o ‘> The World’s Marketplaces mean The Business of the Olympics Every two years, the worlds atention curs tothe Olympic Games. Given thet international business and very tw ears, the the global economy play such ado ant role inthe world today, it should come as no surprise that the COlyenpics have come to reflect international business a its most intense. The games are governed by the International Olympic Committee (IOC), which is based in Switzerland, The 1OC decides where the games will be held and “which sports willbe represented, andit over- sees the selection ofudges and referees. Each, country wanting to send athletes to com- pete inthe games establishes a national committe to organize its Olympic efor. These commitres ane supervised by and report tothe IOC. Potential host cites must ge elaborate presentations to the IOC and make substantial commie: mentsin cer of ies avountee woklrce and reed organizations suppor for example so part is wining bi to os the 1998 wine Obmpis, pan promised o bul anew high ed ‘ of the games. Further, the infighting to be selected is vicious. China threatened a trade war with the United States after the US. Senate passed a resolution that hurt Being chances te hos the summer Olympics n 2000 apie eventually seme by Sydney, rail line between Tokyo and Nagano, the‘Australia, Afcer Salt Lake City lost its bid for the 1998 games, the city’ local ‘organizing committee launched a massive undercaking to lure the 2002 games, Unfortunately, is efforts included widespread gift giving and lavish entertaining of IOC delegates that crossed ethical boundaries. As these facts became public, they triggered a worldwide cry for reforming the IOC. Why would a city want co host the Olympic Games? Most compete forthe ” privilege because the games would,thrust chem into the international spot- light and promote eccinomic growth, Further the tourism benefis are long lived; for example, skiers, skaters, and snowboarders continue to enjoy the facilities at previous Olympic sites such as Nagano, Lillehammer, Abereile, and Lake Placid, pouring money into the local economies long after the Olympic torch has been extinguished. The games also are frequently & catalyst for improving a city’ infrastructure. For example, the high-speed il fine between Tokyo and Nagano halves the trivel time between, the two ‘ities—a benefic that continues for local residents and for future visitors, Because of the high cost of running the Olympics, both the IOC and.” ‘ational Olympic committees are always alert for ways to generate revenue, ‘eevsion coverage provides one significant source of revenue. NBC paid After studying this chapter, you should be able to ‘Discuss the meaning of international business. Explain the importance of understanding international business. Identify and describe the basic forms of international business activities. Discuss the causes of globalization.sapter 1 An Overiee of Inte 0 Sydney summer 67 he ~ ition to lock UP 4, Broadcast City winter games. chen sheled our an adions s23bi enter oe ea. the 2004, 2006, and 2008 games-even though thelr site ‘eal rights for Europe, Australia, Asa, and the e¥¢ ofthe 2 ing amounts to loeal broadcasters. NBC and these broadcaste companies eager to mathe their goods ro Ol/™PIC fans throu {997—-three yeats before is fist ad would run—Genet $27 billion for the US. broadcast rights forthe 7 sin tur, shclanve advertiser of automotive produets for ehe 2000 ackage worth over half bilion dolar. eces is corporate SPOT” : fae important source of revenue for the IOC and for national ee ee Sie nighe sors, who wish to capture the prestige and visibility of being associated Wt sr eiaion profile evel—and, ¢ $85 million, she most expensive “1 that of wotdide Fee cola vrryble vo ere thar market thei products ro consumers ough: the ee ‘he pareners Kodak, Panasonic, and Samsung, The primary benefit of worldwide partnership is 8 a De Goce get priority advertising space during Olympic broadcasts if they choose to buy it For exer "he can Cots paid $60 milion above and beyond ics partnership fe for television advertising during and 2000 games.” rhe minions of éclars spent on the Olympics by television networks and Corporate advertisers reflect the internationaltzation of business—the | epee he desire of firms such as Coca-Cola, Panasonic, and Samsung to rlarlet their products to constmers worldwide, The forces that have made Qe Oipmpies a growing international business are the same forces that affect Treag camawide-as they compete in domestic and foreign markets. Changes in ses unteations, transportation. and information technology not only facilitate SQincetie firms’ foreign expansion but also aid foreign firms in their invasion of soon emestie market. These trends have accelerated during the past decade due to the explosive growth of ¢-commerce and the reduction in trade and invest- tent bartiers sponsored by organizations such as the World Tra : futurists now talk about the “boundaryless” global economy—an an which national borders are irrelevant. san’ eronmy an ‘The global economy profoundly affects your di you hold. By writing this book, we hope to help you become me the kind of job Yad effective in this burgeoning international business eminem rt eee comfortably in this environment, you need to learn the baie sive oe erate ceptsthe comnion body of knovledge—of international bees ee eeas and cOn- must understand how these ideas and concepis ee business. Further, you decisions, develop strategies, and direct the efforts of othe neers, 8S they make conversant with the fundamental mechanics and inerenensg ou 180 Need to be omy and how thy affect people. businesses, and {ngredients of the global econ stand the evolution of the global eco: ries. You ni si To help énsure your future effectiveness in the irene Me Fest of jd Polit we plan to equip you with the knowledge. ineignee mter™atlonal busi ey your functioning in a global economy. To that orgy yon? Skills that ness world, taamples t0 help demonstrate how internets yee PANE tiluded hhundveae 6 tometimes they fall-You