{"id":710,"date":"2023-03-28T17:13:07","date_gmt":"2023-03-28T17:13:07","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/chapter\/the-international-business-environment-boundless-finance-course-hero\/"},"modified":"2023-04-03T04:21:19","modified_gmt":"2023-04-03T04:21:19","slug":"the-international-business-environment-boundless-finance-course-hero","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/chapter\/the-international-business-environment-boundless-finance-course-hero\/","title":{"raw":"The International Business Environment","rendered":"The International Business Environment"},"content":{"raw":"<div id=\"block_ssi-global_HeaderFragment\"><header>\r\n<h2>Overview of the International Business Environment<\/h2>\r\n<\/header><\/div>\r\n<div id=\"block_app\">\r\n<div class=\"articleBody\">\r\n<div class=\"articleContent\">\r\n<div class=\"boundless-concept\">\r\n\r\nInternational business offers substantial potential risks and returns from an organizational perspective.\r\n<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\nRecognize the complex factors that may impact an organization's strategic decision to expand internationally\r\n\r\n<\/div>\r\n<div class=\"textbox key-takeaways\">\r\n<h3>Key Takeaways<\/h3>\r\n<h4>Key Points<\/h4>\r\n<ul>\r\n \t<li>The modern economy is globally connected, and growing more so every day. Weighing the pros and cons of international expansion is a key strategic consideration.<\/li>\r\n \t<li>The multinational enterprise ( MNE ) is the primary player in international business. MNEs are present in virtually every industry nowadays.<\/li>\r\n \t<li>Entry modes for international businesses include global concentration, global synergies, and other strategic global motivations.<\/li>\r\n \t<li>With the complexity of international operating environments, organizations should consider economic, technological, legal, socio-cultural and environmental factors.<\/li>\r\n \t<li>Weighing the risks and potential returns and determining a required rate of return for an international expansion is a key aspect of global financial management.<\/li>\r\n<\/ul>\r\n<h4>Key Terms<\/h4>\r\n<ul>\r\n \t<li><strong>MNE<\/strong>: Or a multinational enterprise, MNEs are defined as organizations which operate across multiple political borders.<\/li>\r\n<\/ul>\r\n<\/div>\r\nInternational business is an enormously relevant facet of the modern economy, and will only become more integrated into core business strategy as technology continues to progress. International business is simply the summation of all commercial transactions that take place between various countries (crossing political boundaries). This is not exclusively limited to the domain of business, as NGOs, governments, and coops also operate across country borders with a variety of objectives (aside from simple profitability).\r\n\r\nFrom a business perspective, the primary incumbent in an international business environment is the multinational enterprise (MNE), which is a company that pursues strategic success in global production and sales (i.e. operating within a number of country borders). The number of examples of this type of firm is constantly growing. From fast food chains like McDonald's to auto manufacturers like Honda to smartphone designers like Samsung, the number of international players in most markets is constantly on the rise.\r\n<h2>Why Expand Globally?<\/h2>\r\nGlobal expansion is costly and complex. To offset these costs and risks, organizations must have strong reasons for developing a global strategy. These reasons generally fit one (or more) of the following three strategic areas:\r\n<ul>\r\n \t<li>Global Concentration \u2013 Depending upon the competitive concentration of a given industry in a given region, it may make sense to enter a market where competition is relatively scarce (and demand is high).<\/li>\r\n \t<li>Global Synergies \u2013 Some organizations have highly developed competencies that are easily scaled. In these situations, global expansion means natural synergy.<\/li>\r\n \t<li>Global Strategic Motivations \u2013 Other reasons for expansion to a given country may exist strategically, such as developing new sourcing sites for production or acquiring strategic assets in a given region.<\/li>\r\n<\/ul>\r\n<h2>External Factors Impacting Expansion<\/h2>\r\nInternational expansion can be a costly and complex procedure. Before considering such a significant strategic move, management must weigh the external factors that will impact success during a global transition. These include:\r\n<ul>\r\n \t<li>Socio-cultural: The social environment of a given region can have a significant impact on success. Food companies are highly impacted by this \u2013 certain cultures prefer certain types of foods.<\/li>\r\n \t<li>Geographic\/Environmental - For example, skiing equipment may not do so well in regions without snow or mountains. Oil companies can only source oil from resource-rich regions.<\/li>\r\n \t<li>Legal\/Political \u2013 Some countries have high barriers to entry, complex tax rates, and\/or unclear legislative practices. Ease of doing business is critical here.