Professional Documents
Culture Documents
Ethical Constraints : There is no consensus standard of
business conduct that applies to all countries. A business
practice that is perceived unethical in one country may be
totally ethical in another.
Example : Bribes, Sexual products in Arab countries.
Theories of International Business
The commonly held theories as to why firms
become motivated to expand their business
internationally are (1) the theory of comparative
advantage, (2) the imperfect markets theory,
and (3) the product cycle theory. The three
theories overlap to a degree and can
complement each other in developing a
rationale for the evolution of international
business.
Theory of Comparative Advantage
Multinational business has generally increased over time. Part of this
growth is due to the heightened realization that specialization by
countries can increase production efficiency. Some countries, such as
Japan and the United States, have a technology advantage, while other
countries, such as Jamaica, Mexico, and South Africa, have an advantage
in the cost of basic labor. Since these advantages cannot he easily
transported, countries tend to use their advantages to specialize in the
production of goods that can be produced with relative efficiency. This
explains why countries such as Japan and the United States are large
producers of computer components, while countries such as Jamaica and
Mexico are large producers of agricultural and handmade goods.
Specialization in some products may result in no production of other
products, so that trade between countries is essential. This is the
argument made by the classical theory of comparative advantage.
Comparative advantages allow firms to penetrate foreign markets.
Imperfect Markets Theory
Licensing
Franchising
Point Ventures
Licensing
Licensing obligates a firm to provide its technology
(copyrights, patents, trademarks, or trade names in
exchange for fees or some other specified benefits.
A good point about Licensing is that no exporting and
transferring costs are required but as a disadvantage, the
company can not assure quality control.
Franchising
Franchising obligates a firm to provide a specialized sales
or service strategy,
support assistance, and possibly an initial investment in
the franchise in exchange for periodic fees
Joint venture
A joint venture is a venture that is operated by two or
more firms.
Example Fuji & Xerox.
Acquisitions of Existing Operations
Firms frequently acquire other firms in foreign countries as
a means of penetrating foreign markets. For example, SCB
acquired American Express
Disadvantage : Very high capital needed.
Establishing New Foreign Subsidiaries
Firms can also penetrate foreign markets by establishing
new operation subsidiaries to produce and sell their
products. Like a foreign acquisition, this process requires a
large investment.