also will veed re eonel businesses suce hundreds of Companies in spedal features called Bec eXtended examples coon ee, lng the World tno Pees set global ‘ocus.” “Venturingwe to practice your ls.” “Worl:ing vith Abroad.” nad “Wiring the World.” and you will have the chat growing skills in end-of-chapter exercises, “Bullding, Global. $i! the Web.” and “In the News.” ‘i ‘ ‘ WHAT IS INTER ATION ntry and shipping th money from a bank in one country to finance operations in dnother. The partics involved in such transactions may include private Individuels, individual compa- nies, groups of companies, and/or governmental agencics. How does international business differ from domestic business? Simply put. domestic business involves transactions occurring within the boundaries of a sin- gle cotntry. while International business transactions cross national boundaries. International business can differ from domestic busitiess for a number of other reasons, Including the followin; o « ‘The countriés involved may use different currencies, forcing at least one party to convert Its currency into anotner, + ‘Tae legal systems of the countries may differ, foreing one or more partles to adjust their practices to comply with local law, Occastonally. the mandates of the legal systems may be incompatible, creating major héadaches for International " & + “The cultures of the countries may differ, forcing euch party to ady to meet the expectations’of the other. 41st ils behavior a ity of resources differs by, country. One country may be rich-in aat- ural resources but poor in skilled labor, while another may enjoy a productive. l-trained workforce but lack-natural resources. Thus, the way products are produced and the types of products that are produced vary among countries. oat cases the basic skills and knowledge needed to b: cptually <‘vallar whether one 18 conducting business dome: ally. Por e: fzccessiul are con- ily or Internation: ple, the need. for marketing managers to analyze the wants and arget audiences is the same regardless of whether the managers are iF needed for success is far greater for international business_than for Homestic Lusiness. International businesspeople must be knowledgeable about Hulcrvl, fegal, political, and social differences among countries. They must choose ite countries In which to ‘sell thelr goods and. from which to bey inputs. isterrationat businesses also must coordinate the activities of their foreign sub- pidiaries, while dealing with the taxing and regulatory authorities of their home fountry and all the other countries in which they do business. : STOMY PETE ae ATION, fe are niony different reasons why students today need to leacn mare about Merisatiwnal Dustness. First, almost any large organization you work for will bac Mernations’! wperations or be affected by the global econoniy. Yoli néed to unis dand this iaeceasingly Important area to beller assess carecr opportuilties an to feract effect cly with other managers, For exRt. ple, in your first job assignment Fow'could be part of a project team that incluc:s"wietbers frat Mexlea, Uruguay,” t EUSINESS:6 > Chapter 1 An Overview en vould help ness would hely tional Business sera 2) ee as execs i |, what your colleagues. Canada, and the United States. A DAT wa ced WO wth YOU Ty work for you understand more fully Mt st efrecuve you may ee 7 PoE exam} accomplish, and haw you ther You also pect to study international squatter ere gn-owned corporations. a firm tha: » owned by a corporation NEAT ates of OFF Te europeans: \ ple. 8.2 million U.S, citizens work for US: em ‘vaste 65 ratio A ness. If While foreign subsidiaries of US. corpo ricans- tional business. ‘Africans, Australians, Canadians, and Latin a in iner Torelgn-made ‘Small businesses also are becoming ™ yoursel rn selling in evel one day you start your own business: Soa ‘arms, and perhaps opportunities fnaterials or equipment, competing with forelsM ened up new OPP ded to foreign markets. The growth of e-commerce M35 OS” eve. firms often ay fin, for small businesses. Previously, to brand recognition county Wael. painstakingly build distribution networks ant ia tir ones. Today. a well-< je try, a process that often favored large firms over ST aout the world without oped Web site can draw the business of consumers: waking it easier for intry, the need to establish a physical presence in each COUnETY, TO” Wiring the small businesses (o participate in the international jortunities for a ‘World” presents an example of how the Internet has presented OPP small entrepreneur. another penson for you to study itera fonal business fs to keep pace with your fature competitors. Business students i. curope have traditfonally learned multl- ple languages, traveled widely. and had job experiences in different countries. More European universities are Jaunching business programs, many of which require students to spend one or more semesters in different countries. Asian students, too, are actively working to learn more about foreign markets and cultures, espe- cally those of North American and European countries. These students, training to become managers, will soon be in direct competition with you, either in jobs with competing companies or in positions within your ewn company. You need to ensure tho: your global skills and knowledge will aid their abectee to hinder ‘ SEE De TR ny RS a ‘The growth of the Internet is providing unexpected business. epporuies for fms age and sal. One Floida envepreeut, Caner een 2 259 contrac wich John Harris, noticed that Moldova (see Map 1.1), a new country cre- sted when the Soviet Union collapsed inthe eat 19805 was ued the domain sux forts Wb address by a incre, tional agreement goverring the Internet. While md may not mean "MEAS Sold iahes o gon se 8 Yr For ea ‘machin Moldovan, Hats reogrizes that ichasa very specie con, (ax notation inthe United Stats, he worlds biggest lteres user MOLDOVA'S PRESCR FOR INTERNET succes TION s Cente or informatics itations pharmaceui th Moldova Hemarkes Web adda’ ‘aS Republican thei Web adds. al compani fomedi =)ng