<\/li>\r\n \t<li>Economic \u2013 The standard of living is different from region to region, and recognizing the value of a given market in terms of spending power, currency, and market size is critical to deciding upon expansion.<\/li>\r\n \t<li>Technology \u2013 Access to internet, electricity, clean water and a variety of other technological dependencies must be considered prior to entry if the organizational operations rely on easy access.<\/li>\r\n<\/ul>\r\nWeighing the pros and cons of entering a given reason, and calculating projected cash flows, costs, and required returns on investment are central financial considerations to entering a new international market.\r\n<div class=\"wp-caption aligncenter\" data-global-id=\"gid:\/\/boundless\/Image\/34588\">\r\n<div class=\"figure-cont\">\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"590\"]<img src=\"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-content\/uploads\/sites\/128\/2023\/03\/hearxoupr760sgx3newe1.png\" alt=\"Despite a dip in 2008 as a result of the banking crisis and subsequent recession, the volume of global exports continues to rise even over this short time period. Globalization is an enormous source of growth.\" width=\"590\" height=\"417\" \/> <strong>Volume of Merchandise Exports:<\/strong> Despite a dip in 2008 as a result of the banking crisis and subsequent recession, the volume of global exports continues to rise even over this short time period. Globalization is an enormous source of growth.[\/caption]\r\n<h4><\/h4>\r\n<h4>Licenses and Attributions<\/h4>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<div class=\"licensing collapsed\">\r\n<h4>CC licensed content, Shared previously<\/h4>\r\n<ul>\r\n \t<li>Curation and Revision. <strong>Provided by<\/strong>: Boundless.com. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\r\n<\/ul>\r\n<h4>CC licensed content, Specific attribution<\/h4>\r\n<ul>\r\n \t<li>International trade. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\r\n \t<li>International business. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\r\n \t<li>Multinational corporation. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\r\n \t<li>International business strategy. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\r\n \t<li>Volume_of_world_merchandise_exports.png. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>","rendered":"<div id=\"block_ssi-global_HeaderFragment\">\n<header>\n<h2>Overview of the International Business Environment<\/h2>\n<\/header>\n<\/div>\n<div id=\"block_app\">\n<div class=\"articleBody\">\n<div class=\"articleContent\">\n<div class=\"boundless-concept\">\n<p>International business offers substantial potential risks and returns from an organizational perspective.<\/p>\n<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<p>Recognize the complex factors that may impact an organization&#8217;s strategic decision to expand internationally<\/p>\n<\/div>\n<div class=\"textbox key-takeaways\">\n<h3>Key Takeaways<\/h3>\n<h4>Key Points<\/h4>\n<ul>\n<li>The modern economy is globally connected, and growing more so every day. Weighing the pros and cons of international expansion is a key strategic consideration.<\/li>\n<li>The multinational enterprise ( MNE ) is the primary player in international business. MNEs are present in virtually every industry nowadays.<\/li>\n<li>Entry modes for international businesses include global concentration, global synergies, and other strategic global motivations.<\/li>\n<li>With the complexity of international operating environments, organizations should consider economic, technological, legal, socio-cultural and environmental factors.<\/li>\n<li>Weighing the risks and potential returns and determining a required rate of return for an international expansion is a key aspect of global financial management.<\/li>\n<\/ul>\n<h4>Key Terms<\/h4>\n<ul>\n<li><strong>MNE<\/strong>: Or a multinational enterprise, MNEs are defined as organizations which operate across multiple political borders.<\/li>\n<\/ul>\n<\/div>\n<p>International business is an enormously relevant facet of the modern economy, and will only become more integrated into core business strategy as technology continues to progress. International business is simply the summation of all commercial transactions that take place between various countries (crossing political boundaries). This is not exclusively limited to the domain of business, as NGOs, governments, and coops also operate across country borders with a variety of objectives (aside from simple profitability).<\/p>\n<p>From a business perspective, the primary incumbent in an international business environment is the multinational enterprise (MNE), which is a company that pursues strategic success in global production and sales (i.e. operating within a number of country borders). The number of examples of this type of firm is constantly growing. From fast food chains like McDonald&#8217;s to auto manufacturers like Honda to smartphone designers like Samsung, the number of international players in most markets is constantly on the rise.<\/p>\n<h2>Why Expand Globally?