MGMK 4710

INTERNATIONAL BUSINESS

UNIT 1: GENERAL ENVIRONMENTS

ESSAY QUESTIONS 1.2.

JAPAN

Alyssa Parsley

Instructions for Essay Questions 1.2:

· Go to Essay Questions 1.2.

· Your answers must have a title that looks like the one above. Write your country’s name and your team members’ names. (ALREADY WRITTEN. COUNTRY IS JAPAN)

· Write question # (e.g., Question 1), delete all directions, then provide your answer.

· For each question, break your answer into two or more paragraphs. Single-space your answers.

· In your answers, provide specifics related to your country (that is, do not be generic)

· Each answer must show that you have read relevant concepts from the Study Guides.

· Provide references of your source(s).

QUESTION 1:

Chapter 4 identifies three economic systems (market economy, command economy, and mixed economy). In one sentence, give the name of your country’s economic system. In 5 to 7 sentences, explain your answer. Provide specifics about your country.

QUESTION 2:

Using the table below (please write your country’s name), key in your country’s economic data. Make sure the entire table is on the same page (a table should not stretch over two pages).

Table 1. United States’ economic data

Years	Gross Domestic Product	Population	Per capita income ($) (GDP/population)
	$million	% Growth	In million	% Growth
2011		N/A		N/A
2012
2013
2014
2015
2016
2017
2018
2019

In 7 to 10 sentences, use the data in Table 1 above to evaluate your country’s economy. NOTE: When doing your evaluation, focus on how GDP (size of the economy) has changed overtime (percentage growth of GDP), and the level of per capita income (high-, middle- or low-income). You can see the breakdown of economies by per capita income by exploring “Useful Internet Links” I have provided in D2L under Content.

4

MGMK 4710

INTERNATIONAL BUSINESS

CHAPTER 3. THE POLITICAL AND LEGAL ENVIRONMENTS

I.
INTRODUCTION

For a multinational enterprise to succeed in countries with different political and legal environments, its management must carefully analyze the fit between its corporate policies and the political and legal conditions of each particular nation.

http://www.theglobaleconomy.com/indicators_list.php

( Go to Global Rankings, and then select:

+ Governance, Institutions, corruption

+ Country risk indicators

II.
THE POLITICAL ENVIRONMENT

A political system is the complete set of institutions, organizations, and interest groups involved in who gets to decide on the goals of a country and how those goals are to be achieved. The political system is influenced by culture (particularly the role played by the individual versus the collectivity).

A.
Individualism versus Collectivism

In individualistic societies, the government plays a limited role in business. The relationship between government and business tends to be adversarial. The government promotes marketplace competition, but may intervene to deal with market imperfections (e.g. monopoly). The concept that the government should not interfere in business affairs is captured in the idea of laissez-faire. In collectivist societies, the government defines economic needs and priorities, and centrally planned business activities. The government is highly connected to and interdependent with business, so the relationship is cooperative.

B.
Political Systems:

1. Democracy: political system in which citizens participate in the decision-making and governance process, either directly or through elected representatives. The main characteristics of a democracy are:

– Authority: clear separation of power among three branches of government

– Elections: citizens elect freely their representatives. Elections allow citizens to participate in the decision-making process

– Rights: freedom of opinion, expression, press, religion, association and access to information; freedom of organization (e.g. freedom to start a business)

– Political risk: low because if citizens are unhappy, they can change their representatives through elections

There are three main variations of democracy:

– Presidential democracy: citizens elect a president (United States)

– Parliamentary democracy: the party with the most votes after elections designates a prime minister (United Kingdom)

– Mixed democracy: citizens elect a president, and the party with the most votes after elections designates a prime minister (France)

2. Totalitarianism: political system in which one person or party monopolizes power, and citizens do not participate in the decision-making and governance process. The main characteristics of totalitarianism are:

– Authority: all branches of government are controlled by one person or one party

– Elections: citizens are not allowed to elect their representatives (or elections are fake, and they results are made up in an office by the leader or the party)

– Rights: no freedom of opinion, expression, press, religion, association, access to information, organization (no freedom to start a business)

– Political risk: high because are citizens not represented. The government use police to suppress dissent (this can lead to riots, protests, wars and chaos)

There are three main variations of totalitarianism:

– Theocracy: religious leaders are also the political leaders (Iran)

– Secular totalitarianism (dictatorship or right wing): using the military, the government exercises absolute power through the authority of the state (Congo)

– Communism: the communist party controls all power (China)

C. Trends in Political Ideologies

The world is experiencing general movements toward democracy. Several factors have powered the democratization of the world, including:

– Standards of living: many totalitarian regimes failed to improve the economic lives of their citizens, who eventually challenged the right of the state to govern.

