International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
Module 1: The Challenging Context of International
Business
this module:
YOUR CONTENT
Summary
Learning Objectives
Key Terms & Key Terms with Definitions
How to assign SmartBook to ensure students come to class prepared?
ENGAGEMENT & APPLICATION (F ACE TO FACE & ONL INE & HYBRID)
BOXED TEXT DISCUSSION QUESTIONS WITH SUGGESTED ANSWERS
IB IN PRACTICE
GLOBAL DEBATE
Video Suggestions
Team Exercises
Supplemental Lecture
Tools & Tricks
Controversial Issues
International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
CONNECT TOOLS FOR ASSESSEMENT OF LEARN ING
Interactive Applications
Assigning Interactives
International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
YOUR CONTENT
SUMMARY
This module provides an overview of international business (IB) and some of the ways that IB
differs from domestic business, including the three environments of IB: domestic, foreign, and
international. Although the kinds of forces are the same in the domestic and foreign
environments, their values often differ and changes in the values of the foreign forces can be at
times more difficult to assess. In addition to providing a brief review of the history of IB, the
module discusses the internationalization of business in recent decades and the driving forces
that are leading firms to internationalize their operations. The increasing internationalization of
business requires managers to have a global perspective gained through experience and
LO 1-2 Describe the history and future of international business
LO 1-3 Discuss the dramatic internationalization of business.
LO 1-4 Identify the kinds of drivers that are leading firms to internationalize their
operations.
LO 1-5 Compare the key arguments for and against the globalization of business.
International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
market
foreign direct investment (FDI)
(p. 13)
Involves.
Direct investments in equipment, structures, and organizations
in a foreign country at a level sufficient to obtain significant
management control; does not include mere foreign
investment in stock markets
foreign environment (p. 6)
All the uncontrollable forces originating outside the home
country that surround and influence the firm
importing (p. 13)
The transportation of any good or service into a country or
region, from a foreign origination point
International business (p. 5)
Business that is carried out across national borders
international company (IC) (p. 5)
A company with operations in multiple nations
international environment (p. 7)
Interaction between domestic and foreign environmental
forces, as well as interactions between the foreign
environmental forces of two countries
self-reference criterion(p. 8)
Unconscious reference to your own cultural values when
judging behaviors of others in a new and different environment
transnational corporation (p. 12)
An enterprise made up of entities in more than one nation,
operating under a decision-making system that allows a
common strategy and coherent policies
uncontrollable forces (p. 5)
The external forces that management has no direct control
over
International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
CONTENT OUTLINE
A. IB is business that is carried out across national borders, including international trade, foreign
E. Although firms that only operate within the domestic environment must essentially be concerned
with the domestic environment, no domestic firm is entirely free from foreign or international
forces due to the potential for competition from foreign imports or foreign competitors setting up
operations in the firm’s domestic market.
International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
B. External forces, commonly called uncontrollable forces, are those forces outside the firm that
management has no direct control over, including:
1. competitive
2. distributive
3. economic
4. socioeconomic
5. financial
6. legal
7. physical
8. political
9. sociocultural
10. labor
11. technological
C. Internal forces, called controllable forces, are the forces that management does have some control
over, such as factors of production and activities of the organization.
D. Changes in an external force, such as the political force associated with the expansion of the
European Union (EU), can affect all of the controllable forces of firms that do business in or with
the 28 EU nations.
IV. The domestic environment
A. All the uncontrollable forces originating in the home country that surround and influence the
firm’s life and development.
differ.
VI.The international environment
A. Consists of interactions between the domestic environmental forces and the foreign
environmental forces, as well as interactions between the foreign environmental forces of two
countries.
B. International organizations whose actions affect the international environment are also properly
part of the international environment, such as worldwide bodies (e.g., World Bank), regional
economic groupings of nations (e.g., European Union), and organizations bound by industry
International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
7
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agreements (e.g., OPEC).
C. Decisionmaking is more complex in the international environment; managers in a home office
overseeing subsidiaries in 10 different nations must consider not only domestic forces but also the
influence of 10 foreign national environments, both individually and collectively since there may
be some interaction.
D. Self-reference criterion is another common cause of added complexity of foreign environments.
1. Due to managers’ unfamiliarity with other cultures, some managers will ascribe to others
their own preferences and reactions.
2. Unconscious reference to a manager’s own cultural values is probably the biggest cause of
international business blunders.
3. In IB, the international manager has three choices in deciding what to do with a concept or
technique employed in domestic operations: (a) transfer it intact, (b) adapt it to local
conditions, or (c) not use it overseas.
VII.Relationships among the different IB environments are shown in Figure 1.1.
LO 1-2
Describe the history and future of international business.
• Is Internationalization of Business a New Trend, and
Will It Continue?
Key Terms:
Lecture Outline and Notes:
I. Is internationalization of business a new trend and will it continue?
A. Although IB is a relatively new discipline, it is not a new business practice
1. Phoenician and Greek merchants traded abroad well before the time of Christ.
2. Expansion of agricultural and industrial production in China stimulated the emergence of
an internationally integrated trading system, with China as the world’s leading
manufacturing country for about 1,800 years, until Britain replaced it around 1840.