<\/h2>\n<p>Global expansion is costly and complex. To offset these costs and risks, organizations must have strong reasons for developing a global strategy. These reasons generally fit one (or more) of the following three strategic areas:<\/p>\n<ul>\n<li>Global Concentration \u2013 Depending upon the competitive concentration of a given industry in a given region, it may make sense to enter a market where competition is relatively scarce (and demand is high).<\/li>\n<li>Global Synergies \u2013 Some organizations have highly developed competencies that are easily scaled. In these situations, global expansion means natural synergy.<\/li>\n<li>Global Strategic Motivations \u2013 Other reasons for expansion to a given country may exist strategically, such as developing new sourcing sites for production or acquiring strategic assets in a given region.<\/li>\n<\/ul>\n<h2>External Factors Impacting Expansion<\/h2>\n<p>International expansion can be a costly and complex procedure. Before considering such a significant strategic move, management must weigh the external factors that will impact success during a global transition. These include:<\/p>\n<ul>\n<li>Socio-cultural: The social environment of a given region can have a significant impact on success. Food companies are highly impacted by this \u2013 certain cultures prefer certain types of foods.<\/li>\n<li>Geographic\/Environmental &#8211; For example, skiing equipment may not do so well in regions without snow or mountains. Oil companies can only source oil from resource-rich regions.<\/li>\n<li>Legal\/Political \u2013 Some countries have high barriers to entry, complex tax rates, and\/or unclear legislative practices. Ease of doing business is critical here.<\/li>\n<li>Economic \u2013 The standard of living is different from region to region, and recognizing the value of a given market in terms of spending power, currency, and market size is critical to deciding upon expansion.<\/li>\n<li>Technology \u2013 Access to internet, electricity, clean water and a variety of other technological dependencies must be considered prior to entry if the organizational operations rely on easy access.<\/li>\n<\/ul>\n<p>Weighing the pros and cons of entering a given reason, and calculating projected cash flows, costs, and required returns on investment are central financial considerations to entering a new international market.<\/p>\n<div class=\"wp-caption aligncenter\" data-global-id=\"gid:\/\/boundless\/Image\/34588\">\n<div class=\"figure-cont\">\n<figure style=\"width: 590px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-content\/uploads\/sites\/128\/2023\/03\/hearxoupr760sgx3newe1.png\" alt=\"Despite a dip in 2008 as a result of the banking crisis and subsequent recession, the volume of global exports continues to rise even over this short time period. Globalization is an enormous source of growth.\" width=\"590\" height=\"417\" \/><figcaption class=\"wp-caption-text\"><strong>Volume of Merchandise Exports:<\/strong> Despite a dip in 2008 as a result of the banking crisis and subsequent recession, the volume of global exports continues to rise even over this short time period. Globalization is an enormous source of growth.<\/figcaption><\/figure>\n<h4><\/h4>\n<h4>Licenses and Attributions<\/h4>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"licensing collapsed\">\n<h4>CC licensed content, Shared previously<\/h4>\n<ul>\n<li>Curation and Revision. <strong>Provided by<\/strong>: Boundless.com. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\n<\/ul>\n<h4>CC licensed content, Specific attribution<\/h4>\n<ul>\n<li>International trade. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\n<li>International business. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\n<li>Multinational corporation. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\n<li>International business strategy. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\n<li>Volume_of_world_merchandise_exports.png. <strong>Provided by<\/strong>: Wikipedia. <strong>License<\/strong>: <em><a href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\" target=\"_blank\" rel=\"license nofollow noopener\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li>\n<\/ul>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"author":101,"menu_order":13,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-710","chapter","type-chapter","status-publish","hentry"],"part":48,"_links":{"self":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/710","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/users\/101"}],"version-history":[{"count":6,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/710\/revisions"}],"predecessor-version":[{"id":1437,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/710\/revisions\/1437"}],"part":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/parts\/48"}],"metadata":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/710\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/media?parent=710"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapter-type?post=710"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/contributor?post=710"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/license?post=710"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}