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Lecture 5

MGMT 309 Lecture Notes - Lecture 5: International Business, Market Economy, Business Partner


Department
Management
Course Code
MGMT 309
Professor
Bradley Wesner
Lecture
5

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The Nature of International Business
We have become part of a global village and have a global
economy where no organization is insulated from the effects of
foreign markets and competition
The meaning of international business
Domestic business: a business that acquires all of its
resources and sells all of its products or services within a
single country
International business: a business that is based primarily in a
single country but acquires some meaningful share of its
resources or revenues (or both) from other countries
Multinational business: a business that has a worldwide
marketplace from which it buys raw materials, borrows
money, where it manufactures its products, and to which it
subsequently sells its products
Global business: a business that transcends national
boundaries and is not committed to a single home country
Trends in international business
US firms are no longer isolated from global competition or the
global market
International operations are increasingly important elements
in sales and profits
Managing the process of globalization
One set of challenges must be confronted when an
organization chooses to change its level of international
involvement
Other set of challenges occurs when the organization has
achieved its desired level of international involvement and
must then function effectively within that environment
Importing and exporting
First type of international business in which a firm gets
involved
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Exporting: making a product in the firm's domestic
marketplace and selling it in another country
Importing: bringing a good, service, or capital into the
home country from abroad
Advantages
Easiest way of entering a market with a small
outlay of capital
Little risk
Disadvantage
Subject to taxes, tariffs, and higher transportation
expenses
May miss the needs of a large segment of market
Not adapted to local conditions
Some products may be restricted and thus can
neither be imported nor exported
Licensing: an arrangement whereby one company allows
another company to use its brand name, trademark,
technology, patent, copyright, or other assets in exchange for
a royalty based on sales
In return the licensee pays a royalty, usually based on
sales
Advantages
Increased profitability
Extended profitability
Often used for entry into less developed countries
Disadvantage
Inflexibility
Licensees can take the knowledge and skill and
exploit them in the licensing firm's home market
Business partner becomes a competitor
Strategic alliance: two or more firms jointly cooperate for
mutual gain
Joint venture: type of strategic alliance in which the
partners actually share ownership of a new enterprise
GM and Nestle formed a separate company
together
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