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About this book

Focussing on the way in which relationships at various levels underpin international business activities, this core textbook presents a contemporary and realistic analysis of International Business in action. The concept of change permeates the text, highlighting the dynamic and often turbulent nature of international business and management. The book brings together many operational aspects of IB, covering topics such as market entry decision making, marketing, strategy, international HR, supply chain management, and the role of culture in IB, thus providing a good overview of the various practical and operational issues that firms must consider as they internationalise their operations.
This is the ideal companion for undergraduate and postgraduate Business students taking modules in International Business or International Management.

Table of Contents

Introduction

Abstract
This book examines aspects of the operations of International Business (IB) with specific reference to the way in which, at various levels, business relationships are underpinned by contemporary political, economic, and social activities, and how all such relationships operate within a dynamic environment. At its most basic, IB is concerned with the pursuit of business in the international, as opposed to the domestic, environment. All business (both domestic and international) is about establishing and maintaining relationships – either with individual corporate customers (generally business-to-business activities) or with a mass market – generally in business-toconsumer markets. Businesses form relationships with their customers, their suppliers, and sometimes with their competitors: a good example of this last group is the ‘code sharing’ arrangements that many airlines have, in which they co-operate with other airlines (who would normally be their direct competitors) to enable the partners to increase their global customer base, without having to invest in more routes and/ or airport take-off/landing slots. In terms of international business in particular, relationships are viewed as a means of establishing an international presence, by exploiting the superior market knowledge or position of a partner already based in the target country market. Understanding the ways in which business relationships operate in the modern global economy is essential for the conduct of contemporary business.
Jonathan Swift

The Background to International Business

Frontmatter

1. Why Nations Trade

Abstract
The first thing to note is that this chapter refers to trade as opposed to business. Trade generally refers to the movement of goods between nations, whilst business includes trade, but is more far-reaching, as it comprises different forms of business alliances and co-operative ventures, direct and indirect foreign investments, and the organisation and management of the people involved. As early trading relationships were rather basic and straightforward, the focus was always on trade rather than business in the widest sense: hence the title of the chapter. government in trade, and why is it different in some countries? Why are some countries more economically developed and advanced in terms of international trade than others? The answer to these and many other questions is generally to be found in the historical development of business, and the ways in which countries have influenced (and sometimes directed) business objectives, generally as a consequence of the available resources. This is not a new process as it has been going on for centuries; however, to fully appreciate many current aspects of international business (IB), we must begin by examine the starting point of all IB activities – which is International Trade (IT). ‘Why do nations trade?’ is an important question, as there must be some compelling reason for international activity, as IT is a complex, expensive, and risk-laden process. Thus, the decision to trade internationally is likely to be a consequence of the various forms of motivation (or perceived benefit) that exert an influence on both countries and companies.
Jonathan Swift

2. The Development of International Trade

Abstract
From the early trading Empires of the Romans and Chinese, to the Colonial Empires of the British, Spanish, and Portuguese, international trade routes were safeguarded by military power, whilst the mechanisms of trade were influenced by technological developments – in many instances the emergence of new technologies provided new trading opportunities. Technological innovations made possible an increase in the breadth and scope of trade, and brought countries into contact with new ideas, products, and experiences. This increasing awareness of the existence of other societies and what they had to offer helped fuel the desire to increase and intensify trade – which in turn motivated the development of the necessary technology, in essence, a mutually-beneficial cause and effect relationship. For the first two or three centuries BC, the Empires that flourished around the Mediterranean tended to trade with each other, and had developed remarkably sophisticated trading networks. At approximately the same period, the Chinese had developed their trading links, predominately with countries (or ‘cities’) in Asia. It was really only the Silk Route that informed these two separate trading groups of each other’s existence. By contrast, the countries of the modern world are linked through trade, political alliances, socio-cultural exchange, economic development, and technology (e.g., electronic communications). So much so that what happens in one continent is felt almost immediately all over the world – as evidenced by the US mortgage crisis of 2008, and subsequent bank failures throughout Europe.
Jonathan Swift

