Lecture 3 International Business and Globalisation

Session Outline
Definitions Nature and Types of Globalisation World as a Global Village Brief Overview of World Business Regional Trading blocs Role of Technology in IB and Globalisation

Definitions

International business: The study of transactions taking place across national borders for the purpose of satisfying the needs of individuals and organizations. Internationalisation: Internationalisation more often refers to specific, economic activities certain firms or nations are undertaking internationally. Globalisation: In the broadest sense is the spread of economic, political and cultural values between countries.

Nature of Globalisation
Products are now designed in one country, manufactured in a second and sold in a third Businesses, governments and individuals are still learning how to navigate this new international system. Globalisation is a necessary reality for many businesses. Globalisation has taken many forms and can be divided into a number of different categories.

Types of Globalisation Economic Globalisation Globalisation of Communication Cultural Globalisation Political Globalisation

Differences Between IB & Globalization Globalisation International Business

Globalisation Development of a worldwide business approach that is integrated. Fairly universal approach. Operations, marketing, advertising, sales and service are all generally consistent from one country to the next

Internationalisation A strategy of operating business distinctly in each global market. Each country treated as a unique marketplace and operations, marketing, advertising, sales, service etc adjusted to appropriately fit each country.

Features
Used synonymously in casual conversation.
But moving beyond domestic borders, they are quite distinct.

Globalisation
more broad and universal concept of the global marketplace,

International Business
Application of a business model to various markets.

Specific Differences General Terms Economics and Global Trade Firms and Businesses Investment and production Location Society and Culture Criticisms

Understanding Differences
An IB strategy typically costs more money
You have to develop unique business systems International marketing means you develop and communicate distinct messages that apply more effectively to each country and culture Processes for each market.

Globalisation typically cost less money

In marketing and advertising, globalization means consistent delivery and generally uniform brand and product messages in all markets. Processes for all markets

World as a Global Village

SMOOTH
Source raw materials wherever they are the cheapest Manufacture anywhere in the world where it is most cost effective Obtain and sell in those global markets where prices are highest Organise and raise finances globally Try and forge international strategic alliances Hire the best talents from all over the world. To manage all the above points And you will have achieved the stature of a true global organisation

Brief Overview of World Business

Trade consists of exports and imports:
Exports: goods and services produced in one country and then sent to another country. Imports: goods and services produced in one country and bought in another country.

Foreign Investment: consists of companies investing funds to start or improve operations in another country.

World Trade, 2005

Note: Data for European Union include intra-EU trade. Exports are calculated by including freight and insurance while imports do not include freight and insurance. As a result data might not be consistent with other data in this book Source: Adapted from International Monetary Fund, Direction of Trade Statistics Yearbook, 2006 (Washington, DC: IMF, 2006), pp. 25

The worlds regional automotive industry

There are 30 automotive firms in the worlds largest 500 firms.
None of these are global firms!

23 of the 30 firms are home-region based, with an average of 60 % of their sales as intra-regional. There are 2 host-region oriented and 5 bi-regional automotive firms on the list.

The regional nature of the motor vehicles and parts industries, 2005

*Weighted intra-regional sales average is weighted according to revenues Note: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies, but their regional sales data are not either available or enough to determine their regional characteristics Source: Authors calculations and the individual annual reports of each company

The regional nature of the motor vehicles and parts industries, 2005

*Weighted intra-regional sales average is weighted according to revenues Note: Data are for 2005; Goodyear Tire & Rubber, Lear, China FAW Group and Shanghai Automotive are included in the largest 500 companies, but their regional sales data are not either available or enough to determine their regional characteristics Source: Authors calculations and the individual annual reports of each company

The Triad Economies Decades of dominance of Economies of S, EU and Japan Emergence of new and bigger economies

Key reasons for the automotive industrys regional operations

The auto industry operates in clusters of localized activity within each major triad region. Auto firms are strongly embedded in downstream activities and after-sales markets. Cultural barriers across regions. Fuel. Different environmental regulations. Tariffs.

Local competitors are more adept at meeting the demands of their regional markets.

Reasons for Changes in IB Environment

An overall slowdown of triad economies; Increased trade liberalization through trade agreements and trading blocs; Improvements in technology; The emergence of SMEs.

Trading Blocs
NAFTA (North American Free Trade Agreement)
US, Canada, Mexico

LAFTA (Latin American Free Trade Area)

Argentina, Brazil, Chile, Columbia, Equador, Mexico, Paraguay, Peru

ASEAN (Association of South East Asian Countries)

Bangkok, Indonesia, Malaysia, Phippines, Singapore Thailand

ECOWAS (Economic Community of West African Countries) Ghana, Nigeria, Togo, Benin, B. Faso, etc. SAARC (South Asian Association for Regional Corporation)
India, Pakistan, Sri Lanka, Nepal, Bangladesh, Maldives

Europe
European Union (15 members to start with) Euro Common currency of the EU launched by 11 members on 1 January 1999
Britain, Denmark Greece and Sweden did not join Greece joined 2 years later

EU Additions
With effect from 1 May 2004 membership of EU was 25 Membership increased to 27 with Bulgaria and Romania joining in 2007

The Effects of Globalization and Technology on Business

Jobs Incomes Economies of Scale Sweatshops Brain Drain

Seminar Questions
What is a Global Company? Case: With a company of your choice identify the factors/activities of the firm that classifies it as a Global company rather than an international business.

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