– Technologies: vastly improved communications technology weakened the ability of regimes to control people’s access to information

– Globalization: factors such as interdependence among nations, regional integration, and multinational institutions (World Bank, International Monetary Fund, World Trade Organization, etc.) pressure totalitarian regimes to open their political space and allow more freedom.

E.
Political Risk

Political risk is the possibility that political conditions will affect a country’s business environment in ways that will cost investors some or all of the value of their investment or force them to accept lower than projected rates of return. Leading sources of political risk are: expropriation (nationalization), war between countries, civil war (within a country), unilateral breach of contract, destructive government actions, harmful actions against people, and discriminatory taxation policies. The global economic crisis has only served to increase political risk as governments take exceptional measures against the groups they blame.

III.
THE LEGAL ENVIRONMENT

A
legal system
is the mechanism for creating, interpreting, and enforcing the laws in a country. The three components of modern legal systems are constitutional law, criminal law, civil and commercial laws.

A. Types of Legal Systems: The main legal systems are:

1. Common law:
legal system based on tradition, judge-made precedent, custom, and usage. Courts play an important role in interpreting the law. Common law started in England, then it spread to former British colonies, including Australia, Canada, New Zealand, and the United States. Key characteristics include:

– More flexibility: judges resolve disputes based on their interpretation of the law

– More confrontational: lawyers argue so that judges interpret the law in their favor

2. Civil law: legal system that uses a detailed and comprehensive set of statutes and codes as a primary means to form legal judgments. Courts play an important role in applying the law. Derived from Roman law, it is the oldest, the most influential, and the most widely distributed around the world (civil law nations include Latin European countries, Germany, Japan). Key characteristics include:

– Less flexibility: judges resolve disputes by applying the law (no interpretation).

– Less confrontational: detailed statutes and codes serve to guide judges’ rulings

3. Theocratic law: legal system based upon religious teachings. Today, the only surviving theocratic legal system formally practiced by some governments is the Islamic law (examples include Iran and Saudi Arabia). Key characteristics are:

– Less flexibility: judges resolve disputes by strictly following the Koran

– Less confrontational: teachings from the Koran serve to guide judges’ rulings

B. Trends in Legal Systems: Countries can be classified as following either:

–
Rule of man
: The rule of man places ultimate power in the hands of one person and is the cornerstone of totalitarian governments. A the rule of man is dominant in totalitarian (and poor) nations, MNEs’ managers that conduct business there should expect to find inconsistent and sometimes changing laws

– Rule of law:
The rule of law is the hallmark of democratic governments and holds that authority comes from written and transparent laws. The rule of law flourishes in well-to-do industrialized countries such as the United States, Japan, and most of Europe

C.
Legal issues in international business

Doing business in multiple countries that have different and conflicting legal systems and practices raises major issues for MNEs. Of a particular concern is how laws are enforced in totalitarian countries where courts that handle legal matters are not free from political interference. Legal issues of concern include:

1. Country of Origin and Local Content: Local content is important to

all nations, and most countries push foreign firms to add value locally. In addition, product origin determines applicable fees and may be subject to quantitative restrictions as well. The global credit crisis highlights this concern in the ongoing political debate.

2. Marketplace Behavior: National laws determine permissible practices

in pricing, distribution, advertising, and the promotion of products, and they vary widely from one country to another.

3. Product Safety and Liability: Often products must be customized in

order to comply with local standards, which may be higher than those found in a firm’s home market. While product liability laws are very stringent in markets such as the United States, they are spotty, absent, and at times even arbitrary in many less developed countries.

