Chapter 1:An Overview

ofInternationalBusiness

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The Business of the Olympics

• Intense reflection of international business• Competition for hosting• Revenue sources for the Olympics• Broadcast rights• Corporate sponsorships• Licensing• Tourism

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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?

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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.

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How Does International BusinessDiffer from Domestic?

• Currency conversions are required• Differing legal systems • Cultural differences• Economic differences• Infrastructure differences

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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.

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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

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International Business Activities

• Exporting and Importing• International Investments• Licensing, Franchising, and Management Contracts

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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

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• 53% of Boeing’s aircraft sales are to foreign airlines

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Visible and Invisible Trade

• Trade in Goods• Merchandise exports and imports• Visible trade

• Trade in Services• Service exports and imports• Invisible trade

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International Investments

• Capital supplied by residents of one country to residents of another• 2 categories:• Foreign direct investments• Portfolio investments

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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

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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

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This Beijing restaurant is one of 430 that McDonald’s has built in China

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Variations of Organizations

• Multinational Corporation (MNC)• Multinational Enterprise (MNE)• Multinational Organization (MNO)

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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

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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

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Motives for Globalization

• To leverage core competencies• To acquire resources and supplies• To seek new markets• To better compete with rivals

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Environmental Change and Globalization

• Changes in Political Environment• Technological Changes

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