IBT
-involves economic transactions across national borders.
-can be defined as the expansion of business functions from domestic to any foreign country with an objective of fulfilling the needs and wants of international customers.
-exchange of x x x x among individuals and businesses in two or more countries.
INTERNATIONAL BUSINESS
Factors contributing to the rapid growth of international businesses (14)
1. globalization
2. technological advancements
3. economic liberalization
4. market expansion
5.competition
6.supply chain management
7.foreign direct investment
8.trade agreements
9.cultural exchange and awareness
10.political and economic stability
11.consumer demand
12. e-commerce and digital platforms
13. regulatory harmonization
14.human capital mobility
involves the exchange of goodsand services between countries
external trade/ international trade
selling goods and services produced in one country to amother country
Export trade
buying goods and services from another country for use or resale in the home country
import trade
importing goods with the intention of exporting them to other countries
Entrepot Trade/ re-export
goods are traded between two countries through a third country, which acts as an intermediary
transit trade
importance of international business
1. economic growth
2. diversification of markets
3. access to resources
4. competitive advantage
5. consumer benefits
6. cultural exchange
7. political and economic relations
8.innovation and technology transfer
9. enhanced quality of life
10. global networking
selling directly to foreign buyers or through foreign distributors and agents
direct exporting
using intermediaries , such as export trading companies or export management companies, to sell products abroad
indirect exporting
granting a foreign company, the right to produce and sell products under the licensor's brand and technology in exchange for royalties or fees
Licensing
allowing a foreign company to operate a business under the franchisor's brand and business model in exchange for fees and royalties
Franchising
partnering with a foreign company to establish anew entity, sharing resources, risks, and profits
joint ventures
forming partnerships with foreign companies to collaborate on specific projects while remaining independent
strategic alliances
establishing a fully owned entity in a foreign market by setting up a new operation (greenfield investment) or acquiring an existing company.
wholly owned subsidiaries
it encompasses a full range of cross further exchanges of goods services or resources between two or more nations
international business
oh what's greenfield investment
wholly owned subsidies
a company designs, constructs, and starts up a facility for a foreign client, handling over the operation once it is fully functional.
turnkey projects
providing managerial expertise to operate a foreign company's facility for a specific period in exchange for a fee
management contracts
contracting a foreign firm to produce goods on behalf of the contracting company, which retains control over branding and marketing
contract manufacturing
partnering with another company that already has an established distribution network in a foreign market to sell products
piggybacking
it is a formal agreement between two or more companies to collaborate on a specific projects or business activities while remaining independent organizations
strategic alliance
characteristics of strategic alliances (6)
1. collaboration
2. independence
3. shared risk and reward
4. specific objectives
5. flexibility
6. limited duration
example of strategic alliances
pldt and cignal tv
objective: to offer converge telecommunications and pay-tv services
details: pldt a leading telecommunications company in the philippines and cignal tv a direct to home satellite tv provider have formed a strategic alliance to bundle their services. this partnership allows pldt to offer enhanced multimedia services to its customers combining internet phone and television services.
technology and innovation
example of strategic alliances
jollibee foods corporation and yoshinoya
objective: to expand yoshinoya's presence in the Philippines
details: jollibee foods corporation, a major fast food chain in the philippines, entered into a strategic partnership with yoshinoya international, a japanese fast food chain known for its beef bowls. this alliance aims to open and operate your shinoya stores in the philippines, leveraging jollibee's local market expertise and yoshinoya's brand appeal.
market expansion
example of strategic alliances
ayala corporation and mitsubishi corporation
objective: to develop and invest in real estate projects
details: ayala corp, ali din conglomerate in the philippines, has formed as strategic alliance with mitsubishi corporation, a japanese multinational, to join a develop residential and commercial properties in the philippines. this partnership combines ayala's local real estate expertise with mitsubishi international experience and resources.
product development
example of strategic alliances
san miguel corporation and kirin holdings
objective: to enhance beer production and distribution
details: san miguel corporation, a major food and beverage company in the philippines, has a strategic partnership with kirin holdings, a japanese beverage company. green holds a significant stake in san miguel brewery allowing both companies to collaborate on improving beer production, distribution, and marketing in the region.
supply chain optimization
example of strategic alliances
alliance global group and star cruises
objective: to promote tourism and cruise services
details:, through its subsidiary megaworld corporation, has partnered with a star cruises, a leading cruise line in asia. this is strategic alliance focuses on developing integrated tourism and leisure projects, including cruise terminals and related facilities, to boost tourism in the philippines.