Maldon fan OS Who wan ee who want mid in Source "Moldova Gains 3 baa 20.200 na PPS ame HeoMoldova \ fom the per yea. _ so Regi Lyte Tanyiya essbass AV | One ee: \2 Moldova's 4.4 million people live R olm a n {nan area the size of Maryind. Dependent on agriculture, its GOP fell by over 50 percent during the past decade due to crop failures and cul war, . Winy Study international Busioess? > 7 eclared its independence Soviet Unior in 1991. Its conversion from communism t3 capitalism has been cificul capita income is fess than $400 Moldova Is One of the 15 New Countries Created When the Soviet Union Disintegrated ‘You also need to study international business to stay abreast of the latest bust- ness techniques and tools, many of which are developed outside North America, For example, Japanese firms have ploneered inventory management techniques such as just-in-time (JIT) systems. Under JIT, suppliers are expected to deliver necessary Inputs just as they are needed. Similarly, European firmis such as Volvo and Japanese firms such as Honda were among the first to experiment with such labor practices as empowerment, quality circles, autonomous work groups, and cross-functional teams to raise-the productivity and satisfaction of thelr work. eon€.> Chapter 1 An Overview of Inteinalonal Business VENTURING 5 . Kommandit ‘Aventrepreneurs need to have 2 basic understanding of seandard and Volkswas a i cae iso Herr oat and Branch erinology. For an entrepreneur (KGAA) se nl bing business inciraionly, his terminélogy takes on ada hasat lease oN sre uty, 20 ed par Ty Henkel KGAA. rao aple, Finals Pane eaayenybecaue deren phrases andes aretiely co - a Geumin chee are sfeune (GmbH) applies tO Tre iferene countesConsde or ears the diferent Gesellschaft “UP beschrinkter ". ‘terms used to connote business liabiliy in various countries. smaller, privately held COMP: “ limited-liabilicy joorschap) "Mos people inthe United Sates are fair with the abbrevi In PEF ebustikt keisha (! nn ation tne. and ate accustomed co seeing business nares such a8 compa sn the Netherlands a beset NV Souhwesc Aine Ine and Lands End ne The rer, of cours, refrs toa pate ee iO i ‘stands for incorporated and means that the financial Labilty of the vennootschap) refers (0 2 publicly 7 aris owner's Timed othe ener of toe imvescments such, as Pilps NV, TMS Unized Kingdom 2 a the company fails ot encounters financial or legal difficulties. between privately held and pudlicy held Timited-lability compa” a ary stave cfteren ermnclogy when deaing wih, resus tor the formel and PLC for the later. Examples Fe this concept of limited abilty area ied and Glaxo Welcome PLC. taly uses SPA (1a Sener Cennany west free ermsto reflect i. societh per asin’) co denote 2 Wmiked by firm, such as nee ary eit Aktiengeeschaft(AG) js Used - Berixion Group SpA and flat SpA France uses SA (soctéeé fee alge publicly held fem thar must havea management board anonyme) for, che same purpose, a4 in Carrefour SA and and a Beard of directors, Examples include Deussche Bark AG HachesxeSA forces. Managers who remain ignorant of the innovation: onal competters are doomed ofan the aba marhztpace- fo Ao Finally. you need to study international business to ol gob collec! te poteal tems become ewan ore arson ee now, understanding and appreciating the similart na cue simflafities and peasea wil become neasngy Important Tou wil meee ee ee eae Neagues, custome, suppliers, and competitors from different counties nee ook tural backgrounds, owing something about how and wh ee ee companies fit into the global economy can help you ere thetr countries and dence as well as give you a competiuve edge in dealing with ees Pect and conf- Abroad’). Conversely, if you know itt or nothi may come across as provincial, : orjust an observer of world cena DUNTERNATIONAL BUSINESS AcTivitigs Historically. international busines Qs Importing (see “Bringing the World inte Posy pit too ke the f of International commerce, usr Focus"). However, in todayey Porn A fy are aleo common: = MUPEFOUS othet forms of internncey complex scond . lon al business ny i Exporting and ImportingIntemational Business Actiaties > 9 Exports of Goods and Services as a Percentage of GOP for Some Key Countries (1999 Data) Source Incernational Movesary fund, Imematora!Fancial Statics, huge 2000. subdivided into two groups. One group of activities 1s trade in goods—tangible products such as clothing. computers, and raw materlals. Official U.S. government publications call this type of trade merchandise exports and imports; the British call it visible trade. The other group.of activities 15 trade in services—intangible products such as banking. travel. and accounting activities. In the United States this type of trade fs called service exports and imports; in the United Kingdom it Iscalled invisible trade. : Exports are often eritical to a firm's financial health. For example, about 53 per- cent of Bocing's commercial aircraft sales are to foreign customers, creating tens of . thousands of jobs at the company and thousands more at the factories of Its parts » suppliers. International sales often are equally important to smaller firms. For example, exports gen=raic half of the reventies of Weather Modification, Inc., 2 small North Dakota weather monitorjng and cloud seeding comipany. Trade is ‘important to countries as well. As Figure 1.1 shows, exporting accounts for over 60 percentiof the Netherlands’ gross domestic product (GDP), and over a quarter of the, GDPs of Canada, Germany, France. and the United Kingdom. International Investments The sécond major form of international business activity 1s international investments—capital supplied by residents of onc country to residents of another. Traditionally, such investments are divided into two categories: foreign direct investments and portfolio investments. Foreign direct investments (FDI) are Investments made for the purpore of actively controlliig property, assets, of ‘companies located in host countries. (che cout . headquarters is located ts called the hosce coustens ere coms se