A review of emerging international business trends indicates that:
Ø Firms participate in international business to increase sales, obtain needed resources, diversify sources of inputs, and ameliorate risk.
Ø International business has become increasingly global due to improvements in communications, technology and transportation and the removal of many trade barriers.
Ø The benefits of conducting business in a foreign country are based on the size of the market, purchasing power and future growth prospects.
Ø The risks of conducting business in a foreign country are higher when the host government is unstable, the economy is weak, and legal safeguards are inadequate or poorly enforced.
Ø Before working in a foreign country, it is important to analyze its culture in terms of power distance, uncertainty avoidance, individualism versus collectivism, and masculinity.
Ø Some steps that companies can take to enhance business prospects in a foreign country include employing citizens of the host country, adequately training executives on international issues, and avoiding ethnocentric behavior.
Ø According to the theory of comparative advantage, a country should specialize in goods that it can produce more efficiently and import goods that other nations are more efficient in producing.
Ø A nation’s trade patterns are shaped by four factors: factor endowments; demand conditions; related and supported industries; and firm strategy, rivalry and structure.
Ø Exports help companies to utilize excess capacity, reduce costs, increase profits and diversify sources of risk.
Ø Imports help companies obtain access to less expensive supply sources, add products and reduce the risk of supply shortages.
Ø Although some argue that businesses should be protected from foreign competition, most share the view that opening markets and eliminating barriers to trade are more beneficial to businesses in the long run.
Ø Tariffs raise the cost of imports, provide a source of revenue for the government, and protect domestic producers from foreign competition. Consumers suffer by paying more for goods.
Ø Government subsidies help businesses compete against less expensive imports and establish a presence in foreign markets. A disadvantage is that they are funded by taxpayers and often result in shielding inefficient companies from competitive pressures.
Ø Import quotas, local content requirements and administrative rules and regulations are other mechanisms by which governments seek to limit imports and bolster domestic production and exports.
Ø Governments often restrict or limit international trade to promote foreign policy objectives, champion human rights or protect the environment. At times, governments act in deference to political constituencies or to protect jobs.
Ø International bodies such as the World Bank and WTO have strengthened the global trading system by bolstering protection for intellectual property rights, reducing agricultural subsidies, championing elimination of trade barriers, and strengthening structural safeguards and enforcement mechanisms.
Ø There are four principal levels of economic integration. In order of increasing integration, they are: a free trade area, a customs union, a common market and complete economic integration (i.e., an economic union).
Ø Foreign direct investment (FDI) has increased markedly in recent years and typically takes the form of directly investing in facilities to produce goods in a foreign country or acquiring an existing business in a foreign country.
Ø Host countries can benefit from FDI by gaining access to capital, technology and management resources that might otherwise be unavailable. Whether FDI ultimately creates or costs jobs is a matter of some controversy.
Ø Companies employ foreign exchange markets to facilitate international trade and investment, hedge against risk, invest spare resources in short-term money market accounts, and participate in currency speculation.
Ø Options, futures contracts and currency swaps are three instruments employed by many companies to hedge against financial risk.
Ø Some countries have adopted floating currency regimes, others have pegged their currency to the dollar, and some have allowed their currency to float within a range of a basket of currencies.
Ø Eurocurrencies are currencies banked outside their country of origin; similarly, Eurobonds are bonds denominated in currencies other than those of their home country.
Ø The outcome of negotiations is usually determined by the relative bargaining power of the foreign enterprise and the host government. Bargaining power is attributable to the value that each side places on the other’s resources, the number of available alternatives, and the time horizon for reaching a negotiated settlement.
Ø Firms that engage in an international strategy transfer their domestic skills and competencies to a foreign market and engage in limited local customization.
Ø Firms that pursue a global strategy focus on cost reductions derived from scale economies and increased experience.
Ø Multinational firms transfer their domestic skills and competencies abroad, engage in significant customization and localization, and pursue aggressive cost reduction strategies.
Ø Operational controls vary in accordance with the organizational strategy adopted. Multidomestic (multinational) firms typically have decentralized structures, whereas international and global firms have more centralized structures of command.
Ø Firms must balance the need for central control with the flexibility required to meet local conditions.
Ø There are six ways of entering a foreign market: exporting, turnkey projects, licensing, franchising, joint ventures and wholly-owned subsidiaries.
Ø Exporting allows companies to gain additional experience in foreign operations and avoid foreign manufacturing setup costs. On the negative side, exporting may be hampered by high transportation costs and foreign import barriers.
Ø Turnkey projects allow firms to leverage their technical expertise and gain access to nations where FDI is prohibited. Ironically, firms may inadvertently create competitors by transferring knowledge and expertise to other countries.
Ø Licensing transfers the risks and costs of operating in a foreign market to the licensee. The licensor, however, loses a certain amount of control,
Ø Franchising transfers the risks and costs of foreign operations to another company, the franchisee, who is responsible for daily business decisions.
Ø Joint ventures allow companies to spread the risks and costs of operating in a foreign market. Through joint ventures, companies gain access to vital local information and political connections. On the other hand, joint ventures can be unwieldy and difficult to handle.
Ø Wholly-owned subsidiaries allow countries to maintain full control over technological expertise. The disadvantage is that companies must bear all of the risks and costs of operating in a foreign country.
Ø Companies form strategic alliances to facilitate entry into foreign markets, spread risks and costs with partners, and transfer complementary skills and resources between companies.
Ø When selecting a manufacturing site, companies must take into consideration the country, technology and product.
Ø In-house manufacturing helps a firm protect its proprietary technology and maintain greater control over production processes; by contract, outsourced manufacturing gives a firm greater flexibility and allows it to avoid many of the difficulties associated with vertical integration.
Ø Just-In-Time and lean manufacturing techniques can reduce inventories, decrease costs and improve quality.
Ø Accounting practices differ among nations and are influenced by such factors as the nature of the accounting profession, the type of enterprise, characteristics of the local environment and tax practices, as well as academic and international influences.