cross industry partnerships
benefits of strategic alliances (5)
1. access to new markets
2. resource sharing
3. innovation
4. risk mitigation
5. competitive advantage
selling goods or services produced in one country to residents of another. this is often the simplest and least risky mode but may involve trade barriers and tariffs.
exporting
allowing a foreign company to produce and sell products or use intellectual property in exchange for royalties or fees. this provides a way to enter a market with lower risk but can lead to loss of control over brand and production.
licensing
similar to licensing but usually involves a more comprehensive business model and support system
franchising
p forming a partnership with a local firm in the target market.
this allows for shared resources and local expertise but requires shared decision making and potential conflicts of interest.
joint ventures
establishing a new entity or acquiring an existing company in the foreign market. this provides full control over operations but involves high investment and risk.
wholly owned subsidies
forming partnerships with local firms or other international companies to collaborate on certain business activities. this can include joint marketing efforts or shared research and development.
strategic alliances
building new facilities from scratch in the foreign market. this method allows for complete control over operations and can be tailored to specific needs, but require substantial investment and time.
greenfield investments
acquiring or merging with an existing company in the target market. this can quickly provide market access and resources but often involves integration challenges and higher costs
mergers and acquisitions
internal factors in investment mode of entry (4)
1. company resources
2. strategic objectives
3. product and service characteristics
4. risk tolerance
external factors in investment mode of entry (5)
1. market conditions
2. regulatory environment
3. economic conditions
4. cultural and social factors
5. legal and political factors
challenges faced by organizations when operating across borders (10)
1.market entry and expansion
2. economic and financial risks
3. operational challenges
4. legal and political risks
5. technological and infrastructure challenges
6. competitive landscape
7. customer preferences and expectations
8. communication and coordination
9. risk management
10. ethical and social responsibility
the philippines continues to pursue ________to reduce barriers to trade, such a tariffs and non tariff measures, this aims to make the country more competitive in the global market and attract foreign investments
trade liberalization
the philippines has been negotiating and entering into various bilateral and multilateral trade agreements to expand its market access.
free trade agreements (FTAs)
the government has been implementing measures to streamline customs procedures and reduce trade costs. this includes the adoption of the trade net system, an electronic platform for processing trade related documents and transactions.
trade facilitation
the philippines has been focusing on diversifying its export products, including electronics, garments, automotive parts, in agricultural products. programs and incentives are provided to exporters to help them penetrate new markets.
export promotion
the government actively seeks foreign direct investment (FDI) to boost economic growth and development. the board of investments (BOI) and the philippine economic zone authority (PEZA) offer various incentives to attract foreign investors, such a stocks holidays, duty free importation of capital equipment, and streamlined business registration processes.
investment promotion
recognizing the crucial role of sms in the economy the government provides support to help them participate in international trade. this includes access to financing, training programs, and assistance in meeting international standards and certifications.
support for small and medium enterprises (SMEs)
the philippines is continuously reviewing and updating its _______ to align with international standards and practices. this includes compliance with world trade organization (WTO) agreements and other international trade commitments.
trade policy reforms
improving infrastructure is critical to facilitating trade the build build program aims to enhance transportation networks, ports, and logistics infrastructure to support efficient trade flows.
infrastructure development
refer to the process by which a company expands its operations beyond its domestic market to enter international markets. this process typically follows a series of stages, each characterized by increasing levels of commitment and complexity.
stages of internationalization
stages of internationalization (7)
1. domestic focus
2. pre-internationalization
3. experimental involvement
4. active involvement
5. commitment to internationalization
6. global integration
7. multinational corporation
initial stage-the company operates solely in its home market with no international activities. the focus is on developing a strong domestic presence and understanding the local market dynamics
domestic focus
the company may receive unsolicited orders from foreign buyers leading to occasional exports without a proactive strategy
pre-internationalization:
reactive exporting
the company begins to explore international opportunities conducting market research to identify potential markets for its products or services
pre-internationalization:
market research
the company starts to actively seek international opportunities and establish expert channels.
experimental involvement:
active exporting
the company uses intermediaries, such as expert agents or trading companies, to which international markets without directly handling the complexities of international trade.
experimental involvement:
indirect exporting
the company establishes its own export department or team, directly handling international sales, logistics, and marketing. this stage of an involved significant investments in developing an international sales infrastructure
active involvement:
direct exporting
the company forms partnerships, joint ventures, or strategic alliances with foreign firms to enhance its market presence and share resources
active involvement:
strategic alliances
the company invests in establishing operations in foreign markets such as setting up subsidiaries, manufacturing plants or sales offices. this stage requires substantial financial and managerial commitment
commitment to internationalization:
foreign direct investment (FDI)
the company grants foreign partners the rights to produce or market its products under licensing or franchising agreements, allowing for brand expansion without direct investment.
