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INTERNATIONAL

BUSINESS

DR : TAHA KASSEM

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SS

INTERNATIONAL BUSINESS

International businessconsists of all commercialtransactionsincluding sales and investments thattake place between two or more countries.

This definition confines business operations tointernational subjects ,states, only , while otherparties can and really perform business

operations in foreign environments.

Hence, it would be more accurate to call this kind ofbusiness as global or transnationalbusiness.

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Global business consists of:

business transactions between parties frommore than one country.

transactions that are devised and carried outto satisfy the objectives of individuals,companies, and states.

The parties involved in such transactionsmay include private individuals, companies,groups of companies, countries and/orgovernmental agencies.

WHAT IS GLOBAL BUSINESS?

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WHO IS INTERESTED IN

TRANSNATIONAL BUSINESS?

As you now know, international business refers to abroad set of entities and activities.

But who cares about international business in the first

place? The Stakeholders and stakeholder analysis

A stakeholderis an individual, organization or astate whose interests may be affected as the result

of what another individual or organization does. Beyond the company and governments, other

stakeholder groups might include industryassociations, trade groups, suppliers, consumers and

labor.

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Stakeholder analysisis a technique you useto identify and assess the importance of key

people, groups of people, or institutions that

may significantly influence the success ofyour activity, project, or business.

In the context of what you are learning here,

individuals or organizations will have aninterest in transnational business if it affects

them in some waypositively or negatively.

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FACTORS CONTRIBUTING TO RAPID

GROWTH OF GLOBAL BUSINESS

1. Increase in and expansion of technology

2. Liberalization of cross-border trade andresource movements

3. Development of services that supportinternational business

4. Growing consumer pressures

5. Increasing global competition

6. Changing political situations

7. Expanding cross-national cooperation

1-6

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BARRIERS TO CROSS-BORDER ECONOMIC

ACTIVITY

CAGE ANALYSIS Pankaj Ghemawatsresearch suggests that to study

barriers to cross-border economic activity you will

use a CAGEanalysis.

The CAGE framework covers these four factors:

1. Culture

Cultural distance refers to differences based in

language, norms, national or ethnic identity, levels oftrust, tolerance, respect for entrepreneurship and

social networks, or other country-specific qualities.

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2. Administration

Administrative distance refers to historical

governmental ties, such as those between India andthe United Kingdom.

This makes sense; they have the same sorts of laws,

regulations, institutions, and policies. Membership in

the same trading block is also a key similarity.

Conversely, the greater the administrative differences

between nations, the more difficult the trading

relationshipwhether at the national or corporate

level.

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3. Geography This is perhaps the most obvious

difference between countries.

You can see that the market for a product in Los

Angeles is separated from the market for that same

product in Singapore by thousands of miles. Generally, as distance goes up, trade goes down,

since distance usually increases the cost of

transportation.

Geographic differences also include time zones,

access to ocean ports, shared borders, and climate.

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4. Economics Economic distance refers to

differences in demographic and socioeconomic

conditions.

The most obvious economic difference between

countries is the economic system, size (ascompared by gross domestic product, or GDP).

Another is per capita income.

This distance is likely to have the greatest effect

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Facts concerning CAGE Analysis

Each of these CAGE dimensions shares the common notion of distance.

CAGE differences are likely to matter most when the CAGE distance isgreat.

That is, when CAGE differences are small, there will likely be a greateropportunity to see business being conducted across borders.

A CAGE analysis also requires examining an organizations particular

industry and products in each of these areas.

When looking at culture, consider how culturally sensitive the products are.

When looking at administration, consider whether other countries coddle certain

industries or support nationalchampions.

When looking at geography, consider whether products will survive in a

different climate.

When looking at economics, consider such issues as the effect of per capita

income on demand.

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HOW DOES GLOBAL BUSINESS DIFFER

FROM DOMESTIC BUSINESS?

Simply put, domestic business involves

transactions occurring within the boundaries of a

single country.

