MODULE 7

GLOBALIZATION AND INTERNATIONAL

BUSINESS
“The world isn’t just for travelers”

• What is the nature of international business?

• What are multinational corporations and how do they work?
GLOBALIZATION AND INTERNATIONAL BUSINESS
The Nature of International Business
MODULE GUIDE 7.1

 Globalization creates international business

opportunities.
 International business is done by global sourcing,
import/export, licensing, and franchising.
 International business is done by joint ventures and
wholly owned subsidiaries.
 International business is complicated by different
legal and political systems.
THE NATURE OF INTERNATIONAL BUSINESS

Globalization

 Global Economy
 Resources, markets and competition are
worldwide in scope.
 Globalization
 The process of growing interdependence
among elements of the global economy.
 Global Sourcing
 Firms purchase products and services from
around the world for local use.
THE NATURE OF INTERNATIONAL BUSINESS

Globalization

 International Business
 Conducting commercial transactions across national
boundaries
 Five Reasons to Pursue International Business
1. Expanded profit potential
2. More customers
3. More capital
4. Lower cost suppliers
5. Lower costs of labor
GLOBALIZATION

International Business

 Exporting
 Local products are sold abroad
 Importing
 The process of acquiring products abroad and selling them in
domestic markets.
 Licensing
 one firm pays a fee for rights to make or sell another company’s
products.
 Franchising
 a firm pays a fee for rights to use another company’s name and
operating methods.
GLOBALIZATION

International Business

 Joint Venture
 A firm operates in a foreign country through co-ownership with
local parties.
 Strategic Alliance
 each partner hopes to achieve through cooperation things they
couldn’t do alone.
 Foreign Subsidiary
 a local operation completely owned by a foreign firm.
GLOBALIZATION

International Business

 World Trade Organization

 a global institution to promote free trade and open
markets around the world.
Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations
(1986-94)  
Membership: 149 countries
(on 11 December 2005)
Budget: 175 million Swiss francs for 2006
Secretariat staff: 635
Head: Pascal Lamy (Director-General)
GLOBALIZATION AND INTERNATIONAL BUSINESS
Multinational Corporations
MODULE GUIDE 7.2

 Multinational corporations do substantial business in

several countries.
 Multinational corporations can be controversial at home
and abroad.
 Multinational corporations face a variety of ethical
challenges.
 Planning and Controlling are complicated in multinational
corporations.
 Organizing is complicated in multinational corporations.
 Leading is complicated in multinational corporations.
GLOBALIZATION AND INTERNATIONAL BUSINESS
Multinational Corporations

 Multinational Corporation (MNC)

 A business with extensive foreign operations in more than one
county.
 Transnational Corporation
 A MNC that operates worldwide on a borderless basis.

“Fortune’s” Top 10 Multinational Corporations

1. Wal-Mart Stores 6. DaimlerChrysler

2. BP 7. Toyota Motor
3. Exxon Mobil 8. General Electric
4. Royal Dutch Shell Group 9. Total
5. General Motors 10. Chevron
MULTINATIONAL ORGANIZATIONS

MNC Issues
MULTINATIONAL ORGANIZATIONS

MNC Issues
 Protectionism
 A call for tariffs and special treatment to protect
domestic firms from foreign competition.
 Corruption
 Illegal practices to further one’s business interests.

Transparency International gives these countries its

poorest corruption scores:
• Indonesia • Nigeria
• Tajikistan • Bangladesh
• Haiti • Paraguay
• Myanmar
MULTINATIONAL ORGANIZATIONS

MNC Issues

 Sweatshops
 Employ workers at very low wages, for long hours, and in poor
working conditions.

 Child labor
 The full-time employment of children for work otherwise done
by adults.

 Sustainable Development
 Development that meets the needs of the present without
hurting future generations.
MULTINATIONAL ORGANIZATIONS

MNC Issues

 Currency Risk
 The possible loss of profits because of
fluctuating exchange rates.
Understanding Currency Risk in International Business

U.S. exporter makes a sale in France for Euro 100,000.

Scenario 1: Weak dollar
.95 Euros = 1 $US
Take home revenue = $105,263

Scenario 2: Strong dollar

1.25 Euros = 1 $US
Take home revenue = $80,000
MULTINATIONAL ORGANIZATIONS

MNC Organizations
MULTINATIONAL ORGANIZATIONS

MNC Organizations
 Expatriate
 An employee who lives and works in a foreign country.
 Global Manager
 A person who is culturally aware and informed on
international affairs.

 Personal Attributes for Expatriate Success

 High degree of self-awareness
 Cultural sensitivity
 Desire to live and work abroad
 Family flexibility and support
 Technical job competence
 Are you willing to admit that the world isn’t just for traveling anymore,
and to embrace it as a career opportunity? Is it possible that you might
stand out to a potential employer as someone with the skills to excel as a
global manager?
Management Tips

 Criteria for choosing a partner for

successful joint ventures
• Familiar with your firm’s major business
• Employs a strong local workforce
• Values its customers
• Has potential for future expansion
• Has strong local market for its own products
• Has good profit potential
• Has sound financial standing