Topic 1 Intro to International Business.pptx

International Business Management

1. Introduction to International Business Topic 1

2. Learning Outcomes By the end of this topic, you should be able to: Explain the meaning of international business; Describe the activities involved in international business; List the types of multinational firms; Discuss the evolution of international business; and Define the main terminologies used in international business.

3. INTERNATIONAL BUSINESS Consists of all transactions managed between one country and another country. For example, Buying raw materials from one country and then transporting them to another country for processing, Exporting products to other countries to be sold, Building a factory at a foreign country to get cheap labour .

4. INTERNATIONAL BUSINESS P arty which handles international transactions consists of Individuals , P rivate companies, Corporations, and G overnment agencies.

5. Activity 1.1 Name a few organisations which implement international business?

6. A List of International Business (MNC)  Companies in Malaysia That Are Currently Doing Well Sime Darby Berhad . Axiata Group Berhad . Petroliam Nasional Berhad . YTL Corporation Berhad . Malakoff Corporation Berhad . Intel Corporation, Intel Microelectronics Sdn Bhd. BASF ( Malaysia ) Sdn Bhd. DRB- Hicom Berhad .

7. Domestic Business vs. International Business Domestic business involves transactions in one's own country whereas, I nternational business crosses borders.

8. International Business vs. Domestic Business 1. Use of Currency For customers who buy from foreign countries, they have to use the currency which has been fixed in the trade contract; for example, US Dollars or Japanese Yen. For domestic business, a customer should use the official currency of the country. For example, if someone living in Malaysia wants to buy things in the country, he has to use Malaysian Ringgit.

9. Find the name of currency of the following countries: Japan United State of America Austria Brunei China Indonesia India Iraq Philippines Sweden Singapore United Kingdom

10. Find the name of currency of the following countries: Japan = Yen United State of America = Dollar Austria = Euro Brunei = Dollar China = Yuan Indonesia = Rupiah India = Rupee Iraq = Dinar Philippines = Peso Sweden = Krona Singapore = Dollar United Kingdom = Pound Sterling

11. International Business vs. Domestic Business 2. Legal System The legal system is important in international business transactions. For customers who want to export or import a certain product from foreign countries, it has to abide to the Custom Act and Trade Act which is fixed by that particular country. For domestic business, customers need to abide to the local law with regards to buy and sell transactions.

12. International Business vs. Domestic Business 3. Culture Culture plays a vital role in international business transactions. If a local firm wants to make a direct investment in a foreign country, it has to understand the culture of the people in the country. This is because culture influences the behaviour in the usage and buying of products in that particular foreign market. For domestic business, a firm has to only understand the local culture in an effort to gain their interest in buying the product.

13. International Business vs. Domestic Business 4. Raw Material Each country has their own raw material which is different due to the climate and land. Most advanced countries invest in developing countries to obtain materials which are cheap and cannot be found in their own country. For domestic business, the production of a product depends on the raw materials that can be easily found in the country.

14. Why Study International Business? All big organisation which has international operations will be influenced by the global economy. Knowledge about international business can assist in enhancing careers. As well as enable effective interaction between managers and subordinates around the world.

15. Why Study International Business? Small businesses are also involved in international business. Knowledge about international business is important because we might work with an organization which has its headquarters abroad . We have the knowledge about international business in order to compete and learn the methods as well as techniques that are used by advanced countries. With knowledge in international business , we will be able to learn and understand the cultures of other countries.

16. Main Terminologies in International Business Multinational Company; Multidomestic company; Global company; and Transnational company.

17. 1) Multinational Company A multinational company uses a globalisation approach in a foreign market. The size of a multinational company, be it big or small, will determine its competing capability in international business. In a multinational company, its headquarters is at the original country, while its subsidiaries are at the hosting countries.

