreign-market entry strategy that gives investors partial or full ownership of a productive enterprise typically dedicated to manufacturing, marketing, or management activities. Investing such resources abroad is generally for the long term and involves extensive planning.

1. Key concepts/elements in international business: - International trade

International trade describes the exchange of products (merchandise) and services (intangibles) across national borders. Exchange can occur through exporting, the sale of products or services to customers located abroad from a base in the home country or a third country. Exchange also can take the form of importing or global sourcing—the procurement of products or services from suppliers located abroad for consumption in the home country or a third country. While exporting represents the outbound flow of products and services, importing is an inbound activity. Both finished products and intermediate goods (for example, raw materials and components) can be imported and exported.

1. Key concepts/elements in international business: - Globalization of markets

Ongoing economic integration and growing interdependency of countries worldwide. Internationalization refers to the tendency of companies to deepen their international business activities systematically.

4. Developing from a national to a an international company Uppsala Model

Theory that explains how firms gradually intensify their activities in foreign markets. Key features: - gain experience from domestic markt - start with culturally and/or geographically close countries and move to more distant countries - using traditional exports and move to using more intensive and demanding operation modes companies run through four seqential steps: 1. Irregular export activities 2. Export via independent sales representive 3. establishment of overseas subsidiaries 4. Establishment of foreign manufactoring sub. Example: IKEA

2. The nature of international trade

Three factors have been especially notable in explaining why trade growth has long outpaced GDP growth. First is the rise of emerging markets during the past three decades. These rapidly developing economies are home to swiftly growing middle-class households possessing substantial disposable income. Second, advanced (or developed) economies such as the United States and the European Union are now sourcing many of the products they consume from such low-cost manufacturing locations as China, India, and Mexico. Third, advances in information and transportation technologies, decline of trade barriers, and liberalization of markets all contribute to rapid growth of trade among nations.

4. Developing from a national to a an international company Network model

firm's changing internationalization situation as a result of its position in a network - degree of int. of the firm (low/high) - degree of int. of the market (low/high) four board firm level int. situations: - low/low --> the early starter - low (frim) / high --> the late starter - High (firm)/low --> Lonley international - High/high --> int. amongst others Example: Autoneum

4. Developing from a national to a an international company Springboard Model

rising importance of emerging markets (EM) enterprises and scholars started to analyse the int. process of EM MNEs that resulted the springboard model At the core of this theory is the argument that EM MNEs systematically and recursively use international expansion as a springboard to acquire critical resources needed to compete more effectively against their global rivals at home and abroad and to reduce their vulnerability to institutional and market constraints at home. Example ChemChina