country; any other count vhick the company operates is notin as hot e tty] Ar essen ae purchase of all the common stock of Sweden's Vol: Coxporauc 2 Corporation Company. Alter the purchase Ford installed ts orn excceanee ig Coe ek operations. and integrate then Into Ford's 7; ‘ rograine’ grate thent into Ford's glob.i procurement and marketingYO > Chapter 1 An Overview of International Business Bringing the World inte FOGUS THe EARLY ERA, OF siNess ‘ INTERNATIONAL BO Incernational business originaly consisted of international trade. Trade between rations fan be traced back as fer 25 20008c, when, tribesin northern Africa took dates and clothing to Babylonia and 1 3 "for the same reas Rie fon many investors in recent have same reason In recent years have pought shares of mutual funds that spectalize in forelgn stocks and bonds. other Forms of International Business Acti y International business activity can also take errr, Franchising aegis” 68m also take other forms one country licens re \/For example, The Walt Disney Company may permit @ ian clothing manufacturer to market children’s pajamas embroidered with Mickey Mouse's smiling face in return for a percentage of the co: ‘or example, restaurants spas . Inzernational business is extremely important co Boeing. d of the international hotel industry. Hoteliers such as Marriott and {n 19s 23 secon ofee arene Hilton often do not own the expensive hotels that bear their brand names through- “: sales were io foreign aisines. out the world but rather operate them under management contracts. Boeing sells aircraft co virtually Airm that engages in any’ of these types of transactions can be labeled ain inter- ft) Msc" ane a the word ‘tional business, More formally. we can define an international business as ary BS#=# £3 ¢ Its revenues and profits. Nokia’ for example, developed cutting ae Sellar phone technology that was eagerly adopted by domestic consumers : fn Finland. Nokia's managers quickly recognized that the firm cow Increase Fevenues and profits by expanding its operations and sales tn other counties Similarly, since its birth in 1972, Singapore Airlines has worked:hard to develop award-winning standards of custemer satisfaction and reltability that have {wooed millions of Asian’ passengers to {ts fights. Belleving that travelers in other markets would welcome the tender loving care the carrier 1s renown, for. Singapore Alrlines has deftly expanded tts services to 90 citles.1n over 40 coun- trles throughout the world. To Acquire Resources and Supplies. Another Important reason for going International is to acquire resources such as materials; labor, capital, or techy nology. In some cases organizations must go to foreign sources because certain products or services are elther scarce or unavailable locally. For example, North American grocery wholesalers buy coffee and’ bananas from South America; Japanese firms buy forest products from Canada; and firms worldwide buy ol from the Middle East and Aitica. In other cases firms simply find It easter and/or more economical to buy from other countries. As 4 result, many firms have located facilities in less developed countries to lower the firms" production costs. For example, Compaq constructs the chassis for its personal computers at Its plant in China. Lower labor costs there enable the firm to make a'chassis and ship it to Houiston for final assembly for $57 less than It would cost to build » tt in Houston.? : : To Seek New Markets. Seeking new markets is also a corimon motive for inter- national expansion. When a firm's domestic market matures. it becomes increas- ingly difficult to generate high revenue and proftt growth. For example, the market for toothpaste in Canada. the United States. and the European Union can be clas: sifted as mature—most people there understand the value of oral hygiene and have the financial resources to regularly purchase toothpaste. Thus firms like Procter & Gamble. Unilever. and Colgate-Palmolive cannot expect to achieve significant growth in sales from their toothpaste products in these markets and have aggres- sively moved into emerging markets like China, India, and Indonesia to seek 5 expanded sales, Expansion into new markets carries with it two other benefits. First. a firm may’ be able to achleve economies of scale. lowering Its average costs a {ts production increases. Second. such expansion diversifies a firm's revenue stream. As it serves more countries, the firin becomes less dependent on tts sales In. any one country, thereby protecting Itself should that couritry’s economy turn sour, To Better Compete with Rivals. Finally, businesses sametim aggressively around the world, rival Pepsi-Cola has little cholce but to follow and try to keep up. Should: Pepsi allow Coca-Cola to dominate Important markets, Coca-Cola coulld use profits from those markets to finance attacks on Peps! in sti other markets. Such thinking permeates industries such as earth: moving eq ment and photographic films, where the leading firms continually attack pee terattack each other In every region of the world to prevent thelr rivals from gerneg a strangletiold in any country. ‘ es Environmental Change and Globalization ‘These strategls Imperatives provide Arms with i Renesas a = with the motivation their operations, However, firms would not have been able to expand see aate onal activities to the extent we have observed during the post-World War kre, Mithout significant changes tn two key areas: the political evel ae technological environment. ; Seam nt arial the2 Chapter 1 An Overview of Intemational Business Technological changes rely afectimernateral bashes The reine le reeret i oe of ‘hemos gniier tcmnsageal changes recent yen Late MeCariney. osm of = 30 nine reales teal othe sands of accom repentrsvho panto we ro epane te ness seat Ea sptieth century were often ur w markets We i i to entre against foreign trade arrier® 4 by national govern” ent erect er World War 1 many the United States: United Kingdom. ae oe ifs and quotas OF ‘ 7 favored local firms on 6Ov ernment SUPPIy contracts