Chapter 1

• International Business


  Relates to any situation where the production or distribution of goods or services crosses country borders
• International Business transactions


  • All commercial transactions private and governmental between two or more countries
• Reasons companies engage in International Business


  • Expand Sales
  • Acquire Resources
  • Minimize Risk
• Expand Sales


  The number of people and the level of their purchasing powers are higher for the international level
• Acquire Resources


  Businesses look for foreign resources because those are either not available in their country or those can reduce the costs of the company
• Minimize Risk


  Minimize swings in sales and profits arising out of business cycle recessions and expansions which occur differently in different countries
• Problems of International Business


  • Political and Legal Differences
  • Economic Differences
  • Differences in the Language
  • Trade Restrictions
  • High Cost of Distance
  • Differences in Trade Practices
• Political and Legal Differences


  Complexity generally increases as the number of countries in which a company does business increases
• Economic Differences


  Economic environment may vary from country to country
• Differences in the Language


  The same words or terms may have different meanings
• Trade Restrictions


  Import controls, is a very important problem, which an international marketer face
• High Cost of Distance


  When the markets are far removed by distance, the transport cost becomes high and the time required for affecting the delivery tends to become longer
• Differences in Trade Practices


  Trade practices and customs may differ between two countries
• Social Factors


  Involve reference groups, family and social roles and statuses
• Culture


  Customs, arts, social institutions, and achievements of a particular nation, people, or other social group
• Elements of Culture


  • Attitudes and Belief
  • Attitude Towards Time
  • Attitude Towards Work and Leisure
  • Attitude Towards Achievement
  • Attitude Towards Change
  • Attitude Towards Job
• Attitudes and Belief


  It influences nearly all aspects of human behavior, providing guidelines and organization to a society and its individuals
• Attitude Towards Time


  Punctuality, responses to business communication, responses to deadlines, and the amount to time that is spent waiting in an outer office for an appointment
• Attitude Towards Work and Leisure


  Views towards wealth and material gains. Types, qualities and numbers of individual who pursue entrepreneurial and management careers as well
• Attitude Towards Achievement


  There is a tendency to avoid personal responsibility and to work according to precise instructions received from supervisors that are followed by the latter
• Attitude Towards Change


  International manager must understand what aspects of a culture will resist change and how the areas of resistance differ among cultures, how the process of change takes place in different cultures and how long it will take to implement change
• Attitude Towards Job


  Type of job that is considered most desirable or prestigious varies greatly according to different cultures
• Cultural Dimension - it is harder to find general patterns of the cultural attitudes. We must analyze each society by itself without the benefit of guiding generalizations
• Religion


  Major determinant of the moral and ethical standards that play a large part in the business process
• Family System


  Matters as the way in which the sexes attract each other bear both on products sold and advertising methods
• Educational Systems


  Literacy rate and the general level of education
• Economic Systems


  • Market Allocation
  • Command Allocation
  • Mixed Allocation
• Market Allocation


  Relies on consumers to allocate resources. They write the economic plan by deciding what will be produced by whom. The government role is only to promote competition and ensure consumer protection
• Capitalist


  Private individuals or business own capital goods
• Command Allocation


  State has the broad powers to serve the public interest. Consumers are free to spend their money on only what is available because the government will decide which products to make and how to make them based on the available resources in their country
• Socialist


  Populist economic and political system based on collective, common, or public ownership of the means of production
• Mixed Allocation


  Protects private property and allows a level of economic freedom in the use of capital, but also allows for government to interfere in economic activities in order to achieve social aims
• International Economic Systems


  • European Union (EU)
  • World Bank
  • International Monetary Fund (IMF)
  • World Trade Organization
  • General Agreement on Tariffs and Trade
• European Union (EU)


  Aims to ensure the free movement of people, goods, services and capital within the internal market; enact legislation in justice and home affairs; and maintain common policies on trade, agriculture, fisheries and reginal development of Europe. They also aim to develop an internal single market with a standardized system of laws that is applicable to the 27 state members of this union
• World Bank


  World's largest sources of funding and knowledge for developing countries. Its 5 institutions share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development
• International Monetary Fund (IMF)


  Major financial agency of the United Nations (UN) that attains to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth and reduce poverty around the world while periodically depending on the World Bank for its resources. It focuses on the currencies, exchange rates, and international payments
• World Trade Organization


  The only international organization that deals with the global rules of trade. Its main function is to ensure the trade flow to run smoothly, predictably and freely as possible. It also acts as a forum for negotiating trade agreements, it settles trade disputes between its members, and it supports the needs of developing countries
• General Agreement on Tariffs and Trade


  Creating a credible and reliable system of international trade rules; ensuring fair and equitable treatment of all participants; stimulating economic activity through guaranteed policy bindings; and promoting trade and development through progressive liberalization
• Purchasing Power Parity


  A popular analysis metric used to compare economic productivity and standards of living between countries
• Key Economic Issues that Influence International Business


  • Inflation
  • Unemployment
  • Debt
  • Income Distribution
  • Poverty
  • Balance of Payment