International Business

Chapter 1- What is International Business?

* 4 Risks in Internationalization

1) Cross-Cultural Risk- When a cultural misunderstanding puts some human value at stake. Arising from differences in:

-Language

-Lifestyle

-Mindsets

-Customs

-Religion

-Negotiating patterns

-Decision making styles

-Ethical practices

2) Country Risk- Exposure to potential loss or adverse effects on company operations and profitability caused by developments in a country’s political and/or legal, and economic environments.

-Harmful or unstable political system

-Laws and regulations unfavorable to foreign firms

-Inadequate or underdeveloped legal system

-Bureaucracy and red tape

-Corruption and other ethical blunders

-Government intervention, protectionism, and barriers to trade and investment.

-Mismanagement or failure of the national economy.

3) Currency Risk- Potential harm that arises from changes in the exchange rate.

4) Commercial Risk- Firm’s potential loss or failure from poorly developed or executed business strategies, tactics, or procedures. Managers make poor choices in such areas as the selection of business partners, timing of market entry, pricing, creation of product features, and promotional themes.

-Often also affected by currency risk because fluctuating exchange rates can affect various types of business deals.

Participants in International Business:

* MNE’s

* SME’s

* Born Global

* Non-governmental Organizations (NGO’s)- Non-profit groups that pursue special causes and serve as advocates for the arts, education, politics, religion, and research, operating internationally either to conduct their activities or to raise funds.

2 Types of Cross-border Investment:

1) International Portfolio Investment- Passive ownership of foreign securities like stocks/bonds for the purpose of generating financial returns. ( No control or active management of them)

2) Foreign Direct Investment (FDI)- An...