Lecture #2 The Rapid Change of International Business

Firms that have substantial operations in more than one country:

-global company (GC): an organisation that attempts to standardize operations and integrate operations worldwide in most or all functional areas

- multidomestic company (MDC): an organisation that multicountry affiliates, each of which formulates its own business strategy based on perceived market differences

- international company (IC)/ multinational enterprise (MNE)/ multinational company (MNC): a global or multidomestic company

Globalization forces: Five kind of drivers, all based on change, that are leading international firms to the globalization of their operation (+ examples):

1. political – preferential trading agreements, progressive reduction of trade barriers,

foreign investments by most governments, privatization of much of the industry in

formerly communist nations and the opening of their economies

2. technological – advances in communication technology, global communication

networks, internet and network computing

3. market – global firms become global customers

4. cost – globalization of product lines and production helps reduce costs by achieving

economies of scale

5. competitive – firms are defending their home markets from foreign competitors by entering the foreign competitors market to distract them

Why international business differs from domestic business?!

- it involves three environments:

- domestic

- foreign

- international

- the kinds of forces are the same but their values often differ and changes in the values of foreign forces are at time more difficult so assess

- international environment: (Def.)

- interactions between the domestic environmental forces and the foreign

environmental forces AND

- interactions between the foreign environmental forces of two countries when an

affiliate in one country does business with customers in another

The forces:

- environment: all the forces surrounding and influencing life and development of the firm;

they can be external or internal

- uncontrollable (external) forces: external forces over which management has no direct conrol, although it can exert an influence

- competitive: kinds and numbers of competitors, their location, their activities

- distributive: national and international agencies available for distributing goods and services

- economic: variables (such as GNP, unit labor cost,..) that influence a firm’s ability to do business

- socioeconomic: characteristics and distribution of human population

- financial: variables such as interest rates, inflation rates and taxation

- legal: the many foreign and domestic laws governing how international firms must operate

- physical: elements of nature such as topography, climate and natural resources

- political: elements of nations’ political climates such as nationalism, forms of

government, and international organizations

- sociocultural: elements of culture (such as attitudes, beliefs and opinions) important to international managers

- labour: composition, skills and attitudes of labour

- technological: the technical skills and equipment that affect how resources are

converted to products

- controllable (internal) forces: internal forces that management administers to adapt to changes in the uncontrollable forces

- production: capital, raw material, people

- activities of organization: personnel, finance, production, marketing)

The three environments in which an international company operates:

- domestic environment: composed of all the uncontrollable forces originating in the home country that influence the firm’s life and development

- foreign environment: composed of all the uncontrollable forces originating outside the home country that influence the firm

- the kinds of forces are the same as those in the domestic environment but their values often differ and changes in the values of foreign forces are at time more difficult so assess

- international environment: interaction between the domestic and foreign environment forces or between sets of foreign environment forces