Chapter 1:
An Overview
of
International
Business
1-1
The Business of the Olympics
• Intense reflection of international business
• Competition for hosting
• Revenue sources for the Olympics
• Broadcast rights
• Corporate sponsorships
• Licensing
• Tourism
1-2
The Business of the Olympics
• How would the Olympics look if
corporations were not allowed to
participate?
• Would the Olympics exist without the
corporate sponsors?
1-3
What is International Business?
• Business transactions between parties from more than one country
• Buying & selling raw materials, finished goods, or services across borders.
• Operating factories or facilities overseas.
• Borrowing money in one country to finance operations in another.
1-4
How Does International Business
Differ from Domestic?
• Currency conversions are required
• Differing legal systems
• Cultural differences
• Economic differences
• Infrastructure differences
1-5
Why Study International Business?
• Most of us will work for companies that have international
connections.
• To develop cultural literacy.
• To keep in step with management tools, production techniques, and
technology that other countries are developing.
1-6
Why Companies Trade
• To increase sales & broaden markets
• To seek cheaper raw materials or to lower production costs
• To find goods not available in domestic markets, or at a lower price
than those available domestically
• To seek better prices for their products
1-7
International Business Activities
• Exporting and Importing
• International Investments
• Licensing, Franchising, and Management Contracts
1-8
Exporting and Importing
• Exporting: selling of products made in one’s own country for use or
resale in other countries
• Importing: buying of products made in other countries for use or
resale in one’s own country
1-9
• 53% of Boeing’s
aircraft sales are
to foreign airlines
1-10
Visible and Invisible Trade
• Trade in Goods
• Merchandise exports and imports
• Visible trade
• Trade in Services
• Service exports and imports
• Invisible trade
1-11
International Investments
• Capital supplied by residents of one country to residents of another
• 2 categories:
• Foreign direct investments
• Portfolio investments
1-12
Other Forms of
International Business Activity
• Licensing: firm in one country licenses the use of its intellectual
property to a firm in a second country in return for a royalty payment
• Franchising: firm in one country authorizes a firm in another country
to utilize its operating system and intellectual property
1-13
Management Contracts
• A firm in one country agrees to operate facilities or provide other
management services to a firm in another country for an agreed-upon
fee
• Common in upper-end international hotel industry
1-14
This Beijing restaurant is
one of 430 that
McDonald’s has built in
China
1-15
Variations of Organizations
• Multinational Corporation (MNC)
• Multinational Enterprise (MNE)
• Multinational Organization (MNO)
1-16
Multinational Corporations (MNCs)
• Engage in foreign direct investment
• Own and control foreign assets
• Buy resources in multiple countries
• Create goods and services in multiple countries
• Sell goods and services in multiple countries
1-17
Table 1.1 The World’s Largest Corporations – 2002
Rank
Name
Country
Revenues $Mil
1
Wal-Mart Stores
U.S.
246,525
2
General Motors
U.S.
186,763
3
Exxon Mobile
U.S.
182,466
4
Royal Dutch/Shell
Netherlands
179,431
5
BP
Britain
178,721
6
Ford Motor
U.S.
163,871
7
DaimlerChrysler
Germany
141,421
8
Toyota Motors
Japan
131,754
9
General Electric
U.S.
131,698
10
Mitsubishi
Japan
109,386
1-18
Motives for Globalization
• To leverage core competencies
• To acquire resources and supplies
• To seek new markets
• To better compete with rivals
1-19
Environmental Change and Globalization
• Changes in Political Environment
• Technological Changes
1-20