International Business

Environment 1
Introduction – globalization and
the international business
environment
What is international business?

“…any business involving a cross border

commercial transaction”
 Why study international
business?
1. Because the existence of national boundaries
makes it differ in key respects from domestic
business, particularly in that:

– there are multiple exchange rates

– there are multiple sovereignties
– there are significant cultural differences
– there are resource/factor differences
– there is uneven economic development
 Why study international
business?
2. It is important to you as a manager
because:
– any organisation is likely to be affected by
the global economy
– you may wish to work for a foreign-owned
company
– you need to keep up with best-practice
international management
– you need to be sensitive to the significance
of difference of any kind
 What is the nature of
international business
activity? (1).
Exporting/importing
– merchandise trade (visibles)
– services trade (invisibles)

International investment
– foreign direct investment
– portfolio investment
– inter-bank lending
 What is the nature of
international business activity?
(2).
licensing

franchising

management contracts

strategic alliances
 The unit of analysis
The enterprise
– What is it?
– A coalition of stakeholders?
Networks or clusters
The role of non-profit making
organizations
– government
 Important International
Interactions

Between the External Context

– various environments

And the Internal Context

– various structures and strategies
 Internal
Environment
Immediate
Environment
General
Environment
The importance of boundaries
Between the enterprise and the outside
world
Between division or departments within
the enterprise
Jack Welch’s boundaryless enterprise:
what does it mean?
– use of temporary teams within an enterprise
– strategic alliances break down boundaries
 Various Environments
Environments of opportunity and risk

Segments of the general environment:

– Social and cultural, including the demographic

– Technical

– Economic and financial

– Political and legal

Underlying all of these is the geographical. Are there other segments

which are important?
 Various Strategies
Participation strategy
Organizational strategy
Information strategy
Investment strategy – or project strategy
Operations strategy
Marketing strategy
Financial strategy
Human resource strategy
 Competitive Advantage

This is the aim but what kind of advantage?

Absolute advantage

Comparative advantage

Created advantage
 The Scale of Enterprise
Multinational enterprises
– a firm “that engages in FDI and owns or
controls value-adding activities in more than
one country”

Small and medium sized enterprises

Some enterprises may be born global

 Introductory: aspects of
geography
Physical

Demographic

Economic

Social

Political
Important geographical factors
Location
– shared borders
– distance from Triad centers
– main trade routes

Climatic difference

Common heritage
– ethnic or religious links
– historical connections
– common political or economic system
 The Triad
The developed centres of the world:
North America
– Resources, climate and location
Europe
– Resources, climate and location
Japan
– Resources, climate and location
Outside the Main Regional
Blocs
Political and economic problems:
developed and developing
How far are they in the global
economy?
– Africa
– South America
– West Asia
– South Asia
– Pacific
 Economic geography 1
Levels of GDP per head

Three groups of countries

– The developed – the Triad: above
$US20,000
– The developing – above $1,000 or $2,000
– The undeveloped
 Economic Geography 2
the declining importance of natural
resources and their distribution: natural
capital
the distribution of world population -
markets and labor: human capital
the distribution of world assets: physical
and social capital: civil society
the distribution of world production
 What is globalization? (1).
is it a good or a bad thing?
its many facets
– economic
– political
– personal
– environmental
– social or cultural
is it new?
 Definition
“Globalization is the movement towards a
‘global world’ ”

The concept encapsulates for many the

defining features of the modern era

It is perceived by different people as both

good and bad
 A global world
A world government
An effective world law and order framework
Multilateral institutions for overseeing the
implementation of business rules
A common language
A common culture
Fully integrated markets
No barriers to trade or investment
No transport or communications costs
 Benefits of globalization
Accelerated technical change
Increased competition = lower costs
Reduction in home country bias
Faster growth = more jobs
Higher standard of living
Reduction in poverty
Broader access to consumer goods
Widespread dissemination of information
Undermining of traditional hierarchies
“Democratisation”
 Losses from globalization
Loss of sovereignty
More uneven income distribution
Damage to the environment
Erosion of health and safety standards
Erosion of local cultures
More cultural imperialism
Loss of independent decision-making
Increased power of large companies
Increased power of international organizations
Four different views of globalization
A change of mental perspective
A change in behaviour
Increasingly institutionalized patterns of
global interaction
The imposition of a new discipline on
existing behaviour – the notion of ‘hyper-
competition”
Five main elements of globalization
The integration of world markets and the
world economy
Accelerated diffusion of new technology
The loss of national sovereignty
The homogenisation of a global culture
The democratisation of key activities
 Is globalisation new?
Long history of an increase in international
interactions – trade and investment
– 5,000 B.C to the 1600s: incipient globalization
– 1600s to 1970s: bridging globalization
– 1970s to present: accelerated globalization
Reversals followed by recoveries – for
example 1914 – 1945 reversal, 1945 –
1970s recovery.
 Integration of markets
Supra-nationalisation v.
Internationalisation
The capital market leads the way
Reduction in barriers to trade and
investment
Reduction in transport and communication
costs
 Accelerated diffusion of new
technology
The communications revolution