Relations at the National Level

Frontmatter

3. Bilateral and Multilateral Relations

Abstract
This chapter examines relations from the national and multinational point of view; we begin by tracing the way in which countries have developed, and how their individual paths to nationhood have influenced (and are influenced by) the relationships that they have with other states. In this context, the cultural environment is introduced, and we see how it has an effect on all levels of society. The first part of the chapter also looks at ‘special relationships’ between countries (generally two), and examines bi-lateral aid. Following this, international relationships are examined in terms of multilateral organisations such as the UN, WTO, IMF, and World Bank. From this, we move on to the various trading blocs throughout the world; we look at how such trading blocs were initially based on trading relationships, yet in practice, are now driven largely by politico-social aims, tempered with no small measure of political expediency. It is suggested that it is this change of focus that largely accounts for the problems that exist within such groupings. The chapter concludes with a section looking at the various ‘G’ groupings, starting with the G3, and concluding with the G20. The chapter case study features the European Union – possibly the best example of multilateral relationships that exist in the world today, as it binds together most of Europe. We look at the varying national attitudes towards this relationship and how they have changed over the years, and the more radical attitudes that seem to have emerged since the Euro crisis of 2010.
Jonathan Swift

4. International Trade Law

Abstract
The purpose of this chapter is to introduce you to the legal structures and principles that regulate international trade. The role of the law in the context of trade and business transactions, whether national or transnational, is focused upon the regulation and facilitation of supply chains (whether of goods or services). This is largely based on the law of contracts, along with some issues covered by the criminal law, other public regulation (such as fiscal constraints, health and safety, environmental issues) and tortious liabilities (such as negligence). In the UK domestic context the law relating to the domestic supply chain is known as either commercial or mercantile law. With regard to transnational trading, it may also be referred to as ‘International Business Law’, ‘Global Trade Law’, or ‘World Trade Law.’ For the purposes of this chapter, however, it will be referred to throughout as ‘International Trade Law’ – or the Law of International Trade. The Law of International Trade is particularly complex, and this chapter is limited to describing its main elements in outline only. The references at the end include material that will enable a non-lawyer to explore further the complexities of the subject. This chapter follows a slightly different format to others in the book, as, rather than have a large case study at the end of the chapter, the text is supported throughout by one case study, designed to elucidate the legal issues as they are arise. The case study is about Peterssohn & Company, a manufacturer of machine tools, based in Copenhagen, Denmark. Peterssohn has been approached by the Tan Zhao Corporation in Huangzhao, China, who wish to purchase a bespoke machine tool to improve their production of circuit boards for use in the manufacture of industrial sewing machines.
Jonathan Swift

5. International Banking and Finance

Abstract
This chapter deals with the basics of international finance, beginning with the historical development of the international monetary system – from the earliest issues of coins, through the Gold Standard to the various forms of electronic and credit money. We look at how international financial arrangements have developed, generally as a consequence of the growing sophistication of international trading arrangements. After this, the focus shifts to the way in which the world banking system works, including Islamic banking, and how money is moved through the Clearing Banks. The next section examines theories of monetary exchange, exchange rates and single currencies (exemplified by the euro), and their influence on international business. Following this, we examine the ways in which traders make and receive payment for goods and services they provide, and we briefly examine international pricing and taxation – with particular reference to multinational organisations, and the ways in which multinationals can legally reduce their tax liability. The chapter finishes with an analysis of the Euro, examining the pros and cons of a single currency system, and looks in particular at the politico-economic motivations behind its formation. The chapter case study brings together the financial, political, and economic environments in a study of the Euro, and its effect on European integration and co-operation, in view of the current politico-economic crisis.
Jonathan Swift

Relationships at the Corporate Level

Frontmatter

6. The Internationalisation of Business

Abstract
This chapter is the first that focuses on international business relationships at the corporate level. We begin with a discussion of the various environments that companies must consider when seeking to internationalise, and then the discussion moves on to how companies select foreign markets, and the factors involved in their decision-making process. When seeking to identify a country-market into which they could internationalise their operations, most companies will go through a process of assessing the potential level of risk and return (return on the time and money invested) that the market presents; this enables them to balance the potential risks (negative factors) with the potential benefits (positive factors) of operating in that country. We then evaluate the various options available for entering the chosen foreign market, ranging from simple export, to Foreign Direct Investment (FDI) in its many forms; we also evaluate the payment options available. The case study exercise deals with the internationalisation options open to a distiller of high-quality Scottish malt whisky. Business is about satisfying customer requirements, and in order to understand these requirements we must understand the environment in which these customers live and work – the external environment: in fact, there are three major external environments to consider for each new country-market in which a company seeks to operate.
Jonathan Swift

