CBM321

• International Business and Trade - consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations .
• Foreign Direct Investment- is a company’s physical investment such as into the building and facilities in the foreign country, and acts as a domestic business with a full scale of activity. Companies practice FDI to get benefits from cheaper labor costs, tax exemptions, and other privileges in that foreign country.
• International business refers to the overall performance of the trade and investment activities of firms across national borders. Since this emphasizes crossing boundaries from one country to another, we also coin international business as cross-border business.
• International business is characterized by six major dimensions.

  A.   International Trade

  B.   International Investment

  C.   International Business Risks

  D.   Participants

  E.   Foreign Market Strategies

  F.    Globalization of Markets
• Globalization is a macro-trend of intense economic interconnectedness among the nations of the world. A parallel trend is the ongoing internationalization of countless firms and dramatic growth in the volume and variety of cross-border transactions in goods, services, and capital flows.
• Internationalization refers to the tendency of companies to deepen their international business activities systematically. It has led to widespread diffusion of products, technology, and knowledge worldwide.
• International trade


  The exchange of products (merchandise) and services (intangibles) across national borders
• Forms of international trade

  • Exporting
  • Importing/Global sourcing
• 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.
• 1.    WHAT ARE THE KEY CONCEPTS IN INTERNATIONAL BUSINESS

              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.
• 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 owner- ship 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.    THE NATURE OF INTERNATIONAL TRADE

              Overall, export growth has outpaced the growth of domestic production during the past few decades, illustrating the fast pace of globalization. GDP is defined as the total value of products and services produced in a country in the course of a year (7). Following a 27-year boom, world trade declined in 2009 due to the global recession. However, trade revived and returned to normal levels by 2012.
• Trade was a key factor reducing the impact of the global recession. What is remarkable is that, since 2008, the annual rate of growth in world exports surpassed that of world GDP by almost a factor of two (5.4 versus 2.8 percent).
• 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 con- tribute to rapid growth of trade among nations
• FDI is the foreign entry strategy practiced by the most internationally active firms. Companies usually undertake FDI for the long term and retain partial or complete ownership of the assets they acquire. In the process, the firm establishes a new legal business entity in the host country, subject to the regulations of the host government.
• FDI (Foreign Direct Investment)


  • Especially common among large, resourceful companies with substantial international operations
  • Companies from rapidly developing economies have begun to invest in Western markets
• FDI by European and U.S. firms

  • Invested in China, India, and Russia to establish plants to manufacture or assemble products, taking advantage of low-cost labor or natural resources
• 1.    SERVICES AS WELL AS PRODUCTS

              Historically, international trade and investment were mainly the domain of companies that make and sell products— tangible merchandise such as clothing, computers, and motor vehicles. Today, firms that produce services (intangibles) are key international business players as well.
• Services are deeds, performances, or efforts performed directly by people working in banks, consulting firms, hotels, construction companies, retailers, and countless other firms in the services sector. International trade in services accounts for about one-quarter of all international trade and is growing rapidly.

           
• 1.    THE INTERNATIONAL FINANCIAL SERVICES SECTOR

              International banking and financial services are among the most internationally active service industries. Explosive growth of investment and financial flows has led to the emergence of capital markets worldwide.
• It resulted from two main factors: the internationalization of banks and the massive flow of money across national borders into pension funds and portfolio investments. In the developing economies, banks and other financial institutions have fostered economic activity by increasing the availability of local investment capital, which stimulates the development of financial markets and encourages locals to save money.
• International banking is flourishing in the Middle East. For example, the return on equity in Saudi Arabia often exceeds 20 percent (compared to 15 percent in the United States and much less in France and Germany). National Commercial Bank, the biggest bank in the region, calculates that non-interest-bearing deposits comprise nearly 50 percent of total deposits in Saudi Arabia. Banks lend this free money to companies and consumers at high margins. By structuring loans as partnerships, they comply with Islamic rules that forbid banks to pay interest.