Vastly improved access to information

Price convergence

More rapid spread of all kinds of

knowledge, but particularly technical
knowledge
 Loss of national sovereignty
The ‘golden straitjacket’ – the Washington
consensus
Who sets the rules of the game?
Multilateral and multinational institutions
Country risk
Increase in number of nation states within
Europe
Cultural conflict (Huntington thesis)
 Homogenisation of culture
The role of language

Cultural imperialism, from fast food to pop

music

Few global brands

Local resistance
 Democratisation
Control of fertility
Decentralisation of energy and transport –
electricity and the motor car
Access to travel
Access to finance
Access to information
Figure 1.1 Merchandise Exports as a Percentage of
GDP for Some Key Countries (1995 Data)
Figure 1.3 The World Economy: 1970 and 1995
 The reasons for international
business growth
Responding to changed government
policies
Increased opportunity
– exploiting technical opportunities
– expanding markets and increasing
consumer demands
– acquiring resources
Greater political stability and changing
risk - meeting competition
Profits and maximizing shareholder
returns
Levels of Economic Decision
Making
Global: institutions, the Triad, regionalism

national -governments

sectoral or industrial

enterprise

individual
Global Economic Architecture

Multi-lateralism

Regionalism

Bilateralism
 Multi-lateralism
Monitoring institutions

Rules of the game

Barriers to trade and investment

The exchange rate regime and

disequilibria
 Monitoring Institutions

Bretton Woods (1944)

no lender of last resort (no genuine

world bank, no international currency)

IMF, WTO (GATT), WB

US domination
 Rules of the Game

Revival and promotion of trade and

investment

Ensuring fair treatment

– “most favored nation status”

Providing mechanism for dealing with

instability
 Barriers to trade and
investment

Negotiating rounds
– Uruguay Round

Tariffication and the reduction of tariffs:

the new protectionism

Deregulation of capital markets

– Euro-dollar market
The Exchange Rate Regime
and Disequilibria

The gold exchange standard

Conditions of extreme disequilibrium

Fixed versus floating exchange rates

Gold and reserve currencies

 Regionalism

A free trade area

A customs union

An economic union

A political union
A Tri-polar World (the Triad)
North America
– NAFTA (North American Free Trade Area)
Western and Central Europe
– EU (European Union)
Asia-Pacific
– APEC (Asia Pacific Economic Cooperation)
– ASEAN
 NAFTA
Free trade area
1989 origin
Canada, Mexico
– the future: rejection of Chile as member
USA
– size of market
– open market
– high income per head
 EU - 1.

Motivation for creation

History of the union
– Euratom, Coal and Steel Community
– Treaty of Rome (1957)
– EFTA and the late accession of Britain
– rise of the Iron Curtain
– Treaty of Maastricht (1992)
– the Euro (2002)
– Increase in membership
 EU - 2

The movement to unification

The Common Agricultural Policy

The European Central Bank and the

Euro
 APEC

The origins of the organization

Coverage

Goals of APEC

The development of APEC

 Preconditions for Regional
Integration
Common political system
Common culture
Similar level of economic development
High level of economic contact
A powerful negative shock?

The prospects for ASEAN

 Bilateralism
Economic sovereignty: failed states

The dissolution of multinational empires,

e.g. the Soviet Union

The legacy of communist regimes

Preserving national interests

 Some misconceptions
markets make decisions
the problem of economic development is
solved
economic theory tells us how to run an
economy
politics does not matter
we live in the age of reason