1、Lesson (1)International business refers to transaction between parties from different countries. Sometimes business across the borders of different customs areas of the same country is also regarded as import and export, such as business between Hong Kong and Taiwan. International business involves
2、more factors and thus is more complicated than domestic business. The followings are some major differences between the two: 1The countries involved often have different legal systems, and one or more parties will have to adjust themselves to operate in compliance with the foreign law. 2Different co
3、unties usually use different currencies and the parties concerned will have to decide which currency to use and do everything necessary as regards conversion etc. Uncertainties and even risks are often involved in the use of a foreign currency. 3Cultural differences including language, customs, trad
4、itions, religion, value, behavior etc. Often constitute challenges and even traps for people engaged in international business. 4Countries vary in natural and economic conditions and may have different policies towards foreign trade and investment, making international business more complex than dom
5、estic business. With the development of economic globalization, few people or companies can completely stay away from international business. Some knowledge in this respect is necessary both for the benefit of enterprises and personal advancement. International business first took the form of commod
6、ity trade, i. e. exporting and importing goods produced or manufactured in one country for consumption or resale in another. This form of trade is also referred to as visible trade. Later a different kind of trade in the form of transportation, communication, banking, insurance, consulting, informat
7、ion etc. gradually became more and more important. This type of trade is called invisible trade. Today, the contribution of service industries of the developed countries constitutes over 60 of their gross domestic products and account for an increasing proportion of world trade. Another important fo
8、rm of international business is supplying capital by residents of one country to another, known as international investment. Such investments can be classified into two categories. The first kind of investments, foreign direct investments or FDI for short is made for returns through controlling the
9、enterprises or assets invested in in a host country. The host country is a foreign country where the investor operates, while the country where the headquarters of the investor is located is called the home country. The second kind of investment, portfolio investment refers to purchases of foreign f
10、inancial assets for a purpose other than controlling. Such financial assets may be stocks, bonds or certificates of deposit. Stocks are also called capital stocks or bonds. Bonds are papers issued by a government or a firm with promise to pay back the money lent or invested together with interest. T
11、he maturity period of a bond is at least one year, often longer, for example five, or even ten years. Certificates of deposit generally involve large amounts, say 25 thousand US dollars. Besides trade and investment, international licensing and franchising are sometimes taken as a means of entering
12、a foreign market. In licensing, a firm leases the right to use its intellectual property to a firm in another country. Such intellectual property may be trademarks , brand names , patents , copyrights or technology. Firms choose licensing because they do not have to make cash payments to start busin
13、ess, and can simply receive income in the form of royalty. Besides, they can benefit from locational advantages of foreign operation without any obligations in ownership or management. The use of licensing is particularly encouraged by high customs duty and non-tariff barriers on the part of the hos
14、t country. However, it is not advisable to use licensing in countries with weak intellectual property protection since the licensor may have difficulty in enforcing licensing agreement. Franchising can be regarded as a special form of licensing. Under franchising, a firm, called the franchisee, is a
15、llowed to operate in the name of another, called the franchiser who provides the former with trademarks, brand names, logos, and operating techniques for royalty. In comparison with the relation between the licenser and the licensee, the franchiser has more control over and provides more support for
16、 the franchisee. The franchiser can develop internationally and gain access to useful information about the local market with little risk and cost, and the franchisee can easily get into a business with established products or services. Franchising is fairly popular especially in hotel and restauran
17、t business. Other forms for participating in international business are management contract, contract manufacturing, and turnkey project. Under a management contract, one company offers managerial or other specialized services to another within a particular period for a flat payment or a percentage
18、of the relevant business volume. Sometimes bonuses based on profitability or sales growth are also specialized in management contracts. Government policies often have a lot to do with management contracts. When a government forbids foreign ownership in certain industries it considers to be of strate
19、gic importance but lacks the expertise for operation, management contracts may be a practical choice enabling a foreign company to operate in the industry without owning the assets. By contract manufacturing, a firm can concentrate on their strongest part in the value chain, e. g. marketing, while c
20、ontracting with foreign companies for the manufacture of their products. Such firms can reduce the amount of their resources devoted to manufacture and benefit from location advantages from production in host countries. However, loss of control over the production process may give rise to problems i
21、n respect of quality and time of delivery. For an international turnkey project, a firm signs a contract with a foreign purchaser and undertakes all the designing, contracting and facility equipping before handing it over to the latter upon completion. Such projects are often large and complex and t
22、ake a long period to complete. Payment for a turnkey project may be made at fixed total price or on a cost plus basis. The latter way of payment shifts the burden of possible additional cost over the original budget onto the purchaser. BOT is a popular variant of the turnkey project where B stands f
23、or build, O for operate and T for transfer. For a BOT project, a firm operates a facility for a period of time after building it up before finally transferring it to a foreign company. Making profit from operating the project for a period is the major difference between BOT and the common turnkey pr
24、oject. Needless to say, the contractor has to bear the financial and other risks that may occur in the period of operation.Answer the following questions:What does international business refer to? Please tell the difference between international business and domestic business.A: International busine
25、ss refers to transaction between parties from different countries. Sometimes business across the borders of different customs areas of the same country is also regarded as import and export.Some major differences between international business and domestic business is following:Differences in legal
26、systemsDifferences in currenciesDifferences in cultural backgroundDifferent in natural and economic conditionsPlease explain the differences between visible trade and invisible trade. Which is becoming more and more important and accounts for an increasing proportion in international trade?A: Visibl
27、e trade is the form of commodity trade. The form of transportation, communication, banking, insurance, consulting, information etc. is called invisible trade or service industries. The later is become more and more important.Can you cite some examples to illustrate cultural differences in internatio
28、nal business?A: Cultural differences including language, customs, traditions, religion, value, behavior etc.Please elaborate on the two categories of international investment. What is their major difference?A: FDI (Foreign direct investment) is made for returns through controlling the enterprises or
29、 assets invested in in a host country. Portfolio investment refers to purchases of foreign financial assets for a purpose other than controlling. Such financial assets may be stocks, bonds or certificates of deposit.What is licensing? Why do firms sometimes choose it as a means of entering a foreign
30、 market?A: In licensing, a firm leases the right to use its intellectual property to a firm in another country. They choose licensing because they do not have to make cash payments to stat business, and can simply receive income in the form of royalty. Besides, they can benefit from locational advan
31、tages of foreign operation without any obligations in ownership or management. The use of licensing is particularly encouraged by high customs duty and non-tariff barriers on the part of the host country.What is franchising? How is it different from licensing?A: Under franchising, franchisee is allo
32、wed to operate in the name of another, franchiser who provides the former with trademarks, brand names, logos and operating techniques for royalty. In comparison with the relation between the licenser and the licensee, the franchiser has more control over and provides more support for the franchisee
33、.What is a management contract? Under what conditions is it most applicable?A: Under a management contract, one company offers managerial or other specialized services to another within a particular period for a flat payment or a percentage of the relevant business volume. When a government forbids
34、foreign ownership in certain industries it considers to be of strategic importance but lacks the expertise for operation, management contracts maybe a practical choice enabling a foreign company to operate in the industry without owning the assets.What is an international turnkey project? In what wa
35、y is its variant BOT different from it?A: For an international turnkey project, a firm signs a contract with a foreign purchaser and undertakes all the designing, contracting and facility equipping before handing it over to the latter upon completion. For a BOT project, a firm operates a facility for a period of time after building it up before finally transferring it to a foreign company. Making profit from operating the project for a period is the major difference between BOT and the common turnkey project.
