Fundamentals of International Business

Fundamentals of International Business Created @January 10, 2024 11:50 AM Class BUSI2701D Type Lecture Week 2: What is individualism? This is a political system that focuses on the interests of individuals over the interests of the states Define democracy This is a political system in which the people elect representatives to form the government. The following are the democratic demands: Freedom of expression Free media Regular elections Fair court system Economic system Market economy: fundamentals of international business 1 This is an economy that operates based on supply and demand, the primary determinants of price and production. Command economy: Government determines the prices of products and the allocation of resources including for production purposes. Mixed economy Certain sectors are left to private ownership and free market mechanism while other sectors are owned and managed by the government. Measures of National Economic Well-Being (GNI): (The Gross National Income) GNI, formerly referred to as gross national product (GNP) measures the total domestic and foreign value added claimed by residents at a given period in time, usually a year, expressed in international dollars using purchasing power parity rates. (PPP): GNI per capita based on purchasing power parity (PPP). PPP GNI is gross national income (GNI) converted to international dollars using (purchasing power parity) rates. An international dollar has the same purchasing power over GNI as a U.S. dollar has in the United States. What are property rights? This is a bundle of legal rights to the usage of a resource including any income derived from that resource. How did geography and education influence economic development? Countries with favourable geography are more likely to engage in trade and so be more open to market-based economic systems and the economic growth they promote fundamentals of international business 2 what is society? This is a group of people who share a common set of values and norms. Define values: This Is an abstract of ideas about what a group believes to be good, right and desirable. An example is society's attitudes toward individual freedom, loyalty marriage and so on. Norms: This is a social rule that governs people's actions towards each other. Folkways: This routine conventions of everyday life. Mores: Norms that are seen as central to the functioning of a society, so violating mores can lead to serious consequences. Chapter 5: International trade theories. What is trade? This is an act of buying, selling or processing where a government doesn't attempt to influence through quotas or duties what citizens can buy from another country or what they can produce and sell to another country. fundamentals of international business 3 Would free trade be beneficial? International trade is beneficial because it allows a country to specialize in manufacturing and exporting the most efficient products for them. Import products that can be produced more efficiently in other countries. International trade theory shows why it is beneficial for a country to engage in international trade even if it can produce the products itself. What are the 7 international trade theories? 1. Mercantilism: mid-16th century. 2. Adam Smith-Absolute Advantage Theory :1776 3. David Ricardo- Comparative Advantage Theory: 1817 4. Heckscher-Ohlin Theory: 1930s 5. The Product Life- Cycle Theory: mid 1960s 6. New Trade Theory:1970s 7. Porter’s Diamond:1990 What does Poters diamond model look like? fundamentals of international business 4 Would Poter’s theory be true? Government policy also can: Affect demand through product standards Influence rivalry through regulation and antitrust laws Impact the availability of highly educated workers and advanced transportation infrastructure. The four attributes, government policy, and chance work as a reinforcing system, complementing each other and in combination creating the conditions appropriate for competitive advantage Thus far, Porter’s theory has not been sufficiently tested enough to be confirmed or dismissed. Would unrestricted free trade always be beneficial? Unrestricted free trade is beneficial but gains may not be as great as due to: fundamentals of international business 5 Immobile resources Diminishing returns Echange rates Transportation cost Dynamic effects and economic growth Opening a country to trade could increase: A country's stock of resources The efficiency of resource utilization Economic growth Chapter 7: Forgone Direct Investment What is the FDI in the world countries? Flow in FDI: This is the amount of FDI that is undertaken over a given period, which is usually a year. Stock of FDI: this is the total accumulated value of foreign-owned assets at a given time. What are some of the patterns of the FDI? fundamentals of international business 6 Over the past years, FDI has increased substantially. This is because firms fear the threat of protectionism and use FDI as a method of overcoming trade barriers. What is the UNCTAD? (United Nations conference on trade and development) This is a United Nations which is the most authoritative and reliable source of information about global FDI by country and by activity. What are the limitations of exporting? Manufacturing goods and services domestically and afterwards selling them to consumers and vendors in foreign countries. An example of a limitation is: South Korea’s LG Electronics sold washing machines in the US by importing them from Korea, China, Vietnam & Thailand. However, in 2017, amid the threat of an import tax by the US administration, they built a washing machine factory in Clarksville, Tennessee. What are some limitations of licensing: A business agreement between two companies in which the licensor gives the licensee permission to manufacture a good or service in return for a specified payment. There are 3 major drawbacks when it comes to licensing for developing foreign market opportunities: fundamentals of international business 7 1. Licensing may result in a firm’s giving away valuable technological knowhow to a potential foreign competitor. 2. Licensing does not give a firm tight control over manufacturing, marketing, and strategy. 