Chapter 3 - Chapter1 An Overview of I nternational Business...

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Unformatted text preview: Chapter1: An Overview of I nternational Business Major Forms of I nternational Business Activities- Trade (export and import)- International Investments : I t is the capital supplied by residents of one country to residents of another. Such investments are divided into two categories: * Foreign Direct Investment (FDI): Investments made for the purpose of actively controlling property, assets, or companies in host countries. * Foreign Portfolio Investments (FPI): are purchases of foreign financial assets (stocks, bonds, certificates of deposit) for a purpose other than control. Other Forms of I nternational Business Activities Licensing: is a contractual arrangement in which a firm in one country licenses the use of its intellectual property (patents, trademarks, brand names, copyrights) to a firm in a second country in return for a royalty payment. Franchising: is a specialized form of licensing which occurs when a firm in one country (the franchisor) authorizes a firm in a second country (the franchisee) to utilize its operating systems as well as it brand names, trademarks and logos in return for a royalty payment. Management contract: is an arrangement wherein a firm in one country agrees to operate facilities or provide other management services to a firm in another country for an agreed- upon fee. International Business: A firm that engages in cross-border commercial transactions with individuals, private firms, and/or public sector organizations. Multinational Corporation (MNC) : is a firm that engages in foreign direct investment and owns or controls value-adding activities in more than one country. Multinational Enterprises (MNE): is a firm that Multinational Organization (MNO): is an organization that refers to both not-for-profit and profit-seeking organizations. Why has international business grown? And why is international business activity likely to continue to skyrocket during the next decade? Two broad reasons: 1. Strategic imperatives, which motivate globalization, 2. Environmental changes, which facilitate it. Strategic Imperatives To Leverage Core Competencies : It is the opportunity to leverage a core competency that a firm has developed in its home market. A core competency is a distinctive strength or advantage that is central to a firm’s operations. By utilizing its core competencies in new markets, the firm is able to increase its revenues and profits. To acquire Resources and Supplies: Organizations must go to foreign sources as certain raw materials are too expensive or scarce in the domestic market. To seek new markets: When a firm’s domestic market matures, it becomes increasingly difficult to generate high revenue and profit growth. Organizations are then forced to seek new markets and therefore move towards international expansion. This expansion has two benefits: a firm may be able to achieve economies of scale, and such expansion diversifies a firm’s revenue stream. As it serves more countries it becomes less dependent on its sales in firm’s revenue stream....
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This note was uploaded on 04/07/2009 for the course INTERNATIO 354 taught by Professor Nicholasmartizionis during the Spring '09 term at McGill.

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Chapter 3 - Chapter1 An Overview of I nternational Business...

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