commitment to internationalization:
licensing and franchising
the company adopts a global strategy, integrating its operations and activities across multiple markets to achieve economies of skill and consistent brand image. this stage involves coordinating marketing, production, and distribution on a global scale.
global integration:
global strategy
the company operates as a transnational corporation, balancing global efficiency with local responsiveness.
global integration:
transnational operations
the company has a strong and established presence in multiple international markets, with a highly integrated global network. and continuously innovates and adopts to changes in the global marketplace.
multinational corporation:
full global presence
the company becomes a recognized global brand, leveraging its international experience and resources to maintain a competitive edge in diverse markets
multinational corporation:
global brand leadership
it represents a growing share of global output, and grows in trade is expected to outstrip over all growth and output for the foreseeable future.
international trade
barriers to internationalization (8)
1. market barriers
2. financial barriers
3. regulatory barriers
4. operational barriers
5. competitive barriers
6. strategic barriers
7. political barriers
8. technological barriers
lack of market knowledge
market access restrictions
cultural differences
market barriers
high costs
currency risk
access to financing
financial barriers
legal and regulatory differences
intellectual property protection
compliance requirements
regulatory barriers
supply chain complexity
logistcal challenges
human resource management
operational barriers
local competition
brand recognition
market saturation
competitive barriers
strategic fit
resource allocation
risk management
strategic barriers
political instability
trade policies
bureaucracy
political barriers
technology infrastructure
cybersecurity risks
technological compatibility
technological barriers
three models of multinational corporations
global model (centralized hub model)
multidomestic model (decentralized federation model)
transnational model (integrated network model)
characteristics:
centralized control
standardized products
global strategy:
advantages:
cost efficiency
consistency
disadvantages:
lack of local responsiveness
slower decision making
global model (centralized hub model)
characteristics:
decentralized control
localized products
multidolistic strategy
advantages:
local responsiveness
flexibility
disadvantages:
higher costs
coordination challenges
multidomestic model (decentralized federation model)
characteristics:
integrated network
global efficiency and local responsiveness
knowledge sharing
advantages:
balance
innovation
disadvantages:
complexity
coordination costs
transnational model (integrated network model)
patterns of international trade (7)
1. comparative advantage
2. trade by proximity
3. trade with regions
4. intro-industry trade
5. specialization and global supply chains
6. emerging markets in developing economies
7. trade patterns by commodity
the principles suggest that countries should specialize in producing goods and services they can produce most efficiently relative to other goods and services and trade for those they produce less efficiently
comparative advantage
countries often trade more with their neighbors due to lower transportation costs, reduce trade barriers, and more similar economic and cultural conditions
trade by proximity
regional trade agreements such as the european union or the north american free trade agreement (NAFTA), facilitate trade between member countries, leading to increase trade within this regions compared to trade with non-member countries
trade with regions
this occurs when countries export and import similar kinds of goods or services
intra- industry trade
countries specialized in different stages of production leading to complex global supply chains
specialization and global supply chains
emerging markets and developing economies often focus on exporting raw materials and labor intensive goods while importing technology and capital intensive products
emerging markets and developing economies
can be driven by the types of commodities being traded
trade patterns by commodity
approaches to exports and imports (2)
mercantilist approach
free trade approach
emphasizes the role of exports in achieving national wealth and economic power. it is rooted in the idea that the country should maximize experts and minimize imports to accumulate wealth primarily in the form of precious metals like gold and silver
mercantilist approach
advocates for minimal government intervention in international it promotes the idea that countries should engage in open trade with each other to maximize efficiency and economic benefits
free trade approach
international trade theories. (6)
classical theories
1. heckscher-ohlin model
2. factor proportions theories
3. new trade theory
4. product life cycle theory
5. porter's diamond model
6. international product life cycle theory
absolute advantage (adam smith)
-the ability of an individual company region or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time
comparative advantage (david ricardo
-the ability of an economy to produce a given good or service in a more efficient and economically competitive manner than its peers
classical theories
an economic theory stating that countries export what they can most easily and abundantly produced
heckscher ohlin model
concept:.an extension of the hectare organ theory it posits that countries export goods that require factors of production they have in abundance and import goods that require factors they lack
factor proportions theory
concept: emphasizes the role of economies of skill and network effects in international trade
new trade theory
concept: this theory proposes that a product goes through different stages--introduction, growth, maturity, and decline.