18. Three Parts of Multinational Company: Multidomestic company; Global company; and Transnational company.

19. a) Multidomestic Company A company with many subsidiaries which operates freely. Each subsidiary focuses on a domestic market. That particular subsidiary is free to plan its own marketing campaign and production technique to enhance its production. For example, a multidomestic company in Malaysia will concentrate on its effort in enhancing people’s needs towards its products while its subsidiary in London will focus on its strategy to enhance its products in London.

20. b) Global Company A global company represents the whole world as a market and will try to fulfill the needs and requirements of customers all around the world by offering a similar service and production. It also creates global advertising in order to achieve a field market economy through an extremely productive production system. A global company requires a high surveillance level to control its production strategy and market in the world compared to a multidomestic company which provides power of autonomy to each subsidiary for decision-making.

21. c) Transnational Company A transnational company combines the characteristics of both a global company and multidomestic company. Each subsidiary has their own planning and focus towards customer needs. This requires the company to make use of the combination between global effectiveness and local requirement. Typically , this type of company uses a centralised decision-making process especially for their production and development department which requires parallelism in its activities.

22. Activity 1.2 Go to Nestle company’s website ( https://www.nestle.com / ) and find the following information : History in short Their 1 st product product List any five brand under Nestle company Find out any 2 subsidiaries from Asia and Europe country Provide all the latest Corporate Social Responsibly (CSR)

23. Evolution o f International Business Please go through the notes for your understanding.

24. Activity 1.3 What are the policies of the Malaysian Government that could encourage and contribute towards international business? Discuss with your course mate within 15 minutes.

25. Development of International Business

26. 1. Market Development When the production capacity has outgrown the size of the local market, companies will find market opportunity at an international level. Companies from countries with a small market size such as Singapore, Switzerland and Netherlands will find that they need to expand their market outside the borders of their countries. For example, in 1975, Nestle marketed their milk products to sixteen countries.

27. 2 . Purchasing Resources The purchasing resources by advanced countries from developing countries have developed the activities of international business . In most cases, these companies depend on foreign resources due to the lack of resources in their own countries. Companies also find that such resources could be cheaper and easier available abroad. For example, America buys coffee and banana from South America

28. 3 . Competition Pressures Due to the efficiency of the economic of scale and wealth found in big companies, small companies find it hard to compete with them. Competition pressures contribute to the development of current international business . Example: Mazda suffered a great loss because of Nissan and Toyota

29. 4 . Technological Changes Technological changes especially in the areas of communication, transportation and information processing are the main reasons for the development of international business. Technological development eases the management of business today. Due to the rapid technological changes, international business transactions can be done faster and easier with the advanced information technology.

30. 5 . Social Changes The society nowadays is more open and easily accept products and services produced by foreign countries. Borderless international business enables users from various countries to easily obtain and enjoy products of high quality.

31. 6 . Changes in Government Trade Policy and Investment Policy 40 years ago, most countries had lessened their import tariff and abolished foreign investment obstacles to their countries. Such actions helped ease the transaction of international business between two countries or several countries. It cannot be denied that international business is increasingly important in the world's economy.

32. International Business Activities 1 . Export/Import Export, whether in the form of goods or services, is important for a company. Import involves products which are bought by other countries to be used by them. *** The service sector produce more than 60% of the gross domestic production of industrial countries.

33. International Business Activities 2. Foreign Direct Investment An activity in international business where the capital of a country is invested in other countries. Such investment is divided into two: Foreign Direct Investment which is an investment implemented to control properties or operation of a company based in other countries. Portfolio Investment which is the purchasing of financial instruments (shares, bonds and savings certificates) for certain reasons other than controlling.

34. International Business Activities 3. Licensing Licensing happens when a company in a country produces licenses to enable a company from other countries to use their intellectual property such as patent, trading mark, brand, copyrights or trading secret to obtain royalty. *** Example: Walt Disney allows a company to display the picture of Mickey Mouse on their clothes and thus, gain payment from the selling of the clothes.

