International Business 10e Daniels/Radebaugh/Sullivan

International Business
Chapter One Globalization & International Business

2004 Prentice Hall, Inc

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CHAPTER OBJECTIVES

To define globalization and international business and how it affect each others To understand why companies engage in international business and why international business growth has accelerated To comprehend criticisms of globalization To become familiar with modes a companies can use to accomplish its global objectives To grasp the role social science discipline play in understanding why international business is different from domestic business

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WHY ARE GLOBALIZATION AND INTERNATIONAL BUSINESS IMPORTANT ?

Globalization is process of growing interdependence among countries International Business is all commercial transactions between two or more countries Private business: the goal is to make profit Government business: may or may not motivated by profit
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WHY ARE GLOBALIZATION AND INTERNATIONAL BUSINESS IMPORTANT ?

Studying international business is important because: Most companies either are international or compete with international companies Mode of operation may differ from those used domestically The best way of conducting business may differ by country An understanding helps you make better career decisions An understanding helps you decide what governmental policies to support

WHY ARE GLOBALIZATION AND INTERNATIONAL BUSINESS IMPORTANT ?

The conduct of international business depends on companies objectives and the means with which they carry them out. The operation affect and are affected by:

Physical Societal Competitive environment

See Figure 1.1

Operations and Influences

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The Force Behind Globalization

Rapid increase in and expansion of technology

Transportation is quicker while costs are lower Communication enables control from afar Although global competition bring more efficiently, it also require us to work harder (See Figure 1.2)

Liberal of cross-border on trade and resources movement.

Development of service (bank, postal system, and packaging service) that support international trade Growing consumer pressures (they want more, new, better, and differentiated products) Increased global competition Political relationships have improved among some major economic powers Countries cooperate more on transnational issues
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Cross-National Cooperation
Countries willingly to cooperate for the following reasons: Gain reciprocal advantages by bilateral/multilateral agreement: protect property, reduction in import restriction, etc. Attack problem jointly Too big problem: Japan & U.S. ballistic missile defense technology Spill over problem: G8 coordinate economic policy (interest rate) Environmental policy Deal with extraterritorial concern Non coastal area of the ocean, outer space, and Antartica

CRITICISMOF GLOBALIZATION

Threats to national sovereignty

Sovereignty is freedom from external control As international difference diminish, countries can no longer maintain the traditional ways of life that help unify generation and people within their community and therefore they lose their ability to act according their local best interest

Economic growth hurt the environment

Unless the positive consequences of globalization keep up with negative costs from growth, the sustainability of economic improvement will be problematic in the future
Whenever people lose, absolutely or relatively, because of globalization, they apt to be critics of globalization

Growing income inequality

Why Companies Engage in International Business

Expand sales Volkswagen (Germany) Ericsson (Sweden) Nestle (Switzerland) Acquire resources: foreign sourcing Better components, services, products Foreign capital Technologies Information Minimize risk Take advantage of the business cycle for products/services Diversify among international markets Defense the domestic market
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MODES OF INTERNATIONAL BUSINESS

Importing and exporting

o Merchandises o Services: - Tourism and transportation (airlines, shipping companies, travel agencies, and hotels) - Performance of services (banking, insurance, rental, engineering/turnkey operation, management services/ management contract) - Use of assets: licensing and franchising

Investment
o Direct and portfolio investment
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International Operations

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Terms of International Companies

Multinational Enterprise (MNE): global approach to markets and production or one with operations in more than one country: Multinational Corporation (MNC) Transnational Company (TNC) used by UN

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WHY INTERNATIONAL BUSINESS DIFFERS FROM DOMESTIC BUSINESS

Manager in international business must understand social science disciplines and how they affect all functional business fields

Political Policies: Often determines where and how business can take place Legal Policies: Each country has its own laws regulating business. Agreements among countries set international law. Behavioral / Cultural Factors: The interpersonal norms of a country may necessitate a companys alteration of operations. Exp: The best outcome of a baseball game Japan: tie, U.S.: win Economic Forces: Economic explain country differences in costs, currency value, and market size Geographical Influences: Natural conditions affect what can be produced and where

Influences on International Business

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Competitive Environment
A companys situation may differ among countries by:

Advantage in price, marketing, innovation Number and comparative capabilities (market leader vs
challenger)

Countries competitive differences

Exp: U.S. (big) vs Swedish (small) GE vs Electrolux

Dependent on products, strategies, and countries in which the business operates

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Competitive Environment

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CHAPTER REVIEW

Define international business and how it differs from domestic business Explain why companies engage in international business Introduce different international business models companies use Illustrate the role social science plays in understanding international business Provide an overview of patterns for international expansion Describe the forces that affect international business

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INFLUENCES ON INTERNATIONAL BUSINESS

External Influences

Operations

Physical/Societal factors

Political policies and legal practices Cultural factors Economic factors Geographical influences

Objectives Strategy Means

Competitive environment

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Globally integrated company: integrated operations located in different countries Multidomestic company: multinational companies that allow local responsiveness

National Operations for International Companies

Multidomestic strategy: countries operate autonomously Global strategy: integrate various country operations into an international headquarters control Transnational strategy: integrate various country operations while dispersing the location of control

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Management in International Business

In additional to domestic business management skills, international business management requires Social science understanding Political science appreciation Legal awareness And an innate ability in:

Anthropology Sociology Psychology Economics Geography

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EVOLUTION OF STRATEGY IN THE INTERNATIONALIZATION PROCESS

Most of the patterns in Figure 1.7 are product of risk minimization behavior. A company typically does not abandon its early modes of operating abroad when it adopts other mean of operating internationally. Leapfrogging of expansion: many new companies are beginning with a global basis Exp: Inns and bed-and-breakfast enterprises (Put Web pages on the Internet and have attracted some of their first clients from abroad)

Patterns of Internationalization

Figure 1.7

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COUNTERVAILING FORCES
1.Standardized vs Responsive Practices

Global standardization advantages

Reduced costs in development and manufacturing Economies of scale since fixed costs are spread over more units of production Adjusting operating, marketing, and design to meet specific national preferences
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Responding to national preferences

COUNTERVAILING FORCES (Cont)

2. Country vs Company Competitiveness

Country moderate companies fulfillment of global efficiency objectives because of those countries rivalry with other countries International business manager must balances dual roles: o they are managers with global efficiency objectives; o they are a member of a given society that has national rather than global objectives.

Maximizing Global Profits

Profits must be balanced by: International rivalry Cross-national treaties and agreements Ethics

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