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What’s different about International Business?

What’s different about International Business?. The basic facts we need to consider when thinking about whether, or how, to go international are the same as domestic, in terms of categories, But enormously variable in terms of answers.

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What’s different about International Business?

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  1. What’s different about International Business? The basic facts we need to consider when thinking about whether, or how, to go international are the same as domestic, in terms of categories, But enormously variable in terms of answers. Three categories in particular become variables in the international context which we tend to take for granted, or assume are fixed, in the domestic context: -Law - Government -Culture

  2. What is a market? A market is Enough people -with enough money -who want

  3. Population -High rate of growth in developing countries - Static in Europe, Japan, North America -Emerging middle class, particularly China Mexico India Chile Brazil Argentina Indonesia? - Shift in age distribution -Impact of disease - AIDS - malaria, TB making a comeback

  4. Population (cont.) -Migration from countryside to cities - urban/rural tensions Canada is typical - during 20th c. we went from 95/5 to 5/95 rural/urban split -Migration from one country to another - Colonial inheritance Have both generated -ethnic/tribal/linguistic tensions Canada Israel USA Indonesia South Africa Central Yugoslavia Nigeria America

  5. Income Distribution Does development increase poverty? Problem of interpretation of urban poverty - People are rational - they are better off than in the countryside Urban poverty is more visible Perceptual bias - idealistic notions of a rural utopia Family structure - Nuclear and sub-nuclear families Erosion of the extended family Shift from polygamy to monogamy eg. in the Middle East Breakdown of two-parent family structure in the West

  6. Problems with Economic Data 1. Bad counting - e.g Zimbabwe census 1981 2. Outside the cash economy - subsistence agriculture - barter - household production 3. Outside the statistical net “black economy” “unofficial economy” “informal sector” - Partly tax evasion - Partly simply not recorded - but often surprising results -age - entrepreneurship - average income

  7. Problems of Comparability Foreign Exchange - Market rate? - or PPP (Purchase Power Parity) - or the McBurger Index?

  8. PPP vs. Exchange Rate - Examples 1. Petrol/Gasoline per litre Canada = $4.00 =$0.40 =$0.65 Bahrain 1 BD 100 fils = 0.1 BD =0.1 UK = £1.65 = 0.16 =£0.80 For’n X/C Market Bahrain price Actual Local price PPP =0.80/0.1 =0.65/0.1 Exchange Rate = 8.00 =6.50

  9. PPP vs. Exchange Rate - Examples 2. Unskilled Labour - per hour Canada = $4.00 =$3.20 =$7.00 Bahrain 1 BD 800 fils = 0.8 BD =0.1 UK = £1.65 = £ 1.32 =£3.00 For’n X/C Market Bahrain price Actual Local price PPP =3.00/0.8 =7.00/0.8 Exchange Rate = 3.75 =8.75

  10. PPP vs. Exchange Rate - Examples 3. Rent - 3 br furnished bungalow -middle class part of town - per month Canada = $4.00 =$1800 =$800-1000 Bahrain 1 BD BD450 UK = £1.65 = £ 742.50 =£600-1000 For’n X/C Market Bahrain price Actual Local price PPP =600 - 1000/450 =800 -1000/450 Exchange Rate = 1.33 - 2.22 =1.78 - 2.22

  11. Trends in Trade Foreign Trade is distributed very unevenly throughout the world: 1. Difference in absolute size of trade 2. Differences in relative importance of trade to economy 3. Differences in the economic basis of trade - commodities - manufactured goods -services - tourism - finance - consultancy/accounting/lawyers

  12. Trends in Foreign Trade 1. National economies (especially developed countries) going toward service economies 2. Trade in manufactured goods is fastest growing component of international trade 3. Trade is becoming more multilateral (But Canada is an exception - our trade is more heavily dominated by the USA) 4. Composition of trade has changed

  13. Reasons for Changes 1. Spread of technology and know-how 2. Cheaper, more efficient transport 3. Rising real wages in some countries, causisng shifts in production to low wage areas 4. Effects of quotas and other administrative barriers in shifting production 5. Development of export promotion strategies by Newly Industrializing Countries

  14. Foreign Direct Investment ( capital exports by the private sector) - Heavily concentrated among wealthy countries - 3/4 to Europe, Japan and America - Growth of MNE’s - about 1/3 of total world trade is intra-firm

  15. Non Economic Issues Becoming More Significant: - Environment - Human Rights - Democracy There is increasing concern for non-economic costs, or better yet, Externalities: costs incurred by the society, but not absorbed by the company or reflected in its balance sheet. Non-economic issues raise ethical and legal problems. Initiatives for change often come from the developed world, but LDC’s often respons “we can’t afford that!”

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