7. Business-To-Business Relationships

Abstract
The starting point for this chapter is the conceptual basis of business relationships (BR). It examines the development of BR theory, from the buyer-seller approach of business-to-business marketing, through the International Marketing and Purchasing (IMP) Group Interaction approach of the 1980s, to the Relationship Marketing (RM) and Networking philosophies of today. The chapter illustrates the basic premise of this book: that business is based on the development and maintenance of good relationships. The analysis begins with an examination of business relationships, showing how in most instances it is essential that different business elements combine to provide the product or service required by the customer. The same is true in terms of businesses that combine with other businesses, to produce and deliver what is demanded by the customer. This is the basis on which most business-to-business relationships are founded, and they are more specifically based on combination of a number of factors (or ‘variables’): in particular cultural affinity, trust, commitment, experience satisfaction, and communications. We were first introduced to the cultural environment in Chapter 3 (‘Bilateral and Multilateral Relations’), when we looked at the impact of culture on the development and maintenance of nation-to-nation relations.
Jonathan Swift

8. Corporate Communications

Abstract
To be able to do business with people, we must be able to communicate with them, to ensure that they understand the messages we send, and equally, to ensure that we understand their response to our message. Thus communication is a process that must be seen from the point of view of both the sender and receiver; it implies much more than the simple transmission of a message from one person to another. Is communication a uniquely human phenomenon? The answer is ‘no’, as animals can communicate: dogs will bark at each other (‘verbal’ communication), will wag their tails (‘non-verbal’ communication), or communicate by smelling each other – a facility available to human beings, but generally not used! A dog can also give feedback to humans by sitting when told to do so, thus confirming that it has understood the verbal command. Dogs can express their mood to people, and can react to non-verbal stimuli, such as a person putting their coat on – a sign that a walk is imminent. There is of course, a debate about whether this really represents an understanding of symbolic communication, or a consequence of conditioning. Whatever the precise nature of the relationship between humans and animals, the key difference in terms of communication is that animals cannot speak – it is this facility of speech (or ‘verbal’ communication) that differentiates humans from animals.
Jonathan Swift

Relationships at the Individual Level

Frontmatter

9. Personal Communications

Abstract
Whilst the concept of relationship building is now widely understood, it is important to remember that communications and relationship development are tasks undertaken by people, not organisations. So, whilst we may talk of businesses working with other businesses, what we really mean is that people from one business work with other people – either from another business, or with individual customers. The basic difference between this and Chapter 8 is that in this chapter we examine personal (as opposed to corporate) communications. A personal communication is a message is sent by one or more people to one or more receivers. These receivers are generally known to the senders, and the message is usually intended to form part of an on-going dialogue, or conversation, perhaps part of a negotiation process. This is different to the corporate communications examined in the last chapter, which were basically non-personal, and dealt with the ways in which a company can communicate with its market (consumers) – in particular, the use of advertising. In this chapter we examine the basis of language and the ways in which it underpins international business activities at the personal level. Personal communication generally (but not always) forms part of a face-to-face encounter and as such, the socio-cultural aspects of cross-cultural encounters assume great importance and must be taken into consideration when examining the various communication inputs.
Jonathan Swift

10. Managing People in the Global Environment

Abstract
As a consequence of increasing international contact through globalisation, managers have to work with people from different cultural and linguistic backgrounds, philosophies, attitudes and values: all of which make the task of the international manager complex and demanding. Managers who are the most subject to different cultural influences are those who work abroad – known as ‘expatriate managers’. They are sent abroad by their companies, generally for periods of between three months to five years, and are expected to carry out their normal duties, but in another country. This means that they work in a different cultural environment, and may also have to operate through the medium of another language. Shorter assignments are generally referred to as ‘nonstandard international assignments’, and have become increasingly popular as a direct consequence of rising costs and staff immobility (Tahvanainen et al. 2005). Whatever the length of time of such assignments, expatriate managers generally experience varying degrees of social difficulty and culture shock, as many are poorly prepared by their companies for foreign assignments; this is a major reason why so many expatriate assignments fail. It is the job of the Human Resources (HR) departments to support their expatriate managers, generally at three critical junctures: before, during, and after the placement. In the first two, the objective is to help them integrate into the culture and society of the country to which they are to be sent; in the last instance, it is generally to help them re-integrate into their home country on completion of the foreign assignment. As we shall see, the support of HR to this process is critical, yet generally inadequate.
Jonathan Swift
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