4. Legal Jurisdiction. Every country specifies which law should apply

and where litigation should occur when agents are involved—whether they are legal residents of the same or different countries.

5.
Intellectual Property Rights

– Definition: Intellectual property rights consist of ownership rights to intangible assets, i.e., the right to control and derive the benefits from writing and other creative art forms (copyright), inventions (patents), and identifiers (trademarks).

– MNEs’ concern: Problems arise because intellectual property, whether in the form of literature, music, design, software, scientific patents, or brand names, is difficult to create but easy to duplicate. Cross-national and cross-cultural legal differences complicate specifying, regulating, and enforcing intellectual property rights. The costs of piracy, whether in terms of lost sales and royalties or future creativity, are very high for registered owners.

– Piracy: piracy is rooted in fundamental legal, economic, and cultural forces. While some countries may impose prohibitions on piracy, local authorities may actually encourage violations. Many of these problems stem from legal legacies in emerging markets where the rule of man applies. Generally, less developed countries provide weaker legal protection for intellectual property than do industrialized nations. While less developed nations feel they have little to gain by protecting intellectual property, developed nations feel it is critical to assuring continuing
creativity.

MGMK 4710

INTERNATIONAL BUSINESS

Chapter 4. ECONOMIC ENVIRONMENTS

Look at the following link:

www.heritage.org/index

I.
INTRODUCTION

Chapter 3 discussed how cultural environments affect the political environments. In turn, political/legal environments have huge implications economic environments. High-income (developed) economies tend to be democratic nations. Low to middle income (developing) economies are likely to have a totalitarian system.

II.
ECONOMIC SYSTEMS

An economic system is the set of structures and processes that guides the allocation of scarce resources and shapes the conduct of business activities in a nation. There are three main economic systems: market economy, command economy, and mixed economy

A.
Market economy

It is an economic system in which productive activities are privately owned and operated. Credited to Adam Smith, the laissez-faire principle, i.e., nonintervention by government in a country’s economic activity, states that producers are driven by the profit motive, while consumers determine the relationship between price and quantity demanded. The high standards imposed by a market economy are based on some preconditions, including sound macroeconomic policies, fair and transparent political institutions, open trade and high levels of education.

Main characteristics:

– Private property rights: policies protect rights of individuals to own property

– Pricing system: interaction of supply and demand determines prices of goods and services

– Production: market determine the quantity of goods and services to be produced

– Consumption: individuals freely make buying decision

– State: hands off system of laissez-faire, limited regulation so market operates properly

– Capitalism: private ownership of means of production

– Resources: supply-demand interactions determine how resources are distributed and used

B.
Command economy

It is an economic system in which productive activities are planned and owned by the state. Also known as planned economies, command economies are built upon the government ownership and control of the factors of production. Central planning authorities determine what products will be produced in what quantities and the prices at which they will be sold.

Main characteristics:

– Private property rights: policies prohibit individuals from owning property

– Pricing system: government regulates prices of goods and services

– Production: government decides which quantity of which goods and services to be produced

– State: hands on system of government control of production, consumption and prices

– Socialism: state ownership of means of production

– Resources: state distributes and decides how to use resources

C.
Mixed economy

It is an economic system in which private ownership (capitalism) and state ownership (socialism) co-exist. Mixed economies fall between the extremes of market and command economies. While economic decisions are largely market-driven and ownership is largely private, government nonetheless intervenes in many economic decisions. The extent and nature of such intervention may take the form of government ownership of certain factors of production, the granting of subsidies, the taxation of certain economic activities, and/or the redistribution of income and wealth.

Main characteristics: features of market economy and command economy are combined:

– State: substantial government intervention in production and pricing

– Market: sizable public sector alongside dominant private sector

– Production: government controls production and resources in key sectors

III.
ECONOMIC INDICATORS

MNEs’ managers need to look at various indicators (measures) to assess the

level of a country’s economic performance and potential. There are several

indicators that managers can use:

A. Gross Domestic Product (GDP)

Gross Domestic Product measures the value of goods and services generated by both domestic and foreign-owned firms within a nation’s borders in a given period, usually a year. The concepts of Gross National Income (GNI) and Gross National Product (GNP) are sometimes used, but they are similar to GDP. Even though GDP provides the size of a country’s economy, managers should closely examine GDP growth rate.

