IBUS 311 1st EditionExam # 1 Study Guide Chapters: 1 - 5Chapter 1: What is International BusinessI. What is International Business?- International Business: Performance of trade and investment activities by firms across national borders- Globalization (of markets): Ongoing economic integration and growing interdependence of countries worldwide - Global Governance: Management of relations among the sovereign countriesII. How Does International Business Differ from Domestic?- Cross borders: Enter different business environments and use distinctive business methods- The global environment is complex and multi-faced (Opportunities/Threats)Political Economic Global Cultural Company Legal Infrastructure - Countries are further divided into Regional Economic Blocs- 4 Major Risks: 1. Cross-Cultural: Negotiation Patterns, Decision-Making Styles, Ethnical Practices2. Political Risk: Example: Government Intervention3. Currency Risk: Currency Expose, Asset Valuation, Foreign Trade, Inflation Currency Risks are more manageable than other risks4. Commercial Pattern: Weak partnerIII. Does the Company Change its Business Model When Operating Across Borders?- A company needs to decide whether to replicate of adapt their business. Example: McDonalds is designed to be more comfy and focuses more on their McCafe line for European countriesIV. Why do Firms Participate in International Business?- Seeking Efficiency - Seeking Growth- Seeking Resources - Also seeking knowledgeV. Who Participates in International Business?- Multinational Enterprise (MNEs): A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries.- Small-Medium sized Enterprise (SMEs): Typically, companies with 500 or fewer employees, comprising over 90% of all firms in most countries. SMEs increasingly engage in international business.- Born Global Firm: A young, entrepreneurial SME that undertakes substantial international business at or near its founding.- Non-governmental Organizations: Many of these non-profit organizations conduct cross-border activities. They pursue special causes and serve as advocates for social issues, education, politics, and research.VI. How Do Firms Internationalize?- International trade: Sale of products or services to customers located abroad, from abase in the home country or a third country.- Exporting: Sale of products or services to customers located abroad, from a base in the home country or a third country.- Foreign direct investment (FDI): An internationalization strategy in which the firm establishes a physical presence abroad through acquisition of productive assets such as capital, technology, labor, land, plant, and equipment- Importing of Global Sourcing: Procurement of products or services from suppliers located abroad for consumption in the home country or a third country.- International Investments: Transfer of assets to another country or the acquisition of assets in that country. - International Portfolio Investments: Passive owner-ship of foreign securities such as stocks and bonds, in order to generate financial returns.- Flows: Trade in Product, Trade in Service, Knowledge and Direct InvestmentsChapter 2: Globalization of Markets and the Internationalization of the FirmI. What is globalization? Is it a new phenomenon?- Globalization: The process by which an activity or undertaking becomes worldwide in scope; a network of global linkages around the world that binds s all-countries, institutions and individual- There is emphasis on growth after WWII. - The world is becoming smaller and smaller. We have entered a new phase of globalization where the world is becoming tiny because of software applications suchas email, Google and Microsoft.II. What are the drivers of market globalization?- Worldwide reduction of barriers to trade and invest. The trend is party facilitated to the World Trade Organization (WTO)- Market liberalization and adoption of free markets- Industrialization, economic development and modernization- Integration of world financial markets- Advances in technologyIII. What are the dimensions of market globalization?- Integration and interdependence of national economies Results from firms’ collective international activities. Governments contribute by lowering trade and investments barriers- Rise of regional economic integration blocs Free trade areas are formed by two or more countries to reduce or eliminate barriers to trade and investment, such as the EU, NAFTA and MERCOSUR A project was proposed which was the free trade area of the Americas. It included all countries expect for Cuba. Since, Cuba was not included - Growth of global investment and financial flows- Convergence of buyer lifestyles and preferences- Globalization of production activities - Globalization of services- Special Attention to: Regional Economic integration blocs IV. What are the consequences of market globalization for society?- Contagion: Rapid spread of financial or monetary crises from one country to another Wealthy countries are focused on pouring funds in their military but do not focuson fixing hunger crises.- Loss of national sovereignty- Off shoring and the flight of jobs Jobs are lost as firms shift production of goods and services abroad, in order to cut costs and obtain other advantages. Firms benefit, communities and industriesare disrupted.- Effect on the poor In poor countries, while globalization usually creates jobs and raises wages, it also tends to disrupt local job markets. MNEs may pay low wages, and many exploit workers or employ child labor. Globalization’s benefits are not evenly distributed. Example: Many people in India are losing jobs as the hand-woven textiles industry is being gradually automated. Two biggest concerns: Sweatshops and Child labor. Maybe not your company is participating in these areas but their supplier might be. Try to have suppliers improve their working conditions. Anything that happens along the value chain has an effect on their company.  Companies will give free lunch to their employees if they bring their children to school. Instead of having their children go to work.- Effect on the natural environment- Effect on national culture- Not covered in textbook: Globalization is increasing global terrorismV. What are the consequences of market