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International Business
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Globalisation and its consequences

What do we mean by globalisation?Click to read

"The trend towards greater integration and interdependence  between countries and regions of the world".

Nowadays, communication is so fast and efficient that it is possible to:

  • be aware of what is going on elsewhere,
  • Communicate in real time and it does not involve large expenditures of  money,
  • consume products that have been produced anywhere in the world and buy them in our neighbourhood shop.


One of the drivers of this phenomenon is technology, which facilitates communication  between different locations around the world and makes possible a homogenisation of  certain behavioural and consumer behaviours at a global level.
The ease of knowledge transmission: telecommunications make possible the  rapid and effective exchange and transfer of knowledge.
The means of transport and mobility of people between countries: the lowering of costs for transport systems for goods and people has favoured the rapid exchange of products  and services, facilitating mobility and contact between different nationalities.


Effects of globalisationClick to read
What do we mean by international business?

What is business internationalisation?Click to read

Economic globalisation has promoted competition between companies  and there is a trend towards the homogenisation of international  markets. This consists of exporting, importing, investing  abroad, and setting up production in a country other than one's own.
The cultural process at the business level whereby companies  develop capabilities to do business in a variety of countries that constitute markets other than their natural geographic environment.  



Multinational enterprises (MNEs): a company headquartered in one country but having operations in other countries.

Most MNE activity can be classified into two major categories:
  • Trade (exports and imports): More than 50% of all trade is made by the world’s largest 500 MNEs.
  • Foreign direct investment (FDI): 80% of all FDI is made by the world’s largest 500 MNEs.


Trade consists of exports and imports: 

  • Exports: goods and services produced in one country and then sent to another country.
  • Imports: goods and services produced in one country and brought in by another country.

Foreign investment: consists of companies investing funds to start or improve operations in another country.




The international business environment has changed rapidly in recent years as a result of:
  • Increased trade liberalisation through trade agreements,
  • Improvements in technology,
  • The emergence of SMEs
SME: small and medium-sized enterprises. Bigger companies (including multinationals) often purchase from SMEs. This is because their specialised workforces, innovation and technology allow SMEs to provide goods and services more efficiently than if they were to source these internally.  
Actions for business internationalisationClick to read

The following actions are envisaged:
  • Export: the act of selling, delivering and collecting payment for products or services to  customers outside the boundaries of the domestic market.
  • Importing: the action of buying, introducing and paying for products or services that are  outside the boundaries of the domestic market but which enter our domestic market.
  • Relocation of production to a third country: relocating the production centre of a company to  a third country with the aim of using economies of scale, reducing labour costs, locating skilled labour or receiving aid and incentives, among others.
  • International transfer of know-how: to the extent that the company transferring the  information generates profits through this transfer and that the companies receiving the  information are located in third countries.
  • Direct investment abroad (creation of subsidiaries, branches, permanent establishments,  joint ventures, etc.): the company seeks to have a market presence through a physical  presence.
Factors for business internationalizationClick to read

Why do firms internationalize?
  • To diversify themselves against the risks and uncertainties of the domestic business cycle.
  • To tap the growing world market for goods and services.
  • In response to foreign competition.
  • To reduce costs.
  • To overcome barriers to entry into foreign markets.
  • To take advantage of technological expertise by manufacturing goods directly.
Advantages and disadvantages of business internationalizationClick to read

  • Diversification of commercial risks.
  • Higher sales equals higher turnover and higher net business profit.
  • Use of economies of scale and consequently reduction of unit manufacturing  costs.
  • Learning about new markets and locating new opportunities.
  • Longer product life.
  • Brand recognition and prestige condensation for the company and its  management, staff and investors.
  • Positioning in relation to the competition.
  • Economic revitalisation of the company's area of influence.
  • Brand recognition in those markets where the product penetrates successfully.
  • Different cultures, consumer habits and languages require product modification.
  • More complex transport and distribution logistics.
  • Recruitment of new staff trained in foreign trade and outsourced services.
  • Adaptations of the product according to regulations.
  • Costs for market research, travel, trade fairs, promotion and advertising of  products on foreign markets, etc.
  • Increased administrative formalities.
  • Political, socio-economic risk-taking.
Internationalization processClick to read

