A multi-domestic company (MDC) is an organization with multi-country affiliates, each of

which formulates its own business strategy based on perceived market differences.

A global company (GC) is an organization that attempts to standardize and integrate operations
worldwide in most or all functional areas.

Globalization is: The tendency toward an international integration of goods, technology,

information, labor, and capital, or the process of making this integration happen. Supporting--- as
bellow

Enhances socioeconomic development

Promotes more and better jobs . concerns-- as bellow

Uneven results across nations and people

Deleterious effects on labor and labor standards

Decline in environmental and health conditions

Motives why a Company becomes International?

Strategic motives drive the decision to invest abroad. They can be summarized as seeking the following:

Markets, Raw Materials, Production Efficiency, Knowledge, Political Safety.

Market seekers produce in foreign markets either to satisfy local demand or to export to markets
other than their home market. US automobile firms manufacturing in Europe for local consumption
are an example of market-seeking motivation.

Raw material seekers extract raw materials whatever they can be found, either for export or for
further processing and sale in the host country. Firms in the oil, mining, plantation and forest
industries fall into this category.

Production efficiency seekers produce in countries where one or more of the factors of production
are under priced relative to their productivity. Labor-intensive production of electronic components in
Taiwan Malaysia and Mexico illustrates this motivation

Knowledge seekers operate in foreign countries to gain access to technology or managerial

expertise. For example, Germany, Dutch and Japanese firms have purchased US located electronics
firms for their technology.

Political safety seekers acquire or establish new operations in countries that are considered
unlikely to expropriate or interfere with private enterprise. For example, Hong Kong firms invested
heavily in manufacturing, services and real estate in the United States, Canada and Australia in
anticipation of the consequences of China's 1997 takeover of the British colony.

Multinational Enterprises (MNEs) Local Enterprises

Operating subsi-
diary located in Foreign countries Within the country

Headquarters All over the world In the country

Owned by Domestic and foreign shareholders Domestic shareholders

Managed from Global perspective Perspective of a single country

International MNEs Local firms (export and import)

Activities

International risks Yes Yes

Faces major risks Foreign exchange risks and Foreign exchange risk, credit risks
political risks
Other risks Like domestic but with Cost of capital sourcing debt and equity,
complexities capital budgeting, working capital,
taxation, credit analysis

Mercantilism A nations wealth depends on accumulated treasure, usually gold, and To

increase wealth, government policies should promote exports and discourage imports.

Theory of absolute advantages:

Capability of one country to produce more of a product with the same amount of input
than another country.
Produce only goods where you are most efficient, trade for those where you are not
efficient.
Assumes there is an absolute advantage balance among nations, e.g., Ghana/cocoa.
Comparative advantages:
Should trade even if country is more efficient in the production than its trading partner.
Newer explanation for the Direction of Trade:
Differences in Resource Endowments, Overlapping Demand, International Product Life
Cycle, Economies of Scale and Experience Curve , National Competitive Advantage from
Regional Clusters
Differences in Resource Endowments: Some countries have abundant resources when
compared to other countries:
Chile abundant supplies of copper, U.S. large supply of fertile farmland, Saudi
Arabia extensive quantities of crude oil
Differences in resource endowments suggest developed countries would trade with
developing countries with different endowments than with developed countries with similar
endowments
Overlapping Demand: Consumers in several countries demand the same goods or
services, because:
Customers taste, and market demand are affected by a nations per capita income.
Therefore: -Goods are exported to countries with similar levels of per capita income and market
demand for comparable products.
International product life cycle: Concerns the role of innovation in trade patterns
4-stage life cycle: 1.U.S. exports, 2.foreign production begins, 3.foreign
competition in export markets, 4. import competition in the U.S.

Economies of scale and the experience curve: Most industries benefit from economies
of scale
as plant gets larger and output increases, average unit cost of production decreases
Production costs also drop due to experience curve
as firms produce more products, they learn ways to improve production efficiency,
causing production costs to decline
Permits a nation to become low cost producer without requiring an abundance of a certain
class of production factors
promotes trade to gain and more fully exploit scale and experience effects beyond
limits of the domestic market
National competitive advantage from regional clusters: 3 Reasons for Geographic
clusters:
 1. Advantages from pooling a common labor force
2. Gains from the development of specialized labor suppliers
3. Benefits from sharing technological information and increased rate of innovation

Why/How International business Developed?

There are several factors that developed international business: Development of Roads and discovery
of Sea routes, Development of Transportation System, Development of medium of exchange (Money
and coins), Development of different kinds of products (silk, cloths), Technology.

The ancient trade

7000 BC, prehistoric Egyptians had imported goats and sheep from Southwest Asia
6000 to 4000 BC:: The ancient peoples of the Sahara imported domesticated animals from Asia
4000 BC ancient Egyptians were importing pottery
Business internationally started many years ago.
Story of Joseph (Prophet Yusuf) proves about trade of crop, cloths and slaves
During Pharaoh there were trades across their boarder for crops and cloths.
Long before Christ, Phoenician and Greek merchants sold goods abroad.
Expansion of agricultural and industrial production in China resulted in foreign trade.
China remains dominant in trade until 1800.
It was replaced by Britain in about 1840.
Chinese Trade : In early years, by the time of Confucius, Chinese people traded salt, iron, fish, cattle, and
silk. To facilitate trade, the First Emperor instituted a uniform weights and measure system and standardized
the road width so carts could bring trade goods from one region to the next.

Trade and society feudalism: In England -- Lords, the owners of land were the most rich. They
controlled society. They were less interested in trade. Only means to be rich was to conquer. They
encouraged Literature and Poetry.

Rig veda and Judaism: During the time of Rig Veda there were references of trade especially
with China.
Jews: Wealth was the reward for a hard worker, But the pursuit of wealth was bad , Opposed to
commerce (including trade) and usury, Aristotle was suspicious of trade, He felt that commerce
and usury (high interest rate) were not good
New testament and islam: The love of money is the root of all evil. (Timothy 6:10),
ISLAM:Business (Commerce and Trade) permitted but Interest prohibited
Emperors and Kings: The Ottoman Empire of 1300s was very strong, who did not allow
others to use their trade routes. This spawned a search for sea routes to Asia, including
expeditions that discovered the Americas.
In 1600, Great Britain's British East India Company followed by companies of Portugal, the
Netherlands, France etc. began to establish foreign branches throughout Asia.
Vasco da Gama, born in Portugal explores the African coast and reaches India in 1498,
The results are: expanded trade and broader view of humanity
Feudalism and Business class: Production of Land gradually went down, A new class
called business class grew up. They became rich and richer and challenged the Lords. They
developed trade, funded discovery of sea routes, They encouraged science and technology.
Steam Engine- A move away from feudalism : The most important invention was steam
engine, Thomas Newcomen (1663-1729) invented it. He established an industry making
threads and cloth. But his steam engine had lot of weaknesses. He was James Watt (1736-
1819)
The people of Great Britain used Horse driven Carts to carry goods from remote parts of
the country for business. It was expensive and time taking.
When railway engine was invented by George Stephenson, carrying goods for exports
became very cheap,
Industrial Revolution: Because of Invention of Steam Engine an INDUSTRIAL
REVOLUTION occurred in England. There were one after one inventions in that country. SO,
 there were new businesses and new rich persons. International Trade and Business
flourished
Industrial Revolution created a new Society called CAPITALISM. Poor became poorer. Politics
changed. Lords failed.
Mercantilism: 17th and 18th Centuries : British Idea world can be conquered by Guns
And/Or Trade