national trade it, inter ‘ontracts. As a result, Shad investment declined throughout the 3 rid War WI these roses. However, et “the major trading Powers negotiated reductions 1 tariffs a fuotas and eliminated barriers to FDI within ‘rar borders. Many of the reductions were negotiated through the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). Regional accords, such as the European Union, the Mercosur Accord, and the North American Free Trade Agreement, also have relaxed trade and investment barriers among their members. Fechneteg eat Changes. Changes in governmental policies encouraged —— 7 usiness activity. Improvements in technology—particularly in. conducting burners intcmitonaly wce the Gere oe ee ele wes the sling he pinay Or ofa plrenog aes fee aa ee primary form of communication was the letter deliv a penne on horseback. Transportation improvements during th yrasri1s0 faa Sig Sip to ancy sean sel Icagues i Ne Dela eae Necks rateling In order have stimulated growth in international tours Sante nent of international trade in services. poe for an example of the impact of inter: The increasing ability of computers to ously the output of its fefineries and tical wel France. the imposed tari ‘st_150 years—from that a manager in to confer with col- transportation also tourism. wl e largest compo- {See “Bringing the World Into Fever ourism on a local economy.) rapidly process va: vast and factones engl guanttes of Infor. 's. Changes in com: international markets, 2000 end Beyond: The Ch nology on interr r ed — 20} on ntematona!bininess Sagas oe fue to the introduction and rapid exploneas 2 ing the global marketplace. Mt struggling to analyze the im businessFe “tha Contemporary Cares of Glohataatinn > 15 What was Yoshiko Nishimura’s reaction when she arrived at ‘Cavendish on Prince Edward Island? “I cried for happiness upon arrival Every Japanese girl dreams of one day paying respect to the land of Anne of Red Hair She is much beloved" Prince Eduard Island (PE), the smallest of Canada’s maritime provinces, routinely attracts summer visitors from Central Canada and, the Northeastern United Scates. Although chey enjoy PEs rural scenery and charming towns and villages, few ‘North Americans share, let alone understand, Nishimura’ incense reaction to the island, Yet she is not alone. Thousands of her ‘ountrywomen annually make the trek—maybe a beiter word would be pilgrimage—to visit an old farmhouse in Cavericn chat supposedly served as the model for the horney Shirley, the Fictional heroine of Lucy Maud Montgcerer/’s Arne of Green Gables, grew up. One Japanese travel ragazine found that among its female readers Cavendish was tre fourth rene popular foreign city they wished to vist, being tonged only by ot an easy tp New York, Paris, and London, even though i takes at least 20 hours co fly from Tokyo to Toronto, ‘connecting flight to Halifax. andther connecting fight % Charlocterown, PEs capital and then trave! the lac: 20 rile or 70 by road co Cavendish. Home to 140,000 year-round resi- dents, PEI's economy is based on Taran > 3 a wi} z agriculture (peticulaly potatoes) tourism, and fishing. Each summer - 700,000 visitors flock to the 135- mile-iongistand to enjoy its beaches, water spots, and tiesto Anne of ‘The recently opened Confederation Bridge provides PEI's first surface link to the mainland. Its capital, Charlottetown, is a quick 25-minute flight to Halifax. Year-round ferry service between Nova Scotia and 7 Cie pe our + PEL is frequently disrupted by severe winter storms. Prince Edward Island Is Home to Anne of Green Gables and a Vibrant Tourism Industry g (continues) ANNE OF RED HAIR | | | | i |36.» Chapter 1 An Overview of International Business anese jar among J2P2"e%e « : ped Hair 10 populate outs ‘Moncgomen’s book hat long been a favor of preeens in’ Why is Anne of BN erhaps ANDES Uraxpected £0 Canada and the United States Ic has been translated into numer women? No one real) fous languages and sels well in many markets: In Japan, however, ricrive roles la the 90k has achieved cultke status dubsequent to ts publiea-”. conform co the testi stove O! i ors 1982 under te ile Ate of Red Hair Today, thousands of cure, or maybe-Anne’s IOV cover the reasons Inpanese gis escibeto"Anne agains hat expire inlvng, fara the keys OMS Te aay spunky Ie death lives of LM Montgomery. Anne, and her fictional fam- ous that Lucy Maud nas ANNE Syand vend: Theuiands merejoutrey to Cavendish vse whether she known a8 A anocated wth rea linked the merch brid pn ee 09 the faces to beer honor the idok They _glabe Se has a0 linked the spend ercior: 3f dollars purchasing Anne place mats, Anne key component of the __ chai. ar esber nme memorabilia that PEI merchant are only’ tourism. {eo kppy to 28h them, Somme ental in classes taught by the LM. ‘Mencgorcsy atte at the Universit of Prince Edward land. ar va TORT ‘The truly dedicated Anneophiles even drag their fiancés to PEl so Sources “creen Gables Books poe Fpeaa ae 5, 1996 PP. they con be matted in the same front patlorof the farmhouse A; Cavin Till, ‘Anne of Red HSH? Tht ‘teh A “where Monegamery waswed in 1911. S651. ‘Some experts belteve that the stunning performance of the ne 7 yy their cule wer rankess appeal 0 3022658 YOO for chem By they fF nacure 3 f young reader reese coax dome vented pigadtgs Red Har—has couched te RENT ou etc te age 1.3 erilion crade in intern rational services— S, ecoriomy in the 1990s was at least partially attributable to Its aggressive integration of infomation technology into home and office. For much of the po: era Western Europe and Japan had slowly gained ground on the. United States “World War II ‘by simultaneously adopting U.S. technologies and nurturing thelr own innova- tlons. U.S. per capita income was 31 percent higher than that of other major industrialized countriés th 1970, but that gap had been narrowed to.only 10 \ percent by 1990. Ditring the 1990s; however, the gap began to widen again, Teaching 22.percént by the end of 1999. Although. several factors no doubt interacted to cause this turnaround, the increased investment In and use of inforthation tec! cant role.