B. Other economic indicators

To better understand a country level of economic development, managers need to study other GDP-related measures:

– Population: it can determine the size of a particular market

– Per capita income: besides the size of an economy (GDP), and that of its population, the capacity of a country’s individuals to make purchases is determined by the per capita income. Per capita income is obtained by dividing GDP by population. Per capita income is the measure used by international institutions (World Bank, International Monetary Fund, etc.) to classify countries (rich vs poor countries, developed vs developing countries, high-, middle-, or low-income countries, etc.)

– Purchasing power parity: it represents the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market that one unit of income would buy in another country. PPP is estimated by calculating the value of a universal “basket” of goods that can be purchased with one unit of a country’s currency.

– Inflation: it is the pervasive and sustained rise in the aggregate level of prices as measured by a cost of living index. When aggregate demand grows faster than aggregate supply, i.e., when prices rise faster than incomes, the effects can be dramatic. Some countries have high inflation rates (i.e. prices go up faster). There are however instances where prices go down (a phenomenon called deflation)

– Unemployment rate: it represents the number of unemployed workers divided by the total civilian labor force in a given country.

– Debt: it is the sum total of a government’s financial obligations; it measures the state’s borrowing from its population, from foreign organizations, from foreign governments, and from international institutions. A country’s government has revenues as well as spending (budget). Budget surplus exists when revenues are higher than spending. When revenues are lower than spending, the government has a budget deficit, and this will force the government borrow, resulting in debt.

– Income distribution: it describes what share of a country’s income goes to various segments of the population. Uneven income distribution occurs in virtually every country with the U.S. having the largest inequality compared to other industrialized nations.

– Poverty: it is a condition in which a person or community is deprived of, or lacks the essentials for a minimum standard of well-being and life. According to the World Bank, globally, the world is about 80 percent poor, 10 percent middle income, and 10 percent rich. The reduction of the number of people in poverty has been concentrated in a few countries like China, but poverty appears to be growing worldwide.

IV. IMPACT OF POLITICAL ENVIRONMENTS ON ECONOMY

Political and legal environments affect economic environments. Political risk is a crucial factor MNEs’ managers consider before making the decision of whether to invest in a country. It is no surprise that MNEs invest more in stable countries and less in unstable nations.

– Democracies and market economy: because democracies involve freedom of economic organization (i.e. to start a company), most democratic countries tend to also have a market economic system. In addition, the legal system in democratic nations tends to have and enforce laws that protect private ownership (i.e. property rights) which promotes economic growth. Not surprisingly, most high-income economies are democratic nations

– Totalitarianism and command economy: because totalitarianism prohibits freedom of economic organization, most totalitarian countries tend to adopt the command economic systems. Also, the legal system in totalitarian nations has laws that do not allow private ownership, which does not promote economic prosperity. Most totalitarian countries are low income economies.

– Transition toward democracy and market economy: unable to improve living standards of their populations, several totalitarian nations are undergoing political transformations by increasingly carrying out democratic reforms. Often, these reforms are the result of political pressures from the bottom (i.e. by the people). Many countries have been transitioning toward democracy and market economy have also experienced economic hardship, income disparity, and therefore social discontent and often political instability.

MGMT 4710

INTERNATIONAL BUSINESS

CHAPTER 1. GLOBALIZATION

I. INTRODUCTION

As individuals and organizations have expanded their operations across wider geographical areas, global events and competition are affecting almost all firms—large or small. Currently, over 20 percent of world production is sold outside of its country of origin, restrictions on imports continue to decline, the foreign ownership of assets as a percent of world production continues to increase, and world trade continues to grow more rapidly than world production.

Globalization refers to the broadening set of interdependent relationships among people from different nations. International business involves all commercial transactions, including sales, investments, and transportation—private and governmental—between parties of two or more countries.