3. The problem with licensing arises when the firm’s competitive advantage is based on the management, marketing, and manufacturing of the product rather than the product itself. What are some of the impacts of FDI on home countries? What are the impacts of FDI on host countries? fundamentals of international business 8 FDI can increase employment in a host country: Direct effects Indirect effects Chapter 8: Regional Economic Integration What is regional economic integration? This is an agreement between countries in geographic regions to reduce and ultimately remove tariff and non-tariff Barriers to the free flow of goods, services, and factors of production between each other. What is the European Free Trade Association? (EFTA) The two Alpine members have established international financial centres and lenders in several industries. fundamentals of international business 9 The African Continental Free Trade Area AfCFTA is a historic agreement that aims to create the world's largest free trade area by number of participating countries, encompassing 55 African Union AU member states and eight Regional Economic Communities RECs). With a combined population of approximately 1.3 billion people and a combined GDP of approximately US$ 3.4 trillion, AfCFTA's primary goals include increasing trade liberalization and facilitating investment across the continent. As part of the African Union's Agenda 2063, this initiative aims to remove trade barriers, increase intraAfrican trade, and promote economic integration to transform Africa into a global powerhouse. The agreement officially entered into force on May 30, 2019, and trading began on January 1, 2021, with Accra, Ghana, hosting the AfCFTA Secretariat. 3. All AU member states have signed the AfCFTA agreement, indicating unanimous support for the initiative. However, the specific reasons for a country's slow ratification or implementation process can differ, frequently involving domestic legal procedures, economic concerns, or the need for more extensive internal consultation. For specific countries outside of AfCFTA, or for more specific reasons, real-time updates from the African Union or official government statements would be the most accurate sources. 4. The EU's handling of critical issues such as the Ukraine war, energy, inflation, and migration emphasizes the importance of a coordinated response to common challenges. AfCFTA could strengthen African countries' cooperation to address common challenges such as infrastructure deficits, energy access, and climate change, boosting the region's resilience and collective bargaining power on the global stage. fundamentals of international business 10 Chapter 14: Global Marketing and R&D What is the globalization of markets and brands? These modern transportation and communications technologies are facilitating a convergence of certain tastes and preferences among consumers in the more advanced countries in the world. Global marketing is a strategy that views the world's consumers as similar in their tastes and preferences. It's consistent with the mass production of a standardized output. International business’s marketing function needs to determine when product standardization is appropriate and when it isn't and to adjust the marketing strategy accordingly. Market segmentation is identifying groups of consumers whose purchasing behaviour differs from others in important ways. A global new product planning team is a group within a firm that determines which product elements will be standardized, and adapted locally, and how products will be launched. Economic development is influenced by the level of economic development in a country For example: In Canada and America, cars tend to be built with many attributes such as air conditioning, power windows, and automatic steering. However, in Cuba, often fundamentals of international business 11 cars do not come equipped with these extra performance attributes. Although the embargo on foreign cars was lifted in 2014, many Cubans still cannot afford to purchase newer car models. Some of the product modifications required internationally: 4P - Place: International distribution Distribution is the most inflexible of the marketing program elements, once chosen by a firm it may be difficult to change. the most common one is independent intermediaries and establishing a subsidiary directly in the market. (FDI) Distribution strategy is a method that is used to deliver a product to a consumer: Factors include: 1. Retail concentration 2. Channel length 3. Channel exclusivity 4. Channel quality fundamentals of international business 12 Retail concentration a few retailers supply most of the market. In a fragmented retail system, there are many retailers with no retail taking a majority share in the market. The channel length is the number of intermediaries between the producer and the consumer: With a short channel, the producer tends to sell directly to the consumer. With a long channel, the producer tends to sell through multiple intermediaries such as an important agent and a retailer. Source effects occur when the receiver of the message evaluates the message based on the status or image of the sender. Country of origin effects are the extent to which the place of the manufacturing influences product evaluation. International pricing: Pricing is complex in international business due to multiple currencies trade barriers and added costs. Some firms face pressure to lower prices abroad mainly due to lower income levels. Predatory Pricing is using profit gained in one market to support aggressive pricing designed to drive competitors out in another market. A firm's ability to set its pricing may be limited by antidumping regulations and competition policy. Configuration in marketing mix: fundamentals of international business 13 Most firms standardize some things and customize others. New product development: New product development: The process of introducing a new product to a market either through the creation of a new product or redesigning a previous product. the three factors that will affect it globally are: Location of R&D Interesting R&D, marketing, and production Cross-functional teams ( Check slide 61 for guidance on the exam): fundamentals of international business 14