® ‘ Figure 1.2 depicts differences in historical and selected regions, Usage in North America grew froi Internet Usage Takes Off; + Internet Users per Thousand, 600 People, by Region * Source Busnes Week amsary 31," “goa p78. 450 cee 7 2000 esp. tax Computer Ingisty Almasigg © thnology by U.S. firms and consumers certainly played a sigulfi- Projected Internet usage for 7m about 100 users per 1,0007 Tne Contemporary Causes of Gicbalization > 17 wer 450 users. per 1.000 people in 2000. This Ngure 1s pro- st 750 users per 1,000 people by 2005. Current Western European and Aslan Paciffe usage of the Internet tags behind that of North monica, although the gap between North America and Western Europe ts pro° Jected to shrink dramatically by 2005. A similar story Is presented in Figure 1.9. which suggests that the United States leads the world in spending on informa- ton technology as a proportion of gross domestic product, with Sweden a very close second. . “The growth of the Internet and other information technologies affects inter- national business in at least three different ways. First, the Internet and asso- clated technologies facilitate international trade in services. including such diverse Industries as banking. consulting. education, retalling, and even gam- bling. For example, many Canadian and U.S. companies have siilfted their - customer service and dala entry operations to areas with lower labor costs In and outside North America. As long as the transaction can be performed elec- tronteally. the physical location of the facility 1s of little importance. India, for example, has a growing call center business. providing customer care and trouble-shooting services for custorhérs of numerous MNCs throughout the world. The chapter's closing case, “The Brave New World of Glabal E-Commerce.” provides several other examples of how the Internet is contributing to growth in International services trade. people in 1995 to 01 fected to grow to alin tnformation Technelogy Spending. Asa iesceatage of Gross Domestic Product . \ Who's Ahead? ‘sb Source TAM fsoncoye wed ph gba a ngsh Week Jancary 31,2002, 2.77 based on date from — _Iexeinasional Daca Corp, of GDP. Information technology ‘pending as a percente nt. 48» Chapter 1 An Overview of Intemational Business fe ext! > AN OVERVIEW , ng, elds at HOSE to series they Second, the Internet serves to level the ploy ee ts between larger and smaller enterprises regan’ often eeded to €XPS small business sell. In the past a substantial invest le, @ markets, but the Internet potentially 1 jaysia. OF based in western Missourt, southern Italy, eastern Ma a ‘pusinesses fro create an effective Web site and compete with mut world. A toe old the Internet holds considerable potential pusiness networks can mechanism among businesses. So-called DUSIPEN og ee Iink global businesses with thelr suppliers. CUS ness together: For ex! ways that make it faster and easier for them {62° parts an ple, manufacturers have traditionally procured NeTC™ TT te and m having a purchasing agent prepare paper forms in OUP entered into produc: tine supplier, Once received, the order has to be PFOCESST™ uae could tale tion, and then shipped back to the inanufactures—a Process | der online aoea With network linkages, the manufacturer can PITS "tL ouer will much faster and more efficiently. In a truly integrated system, the SUPP! Ta fe able to monitor the manufacturer's inventory. anticiPate the eee potential tional parts, arid start making them before the order is even sent. The potentin® savings are enormous. GM, for example, estimates that preparing a paren f order costs the company $100; by switching to online purchasing, GM believ can cut these costs by 90 percent.? * OF THE CONTENTS OF THIS BOOK © In writing this book, we have started with the assumption that most readers will eventually work for or own a firm that is affected by international business activity. Our goal is to help them become more comfortable and effective managers in the competitive global marketplace. To do so, we provide our readers with the knowl- ‘edge and skills necessary to succeed in international business. ‘We have structured the contents of the book to move from relativel; macro, o general, {ssues to increasingly micro, or specific, issues that manages ‘eal sitth regularly. Our rationale is that managers must fully understand the context thfernational business to work effectively within that content, This Lhasa ete context provides the backdrop ‘within which all international busiriess each increasingly specific level within that context, the nterhearn faced with more specific and 5 atte) faced with more spite and operational isues, problems, Part One comprises Chapters 1, , 3. and 4, It world's marketplaces. Chapter 1 has suy . It provides an overy plied som view of the discussed the contemporary global business environ background definitions and wealth of economle and geographical informatie ent Chapter 2. pro economies and business cente mation. about Provides a ments of international teainae ee Band 4 describe fh nanerld's: major mo a content hat affects and impacts business act gc Uatty-evel ap er ats 300 through Fou follow alogel progression pee. Magers face d; $8 to cusses the international environment in men, Ice Figure reastngly more 1, addy ae essing the ov ad, general 88 occurs. At mal manager is challenges, and oppor- ‘eral con-‘An Overview of the Contents of This Book > 19 Twe Worto’s Markeretaces © Global market places © Legal environment «© Technological environment © Political environment "5 @ Cultura environment 7 . InTeRNATIONAL ENVIRONMENT ‘© International trade and investment theory * Balance of payments «© International financial markets and institutions ‘© Nationa trade policies 7 * International cooperation among nations Mancina Inrernational Business: International strategic management ‘© Strategies for analyzing and entering foreign markets ‘© International strategic alliances ‘© Organizational design for international business ‘© Managing behavior and interpersonal relations ‘© Controlling the international business Manacine InTeRNaTiONAL Business Operations «© International marketing ‘© International operations management ‘© International financial management ‘Intemational accounting and taxation ‘Intemational human resource manage- ment and labor relations, ACs ESHEZG Framework for This Book420.» raping 1 Anoverse of Interraone! Buainess text of international. business and 4 ditions that affect organt of n specific organization, : natfonal strategies, mod! g ‘frategic alliances, orgatt international business: tloné tlonal business functions: mi rketings opera’ human resource management. 