II. THE FORCES DRIVING GLOBALIZATION

Several factors contribute to the trend toward increased globalization:

1. Increase in and Expansion of Technology:

Vast improvements in transportation and communications technology—including the Internet—have significantly increased the effectiveness and efficiency of international business operations.

2. Liberalization of Cross-Border Trade and Resource Movement

Over time, most governments have been lowering restrictions on trade and foreign investments. It is believed that international competition makes domestic producers more efficient, and gives citizens greater consumer choices and lower prices.

3. Development of Services That Support International Business

Services provided by national and multinational institutions greatly facilitate the conduct and reduce the risks of doing business internationally.

4. Growing Consumer Pressures

Because of innovations in transportation and communications technology, consumers are well-informed about and often able to access foreign products. This has forced competitors to respond to the needs of consumers from all over the world

5.
Increased Global Competition

The pressures of increased foreign competition often persuade firms to expand internationally in order to gain access to foreign opportunities and to improve their overall operational flexibility and competitiveness.

6. Changing Political Situations

The transformation of the political and economic policies of Eastern Europe and East Asia (China and Vietnam in particular) has led to vast increases in trade between these countries and the rest of the world.

7. Expanded Cross-National Cooperation

Governments have increasingly entered into cross-national treaties and agreements in order to gain reciprocal advantages for their own firms, to jointly address problems that one country cannot solve alone, and to deal with areas of concern that lie outside the territory of all countries.

III.
PROBLEMS WITH GLOBALIZATION

Anti-globalization forces have protested both peacefully and violently as they press for legislation and other means to stop or slow the globalization process. The issues of concern include:

A. Threats to National Sovereignty

Many citizens fear that a country’s participation in multilateral agreements will diminish its sovereignty and freedom from external control and curtail its ability to act in its own best interests. In particular, people in small countries worry that dependence on larger countries for sales and/or supplies, as well as the presence of large international firms, will make them vulnerable to the demands of parties against which they are essentially powerless.

B. Economic Growth and Environmental Stress

Clearly, economic growth can result in both positive and negative consequences, including damage to society and the environment. Unless the positive consequences of globalization keep pace with the negative costs of economic growth, the sustainability of economic improvement on a worldwide basis will be problematic.

C. Growing Income Inequality and Personal Stress

Offshoring (the process of shifting domestic production to a foreign country in order to serve the home market at a reduced cost), speeds up the process of altering the relative economic discrepancies between the two countries involved. In particular, offshoring results in domestic job loss. Although globalization has positive impacts at a macro level, job loss in advanced countries is causing stress and insecurity.

IV.
WHY COMPANIES ENGAGE IN INTERNATIONAL BUSINESS

There are several reasons why companies engage in international business:

D. Expanding Sales

Companies may increase the potential market for their sales by pursuing international consumer and industrial markets.

B.
Acquiring Resources

Foreign-sourced products, services, resources, and components can make a firm more competitive both at home and abroad.

E. Minimizing Risk

Firms seek foreign markets in order to minimize cyclical effects on sales and profits. Defensively, they may also wish to counter the potential advantages that competitors might gain from participating in foreign market opportunities.

V.
MODES OF OPERATION IN INTERNATIONAL BUSINESS

A firm can engage in international business through various operating modes:

F. Merchandise Exports and Imports

Merchandise exports consist of tangible (visible) products, i.e., goods that are sent to a foreign country for use or resale. Merchandise imports consist of tangible products, i.e., goods brought into a country for use or resale.

B.
Service Exports and Imports

Service exports and imports represent intangible (invisible), i.e., non-merchandise products. Among these services are tourism and transportation. For example, when an American flies to Paris on Air France and stays in a French-owned hotel, payments made to the airline and the hotel represent service export earnings (income) for France and service import payments (expenses) for the United States.

G. Investments

Foreign investment consists of the ownership of foreign property in order to realize a financial gain via profits, growth, dividends, and/or interest. There are two types of foreign investments. The first type, foreign direct investment (FDI) occurs when an investor gains a controlling interest in a foreign operation. The second type, portfolio investment, occurs when an investor gains a non-controlling interest in a venture to achieve a short-term financial gain.

