International

Business
Environment
 What is IB?
IB is the business between borders
IB has been in existence throughout
history
Today no country can claim it can
prosper without IB
When did International Business
Start?
 IB is not a new idea.
 Evidence suggests China, India, and
Japan were trading products throughout
the world 15,000 years ago.
 Africans also traded with South Americans
several thousand years ago.
IB through Globalization
 Trade and investment
barriers are disappearing.
 Perceived distances are
shrinking due to
advances in
transportation and
telecommunications.
 Material culture is
beginning to look similar.
 National economies
merging into an
interdependent global
economic system.
 The Shrinking Globe
1500-1840

Best average speed of 1850-1930

horse-drawn coaches and
sailing ships, 10mph.

Steam locomotives average 65mph.

Steamships average 36mph.
1950s

Propeller aircraft
300-400 mph. 1960s

Jet passenger aircraft

500-700mph.
Today with the emergence of
Internet and low cost
telephony, time to reach
anybody any place in the
world is less than 1second.
 GEOGRAPHY ECONOMICS
 location  technology
 climate  education
 terrain  inflation
 waterways  exchange rate
 natural resources  infrastructure

THE INTERNATIONAL BUSINESS ENVIRONMENT

CULTURE POLITICAL–LEGAL
 language FACTORS
 family  government system
 religion  political stability
 customs  trade barriers
 traditions
 food
 Globalization of Markets-
the driving force of IB

● National markets are merging into one huge global

market.
● Standardized products facilitate the trend
towards a global market.

These products fulfill a universal need- The taste,

fashion, and style is evolving into one.

● Until recently industrial goods have

experienced the greatest degree of globalization.

Firms are merging or acquiring other firms

expanding into foreign markets at an
unprecedented pace.
 What’s Driving Globalization?
Two factors underlie the trend toward globalization and
increased IB:
1. Declining trade and investment barriers

2. Technological change

Reverse- globalization- In the late 19th century there were

relatively few restrictions on cross-border movement,
however, during the 1920s and 1930s many nations
established tariffs (duties) on imported manufactured goods;
why?
●Primarily to protect domestic industries from foreign

competition.
●However,this encouraged retaliatory trade policies by other
countries.
■Bringing great economic and social disruption

throughout the world

■The rise of fascist governments (Germany, Italy, Spain)
● World demand decreased, contributing to the “Great Depression”.
What’s the difference between
TRADE & INVESTMENT with
foreign countries?
Trends in trade & investment
 Worldtrade has grown 20x since 1950
while Global production has increased
about 6.5x

 Between ’90 and ’00 FDI increased 5x,

trade by 2x and world output by 0.2x

 Outflows of FDI have grown faster than

trade in recent years
INTERNATIONAL INVESTMENT
Types of Int. Investment
- FDI (foreign direct investment)
Investor retains control over the
investment. Eg. Subsidiary, JVs,
Acquisitions etc.
- FPI (foreign portfolio Investment)
Investor only gets a return on investment
but has no control of capital eg. Stocks,
bonds etc.
 Foreigndirect investment (FDI), has
grown more rapidly than trade and
domestic production.

 In
the early 1980s, world FDI flows
amounted to some $40 billion; in 1995,
FDI flows to developing countries alone
amounted to $100 billion, with world flows
reaching $315 billion.
 If $5 trillion of exports is compared with the $6
trillion of sales by foreign affiliates, it becomes
obvious that FDI has become more important
than trade in terms of delivering goods and
services to foreign markets and, thereby, linking
markets internationally.

 In the case of the U.S., in fact, three-quarters of

all goods and services delivered to foreign
markets are actually delivered by foreign
affiliates. This is a situation that is strikingly
different from that which prevailed immediately
after World War II, when trade alone reigned
supreme when it came to international economic
transactions.