Note for IBA 350 with Professor Turner at UA-Intro World Business
Note for IBA 350 with Professor Turner at UA-Intro World Business
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Date Created: 02/06/15
CHAPTER ONE REVIEW MATERIALS International Business quotA business whose activities are carried out across national borders International Business Terminology Terms do vary by individuals and companies eg some people refer to international business by using the term M and others quotgloba still others quottransnationalquot In and others quotinternationalquot or quotmultidomesticquot or even quotmultinationalquot and A quotmultinationalquot corporation is normally defined as a company which is like a holdingcompany in that it has a large number of overseas operations affiliates andor subsidiaries A quotmultidomesticquot company is a multinational organization but can be further defined as a company wherein each individual foreign affiliate is left to adapt its products and marketing strategies to what local managers perceive to be unique aspects of their individual markets meaning perceived market differences Indeed In some managers refer to a multidomestic company as a quotmultiloca company but not too often In The United Nations and some other folk refer to a quotmultinationa as a transnational which is their definition of a company doing business in more than one country In A quotgloba tostandardize functional areas worldwide A quotfunctionalquot area is for example reference of a company tends to imply the company attempts manufacturing human resource management finance etc etc The reason for this standardization of functional areas worldwide is to reduce costs So my definition of a quottransnationalquot company is a company that combines quotglobalquot and quotmultinationalquot characteristics which means the top management at a quottransnationalquot company is manaqinq their international companies in a manner so as to build economies of scale in functional areas in order to cut costs but it is also responding to local market needs Note however that some business executives define a transnational as a company formed by a merger of two firms of approximately the same size that are from different countries Remember A simple definition is that an quotInternational Business is a business whoseactivities are carried out across national borders and a quotForeign Business refers tothe operations of a company outside its home or domestic market and an quotInternational Companyquot can be a quotglobalquot or quotmultidomesticquot or a transnational company NOTE American companies want their managers to have a basic knowledge of international business This is true for senior managers of large international companies The increased internationalization of business requires that managers have a basic knowledge and understanding of international business There is an emphatic need for business people to have a basic knowledge of international business American CEO s want business graduates from universities today to have some education in international business if they are going to work overseas and even if they are going to work in a firm with no foreign operations NOTE International business has been influenced by practices even before the time of Christ and by the rise of the Ottoman Empire Indeed while international business quotas a discipline is relativelv new international business as a business practice is not Many senior managers of today s corporations have stated that no one will be in a general manager39s position in the years ahead if they do not have international exposure and experience THAT IS A FACT So stated once again CEO s of maior companies today are totally convinced that business graduates they hire should have some education in the international aspects of doing business A fact One of every six US iobs is tied to foreign investment that is made into theUSA And if you work for a company in the USA that is owned or even partially owned by companies in other countries you must understand the international aspects of doing business All companies today whether they have foreiqn operations or not need to be aware of what is occurring globally in their markets and in their industries REPEATCompanies that have sizeable operations in more than one country are called global companies and multidomesticfirmsan international business is a business whose activities involve crossing national borders an international company refers to both global and multidomestic firms foreign business denotes the domestic operations within a foreign country a multidomestic company is an organization with multicountry affiliates In A FACTA major goal of a l39multicultural multinationa is to exploit its knowledge and technological capabilities on a global basis Interesting tidbit Eli Lilly and Company was first a domestic company then a foreign business then an international business then a multinational then a global andor transnational company MThere are five major kinds of drivers all based on change that are leading international firms to the globalization of their operationsPoliticalI Technological MarketI CostI and Competition A key difference of firms of the early 1900 s and today s companies are their explosive growth and the increasing globalization of their products and markets Total foreign direct investment FBI is a commonly used variable to determine where and how fast internationalization takes place worldwide quotExportingf refers to transporting goods or services outside of your country or your region The United Nations estimate that in 2004 there were m corporations which accounted for around 25 of world trade and about 23 of global output In 2004 only 19 nations had gross national incomes GNI greater than the total annual sales of WalMart worldwide Also in 2004 the total amount of money spent in WalMarts worldwide was greater than the combined GNl s of the 112 smallest economies of the 208 listed in the World Bank39s World Development database Definitely supporters of globalization argue that it is the best strategy for advancing the world39s economic development And it is a fact that expanded international trade is linked with the creation of more and betterjobs But it is also a fact that globalization has produced uneven results across nations and their people Some opponents of globalization argue that it has had harmful effects on labor and labor standards Moreover some opponents of free trade leading to enlarged globalization also argue that this has contributed to a decline in environmental and health conditions International business differs from domestic business in that a firm operating across borders must deal with the forces of three kinds of environments domesticI foreign and international whereas normally companies that do business only in one country need to be primarily concerned about the domestic environment quotEnvironmentquot is the sum of all the forces surrounding and influencing the life and development of a firm Some are controllable lquotinternalquot and some are uncontrollable or l39externalquot Manaqers must therefore administer manaqe the controllable forces in order to adapt to the chanqes that occur in the uncontrollable environmental variables Managers have no quotdirectquot control over the external environment of a firm but they can exert influences by heavy promotion of new products to change cultural attitudes and lobbying etc The domestic environment is composed of all the uncontrollable forces originating in the home country that influence the life and the development of a company Forces in the foreign environment are the same as those in the domestic environment except thev occur in foreign nations One problem with the foreign forces is that they are frequently difficult to assess especially their legal and political elements The International Environment consists of the interactions between the domestic environmental forces and the foreign environmental forces Also between the foreign environmental forces of two countries when an affiliate in one country does business with customers in another Working in an international environment involves much more difficult decision making than in a purely domestic environment quotSelfreference criterion relates to an unconscious reference to one s own cultural values when judging behaviors of others in a new and different environment Hence successful managers are careful to examine a problem in terms of the local cultural traits as well as their own Foreign subsidiaries affiliates must obey the local laws lfthey do not they are subject to legal action by the host country and seizure by the host government Foreiqn direct investment FDI refers to direct investments into equipment structures and orqanizations in a foreiqn country at a level that is sufficient to obtain significant management control Exporting refers to the transportation of any domestic good or service to a destination outside a country or region Environment is the sum of all theforces surrounding and influencing the life and development of a firm