Summary International Business book by Radha Jethu-Ramsoedh

SUMMARY INTERNATIONAL
BUSINESS
CHAPTER 1: INTRODUCTION TO INTERNATIONAL BUSINESS

1.1. WHAT IS INTERNATIONAL BUSINESS?

Multinationals: foreign companies that operate worldwide. Examples: Philips, Google, Unilever etc.

International business is related to marketing, sales, development of international commerce or the
actions that need to be taken when doing business on an international level. Also international
collaboration is included in international business.

1.1.1. GLOBALISATION

Globalization: refers to goods and services but also to capital, knowledge and labor which find their
way around the globe. When looking at the growth of the Gross National Product(GNP) of all
countries together, it becomes clear that more than 50% of this growth comes from the new
industrial countries(emerging markets). These countries are important for globalization. i.e.: BRICS,
N11(Next eleven: Bangladesh, Egypt, Phillipines, Indonesia, Iran, Mexico, Nigeria, Pakistan, Turkey,
Vietnam and South Korea).

Advantages of globalization Disadvantages
Promotes economic growth and welfare Big risk of too low wages
It disseminates technological knowledge Increase in the exploitation of workers in less
developed countries
It leads to cultural integration It offers MNOs much power.
Because of immigration rules according to
international trade have become stricter.




1.1.2. EUROPE AND GLOBALIZATION

KOF index: measures the economic, social and political dimensions of globalization. The economic
dimension takes into account how much countries protect themselves with measures. The social
dimension takes into account the cross-border contacts, flows of information and the cultural
neighborhood to the global mainstream such as the number of McDonalds restaurants and IKEA
stores. The political dimension measures the degree of political cooperation between countries.

1.1.3. LOCALIZATION

In times of the economic crisis, localization grew. Localization is a tendency to look closer to home.
For instance: bring the factory closer to the shops. A reason for this movement can be technological
development like 3D printing and robotization.

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,1.1.4. SUSTAINABLE INTERNATIONAL BUSINESS

Globalization has placed pressure on the global environment and natural resources, revealing human
dependence on the environment in the process. The core of a sustainable international business is
the stakeholder. Possible stakeholders: Employees, shareholders, social groups, governments,
suppliers, environmental groups, communities and clients.

Triple bottom line principle:

1. People: refers to human side of sustainable international business.
2. Planet: refers to care for the environment.
3. Profit: location policy, profitability, profit appropriation, dividend distribution, sponsoring
and charity policy.

1.2. WHY DO COMPANIES CROSS BORDERS?


1.2.1. INTERNATIONAL TRADE

The basis for internationalization is often the trade in goods or services (international trade).

How has trade developed?

- Ricardo(1817): the country that manufactures products at the lowest costs, will sell them to
other countries.
- Heckscher/ Ohlin(1933): the availability and cost of production facilities determined the
extent of international trade.
- Kol and Mennes (1989): the traditional theories are successful in explaining why companies
engage in international trade, but they only partly explain the differences in competitive
strength between countries.
- Porter(1990): the diamond model.

Distinction between import and export:

Import: buying foreign products, which are shifted to the home country. There are two reasons for
import:

 Cheaper production
 Product/service is not supplied in Europe.

Export: selling of domestic products or services to foreign importers. Reasons to export:

 Prime motives:
 New technologies and new products constitute a challenges.
 The domestic market is too small for the product.
 To assure continuity of the company, a constant search for new markets is essential.
 The cost price of the product the company supplies makes it competitive in the foreign
market.


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,  If the company is suffering from overcapacity, it is attractive to sell products in a foreign
market.


1.2.2. FOREIGN INVESTMENT
Foreign direct investment: a company invests directly in the production of another country, i.e. in
the production in another country.



1.2.3. MOTIVES(FOR INTERNATIONAL BUSINESS)
Proactive motives: results from the company’s policy.

Reactive motives come as a reaction to external influences.

Proactive motives Reactive motives
Profit and growth goals Competitive pressure
Managerial urge Small and/or saturated When the product is
home market. sort of ‘’out of
fashion’’ in the home
market.
Distinctiveness of the Utilization of
product overproduction/ excess
capacity.
Anticipating foreign Reduced dependence on
market opportunities customers/ suppliers.
Economies of scale Stabilization of seasonal Products which are
factors seasonal in the home
market(selling fitflops
in Australia in
November/Decembe
r whereas they’re
sold in June in NL).
Integration of the supply To gain more control Proximity of Due to relative short
chain over the whole chain, customers/suppliers. distances between
from producer to EU countries, it is
customer. easier to enter an
international market.
Tax benefits Perishable products.



1.3. EUROPEAN UNION AND INTERNATIONAL BUSINESS




1.3.1. EURIOPEAN UNION AND INTERNATIONAL TRADE

Trade surplus: More money comes into the country than there goes out Active trade balance: the
difference between the monetary value of a nation's exports and imports over a certain time period.

Trade deficit: More money goes out then there comes in Passive trade balance.

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