35. International Business Activities 4. Franchise The two parties that are involved in franchising are franchisor and franchisee. The franchisor allows the franchisee to use their products in their brand, logo as well as operational techniques of a product or services. The franchisee will then give royalties to the franchisor. *** Example: McDonald's, Texas Chicken

36. International Business Activities 5. Management Contract When a company with skills agrees to handle the operation or management in other countries for a certain charge. For example, in the accommodation industry, Marriot and Hilton normally do not own hotels outside of America even though these hotels in other countries operate with their brand name. They are operating under a management contract.

37. International Business Activities 6. Manufacturing Contract When a firm is contracting the production of their products to other firms to produce the products. The purpose of a manufacturing contract is to lessen production cost and human resource. Example: PROTON gives a manufacturing contract to other firms to produce the windscreen of PROTON cars in Selangor and the other states in Malaysia.

38. International Business Activities 7. Turnkey Project When a country signs a contract with a firm from another country to complete a project such as the construction of a flyover or building. Once the project is completed, then it will be handed over to the company who initially offered the project. *** Example , the Penang Bridge was built by a company from South Korea and when the bridge was completed, it was handed over to the company who offered the project.

39. INTERNATIONALISATION Internationalisation happens when an organisation gets involved in commercial activities out of its border through foreign direct investment to own and control its operation with the purpose to enhance production value and gain optimum profit . For example, an organisation which implements internationalization activities is a multinational company which is involved extensively in international business. A multinational company also is defined as a company which is involved in foreign direct investment and owning or controlling added value activities in more than one country .

40. INTERNATIONALISATION A multinational company purchases cheap materials from several countries and produces products and services at other countries to gain maximum profit. A multinational firm controls the activities of its subsidiaries at other countries other than their headquarters. At the same time, it also allows the subsidiaries to match their operations following local situations .

41. Example Established in 1993 and started operations on 18 Nov 1996 Asia’s largest low fare, no frills airline and it operates scheduled domestic and international flights. Pioneered low cost travelling in Asia. The first airline in the region to implement fully ticketless travel. With a route network that spans through to over 20 countries. Associate companies, AirAsia X, Thai AirAsia , Indonesia AirAsia , Philippines’ AirAsia Inc and AirAsia Japan , AirAsia is set to take low-cost flying to an all new high with its belief, “Now Everyone Can Fly ”.

42. External Influences In International Business

43. 1 . Law and Political Policy The political system of each country is different. A multinational company which invests in a foreign country must adhere to the political system which is practised in the country. For example, Malaysian companies are not allowed to trade with Israel. When a company wants to invest in foreign countries, it has to understand the legal system of the country. For example, there are countries that provide special conditions to multinational companies that are operating in their countries, such as to employ more than 50% of their local citizens.

44. 2 . Cultural Factor Each country has its own unique culture. By understanding a country's cultural system such as the lifestyle, attitude, social values and beliefs each country has its own unique culture. By understanding a country's cultural system such as the lifestyle, attitude, social values and beliefs would help a manager of an international business to plan the products that would be of interest to the local people.

45. 3 . Economic Power By understanding the economic system of a country, it would give us a description of the existence of a phenomenon. For example, try to think about why many countries trade products and services with one another, and why does an advanced country enhance its productivity of agricultural production, while small countries still use machines which are outdated and cheap. A deep understanding on the economic power of a country will explain why a country has to loan money from the World Bank to build infrastructures such as roads to improve its transportation system.

46. 4 . Geographical Influence There are entrepreneurs who do not want to invest in international business due to bad location that would increase the cost of transportation. Geographical influence also provides indications to entrepreneurs on discovering why a country faces thunderstorms, droughts, floods and other natural disasters that would affect its business. Most international companies prefer to conduct business with their nearest counterparts so that it is easier to control their investment.