5 nd con” CHAPTER REVIEW Semmory ncersational business encompasses any business transaction that wolves paris from more chan one country. These transactions ean ‘ave various forms and can involve individual companies, groups of companies andlor government agencies. International busines C20 difer from domestic business because of differences in currencies, legal systems, cultures and resource avai. . ‘saying incerasional business i important for sever reasons. fies, any organization you work fot, even if smalls likely.x0 De [Etecred by the global e€onomy, Someday you may work for a for- tegrvevned frm Further, you need to keep pace with other ma geri who a learning (0 function in internacional setings. Fray jouneed co be cukuraly iterate r0days world. truemational business actwity can take various forms, Exporting invclves seling products made in one's cwn countty for use or resale in another country, Importing invo'ves buying products made in ‘cher countries for use or resale in one's own country. Fortign direct esumentsafe investments made for the purpose of concrlling oper ass, or compares located in foreign courses, Other or nen forms of interrationaltbusiess activity include Fcensing, franchising and management contracts “An ntemational busines is one that engages in cohrmérclrans- actions with ind:iuals, private firms, and/or public sector orgarita- tions thar cots national boundaries. Firms with extensive interna ‘onal involvement are called muiinational corporations, or MINCG. Inieraional busines Ins grown dramatically in recent years because of strategic imperatives and environmental changes ‘Srategi imperaves include the need ro leverage core compeien- Ges, acu resources seek new markets, and match the actions of rivals. Athquigh strategic imperatives indicate why firms wisk to incerationafae the operations, significant changes in the polities \ i deren jeducis you use ond gular basis, such as your alarm, camera Cu, cofiee maker, computer, sneakers. telephone, tele- or. VCR— ents even yout favorite CD. sit. Fit juice, oF type J bal ee e sectt roducing Many be wn ie pts t rect anagers: Pa ane ited eet emt ese d into foreign ee ey ara a mie em, zation desig g the manage ie ng. OM ‘part Four covers th ey ‘ ili to and technological environments have M0 doubt iad ne ce anaerobes 3 formation aaeee war ik The growth of the Internet and clogs is Tely to refine global come ‘dong inerational business once ag2"- : jtion and ways of Review Questions "L watisiverasiona’ Business? How doesit difler from domestic ional business? 3. Whi cfinterationat business sctivicy? 4, How do merchardse exports and imports differ from servi exports end imports? hi 5. What is portfolio investment? {What ae the basic reasons for the recent growth of busines set? important for you 10 study inter are the basic fo ‘Questions for Discussion 1. Why do some industties be 9 : Tay Se ame iestits become global while oovers remain 2. What he iit of the leer vhich companies and which cour ange ene and which courcries will gain as Ingemet Lope ee & the world? Which wil! lose? Tea i merit hae any international programs? om S97 a9 internation’ business? Why or i What ae som i ‘ rages na omen ere a tm s, usgerna donee and nee ey Dees £0 work ein an international fren? svhty nod for a foreign-owne a ed firm? Why of on incernazional business? BUILDING BLOBAL eit . : L itt « . of recording ta ing tape. Decerrng. you ha ertnine ih rato died rt SEN fr made hese ech MSE € the ibrar pares sim, Aer esearch the fol-Inthe News > 21 1. In which country is the firm headquartered? 2. Compile a combined ‘of the 10 most common products the 7 i 1 sales comes from its home average college student might use. . ie vou peta Tomes from other counties 3. Ty to dency the brands of each product hat are made by ce mest ikely manufactured? domestic firms Soya gin va ‘nanctre he! 4, Ty to ident the brand of each produce that are made by for- , eign firs. follaw up by meting with a smal group of your classmates and Doses ether of your lists of 10 products include items that ‘complering thie acties: have components that are both domestic made and foreign w Se ‘the relative impact of international business on your made 8 daily lives. . - . o i & WORK BUI ING ing ism in Prince Edward Island Lec us go back to “Bringing the World into Focus” on pages 15 and 16 which discussed the growing market of Japanese courists—pri- Now examine how the private sector deals with some of these marly young adulc females—visiting Prince Edward Island (PEI). questions, Do a Web search on Anne of Green Gables and a search on ‘The World Wide Web is becoming an important mechanism for tourist accommodations and attractions on PEL Which Web sites are seling goods apd seri of the of mose value to prospective tourists? 