Introduction- What is International Business

What is International Business? International Business consits of transactions carried out across national borders to satisfy the objectives of business organisations. Business activity which crosses national borders can take several forms:         Trade- exporting/importing Contracting- licencing/franchising Investment- Foreign Direct Investment (FDI) through wholly owned subsidiaries, alliances or acquisitions. Changing Balance of World Economic PowerIn the past year, China has: Become the 2nd largest economy in the world, overtaking Japan in second place to the USA. Become the world's largest exporter, overtaking Germany to take the top spot. Become the world's largest importer of energy. Become the 'price setter' in a wide range of raw materials from iron ore to copper, aluminium and platinum. Perhaps in the future it will be "when China sneezes, the world catches a cold" The Internationalisation of Business Sectors with which the study of international business is concerned are: Manufacturing: taking advantage of cost-effective locations Resource-based: minerals/metals, oil and agriculture Construction: Multinational projects such as dams and airports Services: rapid expansion in financial services, telecoms and retail What is different about International Business? Additional Costs Trading costs e.g. Import duties, distrubution agents Travel/relocation costs e.g. use of expatriate managers Local market costs e.g. government "regulations", product/service modifications Additional Risks Political/Legal e.g. import/inverstment barriers, lack of legal protection Economic/Financial e.g. inflation levels, foreign exchange risks Cultural/Ethical e.g. differences in values, beliefs and practices Hill puts it thus "Managing an international business is different from managing a domestic business for four reasons:" Every country will be different The range of problems confronted by a manager is wider and the problems more complex than those confronted by a manager in a domestic business Managers must find ways to work within the limits imposed by governments' intervention in the international trade and investment system International transactions, for the most part, involve converting money in to different currencies Objectives of International Expansion Expanding the potential market- particularly relevant for firms whose domestic markets are small or saturated. Achieveing a satisfactory return on investment- particularly relevant for firms h have made significant investments in plant and machinery and/or research and development. Obtaining locational advantages- such as lower labour and transportational costs and/or to circumvent trade and investment barriers. Counteracting competitor moves- pre-empting competitors by entering markets first and/or entering markets to prevent already present competition from dominating these markets. Personal ambition- international expansion may reflect the ambition of senior executives rather than the more rational reasons cited above. World Trading System The UK was a pioneer of free trade (from the 1850's) The Great Depression put the cause back significantly (NB the Smoot-Hawley Tarriff in the USA) This was reversed in the expansionist post war climate. The establishment of General Agreement on Tarriffs and Trade (GATT) a multilateral trade agreement. GATT Tarriff reduction was spread over 8 rounds Membership grew from 19 to over 120 nations. Althoygh GATT was extremely successful in reducing barriers to trade and investment in the 1980's new strains to the world trading system appeared: the "success" of Japan; the "failure" of the USA; and the increasing use of bilateral trade agreements. Early 90's GATT becomes the World Trade Organisation (WTO) WTO Since 2003 the WTO has had 145 members, with a further 25 countries negotiating for a membership. Between 1995 and 2011, more than 600 trade disputes between member countries were brought to the WTO, compared with a total of 196 cases handled by the GATT in its entire existence. The WTO has widened its remit to encompass regulations governing foreign direct investment (FDI), and has subsequently reformed the international regulation of the global telecoms and financial services industrues. A further significant issue to the WTO has been that of protecting intellectual property- "products of the mind, ideas (e.g. books, music, computer software, designs, technological know-how)" The 1995 Uruguay agreement contained a protocol to protect intellectual property (the trade related aspects of intellectual property rights-The TRIPS Agreement) As with GATT, the WTO has been successful in further lowering trade and investment barriers. There remain prolem areas, however, particularly in disputes between developed and developing countries. Summary International Business is different because it involves costs and risks not present in a company's home market. International managers are therefore faced with a much more complex set of problems arising out of differences in diverse international

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