The international business process:

  • Initially, the firm might license patents, trademarks or technology to a foreign company in exchange for a fee or royalty.
  • The firm sees a potential for extra sales by exporting and uses a local agent or distributor to enter a foreign market.
  • The firm may use exporting for its surplus production and might have no long-term commitment to the international market.
  • As exports become more important, the company may set up an office for its sales representative or a sales subsidiary.
  • The firm might set up local packaging and/or assembly operations.
  • Finally, the firm will set up a wholly owned subsidiary (FDI).
Phases of business internationalizationClick to read

Phase 1

  • The company adopts a passive attitude and receives orders from abroad.
  • It carries out sporadic exports that are not deliberately sought after, but are encouraged by external agents and few customers.
  • It does not follow a previously implemented business strategy.
  • Little or no investment on the part of the company.

Phase 2

  • The company adopts an active attitude in the search for business partners and customers in foreign markets.
    There is regular exporting through local importers-distributors, retailers or small wholesalers in the destination countries.
    Minimal investment by the company in the promotion of foreign trade.

Phase 3

  • The company consolidates its sales in the international markets in which it operates.
  • Exports are regular and form part of the company's strategy, making an important contribution to the company's turnover.
  • The company invests heavily in prospecting trips, its own foreign trade department, with its own sales and marketing plan.
  • It has its own staff in foreign markets or with several agents, distributors-importers that promote the business.
Phase 4
  • The company has its own subsidiaries, branches, permanent establishments, warehouses, etc. in the target countries, developing its own commercial and marketing activities.
  • The company invests significant economic resources in infrastructure and personnel in the target countries. The company's presence abroad is significant and long-lasting.
Phase 5
  • In this phase, which is the highest level of business internationalisation, the company has its own production centre abroad in order to make use of economies of scale, cheap and/or skilled labour and other advantages of industrial relocation.
  • The aim is to adapt to the local market, save on production and transport costs, strategic objectives, etc. The investment required is high and constant.
Internal EvaluationClick to read

  1. Analysis of our production capacity.
    What is our current production? What could be our maximum production capacity? You will have to take into account your fixed and variable costs.
  2. Compliance with commitments. Does the company comply with manufacturing and product delivery deadlines, its manufacturing period, strictness in its compliance, capacity to react to unforeseen events, deviation from estimated and actual deadlines, as well as the customer satisfaction for at least the last three years?
  3. Product analysis is the product or service of minimum acceptable quality?
  4. Strength in the domestic market. It is advisable to be strong in the domestic market, especially during the internationalisation process?  Will we lose focus on our domestic market?
  5. Human Resources. Do we have the necessary human resources to externalise our product or service?
  6. Financial resources. Do we have the minimum resources to pay for prospecting trips, commercial and marketing actions, staff recruitment, product adaptations, etc.?
  7. Management committed to internationalisation. Do we have the mindset and attitude to deal with the internationalisation process?
Generic StrategiesClick to read

Three generic strategies:

Cost Strategy

A strategy that relies on low price through the pursuit of cost reductions.

Differentiation strategy

A strategy directed toward creating something that is perceived as being unique.

Focus strategy

A strategy that concentrates on a particular buyer group and segments.


International StrategyClick to read

Strategic formulation: the process of evaluating the enterprise’s environment (opportunities) and its internal strengths (resources).

External environmental assessment:
information gathering; information assessment.

Internal environmental assessment:
physical resources and personnel competencies; value chain analysis.


Conducting an environmental scan:
The most common methods for conducting an environmental scan are as follows:
Asking experts in the industry to discuss industry trends and to make projections about the future.
Asking knowledgeable people describing what they foresee for the industry over the next two to three years.