3. Emergence of international trading extensively impacted other areas of human life, such
as politics, arts, agriculture, industry, and public health.
4. The Ottoman Empire’s emergence before 1300, ultimately spanning Europe, North Africa,
and the Middle East, profoundly influenced emerging trade routes for people, goods,
drove a search for sea routes to Asia, including expeditions that discovered the Americas.
5. In 1600, Great Britain’s British East India Company began establishing foreign branches
throughout Asia, and other nations soon imitated in an effort to exploit trade
opportunities for national advantage.
7. By the end of the 1600s, Ships commissioned by European trading companies traveled
regularly to Asian markets via government-protected trade routes linking the Atlantic,
significant profits.
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International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
8. The 17th and 18th centuries have frequently been termed the “age of mercantilism”
because the power of nations depended directly on the sponsorship and control of
merchant capital operating internationally, which expanded under the direct subsidization
and protection of national governments.
9. A number of multinational companies existed in the late 1800s, such as Singer Sewing
Machine, J&P Coats, Ford Motor Company, and Bayer.
10. The level of intracompany trade of multinationals in 1930, as a percentage of overall world
trade, may have exceeded the proportion at the end of the 20th century.
11. While most multinationals are based in developed nations, there has been a recent surge
in the number arising in emerging economies.
12. The rapid urbanization of populations combined with industrialization in the emerging
markets is quickly shifting the world’s economic center of gravity from Europe and the
Americas and back to Asia, as shown in Figure 1.2.
LO 1-3
Discuss the dramatic internationalization of business.
• The Growth of International Firms and International
Business
• Expanding number of international companies
• Foreign direct investment and exporting are growing
rapidly
Key Terms:
• Transnational
corporation
• Foreign direct investment
(FDI)
• Exporting
• importing
Lecture Outline and Notes:
I. The growth of international firms and IB.
A. The number of international companies is expanding rapidly
B. Transnational corporations are enterprises made up of entities in more than one nation, operating
under a decision making system that allows a common strategy and coherent policies.
1. The United Nations Conference on Trade and Development (UNCTAD) estimates there are
82,000 transnational corporations, with 810,000 foreign affiliates and a collective level of
employment of 78 million people.
2. Transnationals account for about 25 percent of total global output and two-thirds of world
trade.
3. Sales of transnationals’ foreign affiliates have grown about 700 percent in the past 20
years.
account for over 11 percent of the world’s foreign direct investment.
International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
autonomy of governments, policies and attitudes toward foreign investment have markedly
liberalized in recent years in both developed and developing nations.
1. Although critics may compare transnational companies revenues with gross national
income, these comparisons inaccurately compare the relative value added of companies
versus countries.
D. Foreign direct investment and exporting are growing rapidly
1. Foreign direct investment (FDI) refers to the direct investments in equipment, structures
and organizations in a foreign country at a level sufficient to obtain significant
management control; it does not include mere foreign investment in stock markets.
a. The world stock of outward FDI was $26.3 trillion in 2014, 13 times larger than in 1990.
2. Exporting is the transportation of any domestic good or service to a destination outside a
country or region, while importing is the transportation of any good or service into a
country or region from a foreign origination point.
3. Merchandise exports grew from $2 trillion in 1980 to $3.5 trillion in 1990, $6.5 trillion in
2000, $15.3 trillion in 2010, and $18.8 trillion in 2013.
4. Service exports worldwide grew at a more rapid pace than merchandise exports, from
$396 billion in 1980 to $4.7 trillion in 2013.
5. Figure 1.3 shows the growth in outward FDI and in services and merchandise exports from
1990–2013.
LO 1-4
Identify the kinds of drivers that are leading firms to
internationalize their operations
• What is driving the internationalization of business
o Political drivers
o Technological drivers
o Market drivers
o Cost drivers
o Competitive drivers
Key Terms:
I. What is driving the internationalization of business?
International Business
Geringer, McNett, Minor, Ball
Instructor Guide to Module 1
nations have encouraged firms to internationalize activities to gain access to these new,
larger markets.
2. Potential protectionism by host country markets, including import barriers, may encourage
exporters to invest in production facilities in the importing nation.
C. Technological drivers
1. Advances in computers and communications technology permit an increased flow of ideas
and information across borders, enabling customers to learn about foreign goods and
enhancing potential for international business
2. Smaller companies may find barriers reduced for being able to communicate and serve
customers abroad.
3. Computer-based communication may enhance virtual integration, allowing firms move the
location of various activities to other parts of the world that are more attractive.
D. Market drivers
1. As firms internationalize, they also become global customers
2. Firms may go abroad to protect business in their home market, so that foreign suppliers do
not replace them with customers.
3. Mature home country markets may encourage companies to consider nations with rising
GDP/capita, population growth, and higher rates of GDP growth.
E. Cost drivers
1. Improved economies of scale, shared costs of research and development, investment
incentives and so forth.
F. Competitive drivers
product.
• What is globalization and what are the arguments for
and against the globalization of business?
• Arguments supporting globalization