20h chaper of his book contains a “Working wih the Web” skill-building éxercse. The book's Web site contains linkages to sme le iow put yourselFin the Web sites chac may be of use in doing this assignment and those shoes of a young Japanese woman wh is an ardent admirer of found in later chapters. @ WE INVITE YOU TO VISIT THIS BOOK’S “COMPANION WEB SITE AT. www.prenhall.com/griffin ¥ IN THE NEWS”. i ‘ nies, the councry in which they are headquartered, and the eq —— nts of mon : ; . amounts of money involved in the transacti 1; Vist the homepage of the Finaridial Times (wwwftcom) and * conclude about the status of franchising as Saga a form Arias » on the search feauire‘to locate recent articles about fran- ‘ional business? hiss. Try searching for “franchise expansion” or “franchise __2. OF i i nthe Fi ir i seguon’ Sec sve articles TOFU The las WSBT ren ae ies homepage refer co the list of acces ree es, nd note the names of the franchising coms “Ne fa) wee es ie ou may ned kon pa: ‘news" frst) What is the core competency of each company in.)22. > Chapter 1 An Overiew of International Business today’s news? If you do not know, do a litle research on the company to find out Scan the articles you located in question 2 to find out whether the “firs are making headlines for leveraging ther core competencies. acquiring new re factions of ther rivals Boe recent actions a best YOU Oo? firm's international operat CLOSING CASE The Brave New World of Giokel E-Commerce Gre rapid development of the Internet during the past decade is, shaping the global economy, Fis large and smal are busily devel oping innovative ways of harnessing this technology to cut their | costs, expand their market reach, and develop new products. For example, Ford, GM, znd DaimlerChrysler recently announced plans to create an electronic trade exchangt to purchase automotive parts and supplies online. Nisan and Renaul quickly joined che partner- Ship, and Toyota indicated that it too, was very inceresed in partici _ ating, Compary officals estimate that rogether they could shave off more than $20 billon ofthe more than $250 bilion the compa ries spend annwally on parts procurement, Seas and Carrefour, announced a similar busness-to-business online exchange geared £6 mpectsteates Such cost-cutting opportunities are also avallable to much smaller businesses. The Lee Hung Fat Garment Factory, 2 family. owned Hong Kong manufactures, lashed its costs of communicat- ing wich its foreign customers by one-third by reyingon the Incernet rather than faxes and telephone callinsead of express mating product samples to is customers the company now uses a Web ‘camera ro transmit photos of garment mock-ups over the Incernet. ‘Company manages esimate they save 15 t0 20 percent in design cogs using this technology) ‘Compsries can abo use the Inernet to expand thei reach into ‘ney marke. Venezueles Logueseacom (the Spanish equivalent of whatever’) is marketing a Web ste designed to meet the needs of * eyber-savny teenage’ throughout Latin America. Aer five months of operations, Loquesea was already drawing 15 milion “hits” a ‘month, attracting the Advertsing dolls of MNCs such as Coca-Cola eager to targec this market.) ‘The growth of the Internet offers consumers many benefits as well For example, Europeloanis Europes frst mortgage ender to rely soley on the internet. This Belgian company can offer low-cost mort. ape! to homeowne’s throughout Europe while competing against local banks because it has no expensive “bricks and mortar invest. ments in Branch banking facies) For example neatly 2000 ran able to offer Swedish borrowers five yeat Fixed loans at 686 percent, easly beating the 74 percent rate demanded by local Swedish bankers. Similan, Primus Online is providing discounts to European ‘consumers by pooling orders from them and then obtaining dis. ~ ‘count prices from suppliers by buyingin bulk. Further nuinerous un, é inch online MBA pro- vests have hunched er aimee ce challenges of Be eer rave new world o x ‘ . sil challenges for government policy makers, Businesspersons an Consumers, One question is which country's laws apply when international eansactions occur over the Internet. For example, ‘gambling i legal on the Caribbean island country. of Antigua However, a 40-year-old US. law prohibits gambling across state or federal borders using telephone lines, The US. government has filed suic against World Sports Exchange, an Antigua-based cor pany that offers onfine sports gambling, clainjidg that the com- | any violates the lew. when it allows US. citizens to use its services. The controversy has ¥ér co be resolved by the courts Another issue is who is respohsible for Internet content) The head of CompuServe’ German office narrowly avoided a prison term after sean court determined that the company failed to block access by German Web surfer Tea eee ve S$ tO pornographic sites on the Question 'is who wil from ncereatond recess f who wl protect consumers Other impediments have chasing products from for lie eds weed wih eo "eign Suppliers Over the Internet still have petal delgnet Sea Services. One hard-luck British Internet-based softwar re ee Na Company. a ae subarea eS ne, However, Her Majesty's revenue Customs duties before Curning a bargain into a * arisen. For example, industry, age, and/or come pas) be affected by Bover 0 mee” Internet content? ap eete thelr own legal and Priate content on the44 Some experts believe chat the eventual winners in che global ‘ecommerce arena will be the large, powerful multinationals of today—Ford, Royal Outch/Shell, Sony, and similar firms—that have name recognition and the financial resources to'do what- ever it takes to win, Other experts, however, think that the dominant firms in an electronic world will be the new star Uups—firms ike Amazon.com, America Online, ahd so forth— that are not bound by traditional ways of doing things and thatveally see themselves as Internet businesses as opposed (0 businesses that have started using the Internet. What is Your n? Why? Closing Cave > 23 ‘Soutce, "Eye Internet Mortgage Lender Opens in Sweden, Financial Tera February 18, 200 p 1: “Land of Laptops and Ledeen” Finacial Ties, fedrutty 17, 2000, p 14 “Cross Border Regulations Create Hurdle for (Gibeshoppers, Flnanclal Times, February 16 7000. p 7: “US. Protecution to Challenge Lawless World of Cyberspace’ Financia! Times, February 14, 2000. 9. Site Aims.co Artract Latin American Teens? Wall Street Journal, Februity 9, 1000, p.A22; "Open Door to Career Success? Financial Times, February 7, 2000, pt “Family Garmene Businestin Hong Kong Uses Interns to Gain Access to. Global Customer Pool, Wall Sereet Journal, November 24, 1995, pork * ‘