Lecture 6 Introduction to Business International business www

Lecture 6 Introduction to Business International business www. Assignment. Point. com

International business is the performance of business activities across national boundaries. Setting up plants, competing with global firms, managing international employment relations, negotiating with other governments, forming strategic alliances or joint ventures, etc. www. Assignment. Point. com

International business Why firms go for international business? ◦ Absolute advantage: Producing a product more efficiently than any other country. ◦ Comparative advantage: Producing a product at a lower cost in compared to other manufacturers around the globe. www. Assignment. Point. com

Basics of International business Exporting ◦ Selling domestic-made goods in another country by sending those goods to that country. ◦ e. g. automobiles, video recorders, shoes, foods & animals, oil, clothing, steel, etc. Importing ◦ Purchasing goods made in another country. ◦ Countries usually purchase goods from another country because of scarcity. www. Assignment. Point. com

Basics of International business Balance of trade ◦ Monetary difference between the amount a country exports and the amount it imports. ◦ More exports means “trade surplus” and more import means “trade deficit”. Balance of payments ◦ Total flow of money into and out of the country. ◦ Flowing in & flowing out of money www. Assignment. Point. com

Basics of International business Exchange rates ◦ The rate at which one country’s currency can be exchanged for that of another country. e. g. 1 U$D = 68 taka ◦ Fixed exchange rate: When a government sets up a exchange rate that doesn’t vary. ◦ Floating exchange rate: An exchange rate that fluctuates with market conditions. www. Assignment. Point. com

Barriers to International business Cultural & social barriers ◦ Culture consists in a country’s general values and tangible items such as food & clothing. Social forces include family, religion, education, social customs, etc. ◦ Selling products from one country to another is difficult because of these factors. ◦ e. g. China is a socialist country and no company can claim in its advertisement that they are number one in business, because the moral system there holds everyone as equal. www. Assignment. Point. com

Barriers to International business Political barriers ◦ The political climate of a country have a major impact on international business. ◦ Political barriers are more in Middle East, Africa, Central America, & South Asia. Tariffs & trade barriers ◦ ◦ Import tariffs (duty on imported goods), Quotas (limiting the product exchanges) Embargo (ban on certain products) Exchange control (restrictions on amount of currency transferred) www. Assignment. Point. com

Regulators of International business GATT (General agreement on tariffs and trade) ◦ Signed in 1947, the GATT formed as an international organization of 23 nations. Objective is to reduce tariffs and trade barriers. Economic communities ◦ To get certain facilities among the member countries. Example includes European Council (EC), European Free Trade Association (EFTA), SAARC, Association of south east Asian nations. (ASEAN), Association of Islamic countries, etc. www. Assignment. Point. com

Regulators of International business International Monetary Fund (IMF) ◦ International Monetary Fund is an international financial organization that lends money to countries to conduct international trade. World bank ◦ The World bank can be considered as the central bank of the world which also lends money to underdeveloped and developing countries for the purpose of development. www. Assignment. Point. com

Ways to do International business Exporting ◦ Most used way of entering to international business. Producing at home country and selling those to another country. Licensing ◦ Licensing allows one company to use the brand name and sell products of another company. Licensing is also a good way to enter into international business. www. Assignment. Point. com

Ways to do International business Joint ventures Counter trading Trading company ◦ A local firm gets into an agreement and understanding with a foreign firm. Many countries doesn’t allow foreign ownership countries to enter into the local market, so joint venture can be a good idea to enter. ◦ Bartering agreements between two or more countries. ◦ Food for oil, animals for steel, gas for water, etc. ◦ A firm that buys from one country and sells it in another country. ◦ Advantage is that the firm doesn’t have to manufacture. www. Assignment. Point. com

Ways to do International business Direct ownership ◦ The purchase of one or more business operations in a foreign country. ◦ Example: Emirates purchased Air Lanka and Singhalese transport company in Sri Lanka. Multinational/Transnational company ◦ For multinational firms, the whole globe is a market where they can produce & sell their goods and services. Examples: General Motors, Philip Morris, Mobil, Nestlé, Unilever, Citibank, Toyota, etc. www. Assignment. Point. com

Adapting to foreign markets Product ◦ Not all products can be sold in everywhere. Thus companies require to alter the product to make usable in the other country. ◦ Coca-Cola and Pepsi. Co successfully taken their soft drinks to other countries without changing them. ◦ Nestlé came to South Asia but had to alter their Nescafe because people in the Indian Subcontinent is not used to with the raw black coffee. www. Assignment. Point. com

Adapting to foreign markets Price ◦ The price of a product is usually different in domestic and foreign markets. ◦ How does a price of a product vary from country to country? Taxes, cost of foreign trade, exchange rate, transportation costs, etc. ◦ Prices are lower sometimes due to dumping of products such as garments, sheep, automobiles, food products, flowers, toys, electronics, etc. www. Assignment. Point. com

Adapting to foreign markets Place ◦ The task of placing the products in a particular place becomes a challenge sometimes. ◦ Distribution of products requires better transportation system, stores, warehouses, and suppliers. ◦ Many companies such as soft drink manufacturers invest heavily in trucks, refrigerators for store owners. www. Assignment. Point. com

Adapting to foreign markets Promotion ◦ Promotion is the way a company informs what it is providing in that specific country. It includes the advertisement and publicity. ◦ Some companies provides their message through the local language. Mc. Donalds, HSBC, Unilever, etc companies have used the local language to for their product publicity. www. Assignment. Point. com