47. The End

48. Quiz: Topic 1

49. Multiple Choice Questions – Q1 International business is different from domestic business because of the following factors, EXCEPT : culture legal system the use of currency advanced countries

50. Multiple Choice Questions – Q1 International business is different from domestic business because of the following factors, EXCEPT : culture legal system the use of currency advanced countries

51. Multiple Choice Questions – Q2 _______ is an investment implemented to control properties or operation of a company located in a foreign country. Export Licensing Franchising Foreign direct investment

52. Multiple Choice Questions – Q2 _______ is an investment implemented to control properties or operation of a company located in a foreign country. Export Licensing Franchising Foreign direct investment

53. Multiple Choice Questions – Q3 One of the contributing factors of the international business development is ______. market development changes in the top management of a company changes in the administration of a company changes in the legal system of a country

54. Multiple Choice Questions – Q3 One of the contributing factors of the international business development is ______. market development changes in the top management of a company changes in the administration of a company changes in the legal system of a country

55. Multiple Choice Questions – Q4 A _______is a company with many subsidiaries which operate freely . Global company Multinational company Transnational company Multidomestic company

56. Multiple Choice Questions – Q4 A _______is a company with many subsidiaries which operate freely . Global company Multinational company Transnational company Multidomestic company

57. Multiple Choice Questions – Q5 ______ is when an organisation gets involved in commercial transactions out of the border with individuals, private companies, and/or public organisations . Global firm Transnational firm Internationalisation Multidomestic firm

58. Multiple Choice Questions – Q5 ______ is when an organisation gets involved in commercial transactions out of the border with individuals, private companies, and/or public organisations . Global firm Transnational firm Internationalisation Multidomestic firm

59. Multiple Choice Questions – Q6 Which of the following is an example of international business activity? Importing products to own country Exporting products to other countries Buying raw materials from same country Transporting raw materials to same country

60. Multiple Choice Questions – Q6 Which of the following is an example of international business activity? Importing products to own country Exporting products to other countries Buying raw materials from same country Transporting raw materials to same country

61. Multiple Choice Questions – Q7 Which of the following are example of purchasing resources by advanced country from developing country? United States buy oil from Bahrain Malaysia buy oil palm from Indonesia America buys coffee from South America Thailand buy electric component from Canada I and II I and III II and IV III and IV

62. Multiple Choice Questions – Q7 Which of the following are example of purchasing resources by advanced country from developing country? United States buy oil from Bahrain Malaysia buy oil palm from Indonesia America buys coffee from South America Thailand buy electric component from Canada I and II I and III II and IV III and IV

63. Multiple Choice Questions – Q8 Which of the following company had competitive pressures from big company in Japan’s market? Mazda Toyota Nissan Subaru

64. Multiple Choice Questions – Q8 Which of the following company had competitive pressures from big company in Japan’s market? Mazda Toyota Nissan Subaru

65. Multiple Choice Questions – Q9 What is a turnkey project? A company with skills agrees to handle the operation or management in other countries for a certain charge. A company in a country produces licenses to enable a company from other countries to use their intellectual property. A country signs a contract with a firm from another country to complete a project such as the construction of a flyover or building. The franchisor allows the franchisee to use their products in their brand, logo as well as operational techniques of a product or services .

66. Multiple Choice Questions – Q9 What is a turnkey project? A company with skills agrees to handle the operation or management in other countries for a certain charge. A company in a country produces licenses to enable a company from other countries to use their intellectual property. A country signs a contract with a firm from another country to complete a project such as the construction of a flyover or building. The franchisor allows the franchisee to use their products in their brand, logo as well as operational techniques of a product or services .