H. Types of International Organizations

There are types of international organizations. The type that is most used is the multinational enterprise (MNE), whereby a firm takes a global approach to foreign markets and production, i.e., it is willing to consider markets and production sites anywhere in the world. The multinational enterprise is also known as multinational corporation (MNC). Other types include collaborative arrangements (companies work together internationally) such as minority ownership, joint ventures, licensing agreements, management contracts, or other long-term contractual arrangements.

VI. Globalization: Three views

By envisioning different ways in which the future may evolve, a company can be better prepared to develop the facilities and people needed to succeed in an uncertain environment. At this time, there is much discussion about the following three viewpoints.

The first view, that further globalization is inevitable, is based largely upon the premise that technical advances in transportation and communications are pervasive, that consumers demand the best products for the best prices regardless of their country of origin, and that MNEs are so powerful they can pressure governments to further reduce restrictions on trade and investment. If this is true, then the challenge is to determine what to make of globalization with respect to the distribution of its costs and benefits.

The second view, that international business will grow primarily along regional rather than global lines, is premised on studies which show that almost all firms that consider themselves global conduct a dominant portion of the business in their home and neighboring countries. It may be possible however, that regionalization is a transitional step on the route to globalization.

The third view, that forces opposing globalization will greatly slow its growth, is not to be dismissed. Historically, pressure groups have often been successful in obstructing policies and activities that threatened their own well-being. In addition, recent anti-globalization interests have successfully promoted a variety of causes in numerous countries that span the globe. The impact of other uncertainties also impacts the future of globalization. Some examples of these uncertainties include the impact of oil prices on global transportation, the general economic recession and concerns about product safety. Whether institutions and people can work together to effectively manage the complexities of today’s interconnected world remains to be seen.

MGMT 4710

INTERNATIONAL BUSINESS

CHAPTER 1. GLOBALIZATION

I. INTRODUCTION

As individuals and organizations have expanded their operations across wider geographical areas, global events and competition are affecting almost all firms—large or small. Currently, over 20 percent of world production is sold outside of its country of origin, restrictions on imports continue to decline, the foreign ownership of assets as a percent of world production continues to increase, and world trade continues to grow more rapidly than world production.

Globalization refers to the broadening set of interdependent relationships among people from different nations. International business involves all commercial transactions, including sales, investments, and transportation—private and governmental—between parties of two or more countries.

II. THE FORCES DRIVING GLOBALIZATION

Several factors contribute to the trend toward increased globalization:

1. Increase in and Expansion of Technology:

Vast improvements in transportation and communications technology—including the Internet—have significantly increased the effectiveness and efficiency of international business operations.

2. Liberalization of Cross-Border Trade and Resource Movement

Over time, most governments have been lowering restrictions on trade and foreign investments. It is believed that international competition makes domestic producers more efficient, and gives citizens greater consumer choices and lower prices.

3. Development of Services That Support International Business

Services provided by national and multinational institutions greatly facilitate the conduct and reduce the risks of doing business internationally.

4. Growing Consumer Pressures

Because of innovations in transportation and communications technology, consumers are well-informed about and often able to access foreign products. This has forced competitors to respond to the needs of consumers from all over the world

5.
Increased Global Competition

The pressures of increased foreign competition often persuade firms to expand internationally in order to gain access to foreign opportunities and to improve their overall operational flexibility and competitiveness.

6. Changing Political Situations

The transformation of the political and economic policies of Eastern Europe and East Asia (China and Vietnam in particular) has led to vast increases in trade between these countries and the rest of the world.

7. Expanded Cross-National Cooperation

Governments have increasingly entered into cross-national treaties and agreements in order to gain reciprocal advantages for their own firms, to jointly address problems that one country cannot solve alone, and to deal with areas of concern that lie outside the territory of all countries.

III.
PROBLEMS WITH GLOBALIZATION

Anti-globalization forces have protested both peacefully and violently as they press for legislation and other means to stop or slow the globalization process. The issues of concern include:

A. Threats to National Sovereignty

Many citizens fear that a country’s participation in multilateral agreements will diminish its sovereignty and freedom from external control and curtail its ability to act in its own best interests. In particular, people in small countries worry that dependence on larger countries for sales and/or supplies, as well as the presence of large international firms, will make them vulnerable to the demands of parties against which they are essentially powerless.