Global business differs from domestic businessfor a number of other reasons.

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Global business differs from domestic business

in that a firm operating across borders must deal

with the forces of three kinds of environments

domestic, foreign, and international.

In contrast, a firm whose business activities are

carried out within the borders of one country

needs to be concerned essentially with only the

domestic environment.

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However, no domestic firm is entirely free from

foreign or international environmental forces

because the possibility of having to face

competition from foreign imports or from foreign

competitors that set up operations in its own

market is always present.

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The Domestic Environment isall the forces originating in the

home country that influence the life and development of the firm

and its outputs.

The Foreign Environment:The forces in the foreign environment

are the same as those in the domestic environmentexcept that

they occur outside the firms home country.

However, they operate differently for several reasons, includingcultural, political, economic and historical differences .

The international environment consists of the interactions

(1) between the domestic environmental forces and the

foreign environmental forces and (2) between the foreignenvironmental forces of two countries when an affiliate in one

country does business with customers in another.

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INFLUENCE OF EXTERNAL AND INTERNAL

ENVIRONMENTAL FORCES

The term environment as used here means all the

forces influencing the life and development of the firm

and its outputs.

The forces themselves can be classified as external(uncontrollable variables) and internal( controllable

variables).

The external forces are commonly called

uncontrollable forces. Managementhas no direct control over them, although

it can exert influencesuch as lobbying for a change in

a law and heavily promoting a new product that requires

a change in a cultural attitude.

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Legal:foreign and domestic laws governing how international

firms must operate.

Economic: variables such as, gross national product [GNP], unit

labor cost, and personal consumption expenditure that

influence a firms ability to do business and kinds of economicsystem, open, command or mixed.

Political: elements of nations political climates such as

nationalism, forms of government, and international

organizations. Socio-cultural: elements of culture (such as attitudes, beliefs,

and opinions) important to international managers.

Labor: composition, skills, and attitudes of labor.

External forces

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Competitive: kinds and numbers of competitors,

their locations, and their activities.

Distributive: national and international agencies

available for distributing goods and services. Financial: variables such as currency value rate,

interest rates, inflation rates, and taxation.

Physical: elements of nature such as geography,climate, and natural resources.

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INTERNAL FACTORS (CONTROLLABLE

FORCES)

The elements over which management does have control are

the internal forces, such as the factors of production (capital,

technology, and people) and the activities of the organization

(personnel, finance, production, and marketing) and the

organizational architecture.

These are the controllable forces whichmanagement must

administer in order to adapt to changes in the uncontrollable

variables.

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Organizational architecture :

refers to the totality of a firms organization,

including formal organizational structure, control

systems, incentives, integrating mechanisms,

processes, organizational culture, and people.

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Organizational structure

The typically hierarchical arrangement of linesof authority, communications, rights and duties

of an organization. Control systems are the metrics used to measure

performance of subunits and make judgments abouthow well managers are running those subunits.

There are four main types of control systems:1. Personal controlscontrol by personal contact with

subordinates

Most widely used in small firms

2. Bureaucratic controlscontrol through a system ofrules and procedures that directs the actions ofsubunits

The most important bureaucratic controls arebudgets and capital spending rules

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3. Output controlssetting goals for subunits to

achieve and expressing those goals in terms of

relatively objective performance metrics

Control is achieved by comparing actual

performance against targets and intervening

selectively to take corrective action4. Cultural controlsexist when employees buy

into the norms and value systems of the firm

Firms with strong culture have less need for otherforms of control

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Organizational Culture refers to a systems of values andnorms that are shared among people in organizations

Organizations have their own values and norms that

employees are encouraged to follow Organizational culture tends to change very slowly.

Incentivesare the devices used to reward appropriate

managerial behavior

Sanctions are the devices used to punish deviantmanagerial behavior

Processesare the manner in which decisions are madeand work is performed within the organization

People human resources in organizations, recruitment,

promotion and selection.