IB 320F ch1

International Business

Performance of trade and investment activities by firms (or other actors) across national borders

International business involves countries that differ in terms of

Culture
Language
Political system
Legal system
Economic situation
Infrastructure
Other factors

Globalization of markets

Ongoing economic integration and growing interdependency of countries worldwide.

International trade

Exchange of products and services across national borders; typically through exporting and importing.

Exporting

Sale of products or services to customers located abroad from a base in the home country or a third country. Boeing and Airbus export billions in commercial aircraft every year.

Importing or Global Sourcing

Procurement of products or services from suppliers located abroad for consumption in the home country or a third country.

International investment

Transfer of assets to another country or the acquisition of assets in that country.

Foreign direct investment (FDI):

Foreign owners have a say in management

International portfolio investment:

Passive ownership of foreign securities such as stocks and bonds in order to generate financial returns.

Multinational enterprise/company (MNE/MNC):

A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries.

Small and Medium-Sized Enterprise (SME):

Typically, companies with 500 or fewer employees, comprising over 90% of all firms in most countries. SMEs increasingly engage in international business.

Born global firm

A young, entrepreneurial SME that undertakes substantial international business at or near its founding.

Non-governmental organizations (NGOs):

Many of these non-profit organizations conduct cross-border activities. They pursue special causes and serve as advocates for social issues, education, politics, and research.

Transnational criminal organizations:

Much of the toys and shoes sold in Mexico today are financed, manufactured and distributed by transnational criminal organizations.

Why do firms participate in international business?

Sometimes it happens by accident!
-A domestic firm is approached by a foreign buyer or agent
-The opportunity looks like EASY MONEY
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Why do firms participate in international business?

Many seek opportunities for growth through market for diversification

Why do firms participate in international business?

seek to earn higher margins and profits abroad

Why do firms participate in international business?

Some hope to gain new ideas about products, services and business methods

Why do firms participate in international business?

Increasingly, research and development units are located overseas

Why do firms participate in international business?

Some firms are asked to internationalize by key customers

Why do firms participate in international business?

Some firms seek access to lower-cost or better-value factors of production overseas

Why do firms participate in international business?

Many firms benefit from global sourcing advantages
-Apple sources parts and components from the best suppliers worldwide

Follow-the-leader effect

A firm enters a foreign market so that a competitor does not come to dominate that market.

Why do firms participate in international business?

Some firms have no choice!
-Some industries require large-scale global sales in order to pay for high development costs