product life cycle theory (raymond vernon)
concept: michael porter's model explains national competitive advantage through four key factors: factor conditions (resources), demand conditions (domestic market size and sophistication), related and supporting industries, inform strategy, structure, and rivalry
porter's diamond model
concept: similar to the product life cycle theory it suggests that products are first introduced in developed countries then production shifts to developing countries as the product matures and becomes standardized
international product life cycle theory
factors that determine which goods a country can produce efficiently (9)
factor in endowments
-natural resources
-labor
-capital
technological capability
economic and political stability
infrastructure
regulatory environment
access to markets
education and training
cultural factors
economic structure
the level of technological advancement and innovation affects production efficiency
technological capability
a stable economic and political environment posters efficient production by providing a reliable business climate and reducing risk
economic and political stability
the quality of infrastructure, including transportation networks, utilities, and communication systems, impacts production efficiency and costs
infrastructure
the east of doing business including regulations trade policies and labor laws affects how efficiently goods can be produced
regulatory environment
proximity to major markets and trade agreements can reduce transportation costs and increase efficiency
access to markets
the level of education and vocational training available to the workforce influences productivity and efficiency in various industries
education and training
factor endowments:
•the availability of natural resources such as minerals oil forests in fertile land influences a country's ability to produce certain goods
natural resources
cultural attitudes towards work innovation and entrepreneurship can impact production efficiency
cultural factors
the overall economic structure including the extent of industrialization and the balance between different sectors such as agriculture,industry ,services influences production efficiency
economic structure
an empirical contradiction to the heckscher-ohlin theory of international trade.
Leontief Paradox
countries export goods that intensively use their abundant factors of production
conversely countries import goods that intensively use their scarce factors of production
this theory suggests that a country with an abundance of capital will export capital intensive goods and import labor intensive goods
heckscher-ohlin theory
stages of the product life cycle (4)
introduction stage
growth stage
maturity stage
decline stage
developed by economist raymond vernon in the 1960s it explains how a product straight patterns and production locations change over its life cycle
the product life cycle (plc) theory
implications of the product life cycle theory(3)
trade patterns
investment patterns
economic development
refers to the ability of factors of production (labor capital land) the most really across borders in response to changes in economic condition.
factor mobility
type of labor mobility which means movement within a country
internal mobility
type of labor mobility which means movement across countries
external mobility
capital mobility which means investments in stocks bonds in other financial instruments
short-term capital flows
capital mobility which means foreign direct investments mergers and acquisitions
long term capital flows
implications for international business
resource allocation
multinational corporations
labor markets
policy and returns
an economic term referring to the proportional amount of increase or decrease in final income that results from an injection or withdrawal of capital
refers to the proportional amount of increase in final income that results from an injection of spending
multiplier effect
simple multiplier formula
multiplier: 1/(1-MPC+MPM)
the ratio of change in national income to the initial change in spending that caused it
income multiplier
measures the effect of increased economic activity on employment levels
employment multiplier
focuses on the impact of increased investment on economic output
investment multiplier
the effect of changes in government spending or taxation on overall economic activity
fiscal multiplier
measures the effect of changes in export and imports on a country's overall economic activity
foreign trade multiplier
formula for the foreign trade multiplier
Multiplier= 1/(MPS+MPM)
attacks imposed by a government on imported goods and services to protect domestic industries, generate revenue, orbital late against three practices of other countries
these are used to regulate international trade protectness and industries in respond to unfair trade practices
tariff
levied as a percentage of the value of the imported goods
ad valorem tariffs
charged as a fixed amount per unit of imported goods
specific tariffs
combine both ad valorem and specific tariffs
compound tariffs
a country's regulations in policies governing international trade including tariffs, trade agreements, and import or export regulations.
commercial policy
aim to protect domestic industries through tariffs ,quotas, and subsidies
protectionist policies
aim to reduce barriers to international trade promoting free exchange of goods and services
free trade policies
policies to attract foreign investment through tax incentives and relaxed regulations
special economic zones (SEZs)
measures other than tariffs that countries used to control the amount of trade across their borders
non-tariff barriers
limits on the quantity of goods that can be imported or exported
quotas
requirements to obtain permission before importing certain goods
import licensing
health safety and environmental standards that products must meet
standards and regulations
governmental financial support to domestic industries to make them more competitive
subsidies
complete bonds on trade with specific countries
embargoes and sanctions
a packed between two or more nations to reduce barriers to imports and exports among them
agreements between countries to reduce or eliminate trade barriers
free trade agreement (fta)