67. Multiple Choice Questions – Q10 Which of the following are NOT external influences in international business? Cultural Factor Influencer Power Law and Political Policy Geographical Influence

68. Multiple Choice Questions – Q10 Which of the following are NOT external influences in international business? Cultural Factor Influencer Power Law and Political Policy Geographical Influence

69. Multiple Choice Questions – Q11 Which country and currency name is correct? China – Won Austria – Euro Singapore – Yen Brunei – Ringgit

70. Multiple Choice Questions – Q11 Which country and currency name is correct? China – Won Austria – Euro Singapore – Yen Brunei – Ringgit

71. Multiple Choice Questions – Q12 Olive oil prepared in a small Italian oil press factory and sold by large supermarkets in the United States is an example of a ________. U.S. export U.S. import net national product gross domestic product

72. Multiple Choice Questions – Q12 Olive oil prepared in a small Italian oil press factory and sold by large supermarkets in the United States is an example of a ________. U.S. export U.S. import net national product gross domestic product

73. Multiple Choice Questions – Q13 Which of the following terms applies to the sale of a particular brand of jeans manufactured in the U.S. and sold in Canadian stores? E xporting Importing I nsourcing O utsourcing

74. Multiple Choice Questions – Q13 Which of the following terms applies to the sale of a particular brand of jeans manufactured in the U.S. and sold in Canadian stores? E xporting Importing I nsourcing O utsourcing

75. Multiple Choice Questions – Q14 Topsy Turvey Toys buying its merchandise from Ureshi Toys is an example of ________. exporting importing insourcing outsourcing

76. Multiple Choice Questions – Q14 Topsy Turvey Toys buying its merchandise from Ureshi Toys is an example of ________. exporting importing insourcing outsourcing

77. Multiple Choice Questions – Q15 Which parties will handles international transactions? Societies Corporations Private companies Government agencies I, II and III I, II and IV I, III and IV II, III and IV

78. Multiple Choice Questions – Q15 Which parties will handles international transactions? Societies Corporations Private companies Government agencies I, II and III I, II and IV I, III and IV II, III and IV

79. Multiple Choice Questions – Q16 Which of the following are the subsidiaries of Petrolium N asional Berhad ? PETROSAINS Sdn . Bhd. PETRONAS Australia Pty Ltd PETRONAS Carigali Myanmar Inc. PETRONAS Carigali (Turkmenistan) Sdn . Bhd. I, II and III I, II and IV I, III and IV II, III and IV

80. Multiple Choice Questions – Q16 Which of the following are the subsidiaries of Petrolium N asional Berhad ? PETROSAINS Sdn . Bhd. PETRONAS Australia Pty Ltd PETRONAS Carigali Myanmar Inc. PETRONAS Carigali (Turkmenistan) Sdn . Bhd. I, II and III I, II and IV I, III and IV II, III and IV

81. Multiple Choice Questions – Q17 Any commercial transaction that crosses the borders of two or more nations is known as ________. domestic marketing market segmentation global manufacturing international business

82. Multiple Choice Questions – Q17 Any commercial transaction that crosses the borders of two or more nations is known as ________. domestic marketing market segmentation global manufacturing international business

83. Multiple Choice Questions – Q18 PROTON gives a _____ to other firms to produce the windscreen of PROTON cars in Selangor and the other states in Malaysia. m anufacturing contracts m anagement contracts turnkey project f ranchise

84. Multiple Choice Questions – Q18 PROTON gives a _____ to other firms to produce the windscreen of PROTON cars in Selangor and the other states in Malaysia. m anufacturing contracts m anagement contracts turnkey project f ranchise

85. Multiple Choice Questions – Q19 Every big organization which has international operations will be influences by the _____. GDP society global economy d omestic market

86. Multiple Choice Questions – Q19 Every big organization which has international operations will be influences by the _____. GDP society global economy d omestic market

87. Multiple Choice Questions – Q20 For _____, customers need to abide to the local law with regards to buy and sell transactions. global business d omestic business i nternational business t ransnational business

88. Multiple Choice Questions – Q20 For _____, customers need to abide to the local law with regards to buy and sell transactions. global business d omestic business i nternational business t ransnational business

89. MCQ D D A A C B B A C B B B A B D D D A C B

90. Tutorial Questions: List four differences between international business and domestic business. Why are there such differences? Explain the meaning of international business and the parties involved in the international transaction. Provide examples. Briefly describe the following international business activities : a ) Licensing ; and b) Franchising State and describe the external influences in international business.