B. Economic Growth and Environmental Stress

Clearly, economic growth can result in both positive and negative consequences, including damage to society and the environment. Unless the positive consequences of globalization keep pace with the negative costs of economic growth, the sustainability of economic improvement on a worldwide basis will be problematic.

C. Growing Income Inequality and Personal Stress

Offshoring (the process of shifting domestic production to a foreign country in order to serve the home market at a reduced cost), speeds up the process of altering the relative economic discrepancies between the two countries involved. In particular, offshoring results in domestic job loss. Although globalization has positive impacts at a macro level, job loss in advanced countries is causing stress and insecurity.

IV.
WHY COMPANIES ENGAGE IN INTERNATIONAL BUSINESS

There are several reasons why companies engage in international business:

D. Expanding Sales

Companies may increase the potential market for their sales by pursuing international consumer and industrial markets.

B.
Acquiring Resources

Foreign-sourced products, services, resources, and components can make a firm more competitive both at home and abroad.

E. Minimizing Risk

Firms seek foreign markets in order to minimize cyclical effects on sales and profits. Defensively, they may also wish to counter the potential advantages that competitors might gain from participating in foreign market opportunities.

V.
MODES OF OPERATION IN INTERNATIONAL BUSINESS

A firm can engage in international business through various operating modes:

F. Merchandise Exports and Imports

Merchandise exports consist of tangible (visible) products, i.e., goods that are sent to a foreign country for use or resale. Merchandise imports consist of tangible products, i.e., goods brought into a country for use or resale.

B.
Service Exports and Imports

Service exports and imports represent intangible (invisible), i.e., non-merchandise products. Among these services are tourism and transportation. For example, when an American flies to Paris on Air France and stays in a French-owned hotel, payments made to the airline and the hotel represent service export earnings (income) for France and service import payments (expenses) for the United States.

G. Investments

Foreign investment consists of the ownership of foreign property in order to realize a financial gain via profits, growth, dividends, and/or interest. There are two types of foreign investments. The first type, foreign direct investment (FDI) occurs when an investor gains a controlling interest in a foreign operation. The second type, portfolio investment, occurs when an investor gains a non-controlling interest in a venture to achieve a short-term financial gain.

H. Types of International Organizations

There are types of international organizations. The type that is most used is the multinational enterprise (MNE), whereby a firm takes a global approach to foreign markets and production, i.e., it is willing to consider markets and production sites anywhere in the world. The multinational enterprise is also known as multinational corporation (MNC). Other types include collaborative arrangements (companies work together internationally) such as minority ownership, joint ventures, licensing agreements, management contracts, or other long-term contractual arrangements.

VI. Globalization: Three views

By envisioning different ways in which the future may evolve, a company can be better prepared to develop the facilities and people needed to succeed in an uncertain environment. At this time, there is much discussion about the following three viewpoints.

The first view, that further globalization is inevitable, is based largely upon the premise that technical advances in transportation and communications are pervasive, that consumers demand the best products for the best prices regardless of their country of origin, and that MNEs are so powerful they can pressure governments to further reduce restrictions on trade and investment. If this is true, then the challenge is to determine what to make of globalization with respect to the distribution of its costs and benefits.

The second view, that international business will grow primarily along regional rather than global lines, is premised on studies which show that almost all firms that consider themselves global conduct a dominant portion of the business in their home and neighboring countries. It may be possible however, that regionalization is a transitional step on the route to globalization.

The third view, that forces opposing globalization will greatly slow its growth, is not to be dismissed. Historically, pressure groups have often been successful in obstructing policies and activities that threatened their own well-being. In addition, recent anti-globalization interests have successfully promoted a variety of causes in numerous countries that span the globe. The impact of other uncertainties also impacts the future of globalization. Some examples of these uncertainties include the impact of oil prices on global transportation, the general economic recession and concerns about product safety. Whether institutions and people can work together to effectively manage the complexities of today’s interconnected world remains to be seen.